internal_revenue_service number release date index number ---------------- --------------------------------------- -------------------------------- ----------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no -------------- telephone number -------------------- refer reply to cc psi plr-133295-08 date date legend coop ---------------------------------------------------------- ------------------------------- geographic area -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------- ------ ----- ------------------- -- --------------------------- state a b c d e f dear ---------- this is in response to a request for rulings dated date submitted by your authorized representative the rulings concern the interplay of the rules in subchapter_t of the internal_revenue_code concerning the taxation of cooperatives and their patrons and the calculation of the sec_199 deduction for certain cooperatives contained in sec_199 plr-133295-08 coop is a nonexempt_cooperative that is organized under the laws of state a the members of coop are b farmers who deliver their c to coop the members enter into a marketing agreement with coop under which they agree to deliver c in accordance with coop’s bylaws under the terms of the marketing agreement each b farmer member of coop is obligated to sell all c produced by him or her for market to coop in return coop agrees to market the highest grade c produced by the member during the term of the agreement members are located throughout the geographic area coop markets the c of its b farmer members that is producers of c who have entered into a marketing agreement and who have acquired one share of coop common_stock on a patronage basis coop also from time to time markets c delivered by e other b cooperatives the e cooperatives are members of coop owning one share of common_stock each and entitled to share in coop’s patronage_dividends coop has a d year end at the end of each year coop computes its net_proceeds and distributes patronage income to its members coop’s practices for paying its b members for c reflect the system that has existed in the united_states for many years for regulating c marketing the market regulation of c is largely controlled by the federal government the federal government is authorized to regulate the marketing of c by establishing federal marketing orders for c the purpose for the market order system for c is to develop a steady and dependable market for c and to help correct conditions that result in price instability and disorderly marketing of c this helps guarantee consumers a stable supply of c while at the same time providing a reasonable return for b producers while the market orders generally set the minimum price that must be paid_by handlers to b producers within the market order and each zone in the market order cooperatives are not required to pay that price cooperatives are free to determine how they share the net_proceeds from the sale of their members’ c at present coop distributes the net_proceeds from c marketing in two forms semi-monthly c checks and patronage_dividends paid after the close of the year and net_earnings for the year have been determined coop generally follows the practice of making an advance to producers for c delivered during the first days of each month on or about the 26th day of the month that advance is based upon c order prices from the prior month after the end of the month when the producer price differential and the zone differentials for the month have been determined coop determines what each member is to be paid for the c delivered during the month and sends a second c check to the member for the difference between that amount and the advance plr-133295-08 coop refers to the amount it pays for c as the pay price the pay price is paid in cash thus a member who delivers c throughout the year receive sec_24 c checks each year these c checks are the subject_to the ruling_request as discussed below for federal tax purposes the advance_payments or c checks are considered advances on the net_proceeds and treated as per-unit retains paid in money accordingly for purposes of its sec_199 computation for its fiscal_year ending f coop intends to disregard c checks as well as patronage_dividends and it plans to pass through to its members all or a portion of the sec_199 deduction nonexempt subchapter_t cooperatives are permitted to exclude or deduct distributions to their patrons that qualify as patronage_dividends or per-unit retain allocations provided those distributions otherwise meet the requirements of subchapter_t of the code sec_1388 of the code defines the term per-unit_retain_allocation to mean any allocation by an organization to which part i of this subchapter applies to a patron with respect to products marketed for him the amount of which is fixed without reference to net_earnings of the organization pursuant to an agreement between the organization and the patron per-unit retain allocations purs may be made in money property or certificates per-unit retain allocations paid in money and in property are excludable or deductible under sec_1382 of the code per-unit retain allocations paid in certificates are deductible under sec_1382 if the certificates are qualified if the certificates are nonqualified the cooperative is permitted a deduction under b or a tax_benefit figured under sec_1383 when the certificates are later redeemed sec_1388 of the code provides that the term patronage_dividend means an amount_paid to a patron by a cooperative on the basis of the quantity or value of business done with or done for such patron sec_1388 provides that a patronage_dividend is an amount_paid under an obligation that must have existed before the cooperative received the amount so paid sec_1388 provides that patronage_dividend means an amount_paid to a patron that is determined by reference to the net_earnings of the cooperative from business done with or for its patrons that section further provides that a patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out of earnings other than from business done with or for patrons sec_1_1382-3 of the income_tax regulations states that income derived from sources other than patronage means incidental income derived from sources not directly related to the marketing purchasing or service activities of the cooperative association sec_1382 of the code provides that except as provided in sec_1382 the gross_income of any cooperative shall be determined without any adjustment as a plr-133295-08 reduction in gross_receipts an increase in cost_of_goods_sold or otherwise by reason of any allocation or distribution to a patron out of net_earnings or by reason of any amount_paid to a patron as per-unit retain allocations sec_1382 of the code provides in part that in determining the taxable_income of a cooperative there shall not be taken into account amounts paid during the payment period for the taxable_year as patronage_dividends to the extent paid in money qualified written notices of allocation or other_property with respect to patronage occurring during such taxable_year sec_1_1382-2 provides in part that there is allowed as a deduction