internal_revenue_service department of the treasury index number washington dc number release date re person to contact telephone number refer reply to cc dom p si 4-plr-105175-99 date date legend settlor corporation affiliate company a stock state a state b successor bank child a child b child c a b c d e testamentary_trust testamentary_trust a testamentary_trust b plr-105175-99 dear in a letter dated date and subsequent submissions you request rulings under sec_2601 of the internal_revenue_code when the settlor died in the residue of his estate passed to the testamentary_trust created under clause eighth of his will corporation was designated as the trustee if corporation ceases to act as trustee successor bank is to be substituted as the trustee under the terms of the testamentary_trust the residue is divided into two equal shares one share is testamentary_trust a for the benefit of child a her children and other descendants the other share is testamentary_trust b for the benefit of child b her children and other descendants testamentary_trust a income distributions during child a’s lifetime eighty-five percent of the testamentary_trust a income was to be paid to child a through date in addition from date through date percent of the testamentary_trust a income was to be paid in equal shares to child a’s children living at the time of distribution beginning on date and for the duration of child a’s life percent of the testamentary_trust a income is to be paid to child a and percent of the income is to be paid to child a’s descendants per stirpes living at the time of distribution if there is no living descendant of child a the income payable to child a’s descendants is to be paid to child a instead any income distributable to a minor may at the trustee’s discretion may be held until the minor attains age income and principal distributions after child a’s death at child a’s death testamentary_trust a will be divided into shares for child a’s then living descendants per stirpes ninety percent of a share’s income will be paid to the beneficiary of that share one-third of the share’s principal will be distributed to the beneficiary upon attaining age one-half of the then principal will be distributed to distributed to the beneficiary at age the balance of the share will be distributed to the beneficiary at age if a beneficiary dies before becoming entitled to distribution of the entire share the trustee will divide that share into shares for the beneficiary’s plr-105175-99 descendants per stirpes if the beneficiary does not leave descendants the trustee will divide the share per stirpes for the living descendants of the beneficiary’s nearest ancestor who is child a or a descendant of child a if none of child a’s descendants are then living the property will be distributed to testamentary_trust b if neither child b nor a descendant of child b is then living the property will be divided into shares for the then living descendants of child c per stirpes however all of the principal and income held in any trust must be distributed no later than years from the date of the last to die of decedent’s descendants who were living on date distributions of principal during the entire trust term during the trust term if any income_beneficiary or beneficiary for whom income is being accumulated is in need of additional moneys for maintenance in health and reasonable comfort or for expenses of accident illness or other misfortune or in the case of a beneficiary under age for reasonable education expenses the trustee may in its discretion after taking into consideration the beneficiary’s other means of support pay to the beneficiary the additional moneys up to and including the entire principal of the trust share being held for that beneficiary consultants child b child a and child c in that order have the authority to direct the trustee on voting company a stock held in the trust in addition child c a and b are designated as consultants to the trustee with powers exercisable in a fiduciary capacity primarily in the interest of the beneficiaries and by a majority vote the consultants’ powers consist of directing the trustee on investments including the retaining selling exchanging or leasing any trust property investing trust funds acquiring trust property and voting corporate stock other than company a stock the consultants may surrender their powers and thereafter resume them on written notice to the trustee if less than three consultants are available to act child c is to act as sole consultant if there are less than three consultants and child c is not able to act then no consultants are to act and the trustee will have full power to administer the trusts at present child c is serving as the sole consultant testamentary_trust b the provisions of testamentary_trust b are identical to those of testamentary_trust a except that under testamentary_trust b child b is the beneficiary in the place of child a and child b’s children and other descendants are the beneficiaries in the place of child a’s children and other descendants plr-105175-99 it is represented that no additions actual or constructive were made to the trusts after date the modifications the trustee proposes to petition the appropriate court to make two modifications to each trust the first modification substitution of successor trustees one such modification would provide for affiliate to be the successor trustee of the trusts that is if corporation ceases to act as trustee of testamentary_trust a and testamentary_trust b it would be succeeded as trustee by affiliate rather than successor bank corporation is located in state a and the testamentary trusts are to be governed by the laws of state a affiliate is located in state b and the designation of affiliate as trustee would cause the location of the trust assets and the principal place of trust administration of the testamentary trusts to change from state a to state b however the trustee has represented that the laws of state a would continue to govern the trusts for all purposes both administrative and substantive the second modification designation of successor consultants the testamentary trusts will be modified to provide for successor consultants in the event that child c ceases to act as a consultant