internal_revenue_service number release date index number ------------------------------------- ---------------------------------------------------- --------------------------------------------- --------------------------- in re --------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- -- 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-139456-14 date date legend decedent spouse daughter son grandson granddaughter granddaughter trust state state statute trustee foundation court order plr date date date date date dear --------------- ---------------------------- -------------------------- --------------------------------------------------------------- ---------------------------- -------------------------- ------------------------------------- --------------------------- ------------------------------------------------------------------------------ ----------------------------- ------------ ------------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------- ------------------------------ ----------------------------------------------------------------------- --------------------------------------------- ------------------------ ------------------ ------------------ -------------------- --------------------- this letter responds to your letter dated date submitted by your authorized representative requesting income gift and generation-skipping_transfer plr-139456-14 gst tax rulings with respect to the proposed modification to the calculation of the total return share for trust pursuant to state statute decedent died on date a date prior to date survived by spouse daughter son grandson granddaughter and granddaughter decedent’s will established trusts for the benefit of daughter and son and their issue paragraph d of item vii of the will provides that decedent devises the balance of the residue of his estate to trustee to be held in trust until twenty-one years after the death of the last survivor among his children and grandchildren as may be in being at the time of his death and upon termination the principal of each trust shall be divided among its income beneficiaries per stirpes trustee shall divide said residue into two separate and equal trusts to be designated fund a and fund b paragraph d-1 of item vii provides that fund a shall be held by trustee for the benefit of daughter and her issue daughter shall receive two-thirds of the net_income so long as she may live in monthly or quarterly installments as she may direct the issue of daughter per stirpes shall receive one-third of the net_income so long as daughter shall live in monthly or quarterly installments as she may direct if all of the issue of daughter shall predecease her daughter shall thereafter receive the entire net_income so long as she shall live upon the death of daughter or upon decedent’s death if she should predecease decedent fund a shall be held for the benefit of the surviving issue of daughter per stirpes and her issue shall receive the entire net_income until the termination of this trust as set out in paragraph d of this item vii if any issue of daughter should die during the life of the trust the share of income of the deceased issue shall be paid to the then living issue of daughter per stirpes upon the death of daughter without issue surviving or upon the death of her last surviving issue prior to termination the entire assets of fund a in the custody of trustee shall be added to fund b to be held as hereinafter provided paragraph d-2 of item vii provides that fund b shall be held by trustee for the benefit of son and his issue son shall receive the entire net_income until he shall have issue in being thereafter he shall receive two-thirds of the net_income so long as he may live in monthly or quarterly installments as he may direct the issue of son per stirpes shall receive one-third of the net_income so long as son shall live in monthly or quarterly installments as he may direct upon the death of son or upon decedent’s death if he should predecease decedent fund b shall be held for the benefit of the surviving issue of son per stirpes and his issue shall receive the entire net_income until the termination of this trust as set out in paragraph d of this item vii if any issue of son should die during the life of the trust the share of income of the deceased issue shall be paid to the then living issue of son per stirpes upon the death of son without issue surviving or upon the death of his last surviving issue prior to termination the entire assets of fund b in the custody of trustee shall be added to fund a to be held as hereinabove provided plr-139456-14 item viii provides that if at any time before the termination of either trust as fixed by item vii d there shall be no living children of decedent or their issue to receive the income from fund a or fund b then upon the death of the last to die among said issue the trusts designated fund a and fund b shall terminate and the entire assets then in the custody of trustee shall pass in fee to spouse if living and if not then in fee to foundation son died a few months after decedent on date a date prior to date leaving no issue pursuant to paragraph d-2 of item vii of decedent’s will assets allocated to fund b were instead allocated to fund a hereinafter trust on date a date after date trust was converted to a unitrust pursuant to court order paragraph of court order provides that trust be converted to a total return share total return share whereby in each taxable_year of the total return share until daughter’s death trustee shall pay of the unitrust_amount as hereinafter defined to daughter and of the unitrust_amount per stirpes to daughter’s issue with the total unitrust_amount unitrust_amount being equal to five percent of the net fair_market_value of the total return share assets as hereinafter defined valued as of the last business_day of the prior taxable_year the total return share shall include all of trust’s assets and shall include all subsequent acquisitions and reinvestments thereof total return share assets after daughter’s death such unitrust_amount shall be paid to daughter’s surviving issue per stirpes the unitrust_amount for each taxable_year shall be paid to the income beneficiaries in monthly or quarterly installments as daughter may direct from time to time during her lifetime or after her death as a majority in beneficial_interest of daughter’s then living issue shall from time to time direct paragraph of court order provides that upon the death of the last surviving income_beneficiary trustee shall distribute all of the total return share assets other than any amount then due to the last surviving income_beneficiary or his or her personal representative in accordance with the ultimate disposition of trust as set forth under the terms of decedent’s will on date a date after date the internal_revenue_service issued plr which provided that the conversion of trust to a unitrust pursuant to court order did not affect the gst tax exempt status of trust under sec_26_2601-1 is not considered a sale exchange or other_disposition of property and did not cause trust or any of the beneficiaries to realize a gain_or_loss for purposes of sec_1001 and did not cause a transfer direct or indirect of property that will be subject_to the gift_tax imposed by sec_2501 on date a date after date daughter died survived by her son and two daughters grandson granddaughter and granddaughter trustee plr-139456-14 represents that there have been no additions actual or constructive to trust after date state statue provides after a_trust is converted to a unitrust all of the following provisions shall apply the fiduciary shall follow an investment policy seeking a total return for the investments held by the trust whether the return is to be derived a from appreciation of principal b from earnings and distributions from principal or c from both the fiduciary shall make regular distributions