from the gross_income of any cooperative to which part i of subchapter_t applies amounts paid to patrons during the payment period for the taxable_year as patronage_dividends with respect to patronage occurring during such taxable_year but only to the extent that such amounts are paid in money qualified written notices of allocation or other_property other than nonqualified written notices of allocation sec_1388 of the code defines the term nonqualified written notices of allocation as meaning a written_notice_of_allocation other than a qualified_written_notice_of_allocation or a qualified_check that is not cashed on or before the 90th day after the close of the payment period for the taxable_year for which the distribution of which it is part is paid sec_1382 of the code provides in part that in determining the taxable_income of a cooperative there shall not be taken into account amounts paid during the payment period for the taxable_year as per-unit retain allocations paid in money other_property or qualified certificates with respect to marketing occurring during such taxable_year sec_1382 of the code provides that for purposes of sec_1382 in the case of a pooling arrangement for marketing products the patronage shall be treated as occurring during the taxable_year the pool closes and the marketing of products shall be treated as occurring during any taxable years the pool is open though sec_1382 of the code is awkwardly drafted the flush language of sec_1382 clarifies what it means for an item not to be taken into account it states that for purposes of this title a patronage_dividend is treated as an item_of_gross_income and as a deduction therefrom and a per-unit_retain_allocation in money or qualified certificates are treated as a deduction in arriving at gross_income sec_1382 of the code provides in part that the payment period for any taxable_year is the period beginning with the first day of such taxable_year and ending with the fifteenth day of the ninth month following the close of such year thus per-unit retain allocations paid in money or qualified certificates are deductions in arriving at gross_income if paid with respect to an open pool within the plr-133295-08 payment period for the taxable_year because patronage_dividends paid in money and qualified certificates are treated as deductions in arriving at gross_income form 990-c and new form 1120-c requires such dividends to be reported on schedule h as a deduction from gross_income because per-unit retain allocations paid in money or qualified certificates are treated as a deduction in arriving at gross_income they are reported on schedule a of the form 990-c which represents the cooperative’s cost_of_goods_sold this does not change the fact that coop is allowed a full deduction under sec_1382 of the code for per-unit retains paid in money or qualified certificates we note that in order to prevent a cooperative from deducting the per-unit retain allocations made in money or qualified certificates for the second time when the associated product is sold the cost_of_goods_sold mechanism associated with inventory must be adjusted to reflect the deductions allowable under subchapter_t specifically cooperatives need to include the purs in inventory cost for purposes of making inventory and sec_263a of the code computations and then adjust the ending inventory and cost_of_goods_sold to prevent double deduction of the purs the adjustments can be made to either the inventory or the line item deduction for the purs in other words if the purs are deducted on a deduction line in the cooperative's tax_return they should be removed entirely from the ending inventory and cost_of_goods_sold computed for the tax_year alternatively if the purs are not deducted on a deduction line in the tax_return the purs reflected in the ending inventory should be removed and included in the cost_of_goods_sold amount for that tax_year this procedure will allow the cooperative to deduct the purs once while also preserving the integrity of its sec_263a calculation under sec_199 of the code patrons that receive a qualified_payment from a specified agricultural or horticultural cooperative are allowed a deduction for an amount allocable to their portion of the qualified_production_activities_income qpai of the organization received as a qualified patronage_dividend or per-unit_retain_allocation which is paid in qualified per-unit retain_certificates in particular sec_199 requires the cooperative to be engaged in the manufacturing production growth or extraction in whole or significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products under sec_199 in the case of a cooperative engaged in the marketing of agricultural and horticultural products the cooperative is treated as having manufactured produced grown or extracted mpge in whole or significant part any qualifying_production_property marketed by the cooperative that its patrons have mpge this is known in the industry as the cooperative attribution rule in addition sec_199 requires the cooperative to designate the patron’s portion of the income allocable to the qpai of the organization in a written notice mailed by the cooperative to its patrons no later than the 15th day of the ninth month following the close of the tax_year under sec_1_199-6 for purposes of determining a cooperative’s sec_199 deduction the cooperative’s qpai and taxable_income are computed without taking plr-133295-08 into account any deduction allowable under sec_1382 or c of the code relating to patronage_dividends per-unit retain allocations and nonpatronage distributions an agricultural or horticultural cooperative is permitted to pass-through to its patrons all or any portion of its sec_199 deduction for the year provided it does so in the manner and within the time limits set by sec_199 of the code when a cooperative passes-through all or any portion of the sec_199 deduction the cooperative remains entitled to claim the entire sec_199 deduction on its return provided that it does not create or increase a patronage tax loss but is required under sec_199 to reduce the deduction or exclusion it would otherwise claim under sec_1382 for per-unit retain allocations and patronage_dividends sec_1_199-6 provides that a qualified_payment received by a patron of a cooperative is not taken into account by the patron for purposes of sec_199 sec_1_199-6 defines the term qualified_payment to mean any amount of a patronage_dividend or per-unit_retain_allocation as described in sec_1385 or of the code received by the patron from a cooperative that is attributable to the portion of the cooperative’s qpai for which the cooperative is allowed a sec_199 deduction for this purpose patronage_dividends and per-unit retain allocations include any advances on patronage and per-unit retains paid in money during the taxable_year sec_1_199-6 provides that sec_1_199-6 is the exclusive method for the cooperative and its patrons to compute the amount of the sec_199 deduction the effect of these sections is that the cooperative will compute the entire sec_199 deduction at the cooperative level and that none of the distributions