t c memo united_states tax_court capital video corporation petitioner v commissioner of internal revenue respondent kenneth guarino petitioner v commissioner of internal revenue respondent docket nos filed date james p redding and brian c newberry for petitioners michael p breton for respondent memorandum opinion swift judge these cases are consolidated for trial briefing and opinion respondent determined deficiencies in petitioners’ federal income taxes and accuracy-related_penalties as follows capital video corp taxable_year accuracy-related_penalty ending deficiency sec_6662 a date dollar_figure dollar_figure kenneth guarino accuracy-related_penalty year deficiency sec_6662 a dollar_figure dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the primary issue for decision involves whether petitioner capital video corp capital video may deduct as ordinary and necessary business_expenses dollar_figure in legal fees paid to defend its sole shareholder petitioner kenneth guarino guarino against various criminal indictments background the facts of these cases were submitted fully stipulated under rule and the stipulated facts are so found at the time the petitions were filed capital video’s principal_place_of_business and guarino’s primary residence were located in cranston rhode island on date capital video was incorporated and thereafter capital video was engaged in the sale of pornographic videotapes and related products out of its office in rhode island capital video’s taxable_year ended on the last day of february during the 1980s and early 1990s capital video and guarino made tribute payments to natale richichi richichi a capo in the gambino crime family in excess of dollar_figure in exchange for protection provided by the gambino crime family to capital video against extortion from other organized crime families also during these same years guarino conspired with richichi to obstruct the internal_revenue_service in the assessment and collection of richichi’s federal income taxes relating to the tribute payments richichi received from capital video and guarino guarino’s conspiracy and obstruction relating to the above tribute payments included manipulating the accounting_records of capital video skimming cash from peep show machines to provide cash for the payments made to richichi and filing false forms relating to the payments made to richichi during and guarino richichi and other individuals were indicted on various federal criminal charges relating to the above activities guarino was indicted in the u s district_court for the district of nevada and charged with conspiracy to impede impair and obstruct the lawful functions of the internal_revenue_service and to evade the federal income q4e- tax_liabilities of richichi under u s c sec_371 guarino was also charged with conspiracy to bribe a union official under u s c sec with interstate transportation of obscene material through use of a common carrier under u s c sec_1462 and with aiding_and_abetting an offense against the united_states under u s c sec_2 on date an election was made on behalf of capital video with the internal_revenue_service for capital video to be taxed pursuant to subchapter_s of the internal_revenue_code on date guarino pled guilty to one count of the above indictment against him relating to the conspiracy to obstruct the lawful functions of the internal_revenue_service and to evade richichi’s federal_income_tax liabilities on date pursuant to the plea agreement guarino was sentenced to months in prison and he was fined dollar_figure as part of guarino’s guilty plea guarino accepted the government’s allegation that he aided and abetted a fraud on the internal_revenue_service during calendar years and capital video paid legal fees in the amounts of dollar_figure and dollar_figure respectively to provide legal representation for guarino in connection with the above criminal charges of the above dollar_figure in legal fees - - paid_by capital video in dollar_figure was paid after date when capital video elected to be taxed as an s_corporation capital video was not named as a defendant in the above criminal case and capital video was not legally required to pay the legal fees of guarino for its taxable_year ending date capital video timely filed its federal_corporation income_tax return and capital video deducted thereon as ordinary and necessary business_expenses the dollar_figure it had paid during its taxable_year ending date as legal fees in connection with the above criminal charges against guarino for its short taxable_year march to date capital video timely filed its federal_income_tax return for an sdollar_figurecorporation and capital video deducted thereon as ordinary and necessary business_expenses the dollar_figure it had paid during its short taxable_year as legal fees in connection with the above criminal charges against guarino on his individual federal_income_tax return guarino did not include in his reported income any portion of the dollar_figure in legal fees paid_by capital video during its taxable_year also as a result of the dollar_figure in deductions claimed by capital video on its federal_income_tax return for an s_corporation guarino’s share of the ordinary_income of - - capital for cap video for the period march to date as reported on guarino’s individual federal_income_tax return was reduced by dollar_figure in respondent’s notice_of_deficiency mailed to capital video for capital video’s taxable_year ending date respondent disallowed the full dollar_figure claimed ordinary and necessary business deduction relating to guarino’s legal fees in respondent’s notice_of_deficiency mailed to guarino for respondent treated the full dollar_figure in legal fees of guarino that capital video paid during capital video’s taxable_year ending date as a constructive taxable dividend to guarino and increased by dollar_figure guarino’s share of capital video’s taxable ordinary_income for the period march to date both of respondent’s adjustments mentioned in this paragraph resulted in increases to guarino’s taxable_income for in the full amounts of those adjustments prior to trial respondent conceded that dollar_figure of the above legal fees relating to guarino that were deducted on capital video’s tax_return for its taxable_year ending date was paid_by capital video in and therefore that dollar_figure should not be charged to guarino as taxable dividend income for as a result of respondent’s concession of the dollar_figure in total claimed legal fees that respondent treated as a