t c summary opinion united_states tax_court cynthia a bullock petitioner and brian bullock intervenor v commissioner of internal revenue respondent docket no 29221-13s filed date cynthia a bullock pro_se brian bullock pro_se richard charles grosenick mark j miller and ellen french student for respondent summary opinion ashford judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case petitioner seeks review under sec_6015 of respondent’s determination that she is not entitled to relief from joint_and_several_liability for the taxable_year with respect to a proposed income_tax_liability of dollar_figure arising from unreported taxable wages interest and cancellation of debt we hold that she is not entitled to relief from joint_and_several_liability under sec_6015 c or f background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner cynthia a bullock resided in wisconsin and intervenor brian bullock petitioner’s former spouse resided in florida at the time the petition was filed with the court petitioner and intervenor married in and they remained married in from date to date petitioner and intervenor together with unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure their two minor daughters were living in florida during that time petitioner was employed at a macy’s department store in clearwater florida and intervenor was self-employed working as a d j and videographer in date the family moved to wisconsin when petitioner received a job transfer to a macy’s department store in wisconsin where she had relatives intervenor did not have employment in wisconsin and was forced to return to florida while continuing to try to find employment in wisconsin so that he could eventually rejoin the family during petitioner’s job at macy’s was the main source_of_income for the family during the marriage intervenor managed the family’s finances including paying the bills and filing the tax returns to that end with respect to the joint federal_income_tax return joint_return in early when petitioner received in wisconsin two forms w-2 wage and tax statement she simply mailed them to intervenor without reviewing them as a result she did not confirm whether these two forms w-2 reflected all of her wages and taxes withheld from her employment with macy’s in wisconsin as well as in florida for or whether she was missing any forms w-2 for according to petitioner she reminded intervenor several times that she was going to have florida and wisconsin w-2s for the two forms w-2 petitioner mailed to intervenor and no other were used to report petitioner’s wage income on the joint_return which was prepared by the same accountant intervenor had hired to prepare the joint federal_income_tax returns for all the years that petitioner and intervenor were together once the joint_return was prepared intervenor mailed it to petitioner in wisconsin for her signature although she could have petitioner did not review the joint_return for correctness rather she simply signed it in the appropriate places which intervenor had marked with flags thus petitioner did not check whether the joint_return reflected all of her wages and tax withheld from her employment with macy’s in whether in wisconsin or florida or whether any other reportable income items may have been missing from the joint_return after signing the return she mailed it back to intervenor to file the joint_return reflected a tax_refund and when the refund check which was made out to petitioner and intervenor was received by intervenor in florida he mailed it to petitioner to endorse and return to him so that he could cash it she did so around this same time petitioner decided that she wanted a divorce because the marriage was irrevocably broken and it had been so for several years upon cashing the refund check intervenor sent petitioner half of the proceeds minus the cost of filing for divorce on date respondent sent to petitioner and intervenor at their florida address a notice proposing an income_tax increase against them of dollar_figure for the taxable_year the basis for the proposed increase was that certain income and payment information reported by third parties to respondent differed from the amounts shown on the joint_return the notice listed the following discrepancies relating to tax withheld interest taxable wages and cancellation of debt item no issue received from account information amount reported to respondent by others amount included on the joint_return tax withheld macy’s inc form_w-2 tax withheld tax withheld tax withheld total interest interest total taxable wages taxable wages total cancellation of debt macy’s inc macy’s inc form_w-2 form_w-2 wachovia bank n a form int macy’s inc form_w-2 bank of america n a form 1099-c dollar_figure big_number big_number big_number --- --- --- dollar_figure -0- -0- -0- --- cancellation of debt_cancellation of debt total bank of america n a form 1099-c big_number big_number --- the evidentiary record is silent as to whether petitioner or intervenor responded to the notice petitioner and intervenor divorced on date at trial petitioner testified that she had no knowledge that she and intervenor had underreported their income on the joint_return until date when she first received a letter from respondent to that effect petitioner also testified that upon receiving the letter she contacted macy’s and was told that a third form_w-2 for was issued to her at her florida address reflecting wages and tax withheld from her employment with macy’s in clearwater florida according to petitioner she did not receive this form_w-2 nor did intervenor ever mention it or forward it to her at trial petitioner described intervenor as controlling but never physically abusive and uncooperative during the divorce proceedings petitioner further acknowledged that with intervenor’s not working for extended periods she relied on a bank of america credit card solely in her name to pay the family’s living_expenses such as groceries and that in because the outstanding amount of debt on the credit card was insurmountable she worked out a settlement with bank of america resulting in a cancellation of the debt petitioner provided no testimony regarding receipt of the form 1099-c cancellation of debt issued by bank of america reporting dollar_figure of cancellation of debt or why this amount was not reported on the joint_return petitioner also acknowledged having a bank account with wachovia bank but she provided no documentation to establish that the account was a joint account and she similarly provided no testimony regarding receipt of the form 1099-int interest_income issued by wachovia bank reporting dollar_figure of interest or why this amount was not reported on the joint_return on september and date intervenor and petitioner respectively filed forms request for innocent spouse relief at some point before date respondent determined that intervenor was entitled to full relief and that petitioner was not entitled to either full or partial relief petitioner submitted to respondent a statement of disagreement dated date appealing the determination against her on date respondent’s office of appeals issued a final notice_of_determination to petitioner denying relief from joint_and_several_liability on date petitioner timely filed a petition with this court seeking review of respondent’s determination pursuant to sec_6015 and rule intervenor filed a timely notice opposing petitioner’s request for relief discussion generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 if a joint_return is made the tax is computed on the spouses’ aggregate income and each spouse is fully responsible for the accuracy of the return and is jointly and severally liable for the entire amount of tax_shown_on_the_return or found to be owing sec_6013 114_tc_276 nevertheless under certain circumstances a spouse who has made a joint_return may seek relief from joint_and_several_liability under procedures set forth in sec_6015 sec_6015 sec_6015 provides a spouse with three alternatives full or partial relief under subsection b proportionate relief under subsection c and if relief is not available under subsection b or c equitable relief under subsection f in this case respondent evaluated petitioner’s entitlement to relief from joint_and_several_liability under each alternative and we have jurisdiction to do the same see sec_6015 in doing so we apply a de novo standard of review as well as a de novo scope of review 132_tc_203 petitioner bears the burden of proving that she is entitled to relief under sec_6015 see rule a porter v commissioner t c pincite 119_tc_306 aff’d 101_fedappx_34 6th cir stergios v commissioner tcmemo_2009_15 a relief under sec_6015 in order to be entitled to relief under sec_6015 the spouse who requests that relief requesting spouse must satisfy the following conditions a joint_return has been made for a taxable_year on such return there is an understatement_of_tax attributable to erroneous items of the nonrequesting spouse the requesting spouse did not know and had no reason to know of the understatement at the time the return was signed taking into account all facts