whether patronage_dividends or per-unit retain allocations received from the cooperative will be eligible for sec_199 in the patron’s hands that is the patron may not count the qualified_payment received from the cooperative in the patron’s own sec_199 computation whether or not the cooperative keeps or passes through the sec_199 deduction accordingly the only way that a patron can claim a sec_199 deduction for a qualified_payment received from a cooperative is for the cooperative to pass- through the sec_199 amount in accordance with the provisions of d of the code and the regulations thereunder coop’s c checks qualify as per-unit retain allocations within the meaning of sec_1388 of the code because they were distributed with respect to c that coop markets for its patrons and by the fact that the patrons receive the payments based on the quantity of c delivered the c checks are determined without reference to the coop’s net_earnings the c checks were paid pursuant to a contract with the patrons establishing the necessary pre-existing agreement and obligation and the c checks were paid within the payment period of sec_1382 plr-133295-08 based on the foregoing we rule that the c checks that coop pays to its b members and cooperative members each year for c delivered to coop constitute per-unit retain allocations paid in money within the meaning of sec_1382 of the code in computing coop’s sec_199 domestic_production_activities_deduction coop’s qualified_production_activities_income and taxable_income should pursuant to sec_199 of the code be computed without regard to any deduction for the c checks this ruling is directed only to the taxpayer that requested it under sec_6110 of the code it may not be used or cited as precedent in accordance with a power_of_attorney filed with the request a copy of the ruling is being sent to your authorized representative sincerely yours paul f handleman chief branch office of the associate chief_counsel passthroughs special industries cc


internal_revenue_service number release date index number ------------------------------------ -------------------------- ----------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-104987-09 date date legend company ------------------------------------------------------------------------------------------------- ------------------------ parent ------------------------------------------------------------------------------------------------- ------------------------ country --------------------- date ---------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts the information submitted discloses that company was formed as a private limited_company in country on date parent is company’s sole owner company intended to make an election to be a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law plr-104987-09 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 in 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 cannot be more than seventy-five days prior to the date on which the election is filed and cannot be more than twelve months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides 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 the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-104987-09 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 on the facts and representations submitted company has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently company is granted an extension of time of sixty days from the date of this letter for electing under sec_301_7701-3 to be treated as a disregarded_entity effective date company must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 request for a ruling it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


cca_2013091913550728 id uilc number release date third party communication none date of communication not applicable from sent thursday date pm to cc bcc subject re statute_of_limitations on assessment of sec_6702 penalty we made the argument that no sol applies in briefs submitted in a couple of cases where taxpayers raised the sol as a bar to assessment of the penalty the tax_court did not need to decide the issue crites v commissioner tcmemo_2012_267 and o’brien tcmemo_2012_326 have a little discussion of what we argued obviously we don’t want to get into this situation if we can make an assessment w_i three years of a frivolous submission


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 2-plr-142946-01 date date legend parent company department state a state b statute securities a b c d e dear this letter is in reply to your letter dated date asking the internal_revenue_service to rule on the transaction described below facts parent is the common parent of an affiliated_group_of_corporations that includes company parent files a consolidated_return for the group company a calendar_year taxpayer that uses the accrual_method of accounting is an investor-owned electric utility in state a company generates transmits and distributes electricity to residential commercial industrial and governmental customers within its service area company historically had a monopoly for providing electricity within its service area and is regulated by department the federal energy regulatory commission and the nuclear regulatory commission state a is deregulating the power-generation portion of its electric industry company’s customers are now allowed to contract directly with alternative suppliers of electricity and electric utilities and other suppliers are able to compete to sell plr-142946-01 electricity pursuant to a series of governmental actions culminating in the enactment of statute it is contemplated that certain of company’s costs - including previously incurred costs associated with generation facilities that have market values below their book_value costs associated with contracts to purchase electricity at above-market prices and other external costs - will not be recoverable from customers in the reorganized competitive electric industry to facilitate the transition from the regulated system to the competitive one such governmental actions permit company to recover a portion of these costs stranded costs to permit this recovery_of stranded costs company is authorized to collect from consumers of electricity located in its service area and using its distribution system a special charge recovery charge that is based on the amount of electricity purchased by the consumers such governmental actions also contemplate that company will and statute authorizes department to permit company to recover certain of its stranded costs by securitizing a specified portion of the recovery charge such securitized portion rrb charge statute also authorizes department to issue one or more finance orders finance order to authorize the recovery_of such stranded costs and provides a comprehensive framework for such securitization proposed transaction company has applied for a finance order from department and may in the future apply for additional finance orders pursuant to statute authorizing company to finance a portion of its stranded costs together with transaction costs and credit enhancement through the issuance of securities