in accordance with the terms of the trust or the terms of the will as the case may be construed in accordance with the provisions of this section and unless expressly prohibited by the terms of the trust the term income in the terms of a_trust or will means an annual distribution the unitrust distribution equal to the percentage the payout percentage that is no less than three percent and no more than five percent and that the fiduciary may determine in the fiduciary's discretion from time to time or if the fiduciary makes no determination that shall be four percent of the net fair_market_value of the trust's assets whether such assets would be considered income or principal under other provisions of this chapter averaged over the lesser_of a the three preceding years or b the period which the trust has been in existence trustee and the beneficiaries of trust pursuant to state statute propose to modify trust to provide that the calculation of the total return share be based on the average of the net fair_market_value of the total return share assets valued as of the last business_day of each of the immediately preceding three taxable years rather than on the last business_day of the prior taxable_year trustee has requested the following rulings plr-139456-14 the proposed modification to the calculation of the total return share for trust will not violate the transition_rules under b a of the tax_reform_act_of_1986 and thus trust and the total return share will continue to be exempt from the gst tax the proposed modification to the calculation of the total return share for trust will not cause trust the total return share or any of the beneficiaries to be subject_to gift_tax with respect thereto the proposed modification to the calculation of the total return share for trust will not be considered a sale exchange or other_disposition of property and will not cause trust the total return share or any of the beneficiaries to realize a gain_or_loss for purposes of sec_1001 law and analysis - ruling sec_1 and sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by an individual sec_2511 provides that the tax imposed by sec_2501 will apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2601 imposes a tax on every gst sec_2611 defines a gst as a taxable_distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax provisions do not apply to any gst under a_trust that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relate to property includible in a grantor's gross_estate under sec_2038 and sec_2042 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 under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in sec_26_2601-1 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 plr-139456-14 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 gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter 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 sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a 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 modification 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 to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee's duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial_interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 of the income_tax regulations sec_26_2601-1 example considers a situation where in grantor a resident of state x established an irrevocable_trust for the benefit of grantor's child a and a's issue the trust provides that trust income is payable to a for life and upon a's death the remainder is to pass to a's issue per stirpes in state x amends its income and principal statute to define income as a unitrust_amount of percent of the fair_market_value of the trust assets valued annually for a_trust established prior to the statute provides that the new definition of income will plr-139456-14 apply only if all the beneficiaries who have an interest in the trust consent to the change within two years after the effective date of the statute the statute provides specific procedures to establish the consent of the beneficiaries a and a's issue consent to the change in the definition of income within the time period and in accordance with the procedures prescribed by the state statute the administration of the trust in accordance with the state statute defining income to be a percent unitrust_amount will not be considered to shift any beneficial_interest in the trust therefore the trust will not be subject_to the provisions of chapter of the internal_revenue_code further under these facts no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes similarly the conclusions in this example would be the same if the beneficiaries' consent was not required or if the change in administration of the trust occurred because the situs of the trust was changed to state x from a state whose statute does not define income as a unitrust_amount or if the situs was changed to such a state from state x trustee represents that trust was irrevocable on date and that there have been no additions constructive or otherwise to trust after date consequently trust is currently exempt from gst tax the facts in this case are similar to those set forth in example of sec_26 b i e which concludes that the conversion of an income_interest to a unitrust_interest pursuant to state statute will not be considered to shift a beneficial_interest in a_trust for gst tax purposes trust already converted to a unitrust on date the proposed modification to a total return share is permitted by state statute state statute allows the annual unitrust payment to be determined as a percentage of the net fair_market_value of trust assets determined as a rolling average of the trust’s three preceding_taxable_years in addition example concludes that no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes as a result of such a conversion accordingly based upon the facts submitted and the representations made and provided the proposed modification meets the requirements of state statute and other applicable state statutes we conclude that the proposed modification to the calculation of the total return share for trust will not violate the transition_rules under b a of the tax_reform_act_of_1986 and thus trust and the total return share will continue to be exempt from the gst tax we further conclude based upon the facts submitted and the representations made and provided the proposed modification meets the requirements of state statute and other applicable state statutes that the proposed modification to the calculation of the total return share for trust will not cause trust the total return share or any of the beneficiaries to be subject_to gift_tax with respect thereto ruling plr-139456-14 sec_61 provides that except as provided in subtitle a gross_income means all income from whatever source derived including income from dealings in property sec_61 provides that gross_income includes income from an interest in a_trust sec_1_61-1 provides that gross_income means all income from whatever source derived unless excluded by law gross_income includes realized in any form whether in money property or services sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received in determining the amount realized-- there shall not be taken into account any amount received as reimbursement for real_property_taxes which are treated under sec_164 as imposed on the purchaser and there shall be taken into account amounts representing real_property_taxes which are treated under sec_164 as imposed on the taxpayer if such taxes are to be paid_by the purchaser sec_1_1001-1 provides that except as otherwise provided in subtitle a the gain_or_loss realized from the conversion of property into cash or from the exchange of property differing materially in_kind or in extent is treated as income or as loss sustained the amount_realized from a sale_or_other_disposition of property is the sum of any money received plus