constructive_dividend taxable to guarino _- _- for only dollar_figure remains in issue as an adjustment to guarino’s income for the table below summarizes the adjustments respondent made that are still in dispute capital video guarino year ending calendar_year adjustment legal fees disallowed dollar_figure dollar_figure dividend income s big_number subchapter_s income big_number discussion capital video’s claimed deduction of guarino’s legal fees generally taxpayers may not deduct expenses of another person and may not deduct expenses that are personal in nature 308_us_488 72_tc_340 where expenses of another are paid in order to protect a taxpayer’s business the taxpayer in limited circumstances may be allowed to deduct the expenses 48_tc_679 also legal fees paid relating to criminal charges against a taxpayer may be deductible where the alleged criminal activity sufficiently relates to the taxpayer’s business 320_us_467 the origin of the criminal charges to which the legal fees --- - relate rather than the potential consequences of a conviction on the underlying charges generally will control whether the legal fees qualify as business_expenses 372_us_39 in lohrke v commissioner supra we adopted a two-prong test for analyzing whether a taxpayer may deduct legal expenses of another first we analyzed whether the purpose or motive of the taxpayer in paying another person’s legal expenses was to protect or promote the taxpayer’s business and second we analyzed whether the expenses constituted ordinary and necessary business_expenses of the taxpayer’s business in their arguments herein petitioners argue that the motive or purpose of capital video in making the tribute payments to richichi was to protect and promote the business of capital video that guarino’s conspiracy to evade the income taxes of richichi the charge to which guarino pled guilty was directly related to the tribute payments and to the related protection from extortion that capital video received and therefore that guarino’s legal fees relating to the conspiracy charge should qualify as deductible business_expenses of capital video ’ respondent argues that petitioners have not established that guarino’s conspiracy to evade richichi’s income taxes was petitioners make no argument that the legal fees in dispute related to the various criminal charges against guarino that were dropped as part of the plea agreement --- - sufficiently related to the protection of capital video’s business respondent contends that therefore the legal fees paid_by capital video relating to the conspiracy do not gualify as business deductions of capital video we agree with respondent we emphasize that the legal fees in dispute were paid to cover the legal fees of guarino in connection with his criminal_conspiracy activities relating to richichi’s income_tax liabilities they were not paid as part of the tribute payments to obtain protection from richichi there is no evidence herein that indicates that richichi would not have provided the protection to capital video if guarino had not participated in the conspiracy relating to richichi’s taxes and if capital video had not paid guarino’s legal fees in fact the legal fees in dispute were paid_by capital video years after the protection was provided by richichi and years after the conspiracy between guarino and richichi occurred apart from whether the tribute payments made by capital video to richichi were made to protect the business of capital video petitioners have not established that guarino’s participation in the conspiracy to avoid richichi’s income taxes and capital video’s payment of the legal fees in dispute hada sufficient business relationship with the protection or promotion of capital video’s business - the legal fees paid_by capital video in its taxable_year ending date dollar_figure and in its short taxable_year ending date dollar_figure to defend guarino against the conspiracy charge are not deductible as business_expenses of capital video constructive_dividend to guarino a constructive_dividend to a shareholder of a corporation may occur where the corporation confers an economic benefit on x the shareholder without the expectation of repayment even though neither the corporation nor the shareholder intended a dividend 73_tc_980 not every payment by a corporation however which incidentally confers an economic benefit on a shareholder is treated as a constructive_dividend 115_tc_172 generally the test of whether a payment is to be treated as a constructive_dividend to a shareholder is whether the payment primarily benefited the shareholder and whether the payment was made for a valid business_purpose of the corporation 577_f2d_1206 5th cir as we have held petitioners have not established that capital video made the payments of guarino’s legal fees in connection with the business of capital video capital video had no obligation to make such payments the payment by capital video of guarino’s legal fees conferred a significant economic benefit upon guarino capital video’s sole shareholder without an expectation of repayment and was not necessary for the business of capital video ie the payment of the legal fees was not necessary for capital video to receive richichi’s protection from extortion we conclude that the payment by capital video of the dollar_figure in guarino’s legal fees should be treated as a constructive_dividend to guarino as to the dollar_figure in legal fees of capital video that are disallowed herein as deductible business_expenses of capital video for its short taxable_year ending date such adjustment mechanically results in additional income to guarino in that same amount as a result of the corresponding increase in guarino’s share of the income of capital video as an s_corporation if respondent’s income adjustments against guarino are sustained herein as we have done then guarino argues that for he should be entitled to additional miscellaneous itemized business_expense deductions subject_to the percentage limitations applicable thereto in the amount of the constructive_dividend and the additional income of capital video as an sdollar_figurecorporation that is to be charged to guarino the apparent basis for guarino’s argument is that if he is to be charged with a constructive_dividend and with additional income from capital video relating to the legal fees capital video paid he should be deemed to have incurred the legal fees and the legal fees should be treated as his miscellaneous business_expenses the analysis herein to the effect that the legal