with an aggregate principal_amount not greater than dollar_figurea pursuant to statute company expects that the finance order will approve imposition and securitization of the rrb charge the rrb charge is defined as a non-bypassable charge payable by customers that will yield the amounts necessary to provide for interest on the securities the amortization of all securities in accordance with the applicable expected amortization schedule the payment of fees and expenses related to the issuance and servicing of the securities the collection of an overcollateralization amount and the replenishment of a capital subaccount the rrb charge is a usage-based tariff on each retail user’s monthly bill until the securities are discharged in full the principal asset to be used to support the securities is the right to collect the rrb charge which statute establishes as a separate_property right rrb_property that includes all right title and interest in and to all revenues collections claims payments money or proceeds of or arising from the rrb charge statute also provides that the finance order must include a procedure for the periodic_adjustment of the rrb charge pursuant to statute and the finance order the rrb_property and the rrb charge will be irrevocable and cannot be reduced rescinded altered amended or impaired by either department or state a the rrb charge will be set to provide for recovery_of the costs associated with billing and collecting the rrb charge plr-142946-01 as well as for an excess_amount overcollateralization amount that will eventually reach at least b percent of the initial principal_amount of the securities the overcollateralization amount will be collected ratably over the expected term of the securities company has formed or will form a wholly owned limited_liability_company spe under state b law as a bankruptcy remote company for the special purpose of effectuating the proposed transaction the spe will use the accrual_method of accounting and company effectively will be the sole member of the spe for federal_income_tax purposes the spe is expected to be treated as a division of company and not as a separate_entity the spe will not elect to be treated as a business_entity taxable as a corporation under sec_301_7701-3 of the procedure and administration regulations company will contribute as equity to the spe cash equal to at least b percent of the initial principal balance of the securities capital amount the spe will invest the equity in financial instruments that are issued by parties unaffiliated with company and that can be readily converted to cash pursuant to the finance order the spe will sell the securities to investors either directly or through underwriters or other agents the securities will be in the form of promissory notes of the spe the securities will be nonrecourse to company but will be secured_by the assets of the spe including a the rrb_property including by a statutory lien on the rrb_property as provided by statute b accounts maintained for payments on the securities collectively collection account c all amounts or investment_property on deposit in or credited to the collection account d all other_property of whatever kind owned by the spe less amounts owed to certain service providers and e all rights of the spe in and to the transaction documents such as the purchase agreement for the rrb_property the securities will not be subordinated to the claims of any creditors or equity owners of the spe other than for payments of trustee servicing and administrative fees the securities will be issued in one or more series each series of the securities may be offered in one or more classes each expected to have a different principal_amount term_interest rate and amortization schedule company expects that the securities will have scheduled maturities not longer than c years and legal maturities not longer than d years scheduled maturity is the date on which the final principal payment is expected to be paid legal maturity is the date on which nonpayment is a default the securities are expected to be sold at or near par_value and will not in any event be sold for more than par_value interest on the securities will be payable not more frequently than quarterly principal payments are expected to be applied in sequential class order within each series until the outstanding balance of such class or series is reduced to zero the securities will also be subject_to an optional clean-up call when the outstanding principal_amount of a series declines to less than e percent of the original principal_amount of such series the spe may enter into swap agreements plr-142946-01 or other hedging arrangements solely to permit the issuance of variable rate securities the spe will transfer to company as consideration for the transfer of the rrb_property to the spe the proceeds from the issuance of the securities net of its transaction expenses upon issuance of the initial series of securities the spe will establish the collection account which will consist of at least four subaccounts entitled general reserve overcollateralization and capital additional subaccounts may be established in respect of additional credit enhancements or as necessitated for convenience by the transaction documents these accounts will be maintained and administered in trust by the trustee for the securities on behalf of the spe company will act initially as the servicer for the rrb_property as servicer company will bill and collect the rrb charge and retain all books_and_records regarding the rrb charge subject_to the right of the spe to inspect those records company or any successor servicer will periodically remit as frequently as required by the rating agencies and in all events within one calendar month of collection the billed and collected rrb charge to the trustee for the securities monies deposited with the trustee for the securities will be held in the collection account only in the event that company fails satisfactorily to perform its servicing functions will company be subject_to replacement as servicer company’s ability to resign as servicer will be restricted the billed and collected rrb charge will be remitted to the collection account amounts in the collection account will be used to pay trustee fees servicing fees administrative costs operating_expenses of the spe accrued but unpaid interest on all classes of the securities and principal to the extent scheduled on the outstanding securities any remaining billed and collected rrb charge will be allocated to the capital subaccount to the extent that the capital subaccount is below the required capital level the overcollateralization subaccount to the extent scheduled and then to the reserve subaccount if the billed and collected rrb charge in any period is insufficient to satisfy the spe’s payment obligations on the securities then amounts in the reserve subaccount the accumulated overcollateralization amount and capital amount will be used in that order to satisfy scheduled principal and interest payments to the extent that the overcollateralization amount or the capital amount is used to satisfy principal and