and circumstances it is inequitable to hold the requesting spouse liable for that year’s deficiency in tax attributable to such understatement and the requesting spouse timely elects relief under sec_6015 sec_6015 these conditions are stated in the conjunctive and thus a failure to meet any one of them precludes the requesting spouse from being entitled to relief under sec_6015 alt v commissioner t c pincite mcclelland v commissioner tcmemo_2005_121 slip op pincite in this case petitioner filed a joint federal_income_tax return for and timely filed a request for relief but on the basis of the existing record she plainly cannot satisfy the second condition the second condition under sec_6015 requires the requesting spouse to show that the understatement_of_tax is attributable to erroneous items of the other spouse sec_6015 an erroneous item is any item resulting in an understatement or deficiency in tax to the extent that such item is omitted from or improperly reported including improperly characterized on an individual_income_tax_return sec_1_6015-1 income_tax regs furthermore an erroneous item is generally attributed to the individual whose activities gave rise to the item see id para f see also agudelo v commissioner tcmemo_2015_124 at work v commissioner tcmemo_2014_190 at sec_1_6015-3 income_tax regs here there were three erroneous items the unreported wage income from macy’s in clearwater florida interest_income from a wachovia bank account and cancellation of debt from settling an outstanding credit card debt with bank of america the facts in the record demonstrate that these erroneous items are attributable solely to petitioner indeed petitioner’s position in this regard has never wavered at trial she reiterated that all of the macy’s wage income was hers and acknowledged that the bank of america credit card and the wachovia bank account were in her name thereby making the cancellation of debt and the interest_income attributable to her because petitioner has failed to satisfy the second condition under sec_6015 we need not decide whether she satisfied the other two conditions under sec_6015 ie whether she lacked the requisite knowledge of the understatement at the time she signed the joint_return and whether equity considerations favor her accordingly petitioner is not entitled to relief under sec_6015 b relief under sec_6015 subject_to other conditions sec_6015 allows a divorced or separated spouse to elect to limit his or her liability for a deficiency assessed with respect to a joint_return to the portion of such deficiency allocable to him or her under subsection d pursuant to sec_6015 any item giving rise to a deficiency on a joint_return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable_year further e rroneous items of income are allocated to the spouse who was the source of the income sec_1_6015-3 income_tax regs see also agudelo v commissioner at in this case while petitioner and intervenor have been divorced since date petitioner was the source of the erroneous items that led to the deficiency and thus these items would be allocable to petitioner if she and intervenor had filed separate returns at the time as a result sec_6015 affords her no relief c relief under sec_6015 where relief is not available under sec_6015 or c sec_6015 grants respondent the discretion to relieve a requesting spouse of joint liability if taking into account all the facts and circumstances it would be inequitable to hold the requesting spouse liable for the unpaid tax or deficiency or any portion thereof additionally sec_6015 authorizes granting such equitable relief u nder procedures prescribed by the secretary for requests filed on or after date and for requests pending in any federal court on or after date revproc_2013_34 2013_43_irb_397 prescribes the guidelines that respondent will consider in determining whether equitable relief is appropriate although we are not bound by them since this case was filed and pending after date we will analyze petitioner’s request under these guidelines to ascertain whether she satisfies the requirements for relief under sec_6015 see agudelo v commissioner at work v commissioner tcmemo_2014_190 at the revenue_procedure begins by establishing threshold conditions that a requesting spouse must satisfy to be eligible for equitable relief the threshold conditions are the requesting spouse filed a joint_return for the taxable_year for which relief is sought relief is not available to the requesting spouse under sec_6015 or c the claim for relief is timely filed no assets were transferred between the spouses as part of a fraudulent scheme the nonrequesting spouse did not transfer disqualified assets to the requesting spouse the requesting spouse did not knowingly participate in the filing of a fraudulent tax_return and absent certain enumerated exceptions the tax_liability from which the requesting spouse seeks relief is attributable to an item of the nonrequesting spouse revproc_2013_34 sec_4 i r b pincite these conditions like the conditions under sec_6015 are stated in the conjunctive thus a requesting spouse must satisfy all seven of them before relief may be granted agudelo v commissioner at petitioner meets the first six threshold conditions but does not satisfy the seventh condition generally the income_tax_liability from which the requesting spouse seeks relief must be attributable either in full or in part to an item of the nonrequesting spouse or an underpayment resulting from the nonrequesting spouse’s income unless a specified exception applies see revproc_2013_34 sec_4 i r b pincite if the liability is partially attributable to the requesting spouse then relief can be considered only for the portion of the liability attributable to the nonrequesting spouse id as explained supra the entire liability at issue here is attributable to petitioner not intervenor and while there are certain enumerated exceptions to the seventh threshold condition on the basis of the existing record none are applicable here accordingly petitioner is not entitled to relief under sec_6015 conclusion petitioner is not entitled to relief under sec_6015 c or f for relief under sec_6015 hinges on attributing the income_tax_liability which in this case as petitioner admits is entirely attributable to her petitioner cannot be granted relief under sec_6015 just because she did not review the joint_return and her income was used to support intervenor and their children in the exceptions are attribution solely due to the operation of community_property law nominal ownership misappropriation of funds abuse and fraud committed by the nonrequesting spouse revproc_2013_34 sec_4 2013_43_irb_397 we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


significant index no internal_revenue_service department oft eau washington dc person to contact telephone number refer reply to op e ep t date jul legend company a plan x dear this letter is in response to a request for a ruling letter submitted on your behalf by your authorized representative on date as supplemented by letters dated date and date this request concerns the consequences for an employee_stock_ownership_plan esop under internal_revenue_code code sec_401 sec_4975 and sec_4975 of a proposed election under code sec_1362 your authorized representative has submitted the following facts and representations in support of the requested rulings company a established plan x effective as of date plan x is a leveraged_esop which is intended to meet the requirements of code sec_401 and sec_4975 the most recent favorable determination_letter for plan x is dated date in plan x used the proceeds of a private_placement borrowing to purchase company a in plan x borrowed funds from company a to purchase most of the common shares remaining shares and to repay the original loan this loan exempt loan is intended to be an exempt loan as described in code sec_4975 the exempt loan is to be repaid over a 15-year period commencing in using deductible company a contributions to plan x and cash dividends on allocated and unallocated company a stock held by plan x collateral for the exempt loan consists of unallocated shares of stock held in a suspense_account when plan x makes its annual payments on this loan these shares are released and allocated to participants’ accounts in accordance with the terms of plan x and applicable sections of the excise_tax regulations as the lender company a has no recourse against these allocated shares page company a intends to elect in accordance with the provisions of code sec_1362 to be an s_corporation the fiduciaries of plan x will be asked to consent to this election assuming that this consent is obtained and the election becomes valid company a intends to amend plan x to become a stock bonus and money_purchase_pension_plan shares of company a stock held by plan x both prior to and subsequent to the s_corporation_election are qualifying employer_securities within the meaning of code sec_409 following this election plan x will continue to be invested primarily in such securities company a intends to make the maximum deductible contribution permitted