fees in dispute do not constitute ordinary and necessary business_expenses of capital video also applies to guarino’s argument that the legal fees should be deductible ordinary and necessary business_expenses to him guarino has not shown a sufficient business nexus to the legal fees for the fees to qualify as ordinary and necessary business_expenses to him ’ we reject guarino’s argument as to his entitlement to miscellaneous itemized business_expense deductions relating to the legal fees paid_by capital video sec_6662 penalties under sec_6662 a penalty of percent is imposed on any portion of an understatement_of_tax attributable to negligence or to disregard of the rules or regulations for purposes of sec_6662 negligence constitutes a failure to make a reasonable attempt to comply with the internal_revenue_code sec_6662 petitioners make no argument that respondent has the burden_of_proof under sec_7491 petitioners cite jack’s maint contractors inc v commissioner tcmemo_1981_349 revd per curiam 703_f2d_154 5th cir and 115_tc_172 as substantial_authority for petitioners’ treatment of the legal fees paid_by capital video in jack’s maint contractors inc v commissioner supra we allowed a corporate taxpayer a deduction for its payment of legal expenses of its shareholder relating to the shareholder’s indictment for criminal_tax_evasion reversing the court_of_appeals for the fifth circuit held that the legal fees were not deductible because the legal fees were personal in nature and did not qualify as an ordinary and necessary business_expense of the corporation in hood v commissioner supra we followed the court_of_appeals for the fifth circuit’s reversal of jack’s maint contractors inc v commissioner supra and we disallowed a corporation a deduction for legal fees the corporation had paid relating to an indictment of its sole shareholder for tax_evasion significant to the penalties involved in these cases is the fact that in hood decided in we declined to impose the accuracy-related_penalty for negligence we stated as follows given that the taxpayer’s reporting position was consistent with our holding in jack’s maintenance contractors inc v commissioner supra we find there was no negligence or disregard of rules or regulations on the part of the taxpayer id pincite we believe that for the same reason petitioners herein should be relieved of the sec_6662 penalties petitioners’ tax returns for the years in dispute were filed prior to our opinion in hood v commissioner supra which was filed in the year and petitioners’ tax_return_preparer would have had access to the same authority that the taxpayers in hood had access to in light of our holding in hood v commissioner supra we do not impose upon petitioners herein the accuracy- related penalties relating to the disallowed legal fees paid_by capital video and relating to the additional dividend and income adjustments made against guarino we so hold to reflect the foregoing decisions will be entered under rule


internal_revenue_service number release date index number ------------------------- --------------------------- -------------------------------- 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 plr-123164-14 date december legend -------------------- ----------------------------------------------------------------------- testator trust ------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------- ------------------------------------------------------------------------ corporate trustee a ----------------------------------------------------------- corporate trustee b ----------------------------- corporate trustee c --------------------------------------------- corporate trustee d ---------------------- child a ---------------------- child b --------------------------------- child c ------------------------------------------------------------------------ grandchild c -------------------------- grandchild a-1 --------------------- grandchild a-2 ----------------------- individual trust a ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------- trust b ----------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- plr-123164-14 ---------------------------------------------------------- ------------------------------------------------------------------------ share ------------------------------------------------------------------------------------ share --------------------------------------------------------------------------------------------------- date date date year year year year state court state act ------------------------------------------------------ --------------------------------------------------------------------------------------------------------------- cite cite cite cite ------------------ ------------------- ------------------ ------ ------ ------ ------ -------- -------------------------------------------------------- ----------------------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------- ------------------------------------------------------------------------ dear -------------- this responds to your authorized representatives’ letter dated date and subsequent correspondence requesting rulings concerning the income gift estate and generation-skipping gst tax consequences of a settlement agreement facts testator died testate on date prior to date a resident of state he was survived by two children child a and child b a third child child c predeceased testator child c was survived by her child grandchild c testator’s last will and testament will established a_trust trust for the benefit of his lineal_descendants article first paragraph a of trust provides that the trustees are to pay the net_income quarterly in equal shares to child a child b and grandchild c if any of them is not living on an income payment_date the trustees are to pay over his or her share of the income by right of representation to his or her issue then living article first paragraph b provides that trust is to end upon the death of the survivor of child a child b and grandchild c at which time the trustees are to distribute the trust principal by right of representation to testator’s then living issue article second provides in relevant part that corporate trustee a child a child b and grandchild c are to be the trustees plr-123164-14 child a died in year survived by two children grandchild a-1 and grandchild a-2 child b is living grandchild c is living_trust will terminate when the survivor of child b and grandchild c has died corporate trustee a and its successor_corporation served as a co-trustee until