interest payments on the securities the rrb charge will be adjusted in the future to restore those amounts investment earnings on amounts in the collection account also may be used to satisfy scheduled interest and principal payments on securities and to restore the capital amount and the scheduled overcollateralization amount except for earnings on the capital subaccount any excess earnings will be remitted to the spe and after the last scheduled date for the payment of accrued interest and principal on the bonds plr-142946-01 will be distributed to company for the benefit of its customers investment earnings on amounts in the capital subaccount to the extent not used to satisfy the securities will be paid to company periodically amounts in the capital subaccount and any investment earnings thereon to the extent not used to satisfy the securities will be returned to company after the securities are paid in full the securities will provide for the following events of default a default in the payment of accrued interest on any class of securities after a specified grace period a default in the payment of outstanding principal as of the legal maturity_date a default in payment of the redemption price following a call as of the redemption date certain breaches of covenants representations or warranties by the spe in the indenture under which the securities are issued and certain events of bankruptcy insolvency receivership or liquidation of the spe in the event of a payment default on the securities the trustee for the securities or holders of a majority in principal_amount of all series then outstanding may declare the principal of all classes of the securities to be immediately due and payable issue sec_1 does the issuance of the finance order authorizing collection of the rrb charge by company result in gross_income to company does the issuance of the securities by the spe result in gross_income to company are the securities obligations of company law sec_61 of the internal_revenue_code generally defines gross_income as income from whatever source derived except as otherwise provided by law gross_income includes income realized in any form whether in money property or services sec_1_61-1 of the income_tax regulations this definition encompasses all accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 1955_1_cb_207 the right to collect the rrb charge is of significant value in producing income for company and state a's action in making the rrb charge rights transferable has enhanced that value generally the granting of a transferable right by the government does not cause the realization of income revrul_92_16 1992_1_cb_15 allocation of air emission rights by the environmental protection agency does not cause a utility to realize gross_income revrul_67_135 1967_1_cb_20 fair_market_value of an oil_and_gas lease obtained from the government through a lottery is not includible in income the economic_substance of a transaction generally governs its federal tax plr-142946-01 consequences 293_us_465 xiv-1 c b affixing a label to an undertaking does not determine its character revrul_97_3 1997_1_cb_9 an instrument secured_by property may be an obligation of the taxpayer or alternatively may be a disposition of the underlying property by the taxpayer cf id the small_business administration is the primary obligor of certain guaranteed_payment rights that are created under its participating security program conclusions based on the facts as represented we rule as follows the issuance of the finance order authorizing the collection of the rrb charge by company will not result in gross_income to company the issuance of the securities by the spe will not result in gross_income to company the securities will be obligations of company except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer enclosures cc sincerely yours william e coppersmith chief branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b06-plr-139406-02 date date legend distributing controlled acquiring business a business b shareholder shareholder date x y dear this responds to your letter requesting a ruling supplementing plr100582-02 the prior letter_ruling the prior letter_ruling and the ruling_request related thereto the prior letter_ruling request which are both incorporated herein by reference address a proposed distribution of controlled stock by distributing under sec_355 of the internal_revenue_code referred to as the distribution in the prior plr-139406-02 letter_ruling and hereafter referred to as the proposed spin-off the proposed spin-off has not been consummated to date this supplemental ruling addresses the effect of a proposed acquisition of distributing by acquiring the proposed acquisition on the prior letter_ruling the facts are summarized below facts distributing a publicly_held_corporation is engaged in business a and through its ownership of controlled business b business a and business b are substantially different and incompatible businesses that create management and systematic problems for distributing which distributing intends to resolve by separating the two businesses in the proposed spin-off the proposed spin-off was authorized by distributing’s board_of directors on date the resolution date acquiring is also a publicly_held_corporation which engages in business a after the prior letter_ruling was issued acquiring initiated negotiations with distributing to acquire all of the issued and outstanding_stock of distributing as a result of these negotiations acquiring will acquire distributing the proposed acquisition is expected to be completed within y months after completion of the proposed spin-off pursuant to the proposed acquisition the shareholders of distributing will receive stock of acquiring in exchange for their distributing shares distributing contends that the proposed acquisition will qualify as a tax-free sec_368 reorganization acquiring and distributing will receive opinions of counsel to that effect after the proposed acquisition distributing shareholders will own approximately x percent of the total issued and outstanding shares of acquiring representations in connection with this supplemental ruling_request distributing represents that as of the date of the prior letter_ruling all representations and information set forth in the prior letter_ruling request were true as stated therein distributing modifies however the following representations that appear in the prior letter_ruling as set forth below k the distribution is being carried out for the following corporate business_purpose to effect fit and focus the distribution is motivated in whole or substantial part by the foregoing corporate business_purpose this business_purpose existed on the resolution date is equally important to distributing and controlled at the present time and is unaffected by the business purposes for the proposed acquisition distributing intends to complete the distribution without regard to whether the proposed acquisition occurs l there is no plan or intention by any shareholder who own sec_5 percent or plr-139406-02 more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the