the fair_market_value of any property other than money received an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 properties exchanged are materially different if the properties embody legal entitlements different in_kind or extent or if the properties confer different rights and powers id at in cottage savings the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id at in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id at plr-139456-14 sec_643 provides in relevant part that for purposes of this subpart and subparts b c and d the term income when not preceded by the words taxable distributable net undistributed net or gross means the amount of income of the estate_or_trust for the taxable_year determined under the terms of the governing instrument and applicable local law sec_1 b provides in relevant part that for purposes of subparts a through d part i subchapter_j chapter income when not preceded by the words taxable distributable net undistributed net or gross means the amount of income of the estate_or_trust for the taxable_year determined under the terms of the governing instrument and applicable local law trust provisions that depart fundamentally from traditional principles of income and principal will generally not be recognized for example if a_trust instrument directs that all trust income shall be paid to the income_beneficiary but defines ordinary dividends and interest as principal the trust will not be considered one that under its governing instrument is required to distribute all its income currently for purposes of sec_642 relating to the personal_exemption and sec_651 relating to simple trusts thus items such as dividends interest and rents are generally allocated to income and proceeds from the sale_or_exchange of trust assets are generally allocated to principal however an allocation of amounts between income and principal pursuant to applicable local law will be respected if local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust for the year including ordinary and tax-exempt_income capital_gains and appreciation for example a state statute providing that income is a unitrust_amount of no less than percent and no more than percent of the fair_market_value of the trust assets whether determined annually or averaged on a multiple year basis is a reasonable apportionment of the total return of the trust sec_1 b further provides in relevant part that allocations pursuant to methods prescribed by such state statutes for apportioning the total return of a_trust between income and principal will be respected regardless of whether the trust provides that the income must be distributed to one or more beneficiaries or may be accumulated in whole or in part and regardless of which alternate permitted method is actually used provided the trust complies with all requirements of the state statute for switching methods a switch between methods of determining trust income authorized by state statute will not constitute a recognition event for purposes of sec_1001 and will not result in a taxable gift from the trust’s grantor or any of the trust’s beneficiaries trustee proposes to exercise the authority granted to trustee under state statute to modify the computation of the fair_market_value of the assets in trust thus the modification of the rights of beneficiaries to the income and principal of trust as a result of the modification is a result of the exercise by trustee of authority granted to trustee under the terms of trust and state statute not as a result of the exchange of their interests in trust the proposed modification of the total return share for trust plr-139456-14 by mere exercise of trustee’s authority under a state statute is not a sale_or_exchange of a materially different interest by any beneficiary accordingly based on the facts submitted and representations made and provided the proposed modification meets the requirements of state statute and other applicable state statutes we conclude that the proposed modification to the calculation of the total return share for trust will not be considered a sale exchange or other_disposition of property and will not cause trust the total return share or any of the beneficiaries to realize a gain_or_loss for purposes of sec_1001 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer s and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes


significant index number department of the treasury internal_revenue_service washington 0g government enties jan ep ra az set re ‘taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 b and b of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 ‘erisa’ this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases established as of date which result iri a net unfunded_liability of dollar_figure the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 d of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 b the plan has submitted the required information to meet the criteria in sec_431 d b including a certification from the plan's actuary that as of that date i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ji the plan_sponsor has adopted a plan to improve the plan's funding status ii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided to the we have sent a copy of this letter to the and to your authorized representative pursuant to a power of attomey on file in this office this ruling is directed only to the taxpayer that requested it section k of the intemal revenue code provides that it may not be used or cited by others as precedent 4f you require further assistance in this matter please contact sincerely yours sla a david m ziegler manager ep actuarial group


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 7-plr-118759-99 date date legend taxpayer x y z we received your letter requesting permission for taxpayer to revoke its election under sec_41 this is in response to that request for the tax_year ending on x taxpayer elected to determine its credit_for_increasing_research_activities under the alternate incremental_research_credit rules of sec_41 on y taxpayer submitted a request to revoke its election to determine its credit_for_increasing_research_activities under the alternate incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred on or after the tax_year ending on z for tax years beginning after date taxpayers may elect to determine their research_credit under the alternate incremental_research_credit rules of sec_41 for tax years beginning after date and before date the alternate incremental credit is equal to the sum of the following amounts a dollar_figure percent of so much of the qualified_research_expenses for the taxable_year as exceed sec_1 percent of the average annual gross_receipts for the preceding tax years but does not exceed percent of such average b percent of so much the qualified_research_expenses for the taxable_year as exceed sec_1 percent of the average annual gross_receipts for the preceding tax years but does not exceed percent of such average c dollar_figure percent of so much of the qualified_research_expenses for the taxable_year as exceed sec_2 percent of the average annual gross_receipts for the preceding tax years sec_41 provides that any election under sec_41 shall apply for plr-118759-99 the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary based solely on the facts submitted and representations made we grant permission for taxpayer to revoke its election to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred during the tax_year that ended on z taxpayer should compute its credit for increasing research expenses for the tax_year ended z and all succeeding taxable years using the general_rule of sec_41 provided that taxpayer does not make a new election to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 taxpayer should attach a copy of this letter to its tax_return for the tax_year that ended on z with the applicable