under code sec_404 to the extent that such a contribution is not sufficient to make the annual exempt loan payments plan x will first use earnings on unallocated shares and then if necessary earnings on allocated shares these earnings may include dividends to the extent that company a has accumulated_earnings_and_profits from its prior status as a c_corporation if employer contributions and dividends are not sufficient to make the annual exempt loan payment then additional_amounts will come from company a’s accumulated_adjustments_account aaa maintained in accordance with code sec_1368 the aaa is not increased by capital contributions all amounts held within it would be payable as dividends under code sec_301 if company a remained a c_corporation if earnings on allocated shares are used to make exempt loan payments the shares released from the suspense_account will first be allocated to participants’ accounts on a fair_market_value basis according to the amount of earnings taken from each such account to make the exempt loan payment based on the foregoing facts and representations your authorized representative has requested the following rulings on your behalf a valid s_corporation_election by company a will not affect plan x's qualified status under sec_401 of the code nor plan x's status as an esop within the meaning of sec_4975 of the code to the extent that the plan x fiduciaries use the earnings whether dividends or otherwise received on unallocated shares of company a stock held in the suspense_account to repay the exempt loan the transactions will not cause the exempt loan to fail to satisfy sec_4975 of the code to the extent that the plan x fiduciaries use the earnings whether dividends or otherwise received on allocated shares of company a stock held in participants' accounts to repay the exempt loan the transactions will not cause the exempt loan to fail to satisfy sec_4975 of the code the replacement of earnings on allocated shares of company a stock used to repay the exempt loan will not result in annual_additions to participants' accounts under sec_415 of the code code sec_401 provides that a_trust created or organized in the united_states and forming part of a stock bonus pension or profit-sharing_plan of an employer for the exclusive th page benefit of his employees or their beneficiaries shall constitute a qualified_trust under this section if certain requirements are met code sec_4975 generally defines an esop as a defined_contribution_plan which is a stock_bonus_plan which is qualified or a stock bonus and a money purchase plan both of which are qualified under sec_401 and which are designed to invest primarily in qualifying employer_securities section dollar_figure of revproc_99_4 lr b provides that the national_office of the service ordinarily will not issue letter rulings on matters involving a plan's qualified status under sec_401 through and sec_4975 these matters are generally handled by the key district offices' determination_letter program since your first requested ruling involves plan x’s qualified status under code sec_401 and sec_4975 we decline to rule in accordance with the revenue_procedure code sec_4975 imposes a tax on prohibited_transactions but provides an exemption in sec_4975 for a loan to a leveraged_esop as defined in sec_4975 if such loan is primarily for the benefit of participants and beneficiaries of the plan requirements concerning the interest rate and collateral must also be met sec_54_4975-7 provides that exempt loans will be subjected to special scrutiny to ensure that they are primarily for the benefit of participants and their beneficiaries sec_54_4975-7 of the regulations states that an exempt loan must be primarily for the benefit of the esop participants and their beneficiaries and that all of the surrounding facts and circumstances will be considered in determining whether the loan satisfies this requirement it further states that no loan will satisfy this requirement unless it satisfies the requirements of sec_54_4975-7 sec_54_4975-7 of the regulations states in part that no person entitled to payment under the exempt loan shall have any right to assets of the esop other than i collateral given for the loan ii contributions other than contributions of employer_securities that are made under an esop to meet its obligations under the loan and iii earnings attributable to such collateral and the investment of such contributions the regulation further states that the payments made with respect to an exempt loan by the esop during a plan_year must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less such payments in prior years in the present case since the unallocated shares are held in the suspense_account as collateral for the exempt loan the earnings attributable to such shares may be used to make payments on the exempt loan to the extent that these earnings are from either accumulated_earnings_and_profits or from the aaa therefore with respect to your second requested ruling we conclude that to the extent that the plan x fiduciaries use the earnings whether dividends or otherwise received on unallocated shares of company a stock held in the suspense_account to repay the exempt loan the transactions will not cause the exempt loan to fail to satisfy section a7 page d of the code if such earnings are from either accumulated_earnings_and_profits or from the aaa maintained by company a however sec_54_4975-7 of the regulations does not provide that exempt loan payments may be made from earnings on shares allocated to participants’ accounts therefore such a transaction fails to meet the requirements of sec_54_4975-7 and sec_54 b accordingly with respect to your third requested miling we conclude that to the extent that the plan x fiduciaries use the earnings whether dividends or otherwise received on allocated shares of company a stock held in participants' accounts to repay the exempt loan the transactions will cause the exempt loan to fail to satisfy sec_4975 of the code our response to your third requested ruling renders your fourth requested ruling moot so it is not necessary to provide a response to it this ruling letter is based on the assumption that plan x continues to be otherwise qualified under cade sec_401 and sec_4975 at all relevant times this ruling is also based on the assumption that the aaa satisfies the requirements of code sec_1368 at all relevant times this ruling is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited by others as precedent a copy of this ruling letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office sincerely yours dy anc v floor frances v sloan chief employee_plans technical branch enclosures notice deleted copy of muling letter cc


internal_revenue_service department of the treasury index numbers washington dc person to contact telephone number refer reply to cc intl br5-plr-114939-99 date date number release date bank country a state date a date b x dear this is in reply to a letter dated date requesting rulings under sec_882 of the internal_revenue_code_of_1986 the code and the interest article of the income_tax treaty between the united_states and country a treaty the information submitted for consideration is substantially as set forth below 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 bank is an international banking institution that is incorporated under the laws of country a and that maintains offices in various countries bank represents that it is not a_trust company bank previously operated a u s branch office under a state banking license full license through which bank engaged in the active_conduct_of_a_banking_financing_or_similar_business in the united_states within the meaning of sec_1 c i of the income_tax regulations regulations pursuant to an order by its federal banking regulator bank was required to relinquish its full license on date a plr-114939-99 during bank’s tax_year ending date b contemporaneously with the surrender of its full license bank was able to continue many of its existing banking activities in the united_states by restructuring the ownership of its u s based activities bank represents that as of date b it transferred its u_s_assets within the meaning of sec_1_884-1 of the regulations to a wholly-owned u s based limited_liability_company llc that will be treated as a disregarded_entity within the meaning of sec_301_7701-2 the employees and income-producing activities of bank’s trade_or_business that operated under its full license will continue to operate and record its activities in the name of the u s based llc through the activities conducted by llc bank’s active_conduct_of_a_banking_financing_or_similar_business in the united_states within the meaning of sec_1_864-4 will continue in the year ending on date b and future years without interruption llc however will not have a banking license and will not be eligible to fund its activities by taking deposits in addition to its active_conduct_of_a_banking_financing_or_similar_business through llc’s activities bank represents that it is also planning to establish an office in the united_states pursuant to a license to