distribution other than pursuant to the proposed acquisition notwithstanding the foregoing shareholder and shareholder may in the future determine to dispose_of or purchase any such stock in the normal course of their respective businesses as investment advisors based upon decisions as to existing market conditions and the needs of investors they represent n there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the distribution except in the ordinary course of business and except pursuant to the proposed acquisition notwithstanding the above-modified representations distributing represents that all of the other representations in the prior letter_ruling continue to be true at the present time rulings the proposed acquisition does not raise any issues relating to the qualification of the proposed spin-off under sec_355 but potentially may raise issues under sec_355 and e accordingly based solely on the information submitted in the prior letter_ruling request this supplemental ruling_request and the representations set forth above we rule as follows the proposed acquisition will not have any effect on ruling number sec_1 or of the prior letter_ruling and those rulings remain in full force and effect however ruling number is withdrawn and no longer is valid caveats no opinion is expressed about the tax treatment of the transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings in addition to the caveats stated in the prior letter_ruling no opinion is expressed concerning the tax consequences associated with the proposed acquisition plr-139406-02 whether the proposed acquisition will affect any of the rulings in the prior letter_ruling except as specifically provided above and the application of sec_355 and e to the proposed spin-off procedural statements the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process this 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 together with a copy of the prior letter_ruling must be attached to the federal_income_tax returns of the taxpayer involved for the taxable years in which the transactions covered by these letters are consummated in accordance with the power_of_attorney on file with this office the original of this letter is being sent to the taxpayer’s authorized representative sincerely yours alfred c bishop jr branch chief branch associate chief_counsel corporate


office_of_chief_counsel department of the treasury internal_revenue_service washington d c date number release date conex-139373-10 uilc the honorable john p sarbanes u s house of representatives washington dc dear mr sarbanes i am responding to your letter dated date on behalf of your constituent - ------------------------- he asked about the deductibility of litigation costs that law firms pay when representing clients on a contingent gross fee basis the ninth circuit_court of appeals in 56_f3d_1016 9th cir held that a law firm was entitled to deduct the litigation costs it paid under a contingent gross fee contract in fsa lexi sec_442 we announced that we would not follow boccardo outside the ninth circuit over the years several members of the congress have asked us to clarify or change this litigating position we continue to follow the fsa and at this time have no plans to change our position on this issue members of the congress and the public have asked whether the department of the treasury intends to publish formal guidance on the deductibility of litigation costs in contingent gross fee cases the treasury_department and the irs have not yet determined whether additional guidance on this issue is appropriate i hope this information is helpful please contact me or ----------------------at ----------------------if you need further assistance sincerely thomas d moffitt chief branch income_tax and accounting


internal_revenue_service number release date index number ------------------- ------------------------------------------------------------ ----------------------------------------- --------------------------------------- in re --------------------------------------- - department of the treasury washington dc person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc corp - plr-135192-03 date december ---------------------------------- ---------------------------------- --------------------------------------- ------------------------------------------ distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- company r ----------------------------------------------------------------------------------------- parent ---------------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- ---------------------------------- sub --------------------------------------------------------------------------------- -------------------------------------------------------------------- controlled ----------------------------------------------------------------------------------- -------------------------------------------------------------------- sub -------------------------------------------------------------------------- -------------------------------------------------------------------- sub ----------------------------------------- --------------------------------- ----------------------------- ------------------ ----------------------- plr-135192-03 ------------------------------------------------------------------------- sub ------------------------------------------------------------------------------- -------------------------------------------------------------------- sub -------------------------------------------------------------------------- -------------------------------------------------------------------- business a ------------------------------------- ------------------------------------------------- -------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------- ------------- -------------- ----------------- ----------------- --------------------- --------------------- business segment b business segment c business segment d date country x country y a b c d e sub loan ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- - ----------------- --------------- --------------- --------------- --------- plr-135192-03 -------- dear ------------------ this is in response to a letter dated date on behalf of distributing requesting rulings under sec_355 of the internal_revenue_code the code with respect to a proposed transaction additional information was received in letters dated date date and date 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 the material information is summarized below distributing is the common parent of an affiliated_group that files a consolidated federal_income_tax return on a calendar_year basis distributing’s stock is wholly owned by company r a country x entity treated as a corporation for united_states federal tax purposes whose stock in turn is indirectly held e more than by parent a country y company distributing is a holding_company with no material assets other than the stock of sub sub is a holding_company with no material assets other than the stock of sub the stock of sub and intercompany receivables sub is a holding_company with no material assets other than the stock of sub sub sub sub and