service_center within days after issuance of this letter 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 while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2000_1 2000_1_irb_4 however when the criteria in section dollar_figure of revproc_2000_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant enclosures sincerely christine e ellison chief branch assistant chief_counsel passthroughs and 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 b06 plr-120326-14 date date legend ------------------------- parent ------------------------------------------------- ---------------------------------------------------------- ------------------------------------- purchaser ------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------- target ------------------------------------------------- --------------------------------------------------------- -------------------------------------------- seller ------------------------------------------------- ---------------------------------------------------------- date a date b ----------------- ------------------ company officials ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------------------------------------------------------------------- tax professional ----------------------------------------------------------------------------------------- --------- plr-120326-14 dear ------------ this letter responds to a letter dated date submitted on behalf of parent as common parent of the consolidated_group of which purchaser is a member 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 to file a sec_338 election under sec_338 with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group of which purchaser is a member target is a foreign_corporation and was a controlled_foreign_corporation during the portion of its taxable_year that ends on the acquisition_date on date a purchaser acquired all of the stock of target from seller in exchange for cash it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 parent intended to file the election the election was due on date b 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 the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed 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 and for which the new return position requires or permits a regulatory election for which relief is requested sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase 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 sec_301_9100-2 provides automatic extensions of time for plr-120326-14 making certain elections 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 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2 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 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 officials 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 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 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 representations made we conclude that parent has shown 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 accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 in accordance with sec_1_338-2 and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8883 must be attached to any_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy the requirement of attaching a copy of this letter by attaching a statement to their return that provides the date and control number of the letter_ruling parent must also deliver written notice of the election and a copy of form sec_8023 and their attachments and instructions to u s persons selling or holding stock in target see sec_1_338-2 the above extension of time is conditioned on the taxpayers' parent’s consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years plr-120326-14 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 no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved 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 in particular we express no opinion as to whether the acquisition of the target stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and 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 the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _ken cohen_______________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service 4920dal eo mandatory review commerce street dallas tx release number release date date date legend org organization name address address xx date org address certified mail dear department of the treasury employer identification no person to contact employee id number tel fax form required to be filed tax years december 20xx this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code irc it is determined that you are no longer recognized as exempt from federal_income_tax under sec_501 effective january 20xx for the following reason s on numerous occasions we requested information regarding and substantiation of your form_990 for the year ended december 20xx we have not received the requested information you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 organizations described in sec_501 and exempt under sec_501 must be organized and operated exclusively for exempt purposes you have provided no information regarding your receipts expenditures or activities as required by sec_1_6033-2 you have not established that you have operated exclusively for an exempt_purpose contributions to your organization are not deductible under sec_170 you are required to file federal_income_tax returns on the form indicated above you should file these returns within days from the date of this letter unless a request for an extension of time is granted file the returns in accordance with their instructions and do not send them to this office processing of income_tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory_judgment under sec_7428 if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed within days from the date this determination_letter was mailed to you contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c ee you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate asvistance or you can contact your nearest advocate’s office in this case by calling or writing to taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely douglas h shulman commissioner by nanette m downing director eo examinations attachments publication o h tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service commerce street mail code se t eo ma dallas tx date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely sunita lough director eo examinations letter catalog number 34809f schedule number or exhibit form 886-a cata explanations of items org name of taxpayer tax identification_number year period ended december 20xx legend org organization name xx date issue whether org qualifies for exemption under sec_501 of the internal_revenue_code facts exhibit a provides copies of the internal_revenue_service correspondence requesting that org hereinafter referred to as org provide information and or documents to show it continues to qualify for exemption under sec_501 of the internal_revenue_code for the tax period ending december 20xx org failed to respond to the internal_revenue_service correspondence law sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a nae i - schedule number or exhibit explanations of items name of taxpayer org tax identification_number year period ended december 20xx sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax conclusion it is the internal revenue service's position that org failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 accordingly the organization's exempt status is revoked effective january 20xx form_1120 returns should be filed for the tax periods ending on or after december 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