year at present one-third of the trust income is paid to grandchild a-1 and grandchild a-2 as successors to child a’s income_interest another third of the income is paid to child b the last third of the income is paid to grandchild c the current presumptive remainder beneficiaries are i grandchild a-1 and grandchild a-2 ii child b’s three children and iii grandchild c’s four children the trust assets consist primarily of investment_assets it is represented that no actual or constructive additions have been made to trust since its inception in year child b and grandchild c as co-trustees petitioned the court to appoint an institutional co-trustee to restore the trustee structure as originally constituted under the will by court order of date corporate trustee b was appointed co-trustee of trust corporate trustee b was subsequently acquired by corporate trustee c accordingly the current co-trustees are child b and grandchild c and corporate trustee c following the year court proceedings the trustees modified the written investment policy of trust to invest and manage the trust assets in accordance with the state act under the modification in part an independent fiduciary as a trustee may equitably adjust between principal and income by allocating an amount of income to principal or an amount of principal to income to the extent the independent fiduciary considers appropriate if the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust’s income in deciding whether and to what extent to exercise this power the independent fiduciary is to consider certain factors such as the assets held in the trust the extent to which they consist of financial_assets interests in closely held enterprises tangible and intangible personal_property or real_property the extent to which an asset is used by a beneficiary and whether an asset was purchased by the trustee or received from the settlor pursuant to the modification corporate trustee c exercised its authority to equitably adjust trust receipts between income and principal thereafter child b expressed concern and objected to corporate trustee c’s actions in exercising its adjustment powers the disagreements over these actions have resulted in a rift in the family and a desire by some family members to have different trustees and separate trusts for some of the beneficiaries in year child b filed a petition with the court to divide trust and administer the divided trusts as separate trusts child b’s stated reasons for the division were that it would facilitate investment management and administrative decisions regarding the plr-123164-14 share for child b and his family that would be consistent with their investment philosophy child b’s petition was met with opposition from the other beneficiaries and corporate trustee c they were concerned that among other things the division of trust violated the testamentary intent of testator and violated a material purpose of trust they were also concerned that the division of trust into new smaller trusts would result in the loss of economic efficiencies enjoyed by the existing trust child b’s petition was answered by the other beneficiaries who raised a counterclaim they requested that the court construe the words by right of representation in the context of testator’s will they asserted that construction of the term could affect future distributions from trust whether or not trust was divided that is depending on the order of deaths and whether or not there were future births in the family there were three possible constructions that could produce substantially different distributions of income and principal of trust see cite cite and cite see also cite after an adversarial process before the court and extensive settlement negotiations the trustees and beneficiaries of trust agreed to a settlement settlement agreement under which trust will terminate and its assets will be divided into two trusts trust a and trust b_trust a equal in value to one-third of the value of trust will be held as a separate trust for child b and his descendants trust b equal in value to two-thirds of the value of trust will be held as a separate trust for grandchild c and her descendants and child a’s descendants to the extent it is administratively feasible the division of assets will be pro_rata in addition the parties agreed that the term by right of representation will be construed to require a per stirpes distribution of trust assets among the descendants of testator with the first division to be made at the child level ie at the level of child a child b and child c even if that generation has no living descendants on date the court issued an order approving and adopting the terms of the settlement agreement the order provides in part that beginning on the date of division and continuing until termination trust a and trust b i shall be treated as completely separate and distinct trusts for all purposes and ii shall be governed by the existing provisions of trust except to the extent modified by certain provisions as described below trust a child b will receive the trust a income quarterly for his life after child b’s death his children will receive the income in equal shares if any child should die that child’s children will receive the child’s share of the income in equal shares if child b and all of his issue die before the termination of trust a the assets of trust a will be added to trust b on the death of the survivor of child b and grandchild c trust a will terminate plr-123164-14 and the trust a assets will be distributed to the then-living descendants of child b by right of representation child b and his three children will be the individual co-trustees of trust a corporate trustee d will be appointed as a co-trustee by a document signed prior to the effective date of the trust division and effective upon the creation of trust a a corporate trustee will remain in service until trust a terminates the corporate trustee will have all the powers under state law to exercise the trustee’s powers to adjust between income and principal pursuant to the provisions of the state act trust b grandchild a-1 grandchild a-2 grandchild c and individual will be the co-trustees of trust b corporate trustee c will serve as the corporate trustee trust b will consist of two shares share and share the income of share will be distributed quarterly to grandchild c the income of share will be distributed quarterly in equal shares to grandchild a-1 and grandchild a-2 if any of those persons should die during the term of the