controlled and intercompany receivables distributing has supplied information indicating that sub sub sub and controlled have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years controlled is engaged in business a business a is part of business segment b the companies owned by company r are also engaged in business segment c and business segment d the management of the company r group has decided that it is necessary and appropriate to restructure some of its subsidiaries to form a worldwide business segment b business ultimately company r would like to create separate worldwide groups for business segment c and d as well as a result of the proposed restructuring a newly organized foreign holding_company will own all the company r companies engaged in business segment b the restructuring is expected to improve management focus on business segment b distributing therefore proposes the following series of transactions intended to take place on the same day plr-135192-03 sub will distribute all of the stock of controlled to sub distribution sub will not surrender any stock of sub in the transaction sub will distribute all of the stock of controlled to distributing distribution distributing will not surrender stock of sub in the transaction controlled will assume or will be assigned what is represented to be a commercially reasonable portion based on cash_flow projections income projections and financial ratios of a revolving facility agreement between distributing as borrower and an indirect wholly-owned subsidiary of parent as lender the distributing loan on which the balance as of date was dollar_figurea distributing will distribute all of the stock of controlled to company r distribution collectively distribution distribution and distribution may hereinafter be referred to as the distributions in return for the transfer of the stock of controlled by distributing to company r company r will surrender a portion of the stock of distributing in anticipation of its receipt of controlled company r will form a new foreign_corporation to act as a holding_company for the worldwide business segment b group following the distributions company r will transfer all of the controlled stock to the new holding_company as part of the same plan company r expects to contribute or sell to the new holding_company its other worldwide business segment b companies prior to the distributions depending upon results of final valuations of the operations within the distributing group the following transactions may be undertaken in order to meet the active business requirement of sec_355 with respect to sub sub and distributing distributing’s intercompany liability to sub in the amount as of date of dollar_figured will be repaid with cash sub will distribute the cash to sub and sub will distribute the cash to distributing sub and sub will restructure a loan from sub to sub the sub loan into a formal interest-bearing note that is intended to qualify as a security for u s federal_income_tax purposes sub and sub will restructure certain intercompany advances from sub to sub in the amount as of date of dollar_figureb into a formal interest-bearing note that is intended to qualify as a security for u s federal_income_tax purposes plr-135192-03 sub and sub will restructure certain intercompany advances from sub to sub in the amount as of date of dollar_figurec into a formal interest-bearing note that is intended to qualify as a security for u s federal_income_tax purposes sub will contribute the stock of sub to sub sub will contribute the stock of sub to sub sub will immediately contribute the stock of sub to sub sub and sub are expected to be merged into a single corporation thereafter distributing has made the following representations in connection with the distributions a no part of the consideration to be distributed by sub sub or distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation b the gross assets of the business activity actively conducted as defined in sec_355 by controlled will have a fair_market_value equal to at least of the total fair_market_value of controlled’s gross assets at the time of the distributions c the gross assets of the business activity actively conducted as defined in sec_355 by sub will have a fair_market_value equal to at least of the total fair_market_value of sub 4’s gross assets at the time of the distributions d the gross assets of the business activity actively conducted as defined in sec_355 by sub will have a fair_market_value equal to at least of the total fair_market_value of sub 5’s gross assets at the time of the distributions e the gross assets of the business activity actively conducted as defined in sec_355 by sub will have a fair_market_value equal to at least of the total fair_market_value of sub 6’s gross assets at the time of the distributions f the five years of financial information submitted on behalf of controlled sub sub and sub are representative of each such corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted g immediately after the distributions at least of the fair_market_value of the gross assets of sub will consist of the stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 h immediately after the distributions at least of the fair_market_value of the gross plr-135192-03 assets of sub will consist of the stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 i immediately after the distributions at least of the fair_market_value of the gross assets of distributing will consist of the stock and securities of controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 j following the distribution each of distributing sub and sub through its controlled corporations in each case and each of sub sub sub and controlled will continue the active_conduct of its business independently and with its separate employees k the distributions are carried out for the following corporate business_purpose among others to facilitate the internal reorganization of the distributing group which is intended among other things to reorganize the current board_of directors structure to institute a board that is separately focused on the operational and strategic decisions of business segment b to strengthen the focus of the worldwide business segment b business on global product development and to facilitate the sharing of technologies and suppliers to enable management to financially consolidate its worldwide business segment b business and to facilitate business growth and management decisions and to facilitate organic and acquisitive growth of the business segment b business the transaction is motivated in whole or substantial part by this corporate business_purpose l except pursuant to distribution there is no plan or intention by the shareholders or security holders of sub to sell exchange transfer by gift or otherwise dispose_of any of their stock_or_securities in sub or controlled after distribution m except pursuant to distribution there is no plan or intention by the shareholders or security holders of sub to sell exchange transfer by gift or otherwise dispose_of any of their stock_or_securities in sub or controlled after distribution