internal_revenue_service number release date index number --------------------------------------- ---------------------------------------------------------- ------------------------ ----------------------------------- in re ------------------------------------ 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 b09 plr-158582-06 date date -------------------------- -------------------------- --------------------------------- --------------------- -------------- decedent spouse state statute date a dear --------------------- this is in response to your letter dated date submitted by your authorized representative and subsequent correspondence requesting rulings under sec_61 sec_1001 and sec_2652 of the internal_revenue_code sec_26 b of the generation-skipping_transfer_tax regulations and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations the facts submitted and the representations made are summarized as follows decedent died on date survived by his spouse spouse and issue article third section b of decedent’s will provides that an amount equal in value to the largest amount that can pass free of federal estate_tax by reason of the unified_credit and the state_death_tax_credit together with any credit available for gift_taxes payable with respect to gifts made by the decedent after date is to be held in trust article third section c provides that the remainder of decedent’s gross_estate is to be held in trust marital trust marital trust has gst potential spouse as the executrix of decedent’s estate retained a qualified_tax professional to prepare the form_706 united_states estate and generation-skipping_transfer_tax return for decedent’s estate the form_706 was timely filed and on the schedule m the estate made the election under sec_2056 the qualified_terminable_interest_property qtip_election for the marital trust on part of the form the estate indicated that the marital trust was to be divided into a gst exempt and a gst nonexempt trust on schedule r of the form the estate signified that decedent’s remaining gst_exemption of dollar_figurea was to be allocated to the gst exempt trust the estate however failed to divide the marital trust into a gst exempt and a gst nonexempt trust in addition the tax professional who prepared the form_706 failed to make or advise spouse to make the election under sec_2652 the reverse_qtip_election for the gst exempt trust sometime later spouse retained a law firm to provide personal estate_tax planning the law firm discovered that the marital trust had not been divided into a gst exempt and nonexempt trust and that the reverse_qtip_election had not been made for the gst exempt trust spouse as trustee of the marital trust and executrix of decedent’s will intends to divide the marital trust into a gst exempt trust and a gst nonexempt trust state statute in effect on date provides that a trustee may unless expressly prohibited by the terms of the instrument establishing the trust divide a_trust into two or more separate trusts without a judicial proceeding if the trustee reasonably determines that the division of the trust could result in a significant decrease in current or future federal income gift estate gst taxes or any other tax imposed on trust property if the trustee divides the trust the terms of the separate trusts must be identical to the terms of the original trust but differing tax elections may be made for the separate trusts the marital trust’s assets will be divided between the gst exempt trust and the gst nonexempt trust on a pro-rata basis the provisions of the gst exempt trust and the gst nonexempt trust will be the same as the provisions of the marital trust it has been represented that dollar_figurea of decedent’s gst_exemption is available to allocate to the gst exempt trust spouse as trustee of the marital trust and executrix of decedent’s estate has requested the following rulings an extension of time under sec_301_9100-1 and sec_301_9100-3 to sever the marital trust into a gst exempt trust and a gst nonexempt trust under sec_26_2654-1 and to make a reverse_qtip_election under sec_2652 for the gst exempt trust a ruling that the proposed division of the marital trust into the gst exempt trust and the gst nonexempt trust is a partition that does not result in recognition of gain_or_loss by the marital trust or any resulting trust under sec_61 and sec_1001 law and analysis - ruling sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_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 the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if 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 will terminate or fail and a an interest in such property passes or has passed for less than an 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 such person or his heirs or assigns may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving_spouse sec_2056 provides that in the case of qtip the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines qualified_terminable_interest_property qtip 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 an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable under sec_2044 any property in which the decedent possessed a qualifying_income_interest_for_life and for which a deduction was allowed under sec_2056 is includable in the decedent’s gross_estate sec_2601 imposes a tax on every generation-skipping_transfer sec_2602 provides that the amount of tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or by his or her executor to any property with respect to which such individual is the transferor sec_2631 provides that once an allocation of gst_exemption is made it is irrevocable under sec_2632 the allocation of the gst_exemption may be made at any time on or before the date prescribed for filing the individual’s estate_tax_return including extensions sec_2632 formerly sec_2632 - see p l provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at the individual’s death and b second to trusts with respect to which the individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after the individual’s death sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent’s estate under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of the gst tax as if the qtip_election had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent’s gst_exemption may be allocated to the qtip_trust sec_26_2652-2 provides that the reverse_qtip_election is to be made on the return on which the qtip_election is made sec_26_2654-1 provides that the severance of a_trust that is included in the transferor's gross_estate or created under the transferor's will into two or more trusts is recognized for purposes of chapter if the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust b the severance occurs or a reformation proceeding if required is commenced prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c either the new trusts are severed on a fractional basis if severed on a fractional basis the separate trusts need not be funded with a pro_rata portion of each plr-158582-06 asset held by the undivided trust the trusts may be funded on a non pro_rata basis provided funding is based on either the fair_market_value of the assets on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding or if the severance is required by the terms of the governing instrument to be made on the basis of a pecuniary amount the pecuniary payment is satisfied in a manner that would meet the requirements of sec_26_2654-1 if it were paid to an individual under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides for automatic extensions of time for making certain elections sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election in this case as a result of the qtip_election made on the form_706 the marital trust’s assets are includible in spouse's gross_estate pursuant to sec_2044 spouse accordingly is the transferor of the marital trust’s assets for gst tax purposes therefore decedent’s gst_exemption cannot be allocated to the marital trust’s assets however if the marital trust is severed into two trusts a gst exempt trust and a gst