trust his or her income share will be paid to his or her descendants by right of representation on the death of the survivor of child b and grandchild c trust b will terminate share will be distributed to the then-living descendants of grandchild c by right of representation and share will be distributed to the then-living descendants of child a by right of representation you have asked for the following rulings the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause a distribution from or the termination of any interest in trust trust a or trust b to be subject_to the generation-skipping_transfer_tax the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any person to make a gift to any beneficiary of trust trust a or trust b the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause the assets held in trust trust a or trust b to be included in the gross_estate of a beneficiary who dies prior to the termination of such trust following the termination of trust and the resulting division of trust pursuant to the settlement agreement trust a and trust b will be treated as separate trusts plr-123164-14 the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any party to the settlement agreement to realize income from the sale_or_exchange of any trust assets or interests law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener’s error will not cause an exempt trust to be subject_to the provisions of chapter if the plr-123164-14 judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state 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 example describes a situation where in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute trust income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for the beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the example concludes that the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in this case trust was irrevocable on date it is represented that there have been no actual or constructive additions to the trust after date the settlement agreement and court order resolve bona_fide issues ie the construction of the words by right of representation as intended by testator and the administration of trust under the state act the settlement agreement is the product of arm’s length negotiations and is within the range of reasonable outcomes under trust and state law finally the settlement agreement and court order construing the term plr-123164-14 by right of representation and dividing trust will not shift a beneficial_interest in trust to a lower generation beneficiary and will not extend the time for vesting of any beneficial_interest in trust accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement including the trust division and construction of the phrase by right of representation will not cause distributions from or the termination of any interest in trust trust a or trust b to be subject_to the gst tax imposed by sec_2601 ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident 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_25_2511-1 of the gift_tax regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party’s claim if it is determined that each party has a valid claim the service must determine that the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated as discussed above the issues resolved by the settlement agreement and court order concerning the construction of trust and its administration are bona_fide issues based upon valid enforceable claims by the interested parties the settlement agreement resolves conflicts concerning distributions of income and principal and is reflective of the rights of the parties under applicable state law that would be applied by the highest court of state accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement will not cause any person to make a gift to any beneficiary of trust trust a or trust b ruling plr-123164-14 sec_2001 provides that a tax is imposed on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after date made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property but in the case of a transfer made before date only if such reversionary_interest arose by the express terms of the instrument of transfer and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to plr-123164-14 sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment in this case no person made a transfer to trust other than testator at his death on date the income and terminating distributions from the divided trusts will follow the same pattern as they would have had trust not been divided the income beneficiaries will be entitled to distributions quarterly and the remaindermen will be entitled to receive the trust property only upon surviving termination of the respective trust the terms of the settlement agreement do not cause any transfers or create any general powers of appointment that would cause any of the trust property to be included in the estate of a beneficiary under sec_2036 sec_2038 or sec_2041 consequently the terms of the settlement agreement will not cause any beneficiary of trust trust a or trust b who dies prior to the termination of such trust to include trust assets in his or her taxable_estate other than i trust assets that have been distributed to him or her prior to death or ii such quarterly distributions of income that were past due and not paid in accordance with the trust terms during a beneficiary’s life and to which he or she has a legally enforceable claim at death ruling sec_643 provides that for purposes of subchapter_j of chapter of subtitle a under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 section b of the tax_reform_act_of_1986 provides that sec_643 shall apply to taxable years beginning after date except that in the case of a_trust that was irrevocable on date it shall apply only to that portion of the trust that is attributable to contributions of corpus after date the taxpayers represent that in this case trust a and trust b will have different beneficiaries the taxpayers also represent that no actual or constructive additions have been made to trust since its inception prior to date based on the facts submitted and the representations made we conclude that as long as trust a and trust b are separately managed and administered they will be treated as separate trusts for federal tax purposes ruling plr-123164-14 sec_61 and provides that gross_income includes gains derived from dealings in property and income from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the amount_realized from the