for testamentary_trust a the successor consultants would be child a c and d for testamentary_trust b the successor consultants would be child b e and d rulings requested you have asked for rulings that testamentary_trust including testamentary_trust a and testamentary_trust b would not lose the exemption from the application of the generation-skipping_transfer_tax by reason of the substitution of successor trustee and subsequent change in the location of the trust assets and principal place of trust administration or the appointment of the successor consultants sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines a generation-skipping_transfer to mean a taxable_termination a taxable plr-105175-99 distribution or a direct_skip section b a of the tax_reform_act_of_1986 the act and sec_26 b of the generation-skipping_transfer_tax regulations provide that the tax does not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such 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 if an addition is made after date to an irrevocable_trust which is excluded from chapter tax on certain generation-skipping transfers by section b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter in the present case it has been represented that no additions have been made to the trusts after date a modification of a generation-skipping_trust that is otherwise exempt under the act will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust in the present case the proposed appointment of successor consultants would not alter or expand the consultants’ powers provided under the trusts rather the consultants’ powers would remain limited to the authority to direct the trustee’s investments with no authority to influence the trustee’s discretionary distributions to the beneficiaries presently corporation is the trustee of testamentary_trust a and testamentary_trust b and successor bank is to be substituted as trustee if corporation ceases to act as trustee the trustee also proposes to modify testamentary_trust a and testamentary_trust b such that affiliate will become the successor trustee of each trust rather than successor bank presently the trusts are governed by the laws of state a the designation of affiliate as the successor trustee would cause the location of trust assets and the principal place of trust administration to change from state a to state b when affiliate becomes the trustee in this case however the trustee has represented that the laws of state a will continue to govern each of the trusts for all purposes both administrative and substantive therefore the proposed substitution of affiliate for successor bank as successor trustee of the testamentary trusts would not alter the beneficial interests of plr-105175-99 any beneficiary consequently the two modifications to be made to testamentary_trust including testamentary_trust a and testamentary_trust b as described above are administrative in nature and will not result in any change in the quality value or timing of any beneficiary’s interest we conclude that the proposed modifications as described above will not affect the exempt status of the trusts with respect to the generation-skipping_transfer_tax and if no additions are made all distributions from and the termination of the trusts will be exempt from the generation-skipping_transfer_tax except as we have specifically ruled herein we express no opinion under the cited provisions or under any other provision of the code this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to this office this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by james f hogan acting assistant to the branch chief branch enclosure copy for purposes


id cca_2009122912092437 office uilc number release date from sent tuesday date pm to cc subject re tefra training sec_6503 only applies to stat notices not fpaa's section d applies to any partner's sec_6501 period that is open for partnership items as of the date the fpaa is issued rhone -poulenc v commissioner 114_tc_552 pincite


t c memo united_states tax_court manuel and judy f vela petitioners v commissioner of internal revenue respondent docket no 26644-07l filed date alvaro g velez for petitioners emily giometti for respondent memorandum opinion dawson judge petitioners petitioned the court pursuant to sec_6330 d to review determinations of the internal revenue service’s office of appeals appeals_office sustaining the 1unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts are rounded to the nearest dollar filing of notices of federal_tax_lien relating to trust fund recovery penalties assessed against petitioners pursuant to sec_6672 as responsible persons for the payment of quarterly employment_taxes for the periods ending date through date and for the periods ending date through date with respect to unpaid liabilities of apex mental health services inc ohio treatment alliance inc and symbiont nfp inc sustaining the filing of a notice_of_federal_tax_lien relating to petitioners’ unpaid federal_income_tax for and rejecting a separate offer- in-compromise oic submitted by each petitioner based on doubt as to collectibility this case is before us on respondent’s motion for summary_judgment and petitioners’ response thereto the issues for decision are whether the appeals_office abused its discretion in sustaining the filing of notices of federal_tax_lien and in rejecting the separate oics petitioners submitted petitioners resided in ohio at the time they filed their background petition petitioners owned and operated several businesses from through and they also owned real_estate properties in the newark and columbus ohio area apex mental health services ohio treatment alliance and symbiont were three corporations that failed to pay their employment_taxes reportable on form_941 employer’s quarterly federal tax_return the internal_revenue_service irs found petitioners liable as responsible persons for those taxes and assessed sec_6672 penalties against them for the quarterly periods ending date through date and for the periods ending date through date on date the irs sent petitioners notices of federal_tax_lien filing and your right to a hearing under sec_6320 for sec_6672 penalties for the quarterly periods ending date through date the irs recorded the liens for