nonexempt trust and a reverse_qtip_election under sec_2652 is made with respect to the gst exempt trust decedent will be treated as the transferor of the gst exempt trust’s assets and decedent’s gst_exemption may be allocated to the gst exempt trust it has been represented that dollar_figurea of decedent’s gst_exemption is available to allocate to the gst exempt trust plr-158582-06 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly the estate is granted sixty days from the date of this letter to sever the marital trust into a gst exempt trust and a gst nonexempt trust as described herein and to file a supplemental form_706 on which the reverse_qtip_election is to be made for the gst exempt trust and decedent’s gst_exemption of dollar_figurea is to be allocated to the gst exempt trust the supplemental form_706 should be filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the return ruling sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 499_us_554 concerns the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court of the united_states in cottage savings concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a plr-158582-06 realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the internal_revenue_code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case the marital trust was divided on a pro-rata basis except for the division and a few minor administrative changes the operating provisions of the marital trust remained unchanged accordingly the marital trust was divided but the beneficiaries’ interests in the property did not change in_kind or extent and no new interests were created it is consistent with the supreme court's opinion in cottage savings to find that the interests of the beneficiaries of the gst exempt trust and the gst nonexempt trust will not differ materially from their interests in the marital trust therefore based upon the facts submitted and the representations made we conclude that the division of the marital trust into the gst exempt trust and the gst nonexempt trust does not result in recognition of gain_or_loss for federal_income_tax purposes to the marital trust or the resulting trusts under sec_61 and sec_1001 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 specifically no opinion is expressed or implied as to the value of the assets included in the gross estates of decedent or spouse for federal transfer_tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-158582-06 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely william p o’shea william p o'shea associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes copy of the letter


t c summary opinion united_states tax_court hugh powell arvin petitioner v commissioner of internal revenue respondent docket no 6892-03s filed date hugh powell arvin pro_se d sean mcmahon for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority in four separate notices of deficiency respondent determined deficiencies in petitioner's federal income taxes and additions to tax as follows year deficiency dollar_figure big_number big_number big_number additions to tax sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure dollar_figure -- -- dollar_figure dollar_figure the issues for decision are whether petitioner had unreported income in the amounts respondent determined whether petitioner is liable for additions to tax under sec_6651 for failure_to_file timely federal_income_tax returns for taxable years through and whether petitioner is liable for additions to tax under sec_6654 for failure to pay estimated income taxes background the stipulation of facts and the exhibits received into evidence are incorporated herein by reference petitioner resided in hopkinton massachusetts at the time the petition was filed respondent obtained copies of forms w-2 wage and tax statement issued by non stop sales service inc which show that petitioner was paid dollar_figure dollar_figure dollar_figure and dollar_figure for tax years and respectively petitioner stipulated that he received dollar_figure and dollar_figure from electronic designs inc during tax years and additionally respondent obtained copies of forms w-2 issued by the international inc which show that petitioner was paid dollar_figure dollar_figure and dollar_figure for tax years and respectively according to forms 1099-g statement for recipients of certain government payments petitioner also received unemployment_compensation from the commonwealth of massachusetts during the and tax years of dollar_figure dollar_figure and dollar_figure respectively on or about date petitioner submitted to respondent a form_1040 u s individual_income_tax_return for petitioner did not attach any forms w-2 to the form_1040 petitioner entered zeros on all lines of the income portion of his form_1040 specifically including those lines that report wages dividends total income and adjusted_gross_income he also indicated that his taxable_income and tax were zero petitioner claimed a refund of dollar_figure the full amount of federal_income_tax that had been withheld from his wages by his employers petitioner submitted to respondent a form_1040 for petitioner did not attach to the return forms w-2 or 1099-g petitioner entered zeros on all lines of the income portion of 1the actual amount withheld by petitioner's employers was dollar_figure the form_1040 including those lines that report wages dividends total income and adjusted_gross_income he also indicated his taxable_income and tax to be zero petitioner claimed a refund of dollar_figure which was the amount of federal_income_tax that had been withheld from his wages by his employers petitioner attached to his form_1040 for each of the and years a two-page typewritten statement that lists numerous reasons why he believes that he is not required to pay income_tax petitioner submitted to respondent a five-page typewritten document which purports to be a legal notice that he is a nontaxpayer legal notice for and the legal notice contained numerous statements that show petitioner's continuing belief that he is not required to file a return or pay income_tax petitioner does not dispute receiving the amounts of income respondent determined in the notices of deficiency petitioner filed a petition with this court alleging that respondent erred in determining his deficiencies and his taxable_income and demanding the case be transferred to respondent's appeals_office respondent sent a letter to petitioner scheduling an appeals_office conference petitioner did not appear at the conference and failed to contact the officer before the date of the conference discussion sec_7491 provides that the burden_of_proof may under certain conditions shift to the commissioner because petitioner failed to meet the requirements of sec_7491 the burden_of_proof does not shift to respondent petitioner's objections to respondent's adjustments are those typical of so-called tax protesters in his trial memorandum petitioner relies on 240_us_1 to support his propositions that the sixteenth_amendment did not give the federal government any new taxing powers and that income_tax is actually an excise_tax which can only be assessed against those who are licensed or incorporated however petitioner's argument is baseless in brushaber the court found the income_tax law to be constitutional the court also noted that in 158_us_601 it had previously found the taxing of income from professions trades employments or vocations to be constitutional in the form of an excise_tax in light of the s ixteenth a mendment however all sec_7491 is effective with respect to court proceedings arising in connection with examinations by the commissioner commencing after date the date of its enactment by sec a of the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_726 taxation of income from whatever source derived was found to be constitutional in brushaber 756_f2d_38 6th cir affg tcmemo_1983_473 on the basis