sale_or_other_disposition of property is 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 of the code the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property must 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 if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests if each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange here the division of trust into trust a and trust b will not result in any shift in beneficial_interest in the assets of trust accordingly the division of trust as described will not result in the realization of gain_or_loss under sec_61 and sec_1001 in addition the agreement regarding construction of the term by right of representation will not result in the realization of gain_or_loss under sec_61 and sec_1001 except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code these rulings are directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives plr-123164-14 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 leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosure copy of letter for sec_6110 purposes


internal_revenue_service number release date index number -------------- -------------------------------- -------------------------------- ------------------------------------------------- --------------------------- department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b03 - plr-168484-03 date april foreign parent ------------------------------------------------------------------------------------- ----------------------------------------- parent ------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- ---------------------------------- --------- -------------------------------- holding ---------------------------------------------------------------------------- ---------------------------------------------- -------------------------------- sub -------------------------------------------------------------------------- ------------------------- sub ----------------------------- ---------------------------------------------------------------------------- -------------------------------- -------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------- sub ----------------------------------------------------------------------------- --------------------------------------------------------- -------------------------------- -------------------------------- plr-168484-03 sub ----------------------------------------------------------------------------- ------------------------------------------------------- sub 2a ----------------------------------------------------------------------------- --------------------------------------- sub 2b ----------------------------------------------------------------------------- ---------------------------------- sub 2c ---------------------------------------------------------------------------- ------------------------------------------------- sub 2d ----------------------------------------------------------------------------- --------------------------------------------------- ----------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- --------------------- ------- date year --------------------------------------------- company official -------------------------------------------------------------------------------------- dear ---------- we respond to your date letter requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election additional information was submitted in letters dated january march and date the extension is being requested for parent holding sub sub sub 2a sub 2b sub 2c sub 2d sub sub and sub hereinafter excluding parent subsidiaries to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 hereinafter referred to as the election effective for the group's taxable_year ending on date the material information is summarized below foreign parent expanded its u s operations in year and to facilitate this expansion foreign parent caused parent to file an election under sec_301_7701-3 to be treated as a corporation for federal_income_tax purposes other corporations were plr-168484-03 organized or acquired to create parent and subsidiaries the taxpayer represents that parent and subsidiaries are eligible to file a consolidated_return with parent as the common parent parent and subsidiaries intended to file the election an election under sec_1_1502-75 to file a consolidated_return for the taxable_year ending date was required to be filed by the due_date of parent's return including extensions but for various reasons the election was not timely filed the period of limitations on assessment under sec_6501 has not expired for parent's or any of subsidiaries' taxable years for which they want to make the election or for any taxable_year that would be affected by the election had it been timely filed sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent's return 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 making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and subsidiaries to file the election provided that they 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 and company official explain the circumstances that resulted in the failure to timely file a valid plr-168484-03 election the information establishes that parent reasonably relied on qualified_tax professionals who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent and subsidiaries have shown they 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 and subsidiaries to file the election by filing a consolidated_return for its taxable_year ending date including form sec_851 and a copy of this letter should be attached to the return the above extension of time is conditioned on the taxpayers' parent's and subsidiaries' tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301 c we express no opinion with respect to whether in fact parent and subsidiaries qualify substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or 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 parent and company official however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election penalties and interest may apply no opinion is expressed as to the type or amount of any penalties and interest this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this ruling letter be attached to the federal consolidated_income_tax_return for the taxable_year ending date plr-168484-03 pursuant to the power_of_attorney on file in this office copies of this letter have been sent to your authorized representatives sincerely _ken cohen_________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate plr-168484-03 cc ------------------- ------------------------------ ------------------------------------------ ---------------------------------------- ------------------------ ------------------------------ ------------------------------------- ---------------------------------- ---------------------------------- ------------------------------------------------------------------------------------------- ------------------------ ---------------------------- ---------------------------