establish a representative office in state restricted license under a restricted license the representative office will be permitted to act on behalf of bank in certain capacities such as soliciting and negotiating loans on behalf of bank so long as bank’s personnel located outside the united_states make the ultimate credit decisions the representative office however cannot take deposits in the united_states under a restricted license the representative office will be subject_to supervision and examination by state and federal banking authorities bank is a calendar_year accrual basis taxpayer and has filed a u s income_tax return for a foreign_corporation form 1120f with the internal_revenue_service center in philadelphia to report income effectively connected with its u s banking trade_or_business for tax years prior to the tax years ending on date b requested ruling for tax years beginning with bank’s tax_year ending date b bank has requested that it continue to be treated as a bank for purposes of sec_1_882-5 of the regulations and that the election previously made by bank to use the percent fixed ratio continue to apply for determining its u_s_liabilities sec_1_882-5 of the regulations provides rules for determining the amount of interest_expense of a foreign_corporation that is allocable under sec_882 of the code to income that is or is treated as effectively connected with the conduct_of_a_trade_or_business within the united_states under these rules a taxpayer must determine its worldwide liability-to-asset ratio sec_1_882-5 provides a taxpayer that is a bank as defined in sec_585 without plr-114939-99 regard to the second sentence thereof may elect to use a fixed ratio of percent in lieu of its actual ratio a taxpayer that is neither a bank nor an insurance_company may elect to use a fixed ratio of percent in lieu of the actual ratio bank represents that it timely elected and is currently subject_to the fixed ratio method a bank as defined in sec_585 in relevant part is a corporation that would otherwise meet the definition of a bank within sec_581 except for the fact that it is a foreign_corporation sec_581 provides in relevant part t he term bank means a bank or trust company incorporated and doing business under the laws of the united_states including laws relating to the district of columbia or of any state a substantial part of the business of which consists of receiving deposits and making loans and discounts or of exercising fiduciary powers similar to those permitted to national banks under authority of the comptroller of the currency and which is subject by law to supervision and examination by state or federal authority having supervision over banking institutions since bank is a not a_trust company and a substantial part of its business in the united_states does not consist of exercising fiduciary powers similar to those permitted to national banks under authority of the comptroller of the currency it will only qualify as a bank within the meaning of sec_581 if it engages in the other activities prescribed by the statute thus as applied to bank’s facts code sec_585 by reference to sec_581 requires bank to be substantially engaged in receiving deposits and making loans and discounts and be subject_to supervision and examination by a state or federal regulatory agency as of date a when bank relinquished its full license bank was no longer able to take deposits in the united_states because a substantial part of bank’s u s trade_or_business does not consist of receiving deposits bank does not meet the definition of a bank for purposes of code sec_581 and sec_585 further the scope of bank’s regulatory supervision under a restricted license would only extend to the scope of activities conducted pursuant to the license by the representative office and not the activities conducted by llc bank’s banking_financing_or_similar_business under sec_1_864-4 of the regulations which will be actively conducted through the activities of llc is not subject_to the supervision and examination by a state or federal regulatory agency accordingly based on the facts and representations submitted bank is not considered a bank for purposes of sec_1_882-5 of the regulations beginning the day after date a since bank timely elected under sec_1_882-5 of the regulations to use the fixed ratio method in determining its step-two u s connected liabilities bank must plr-114939-99 switch to the actual ratio method as determined under sec_1_882-5 in order to allocate an appropriate amount of interest_expense associated with the funding of its effectively_connected_income sec_1_882-5 provides an elected method must be used for a minimum of five years before the taxpayer may elect a different method to change an election before the end of the requisite five-year period a taxpayer must obtain the consent of the commissioner the commissioner will generally consent to a taxpayer’s request to change its election only in rare and unusual circumstances sec_1_882-5 provides the general_rule for determining the total amount of u s - connected liabilities for the taxable_year the amount of u s -connected liabilities for the taxable_year equals the total value of u_s_assets for the taxable_year as determined under paragraph b of this section multiplied by the actual ratio for the taxable_year as determined under paragraph c of this section or if the taxpayer has made an election in accordance with paragraph c of this section by the fixed ratio to compute the total value of u_s_assets sec_1_882-5 provides the total value of u_s_assets for the taxable_year is the average of the sums of the values determined under paragraph b of this section of u_s_assets for each u s asset value shall be computed at the most frequent regular intervals for which data are reasonably available in no event shall the value of any u s asset be computed less frequently than monthly beginning of taxable_year and monthly thereafter by a large_bank as defined in sec_585 and semi-annually beginning middle and end of taxable_year by any other taxpayer bank satisfied the definition of bank under sec_585 and met the definition since the date of its election through the beginning of its taxable_year ending on date b and up until it was required to surrender its full license on date a on date a before the end of its tax_year ending date b bank ceased to meet the definition of a bank within the meaning of sec_1_882-5 and by reference sec_585 sec_1_882-5 and c do not provide for the determination of the total value of u_s_assets and u s -connected liabilities under split-year or pro-rata methods to arrive at combined total values for the full taxable_year rather a taxpayer’s elected method must be applied to its total value of u_s_assets for the entire taxable_year to determine its u s -connected liabilities no pro-ration of assets is provided for in sec_1_882-5 to determine the u s -connected liabilities attributable to the period that bank met the definition of bank under sec_585 further the plr-114939-99 regulation requires that the actual ratio for the taxable_year or the fixed ratio be applied accordingly we conclude that the regulations contemplate that the method used by a taxpayer under a proper election for determining the total value of u s -connected liabilities must be applied for an entire taxable_year based on the facts and representations submitted we conclude bank will be permitted to remain on the percent fixed ratio method for the entire tax_year ending on date b since bank satisfied the definition of bank under sec_585 for a substantial part of the tax_year for tax years beginning after bank’s tax_year ending date b bank does not satisfy the definition of bank under sec_585 accordingly the fixed ratio applicable to bank under sec_1_882-5 for tax years beginning after date b i sec_50 percent for tax years beginning after bank’s tax_year ending date b bank may elect to apply the actual ratio method prescribed in sec_1_882-5 if bank so elects it is required under sec_1_882-5 to use the actual ratio for a minimum period of five years beginning with the first year in which bank elects the actual ratio before bank may elect a different method requested ruling for tax years beginning with bank’s tax_year ending date b bank has requested that interest_paid or deemed paid_by its u s permanent_establishment continue to be treated as interest_paid to which the exemption under the interest article of the treaty applies generally the interest article of treaty exempts interest_paid between banks from tax in the source country bank seeks to apply this article with regard to branch-level interest allocated to and borne by its u s permanent_establishment code sec_884 provides that in the case of a foreign_corporation engaged_in_a_trade_or_business_within_the_united_states any interest_paid by such trade_or_business in the united_states shall be treated as if it were paid_by a domestic_corporation code sec_884 provides that to the extent the interest that is allocable to income that is effectively connected or treated as effectively connected with the conduct_of_a_trade_or_business within