n except as discussed above with respect to the combination of controlled with the worldwide business segment b group there is no plan or intention by the shareholders or security shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock_or_securities in distributing or controlled after distribution o there is no plan or intention by sub sub distributing or controlled directly or through any subsidiary_corporation to purchase or otherwise reacquire any of its outstanding_stock after the transaction p except as discussed above with respect to the merger of sub and sub there is no plan or intention to liquidate distributing sub sub sub sub sub plr-135192-03 or controlled to merge any of such corporations with any other corporations or to sell or otherwise dispose_of the assets of any of such corporations after the distributions except in the ordinary course of business q distribution is not part of a plan or series of related transactions within the meaning of code ' e pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a or greater interest as defined in sec_355 of either sub or controlled r distribution is not part of a plan or series of related transactions within the meaning of code ' e pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a or greater interest as defined in sec_355 of either sub or controlled s distribution is not part of a plan or series of related transactions within the meaning of code ' e pursuant to which one or more persons will acquire other than as a result of the distribution directly or indirectly stock possessing a or greater interest as defined in sec_355 of either distributing or controlled t the distributions will not be disqualified distributions as defined in sec_355 taking into account the application of sec_355 and immediately after the distributions no person holds disqualified_stock in sub sub or distributing that constitutes a or greater interest in sub sub or distributing and no person holds disqualified_stock in controlled that constitutes a or greater interest in controlled u no intercorporate debt will exist between controlled and either sub sub or distributing at the time of or subsequent to the distributions v immediately before the distributions items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1006_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further sub 2’s excess_loss_account if any with respect to the stock of controlled will be included in income immediately before distribution1 sub 1’s excess_loss_account if any with respect to the stock of controlled will be included in income immediately before distribution and distributing’s excess_loss_account if any with respect to the stock of controlled will be included in income immediately before distribution w payments made in connection with all continuing transactions if any between the distributing and controlled corporations will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length plr-135192-03 x no two parties to the transactions are investment companies as defined in sec_368 and iv y distributing was not a united_states_real_property_holding_corporation as defined in sec_897 at any time during the five-year period ending on the date of the distributions controlled was also not a united_states_real_property_holding_corporation as defined in sec_897 at any time during the five-year period ending on the date of the distributions z neither distributing nor controlled will be a united_states_real_property_holding_corporation as defined in sec_897 immediately after the distributions based solely on the information submitted and the representations made we have concluded that no gain_or_loss will be recognized by sub upon the distribution of all of the stock of controlled in distribution sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of sub upon the receipt of the stock of controlled in distribution sec_355 the aggregate basis of the controlled stock and the sub stock in the hands of sub immediately after distribution1 will be the same as the aggregate basis of the sub stock immediately prior to distribution1 allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock to be received by sub in distribution will include the holding_period of the sub stock with respect to which the distribution will be made provided such stock was held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between sub and controlled will be made under sec_1_312-10 no gain_or_loss will be recognized by sub upon the distribution of all of the stock of controlled in distribution sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of distributing upon the receipt of the stock of controlled in distribution sec_355 plr-135192-03 the aggregate basis of the controlled stock and the sub stock in the hands of distributing immediately after distribution will be the same as the aggregate basis of the sub stock immediately prior to distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock to be received by distributing in distribution will include the holding_period of the sub stock with respect to which the distribution will be made provided such stock was held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between sub and controlled will be made under sec_1_312-10 no gain_or_loss will be recognized by distributing upon the distribution of all the stock of controlled in distribution sec_355 and sec_1_367_e_-1 no gain_or_loss will be recognized by distributing upon the distribution of all of the stock of controlled in distribution sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of company r upon the receipt of the stock of controlled in distribution sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of company r immediately after distribution will be the same as the aggregate basis of the distributing stock immediately prior to distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock to be received by company r will include the holding_period of the distributing stock with respect to which the distribution will be made provided such stock was held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 company r’s transfer of the controlled stock to a new foreign holding_company will have no effect on rulings through above 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 plr-135192-03 this letter in particular we express no opinion as to the tax consequences of the assumption by or assignment to controlled of a portion of the distributing loan specifically we express no opinion as to a whether the portion of the distributing loan assumed by or assigned to controlled is in fact a commercially reasonable portion and the possible application of sec_482 to interest payments by controlled on that portion of the loan we also express no opinion as to the tax consequences of the repayment by distributing of its intercompany liability to sub to be followed by the distribution of the cash to sub and by sub to distributing if such repayment and distributions do in fact take place this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant sincerely marlene p oppenheim marlene p oppenheim senior counsel branch office of associate chief_counsel corporate cc-