internal_revenue_service number release date index numbers --------------------------- --------------------------- ------------------------- ----------------------------------- department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-106106-17 date date legend x ---------------------------------------------------------- ----------------------------- fund ----------------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------- ------------------------------------------------------------------------- ---------------------------------------------------------- dependency d1 -------- ------------------ dear ------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a partnership for federal tax purposes plr-106106-17 facts the information submitted discloses that x was formed on d1 under the laws of dependency the fund which holds x intends it to be classified as a partnership for federal tax purposes effective d1 however x failed to timely file form_8832 entity classification election to be classified as a partnership for federal tax purposes effective d1 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides plr-106106-17 that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a partnership effective d1 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-106106-17 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


uniform issue list department of the treasury internal_revenue_service washington d c tax exempt and coven ion may fe ois fe fe oie fe fe i oie a oe ok ok 2k oe 2c oe oe ek oc ake a ok ok legend ira x fe fe fe fe oft 2k 2c f sec_2c af fe fe fe fc ake 2c 2c 2k ic 2s fe sec_2s 2c fs ofc sie sec_2 he ig fe ee fe 2s fe fe fe fe ee ae fe ae ok ak oie oe oe ok fe sec_2 fe 2c ic 3k 2k 2g 2k 9k ie 2k it ok a ok amount a eee ae oe oe oe ok oe kf oo dear ie oe oe eo a a ga ok this is in response to a request submitted on your behalf by your authorized representative by letter dated date as supplemented by additional correspondence dated date and additional information that you provided during an date telephone conference in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representation have been submitted to support the ruling_request you took a distribution of amount a from your individual in retirement account ira x in order to pay off massive debts that were threatening the retention of your home you had some unexpected medical bill and repairs as well as repairs to your septic and heating system that page caused your credit cards to become overbearing and your ability to pay them off with interest was impossible you took an early distribution from ira x to pay medical_expenses for your family and to avoid bankruptcy you planned to replace amount a in ira x by selling timber due to bad weather the loggers were not able to harvest the timber until the spring of during the conference held on date you contended that your inability to roll over the distribution within days was beyond your reasonable control you request a waiver of the 60-day rollover limitation under sec_408 of the code in order to allow you to repay the early distribution back into ir x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such page plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 d of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 d the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred although information presented shows a substantial personal and family hardship it does not demonstrate the type of circumstances that would justify a waiver of the 60-day rollover period the committee report describing legislative intent indicates that the congress enacted the rollover page provisions to allow portability between eligible plans including iras you used the distribution from ira x for other purposes therefore pursuant to sec_408 of the code the service declines to waive the 60-day rollover requirement with respect to the distribution of amount a thus amount a cannot be rolled over because the 60-day requirement under sec_408 of the code with respect to such amount will not be satisfied no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions please contact at ore er se sincerely yours dow donzell littlejohn employee_plans technical group manager enclosures deleted copy of this letter notice of intention to disclose notice


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc psi b06 conex-108776-12 number release date uil 30b the honorable robert p casey jr united_states senate washington dc attention --------------------- dear senator casey thank you for your letter dated date on behalf of your constituent ---------------------- ----------------asked why a tax_credit is not available for a ford escape hybrid he purchased during ----------------stated that according to the form_8910 instruction sheet credits are available for vehicles manufactured by some foreign automakers but not for vehicles manufactured by ford and certain other united_states automakers in order to respond clearly to ------------------concerns allow me to explain how the credit for alternative motor vehicles operates congress enacted sec_30b in that section authorized a federal tax_credit for several different types of alternative motor vehicles including new qualified hybrid vehicles which were placed_in_service in tax years after other types of qualifying vehicles included vehicles with qualified_fuel cells vehicles that used a particular advanced lean burn technology and vehicles that used certain new alternative fuels congress provided that the credit under sec_30b would expire at different times depending on the type of vehicle for qualifying passenger automobiles and light truck hybrid vehicles congress provided that the sec_30b credit would expire under either a phase-out rule or a termination rule whichever occurred first the credit for hybrid vehicles manufactured by ford expired under the phase out rule under the phase out rule in sec_30b the credit for hybrid vehicles was reduced for each manufacturer beginning in the second quarter after the quarter in which that