the united_states exceeds the interest described in sec_884 a foreign_corporation shall be liable for tax under sec_881 in the same manner as if such excess were interest_paid to such foreign_corporation by a wholly owned domestic_corporation on the last day of such foreign corporation’s taxable_year plr-114939-99 sec_1_884-4 of the regulations provides that a portion of the excess_interest of a foreign_corporation that is a bank as defined in sec_585 without regard to the second sentence thereof shall be treated as interest on deposits as described in sec_871 and shall be exempt from the tax imposed by sec_881 as provided in such section provided that a substantial part of such bank’s business in the united_states as well as all other countries in which it operates consists of receiving deposits and making loans and discounts code sec_884 and sec_1_884-4 of the regulations provide that in the case of any interest described in sec_884 treaty benefits shall apply if such treaty is an income_tax treaty and the foreign_corporation receiving the interest is a qualified_resident of such foreign_country the treaty between the united_states and country a is an income_tax treaty bank represents that it is a qualified_resident of country a the interest article of the treaty provides that the rate_of_tax imposed by one contracting state on interest derived from sources in that contracting state by a resident of the other contracting state shall not exceed x this article of the treaty provides however that such interest shall be exempt from tax by the other contracting state if it is interest_paid between banks except on loans represented by bearer instruments therefore interest_paid by a bank in the united_states to a bank in country a is not subject_to u s taxation under the interest article of the treaty for purposes of applying this article both the payor and the payee must independently satisfy the definition of bank the treaty does not provide a definition of bank the treaty provides that undefined terms shall have the meaning which it has under the laws of the country whose tax is being determined unless the context requires otherwise because the context does not shed light on the meaning of the term in this situation it is necessary to refer to domestic law sec_1_884-4 of the regulations which applies to foreign_corporations that are treated as banks for purposes of the branch-level interest tax specifically refers to sec_585 for the definition of bank for reasons discussed above in requested ruling bank’s representative office does not qualify as a bank within the definition of code sec_581 and sec_585 in short bank’s representative office is not permitted to take deposits without a full license and as a result a substantial part of its business does not consist of receiving deposits accordingly the u s branch is not a bank within the definition of sec_585 because it does not meet the criteria required by sec_581 based on the facts and representations submitted we conclude bank cannot avail itself of the interest article of the treaty payments of branch- level interest as defined in sec_884 to bank from its representative office are not plr-114939-99 payments between banks as is required to receive benefits under the treaty accordingly any excess_interest is subject_to taxation in accordance with sec_884 based on bank’s representation that it is a qualified_resident as defined in sec_1_884-5 of country a its country of incorporation bank is entitled to the reduced withholding rate of x under the interest article of the treaty in accordance with sec_1_884-4 of the regulations a copy of this letter must be attached to any income_tax return to which it is relevant including any previously filed return 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 the taxpayer sincerely paul epstein senior technical reviewer branch office of associate chief_counsel international


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 b01 plr-130989-04 date date legend x ---------------------------------------- ---------------------------- prs ------------------------------- ---------------------------- state ---------- d1 ------------------------- d2 ---------------------- d3 ---------------------- d4 ------------------------ dear ------------------ this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted and representations therein x was incorporated under the law of state on d1 on d3 prs a partnership owned by some of the shareholders of x became a shareholder of x shortly thereafter prs was dissolved on or about d4 x filed an election to be treated as a subchapter_s_corporation effective d2 x represents that its invalid s_corporation_election was inadvertent unintended and not the result of tax_avoidance or retroactive tax planning x further represents that at all relevant times x and its shareholders treated x as an s_corporation x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation plr-130989-04 law and analysis sec_1361 defines an as corporation as a small_business_corporation for which an election under ' a is in effect sec_1361 defines a asmall business corporation as a domestic_corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in subsection c who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides in part that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation and an election under sec_1362 shall be valid only if al persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1362 provides that an election under ' a shall be terminated whenever the corporation ceases to be a small_business_corporation sec_1362 provides that if an election under ' a by any corporation a was not effective for the taxable_year for which made by reason of failure to meet the requirements of sec_1362 or to obtain shareholder consents or b was terminated under ' d the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation is treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s election to be treated as an s_corporation as of d2 was invalid and also conclude that the invalid election constitutes an inadvertent invalid election within the meaning of sec_1362 under the provisions of ' f x will be treated as an s_corporation as of d2 and thereafter provided that x s s_corporation_election is not otherwise terminated under ' d plr-130989-04 new form_2553 election by a small_business_corporation with the appropriate service_center with an effective date of d2 this ruling is conditioned on x within days of the date of this letter filing a except as specifically provided herein no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed as to whether x is an s_corporation for federal tax this ruling is directed only to the taxpayer requesting it sec_6110 of under a power_of_attorney on file in this office a copy of this letter will be sent to the code provides that it may not be used or cited as precedent your authorized representatives s david r haglund sincerely david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date internal_revenue_service index numbers - ---------------------------------------- ------------------------------------------- ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100388-06 date date legend x ------------------------------------------- --------- -------------- ------------------ ---------- d1 country 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 for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 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 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to based on the facts submitted and representations made we conclude that the determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code except as specifically set forth above no opinion is expressed or implied as to sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