of well-established law the court finds that petitioner's position is frivolous and groundless the court sees no need to further address petitioner's arguments see 737_f2d_1417 5th cir additions to tax under sec_6651 and sec_6654 respondent determined additions to tax under sec_6651 for petitioner's failure to timely file federal_income_tax returns for and the addition_to_tax for failure_to_file a return timely will be imposed if a return is not timely filed unless the taxpayer shows that the delay was due to reasonable_cause and not willful neglect sec_6651 although petitioner submitted form sec_1040 for tax years and respondent does not recognize them as returns because petitioner stated that he had zero gross_income owed zero tax and requested refunds of the amounts withheld this court has previously held that zero returns are not recognized as returns that fulfill a taxpayer's obligation to file hill v commissioner tcmemo_2003_144 rayner v commissioner tcmemo_2002_30 affd 70_fedappx_739 5th cir see also revrul_2004_34 2004_12_irb_619 the documents petitioner submitted for tax years and are not recognized by respondent as returns because they do not constitute form sec_1040 and they fail to provide any information required by form_1040 specifically the amount of petitioner's income for each year none of the documents submitted by petitioner constitute returns therefore petitioner has yet to file any returns petitioner has not offered any evidence that his failure_to_file is due to reasonable_cause and not to willful neglect respondent's determinations that petitioner is liable for the additions to tax under sec_6651 are sustained respondent also determined an addition_to_tax under sec_6654 for petitioner's underpayment of estimated_tax for and this addition_to_tax is mandatory and automatic subject_to certain exceptions provided by sec_6654 75_tc_1 petitioner failed to offer any evidence that he fits within any of the listed exceptions respondent's determinations that petitioner is liable for sec_6654 additions to tax are sustained petitioner did not introduce any evidence to show that he is not liable for the income_tax deficiencies and additions to tax under sec_6651 and sec_6654 accordingly respondent's determinations for all years are sustained we note that sec_6673 authorizes the court to require a taxpayer to pay to the united_states a penalty of up to dollar_figure whenever it appears that the proceeding has been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceedings is frivolous or groundless in this case we conclude that the position advanced by petitioner is frivolous and groundless nevertheless respondent has not asked for penalties under sec_6673 to be imposed and we choose not to do so at this time we caution petitioner that such penalties under sec_6673 may be imposed if he continues to advance the same frivolous and groundless arguments in the future reviewed and adopted as the report of the small_tax_case division to reflect the forgoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code contact person oo identification_number telephone number employer_identification_number we have considered your request dated date for a ruling that your grant to n an organization exempt under sec_501 of the internal_revenue_code code is for charitable purposes and is not a taxable_expenditure under sec_4945 facts you are a private_foundation organized as a_trust under state law and exempt from federal_income_tax as an organization described in sec_501 of the code your trust agreement requires you to make payments or distributions for charitable scientific or educational_purposes as defined by sec_501 giving first consideration to grants for research treatment prevention elimination or meeting the challenges of diabetes or hearing impairment with special preference to specific projects you have represented that a substantial part of your mission is to promote the availability of spoken language communication options for deaf children toward that purpose you make grants to raise public awareness to promote support and increase the availability of quality spoken language educational programs and qualified professionals the information submitted with your request shows that you have conducted pre-grant inquiries and obtained information about o an organization exempt under sec_501 of the code that created n an organization exempt under sec_501 to advance spoken language communication options for individuals who are deaf or hard of hearing by developing and managing educational standards for professionals recently n developed an international program that offers two separate certifications one for therapists and one for educators in addition n plans to develop a program for groups of professionals that work in public and in the future n may also develop a private educational clinical and early intervention settings certification that would be available to programs offered by both public and private institutions n also plans to collaborate with other organizations to expand the availability of professional training opportunities in this field the information you submitted with your request shows that you awarded a one-year general support grant to n on date for these purposes to define the essential knowledge skills and core competencies that professionals must have to work with children who are deaf or hard of hearing to teach them to use spoken language to communicate and to develop and administer educational opportunities for professionals in the field of spoken language deaf education such as workshops seminars continuing education courses practicum and mentorship placements and other training programs in order to enhance their knowledge skills and core competencies you provided a signed and executed copy of the terms and conditions agreement associated with your grant to n the agreement requires n to use all grant funds solely for charitable literary scientific or educational_purposes within the meaning of sec_170 of the code also the agreement requires n to immediately return any grant funds not expended for the purpose of the grant during the grant term and to provide annual reports on the use of the grant funds with a narrative of the accomplishments attested to by the responsible financial officer or a certified_public_accountant last the agreement restricts n from using the grant for the purposes described in sec_53_4945-5 through iv of the foundation and similar excise_tax regulations foundation regulations finally your request states that you will fulfill the reporting requirements contained in sec_53_4945-5 of the foundation regulations you requested the following ruling that the current grant is not a taxable_expenditure as defined by sec_4945 of the code where you are exercising expenditure_responsibility over the grant law sec_170 of the code states that the term charitable_contribution means a contribution or gift to or for_the_use_of a corporation trust community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes sec_4945 of the code imposes a tax on the taxable_expenditures of a private_foundation sec_4945 of the code states that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an organization unless the foundation exercises expenditure_responsibility over the grant in accordance with sec_4945 sec_4945 of the code defines the term expenditure_responsibility to mean that a private_foundation is responsible for exerting all reasonable efforts and for establishing procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary sec_6033 of the code generally requires that an organization exempt from federal_income_tax under sec_501 be required to file an annual return sec_1_501_c_3_-1 of the income_tax regulations regulations includes the advancement of education in the definition of the term charitable sec_1_501_c_3_-1 of the regulations defines the term educational as relating to instruction or