manufacturer sold big_number of its qualified vehicles and then was reduced further in subsequent quarters until it fully expired the internal_revenue_service announced the credit phase-out schedule for ford hybrid vehicles in notice_2009_37 copy enclosed after sales of ford hybrids reached the big_number vehicle threshold that notice provided that the credit for ford vehicles would completely phase out with respect to vehicles purchased on or after date the credit for hybrid vehicles remained available for certain other conex-108776-12 manufacturers whose sales of hybrid vehicles had not reached the big_number sale threshold or were still in the phase-out period even if the credit for hybrid vehicles sold by ford had not expired in april of under the phase-out rule ----------------would not have been eligible to claim a credit for his purchase of a ford escape hybrid in because of the termination rule under the termination rule the sec_30b credit for passenger automobiles and light truck hybrid vehicles ended for all manufacturers at the end of regardless of how many vehicles they had sold finally as i noted above the credit under sec_30b expires at different times depending on the type of vehicle for example even though the credit expired for passenger and light truck hybrid vehicles purchased after the sec_30b credit remains available for certain other types of vehicles in addition a vehicle purchased in and placed_in_service in can also qualify for a credit in so references to the credit in the instructions to form_8910 referenced in ------------------letter pertain to vehicles for which the credit was still available in i hope this information helps you in responding to --------------- please contact me at --------- ------------- if i can assist you further regarding his questions sincerely curt wilson associate chief_counsel passthroughs special industries enclosure


internal_revenue_service number release date index number --------------------------- -------------------------- -------------------------------- ty ------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc intl b02 plr-119735-14 date date legend taxpayer firm stock exchange merchant bank central bank investment bank company company fc1 fc2 accountant accountant accounting firm year year year year year year country x country y x y z dear ------------------ ---------------------- -------------------- ----------------------------------------- -------------------------------------- ----------------------------- ---------------------------------- ------------- ---------------------------- ----------------- ----------------------- -------------------------- ------------------------- --------------------------- ----------------------------------- ------- ------- ------- ------- ------- ------- ------------ ----------------------- ---- ---- -- plr-119735-14 this is in response to a letter dated date submitted by taxpayer’s authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc1 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by his authorized representative and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a u s citizen and a key_employee of firm an investment banking firm in country x firm is an active financial services business and is not a passive_foreign_investment_company pfic in year merchant bank in country y and firm’s employees took over firm in year firm was listed on stock exchange and merchant bank and firm’s employees sold down their ownership interests following a financial crisis in year firm was delisted underwent a recapitalization and was put up for sale in year company and company acquired firm at book_value in order to retain firm employees company and company structured a retention program in which key employees were offered the opportunity to co-invest in firm for administrative purposes company established two country x companies fc1 and fc2 as investment vehicles to raise capital from key employees to co-invest in firm simultaneously and at the same terms as company and company in year and year taxpayer invested in fc1 in year firm acquired investment bank in year company sold its entire holding in firm to company as a result of the restructuring fc1 and fc2 together owned x percent less than percent of firm company owned y percent and the former investment bank owners held z percent the promoters of the transaction did not seek u s tax_advice because most of the investors in fc1 are foreign taxpayers fc1’s only asset was its less than percent by value ownership_interest in firm it was therefore ineligible to look through to firm’s underlying income and assets pursuant to sec_1297 in determining whether fc1 was a pfic because fc1’s only asset was its passive investment in firm fc1 held only passive_assets from year to year plr-119735-14 for year taxpayer engaged accountant for preparation of his individual u s tax_return for year taxpayer engaged accountant for preparation of his individual u s tax_return accountant and accountant have significant experience advising on u s federal_income_tax matters including advising u s persons on u s federal_income_tax matters relating to owning stock in foreign_corporations taxpayer made available to accountant and accountant all information each requested to provide tax_advice and to prepare taxpayer’s tax returns in year firm retained accounting firm in country x as an external advisor during a review of the tax consequences of the potential restructuring a senior officer of accounting firm raised the question of whether fc1 could be considered a pfic for u s tax purposes upon further review accounting firm informed taxpayer that fc1 is a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make a qef election by the election due_date including the roles of accounting firm accountant and accountant accountant has submitted an affidavit corroborating the representations made by taxpayer with respect to the failure to identify fc1 as a pfic taxpayer represents that as of the date of the request_for_ruling the pfic status of fc1 has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc1 under sec_1_1295-3 retroactive to year law sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic plr-119735-14 under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united_states government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc1 for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this plr-119735-14 requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell chief branch office of associate chief_counsel international