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 psi - plr-155953-03 date date -------------- ------------------- ---------------------- legend x ------------------------ ---------------- y ----------------------- ------------------------------------------ state d1 dear ----- --------- date requesting that the service grant x an extension of time pursuant to ' of the procedure and administration regulations to file a form_8832 entity classification election to be treated as an association_taxable_as_a_corporation for federal_income_tax purposes under the laws of state on d1 x is wholly owned by y a corporation formed under the laws of state y intended that x elect under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation effective d1 however x inadvertently failed to timely file a form_8832 entity classification election the information submitted states that x is a limited_liability_company formed this responds to a letter from x’s authorized representative dated plr-155953-03 sec_301_7701-3 provides guidance on the classification of a domestic sec_301_9100-1 through provide the standards the sec_301_9100-1 provides that the commissioner may grant a reasonable sec_301_7701-3 provides that an entity classification election must be filed eligible_entity for federal tax purposes generally a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner unless the entity elects otherwise to elect to be classified other than as provided in ' b an eligible_entity must file a form_8832 with the service_center designated on that form on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed 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 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to treat x as an association_taxable_as_a_corporation effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose sec_301_9100-2 provides the rules governing automatic extensions of time for based solely on the information submitted and the representations made we sec_301_9100-3 provides the standards the commissioner will use to except as specifically set forth above no opinion is expressed concerning the plr-155953-03 federal tax consequences of the facts described above under any other provision of the internal_revenue_code provides that it may not be used or cited as precedent being sent to x’s authorized representative this ruling is directed only to the taxpayer s requesting it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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-140150-09 date march grantor bank trust trust trust sub- trusts trust sub- trusts date date date merger agreement state court ------------------- ----------------------------- --------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------------- ----------------- ------------------- ---------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ --------------------------- --------------------------------------------------------------- plr-140150-09 ---------------------------------------------------------- ------------- ----------- state court state state state law ------------------------------------------------------------------ state law ------------------------------------------------------------------ state law ---------------------------------------------- state law ---------------------------------------------- a b c d e f g h i ----------------------------------- ----------------------------- ---------------------- ----------------------- --------------------------- ------------------------- ------------------------------- ------------------- --------------------------------------- dear ------------------------------------------------------------------------------ this responds to your letter dated date requesting a ruling pertaining to the estate gift generation-skipping_transfer and income_tax effects of a proposed merger of two irrevocable trusts and respective sub-trusts created prior to date the facts submitted and representations made are as follows grantor has five grandchildren a b c d and e all of whom are over the age of twenty-one f is the daughter of grantor and the mother of a b c d and e g is the spouse of f and father of a b c d and e h is the spouse of d grantor is deceased a b c d and e are alive and each has three children a has two grandchildren on date a date prior to date grantor created an irrevocable_trust trust for the benefit of a b c d and e that was immediately divided into five equal separate trusts one for the benefit of each a b c d and e trust sub-trusts f g and bank are the trustees of the sub-trusts created for the benefit of a and c g b and bank are trustees of the sub-trust created for the benefit of b g h and bank are trustees of the sub-trust created for the benefit of d g e and bank are trustees of the sub-trust created for the benefit of e on date a date prior to date grantor created another irrevocable_trust trust for the benefit of a b c d and e that was immediately divided into five equal separate trusts trust sub-trusts one for the benefit of each a b c d and e f g and bank are trustees of the sub-trusts created for a b c and e g h and bank are trustees of the sub-trust created for the benefit of d the trustees of the trust sub-trusts and the trust sub-trusts are collectively referred to as trustees plr-140150-09 under the terms of articles i ii and iii of trust the trustees of the trust sub-trusts must accumulate income and add it to principal until the grandchild for whose benefit such sub-trust is held reaches age twenty-one at which time the trustees may distribute the income to the beneficiary notwithstanding the previous sentence the trustees may withhold the income and distribute it to a descendant of the grandchild or add it to principal the trustees have the discretionary authority to distribute principal for a grandchild’s or the grandchild’s descendant’s maintenance and education accident illness or other emergencies to enable such persons to purchase build or improve a home to establish a business or profession or to enter into any other financial transaction that the trustees deem to be in the grandchild’s or the grandchild’s descendant’s best interests provided however if any beneficiary is the trustee of the trust established for his benefit the distribution powers are vested exclusively in the other trustees the trustees may also terminate the trust and distribute the trust estate to the grandchild if at any time the trustees are of the opinion that the continuance of the trust is neither necessary nor desirable in the interests of the grandchild upon death each grandchild has the power to appoint his share outright or in trust to any living descendants of grantor except to himself his estate his creditors or creditors of his estate or if there are no living descendants of grantor then to any individual or entity if a grandchild fails to appoint the trust estate then the trustees must distribute the trust estate in equal shares to the grandchild’s living descendants per stirpes or if the grandchild has no living descendants to the living descendants of f provided however if any portion of the trust estate becomes distributable to a grandchild for whose benefit a_trust share exists such portion shall be added to the grandchild’s existing trust under article iv if a descendant of the grandchild becomes entitled to a fractional share of the trust estate before reaching age thirty the trustees are authorized to hold such amounts in trust for the benefit of such descendant the trustees must accumulate income and add it to principal the trustees have discretion to distribute principal for such beneficiary’s maintenance and education the trust will terminate on the earliest to occur of i the death of the beneficiary ii the beneficiary reaching age thirty or iii the twenty-first anniversary of the death of the last to die of the descendants of grantor’s father living on date upon termination the trustees will distribute the trust estate outright to the beneficiary if the trust terminates due to the death of the beneficiary the trustees will distribute the trust estate equally to the living children of the beneficiary or if there are no living children of the beneficiary then to the beneficiary’s intestate heirs under state law article vi provides that any individual trustee may appoint an additional or successor trustee provided however no more than three individuals may serve as trustee of trust at any time any corporate trustee may be removed but such removal will not take effect until a successor corporate trustee is appointed to serve plr-140150-09 under the terms of articles i ii and iii of trust the trustees have discretion to distribute principal for the maintenance and education of the grandchild or his descendant for accident illness or other emergencies of the grandchild or his descendant to enable the grandchild or his descendant to purchase build or improve a home to establish a business or profession or for any other purpose the trustees deem worthwhile and in the best interests of the grandchild or his descendant the trustees may distribute income to the beneficiary or his descendants or may accumulate income and add it to principal furthermore the trustees may terminate the trust by distributing the principal to the grandchild if at any time the trustees believe the continuance of the trust is neither necessary nor desirable in the interests of the grandchild upon death each grandchild has the power to appoint his share outright or in trust to any living descendants of grantor except to himself his estate his creditors or creditors of his estate or if there are no living descendants of grantor then to any individual or entity if a grandchild fails to appoint the trust estate then the trustees must continue to hold the trust estate in one trust for the benefit of the grandchild’s living descendants per stirpes the trustees have authority to distribute the income in equal shares to the living descendants per stirpes or may accumulate income and add it to principal the trustees also have discretion to distribute principal to the descendants for the same purposes as set forth above for a grandchild’s trust the trust estate will terminate on the death of the last to die of the descendants upon termination the trustees will then divide and distribute the remaining trust estate into the number of equal shares necessary to provide one such share with respect to each trust originally