training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community sec_53_4945-5 of the foundation regulations states that in general under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation as a grant to an organization other than an organization described in sec_509 or unless the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 sec_53_4945-5 of the foundation regulations states that generally a private_foundation will be considered to be exercising expenditure_responsibility under sec_4945 of the code as long as it exerts all reasonable efforts and establishes adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the commissioner sec_53_4945-5 of the foundation regulations requires a private_foundation to conduct a pregrant limited inquiry concerning the potential grantee such inquiry should be complete enough to give a reasonable person assurance that the grantee will use the grant for the proper purposes the inquiry should concern itself with matters such as a the identity prior history and experience if any of the grantee organization and its managers and b any knowledge which the private_foundation has based on prior experience or otherwise of or other information which is readily available concerning the management activities and practices of the grantee organization sec_53_4945-5 of the foundation regulations states that in order to meet the expenditure_responsibility requirements of sec_4945 of the code a private_foundation must require that each grant to an organization with respect to which expenditure_responsibility requirements must be exercised under this section be made subject_to a written commitment signed by an appropriate officer director or trustee of the grantee organization the commitment must include an agreement by the grantee i ii ii iv to repay any portion of the amount granted which is not used for the purposes of the grant to submit full and complete annual reports on the manner in which the funds are spent and the progress made in accomplishing the purposes of the grant except as provided in paragraph c of this section to maintain records of receipts and expenditures and to make its books_and_records available to the grantor at reasonable times and not to use any of the funds - a b c d to carry on propaganda or otherwise to attempt to influence legislation to influence the outcome of any specific public election or to carry on directly or indirectly any voter registration drive within the meaning of sec_4945 or to make any grant which does not comply with the requirements of sec_4945 or or to undertake any activity for any purpose other than one specified in sec_170 the agreement must also clearly specify the purposes of the grant sec_53_4945-5 of the foundation regulations provides generally that to satisfy the reporting requirements of sec_4945 of the code a granting foundation must provide certain information on its annual information_return required to be filed by sec_6033 for each taxable_year with respect to each grant made during the taxable_year or upon which any amount or report is outstanding at any time during the taxable_year which is subject_to the expenditure_responsibility requirements of sec_4945 these requirements may be satisfied by submission with the foundation’s information_return of a report received from the grantee if the information required by sec_53_4945-5 is contained in the report sec_53_4945-5 of the foundation regulations states that the report attached to the return must contain or be accompanied by the following information j ii iii iv v the name and address of the grantee the date and amount of the grant the purpose of the grant the amounts expended by the grantee based on the most recent report received from the grantee whether the grantee has diverted any portion of the funds or the income therefrom in the case of an endowment grant from the purpose of the grant to the knowledge of the grantor the dates of any reports received from the grantee and vi vii the date and results of any verification of the grantee’s reports undertaken pursuant to and to the extent required under sec_53_4945-5 by the grantor or by others at the direction of the grantor revrul_68_489 1968_2_cb_210 held that an organization will not jeopardize its exemption under sec_501 of the code even though it distributes funds to organizations that are not exempt under sec_501 provided it retains control and discretion over use of the funds for sec_501 purposes revrul_76_455 1976_2_cb_150 held that an organization formed to encourage and assist in establishment of nonprofit regional health data systems to conduct studies and propose improvements with regard to quality utilization and effectiveness of health care and health care agencies and to educate those involved in furnishing administering and financing health care was furthering a charitable purpose analysis an organization that is exempt under sec_501 of the code can make grants to organizations that are not within the scope of sec_501 so long as the distributions are made and used to further its own charitable purposes and it exercises expenditure_responsibility over the distributions revrul_68_489 supra you made a grant to n an organization that is not exempt under sec_501 to further an important part of your charitable purpose which is to promote the availability of spoken language communication options for deaf children your grant will not be considered a taxable_expenditure described in sec_4945 of the code as long as it is used to further a charitable purpose and both parties meet the expenditure_responsibility requirements of sec_4945 first n will define the qualifications this activity is consistent with the definition n plans to use your grant to conduct two primary activities that professionals need to educate deaf children which will advance education by providing standards for professional educational programs of educational under sec_1 c - d of the regulations which includes the instructing and training of individuals to improve or develop their capabilities second n will use part of the grant to make educational opportunities available to institutions programs and professionals this activity is similar to the ones performed by the organization described in revrul_76_455 supra that conducted studies and proposed improvements for health care programs and systems your grant to n will not be considered a taxable_expenditure under sec_4945 of the code because n will use it to further your purpose of advancing education which is a charitable purpose described in sec_501 by promoting the availability of spoken language communication options for deaf or hard of hearing individuals generally when a private_foundation makes a grant to an organization that is not described in sec_170 of the code the regulations require the exercise of expenditure_responsibility thus a grantor must retain control and discretion as to the use of the funds and maintain records establishing that the funds were used for sec_501 purposes the terms and conditions set forth in the agreement meet the requirements of sec_4945 and provide you with reasonable assurance that n will use the grant exclusively to further your charitable purposes in addition you have represented that you will meet the reporting requirements in sec_53_4945-5 of the foundation regulations accordingly your grant will not be considered a taxable_expenditure as long as you exercise expenditure_responsibility over the grant in accordance with sec_4945 and sec_53_4945-5 conclusion based on the foregoing we rule as follows that the grant described above is not a taxable_expenditure within the meaning of sec_4945 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make if you disagree with our proposed available for public inspection is attached to notice deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald j shoemaker manager exempt_organizations technical group enclosure notice