created for each grandchild notwithstanding the above all trusts will terminate on the twenty-first anniversary of the death of the last to die of the descendants of grantor who were living on date and the trustees will distribute the trust estate to the persons in equal shares per stirpes for whose primary benefit the trust is held article iv of trust provides that in the event any property becomes distributable to a person under the age of thirty the trustees are authorized to retain such property in trust for the benefit of such person the trustees may distribute principal for the maintenance and education of such person and must accumulate income and add it to principal the trust will terminate upon the earlier to occur of the death of such person or such person reaching age thirty upon termination the trustees shall distribute the principal to such person or if the trust terminates due to the person’s death shall distribute the principal in equal shares to the person’s living children or if the person has no living children in equal shares to the living descendants per stirpes of the most immediate ancestor of such person who is grantor or any descendant of grantor who has living descendants finally article vi of trust states that if any portion of the trust estate is not disposed of pursuant to any other provision of the trust document then the trustees must distribute the trust estate to i plr-140150-09 article viii of trust provides that the individual trustees or if no individual trustees are serving then the majority of grantor’s living children over the age of eighteen or if none the majority of grantor’s living grandchildren over the age of eighteen may appoint successor trustees of the trusts notwithstanding the previous sentence grantor may not be appointed as trustee not more than one corporation and three individual trustees may serve as trustees of the trusts at any one time and in the event that a successor trustee must be appointed after a corporate trustee is removed then if any one or more of the persons appointing the successor trustee is also a beneficiary of such trust then any trustee appointed to replace the removed trustee may not be a person who would be a_related_or_subordinate_party with respect to such beneficiary as defined under sec_672 of the code furthermore any person authorized to appoint a successor trustee is authorized to remove a corporate trustee only f may remove individual trustees state law provides that a trustee who has the absolute discretion to invade the principal of a_trust for the benefit of one or more proper object of the exercise of the power may exercise such discretion by appointing all or part of the principal of the trust in favor of a trustee of another trust provided that the exercise of such discretion a does not reduce any fixed income_interest of any income_beneficiary of the trust b is in favor of the proper objects of the exercise of the power and c does not violate the limitations of state law state law provides that interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a_trust provided that the matters agreed to do not violate a material purpose of the trust and include terms and conditions that could be properly approved by a court state law provides that after notice to the beneficiaries a trustee may combine two or more trusts into a single trust if the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust two or more trusts may be combined into a single trust if the interests of each beneficiary in the trust resulting from the combination are substantially the same as the combined interests of the beneficiary in the trusts prior to the combination trustees represent that on date pursuant to state law the parties agreed to administrative modifications to trust one of the modified terms authorizes the trustees to merge the assets of a_trust estate into a single trust estate provided that in all respects deemed material by the trustees the trust estates to be combined are held on the same terms and conditions and for the benefit of the same beneficiaries also on date pursuant to state law and state law the trustees executed merger agreement which proposes to merge trust and trust effectively merging the trust sub-trust created for the benefit of a b c d and e into the respective trust sub-trust created for such beneficiary the purpose of the proposed merger is for administrative convenience and greater efficiency of management and investment of the trust property currently ten sub-trusts exist and after the proposed mergers five plr-140150-09 sub-trusts will exist the proposed merger will allow each merged trust to be governed by one trust document which will reduce the cost of administrative expenses such as tax compliance accounting costs and management fees state court approved merger agreement and state court approved both the modifications to trust and the merger of the trusts however each court conditioned its approval on the receipt of a favorable ruling by the internal_revenue_service that the proposed mergers will not subject trust or trust to the gst tax under sec_1 of the merger agreement the provisions of trust will govern the merged trust except for the following provisions upon the termination of a merged trust for the benefit of a grandchild in the event the grandchild has not exercised his power_of_appointment granted with respect thereto the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred and the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred in the event any property passing to a beneficiary under the age of thirty is retained by the trustee in trust for such person then in the event of the death of the beneficiary before receiving all trust assets if the beneficiary has no living children the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred and the fractional portion of the merged trust attributable to trust shall be distributed according to the terms of trust as if the merger had not occurred if any merged trust has not terminated prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor’s father living on date then the fractional portion of the merged trust attributable to trust shall terminate on such anniversary and the principal shall be distributed according to the terms of trust as if the merger had not occurred similarly if any merged trust has not terminated prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date then the fractional portion of the merged trust attributable to trust shall terminate on such anniversary and the trustees shall distribute the principal thereof to the person or persons in equal shares per stirpes for whose benefit such trust is being held trustees represent that no additions have been made to either trust or trust after date requested ruling sec_1 trust and trust and the respective sub-trusts are currently exempt from the gst tax under sec_2601 internal_revenue_code code plr-140150-09 the proposed merger of trust and trust and the respective sub-trusts will not cause any distributions from the merged trusts or distributions upon termination of the merged trusts to become subject_to gst tax provided there are no post-merger additions to the merged trusts the proposed mergers will not result in a transfer by any of the beneficiaries that is subject_to gift_tax under sec_2501 no gain_or_loss will be recognized under sec_1001 upon the proposed merger the assets of the merged trusts will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the proposed merger ruling sec_2601 of the code imposes a tax on each generation-skipping_transfer sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c relating to property includible in the grantor's gross_estate under sec_2038 and sec_2042 trusts a and b were in existence and funded prior to date trustees represent that no additions have been made to the principal of either trust after date accordingly based on the facts presented and representations made we conclude that trust and trust and the respective sub-trusts are exempt from the gst tax under sec_2601 ruling sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or will not cause the trust to lose its exempt status the regulation provides that the rules contained in the plr-140150-09 paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst 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 modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy b i a 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 furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust sec_26_2601-1 example considers a situation where the grantor in establishes an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the example concludes that the trust that resulted from the merger will not be subject_to the provisions of chapter the instant case involves facts that are similar to example in sec_26_2601-1 except that certain dispositive provisions remainder beneficiaries and perpetuities periods differ in trust and trust these differences however are accounted for in merger agreement which provides that to the extent the trust provisions differ the fractional portion of the principal of the merged trust attributable to each original trust will be administered in accordance with the original trust documents the rules in sec_26_2601-1 apply in the case of trusts that are exempt from gst tax because the trusts were in existence and irrevocable prior to date based on the facts presented and the representations made we conclude that the merger of trust and trust as described above will not shift any beneficial_interest in the trusts to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in plr-140150-09 addition the consolidation of trusts will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust or trust accordingly based on the information submitted and the representations made we conclude that the proposed merger of trust and trust and the respective sub- trusts will not affect the grandfathered status of these trusts and will not cause any distributions from the merged trust or distributions upon termination of the merged trust to become subject_to gst tax provided there are no post-merger additions to the merged trust ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by an individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift will be considered the amount_of_the_gift sec_2512 states that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift based on the facts submitted and the representations made the beneficial interests of the trust beneficiaries will not change as a result of the proposed merger of trust and trust as described above accordingly based upon the facts provided and the representations made we rule that the proposed merger of trust and trust will not result in a transfer by any of the beneficiaries that is subject_to federal gift_tax under sec_2501 ruling sec_61 of the code defines gross_income as all income from whatever source derived under sec_61 gross_income includes g ains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized 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 entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of plr-140150-09 property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 in cottage savings the supreme court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are 'different' in the sense that is 'material' to the internal_revenue_code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the income and principal distribution provisions of trust and trust are substantially identical the two trusts differ in minor ways the merger agreement recognizes these minor differences and provides that should the differences between the two trusts arise the trusts will be construed in accordance with their original terms with this provision the legal entitlements of the beneficiaries are not affected by the merger the beneficiaries’ interests in the merged trust will not differ in_kind or extent from what they enjoyed under trust and trust the proposed merger of trust and trust is not an exchange of properties that are materially different from one another based on the facts presented and the representations made we conclude that the proposed merger of trust and trust will not result in the recognition of gain_or_loss to either the merged trust or any beneficiary thereof under sec_61 and sec_1001 ruling sec_1015 states that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor under the law applicable to the year in which the transfer was made sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining basis_of_property where more than one person acquires an interest in property by transfer in trust plr-140150-09 under sec_1_1015-1 property acquired by gift has a single uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person in this case neither sec_1001 nor sec_61 applies to the proposed transaction thus based upon the facts provided and the representations made we rule that the assets of each merged trust will have the same basis under sec_1015 and holding_period under sec_1223 both before and after the proposed merger furthermore 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 the ruling s in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue 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 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 james f hogan chief branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------- -------------------------- -------------------------------- in re ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ------------ telephone number -------------------- refer reply to cc psi b04 plr-151448-13 date date -------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------------------- --------------------------- --------------------- --------------------- ----------------------------------- -------------------------- ------------------------ ------ legend grantor spouse trust child child child attorney date date year dear ---------------- facts this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301 of the procedure and administration regulations to allocate spouse’s gst_exemption to a_trust the facts and representations submitted are summarized as follows on date grantor established an irrevocable_trust trust for the benefit of child child child and their descendants trust provides that upon grantor’s death the trustees are to divide trust into three equal shares one share for child one share for child and one share for child plr-151448-13 sec_4 of trust provides that while grantor is alive the trustees may distribute to or spend for the benefit of any one or more of the donees as much of the net_income and principal as the trustee in their sole discretion deem necessary or desirable to provide their proper health support and maintenance in reasonable comfort sec_5 paragraph a a provides that the trustee may distribute for the benefit of any one or more beneficiaries consisting of the child for whom the share was established or any of the child’s descendants as much of the net_income and principal as the trustees in their sole discretion deem necessary or desirable to provide for their proper health support education and maintenance in reasonable comfort at the death of a child until any beneficiary attains the age of the trustees are to distribute as much of the net_income as the trustees in their sole discretion deem necessary for a beneficiary’s proper health support education and maintenance all accumulated income is to be added to principal the trustees are to distribute one-third of the principal of a beneficiary’s share to them when they attain one-half of the principal of a beneficiary’s share is to be distributed to a beneficiary when the beneficiary attains the age of and the balance of a beneficiary’s share is to be distributed to a beneficiary when the beneficiary attains the age of attorney prepared and timely filed grantor and spouse’s form sec_709 united_states gift and generation-skipping_transfer_tax returns reporting the year transfers to trust grantor and spouse elected to gift-split on their form sec_709 thus grantor and spouse each reported half of the gifts made to trust on their respective returns grantor and spouse had intended for trust to have a zero inclusion_ratio however attorney allocated the exemption_amount for the entire value of the combined gifts to trust on grantor’s return and no exemption was allocated on spouse’s return attorney died on date the error was discovered when attorney’s files were transferred to another attorney you have requested an extension of time to allow spouse to make an election under sec_2642 to allocate gst_exemption to the transfers to trust in year effective as of the date of the transfers to trust law and analysis sec_2513 provides that a gift made by one spouse to any person other than his spouse shall be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2513 only applies if both spouses have signified their consent to the application of this section in the case of all such gifts made during the calendar_year by either while married to the other plr-151448-13 sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the year at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in sec_2642 or b under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-151448-13 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore spouse is granted an extension of time of days from the date of this letter to allocate spouse’s available gst_exemption to the date transfers to trust the allocations will be effective as of the date of the transfers to trust and the value of the transfers to trust as determined for federal gift_tax purposes will be used in determining the amount of spouse’s gst_exemption to be allocated to trust the allocation should be made on supplemental form_709 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_709 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we are not ruling on whether the trust will have a zero inclusion_ratio as a result of the allocation of spouse’s gst_exemption to the transfers to the trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-151448-13 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely by _____________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes cc