each of the periods on date two years later on date the irs again issued notices of lien to petitioners the notices included all periods listed on the prior notices dated date as well as the quarterly periods ending date date date and date the irs recorded the liens for those periods on date the irs also issued a notice_of_levy with respect to petitioners’ federal_income_tax liability for on september 2we note that the irs had previously assessed sec_6672 penalties against petitioners with respect to two other corporations frenier sheet metal inc and frenier building systems inc which are not involved in this case it appears that petitioners who are fiduciaries charged with the responsibility of paying trust_fund_taxes to the irs have converted those funds for their personal_use and recorded a lien for that liability on date at the end of date petitioners owed a total unpaid balance of approximately dollar_figure with respect to their liabilities for the sec_6672 trust fund penalties and their joint income_tax_liability for on date each petitioner filed a form request for a collection_due_process_hearing cdp request with respect to their income_tax_liability and the sec_6672 penalties for all of the quarterly periods involved each cdp request asked for a face-to-face conference to discuss alternative collection methods including the possibility of an installment_agreement or an oic in their cdp requests petitioners did not raise any issues regarding the appropriateness of the collection action or dispute their underlying liabilities the irs subsequently recorded an additional lien on date and issued a notice of lien on date both relating to the same periods for which it had previously filed liens petitioners filed second cdp requests on date which raised the same issues as had their first cdp requests on date the appeals_office mailed letters to petitioners acknowledging that it had received the case for consideration on date the appeals_office in columbus ohio sent a similar letter to petitioner manuel vela mr vela acknowledging receipt of the case and explaining its role and purpose in conducting cdp proceedings on date alvaro g velez mr velez petitioners’ counsel sent the irs a letter verifying the entities and periods with respect to which the employment_taxes and the sec_6672 penalties had been assessed on date settlement officer thomas j fehr so fehr sent petitioners letters scheduling a face-to-face cdp hearing with them for date the letters explained the issues the appeals_office would consider during the hearing and listed items which petitioners should provide to support any proposed collection alternatives on date each petitioner submitted a separate oic on form_656 offer_in_compromise offering a compromise of the petitioner’s liabilities for all periods at issue based on a short-term deferred payment of dollar_figure a total of dollar_figure for the two offers with their oics petitioners provided forms a collection information statement for wage earners and self- employed individuals which showed they own interests in three businesses alps ltd alps fairfield academy ltd fairfield and mcvee holdings ltd mcvee alps is a partnership that provides assisted living services to individuals with mental or developmental disabilities or illnesses each petitioner owns a 33-percent interest in alps fairfield is a residential center and school for boys with mental retardation developmental disabilities mental illness or past criminal behavior each petitioner owns a 50-percent interest in fairfield mcvee is a real_estate_holding_company in which mr vela owns a 98-percent interest and mrs vela owns a percent interest mcvee rents some of the real_estate it owns to alps and fairfield on date the appeals_office sent a letter to mr vela stating that it had received and would consider his oic the next day so fehr spoke on the telephone with mr velez at which time they agreed to postpone the hearing and communicate by telephone or correspondence as to the evaluation of petitioners’ oics on date the appeals_office decided that settlement officer christopher hosking so hosking would assist so fehr in the evaluation of the oics and sent a letter so notifying petitioners on date so hosking reviewed petitioners’ oics and their forms 433-a and sent a letter to them requesting additional information and supporting documents so hosking also sent three other letters to mr vela requesting that he provide completed forms 433-b collection information statement for businesses and other financial information with respect to alps fairfield and mcvee between may and date petitioners submitted forms 433-b for alps fairfield and mcvee on july and so hosking sent letters to petitioners with which he returned to them their forms 433-a and forms 433-b because they had not fully completed the forms or provided the necessary requested data the letters listed the additional information needed to evaluate petitioners’ oics and determine the reasonable collection potential petitioners responded in a letter dated date with which they provided some of the additional information requested with respect to their forms 433-a they submitted their tax returns bank statements financial information a list of real_estate properties purportedly held by them personally and information regarding each of the properties petitioners’ list of properties states that they own the following 4th street newark ohio westwood drive newark ohio mt vernon road newark ohio and hoover street newark ohio the integrated tax real_estate assessment and collections records maintained by licking county ohio show that petitioners also own a property pincite w church street newark ohio church property which petitioners had stated was owned by mcvee petitioners rather than mcvee apparently own a sixth property pincite north columbus street lancaster ohio petitioners submitted to the appeals_office appraisal and valuation information with respect to the following properties purportedly owned by mcvee pleasantville road thornville ohio w church street newark ohio arcadia avenue columbus ohio hollow road rehoboth ohio and 3rd street newark ohio for alps petitioners submitted tax returns bank statements a statement of deposits and filings and a summary of wages paid for fairfield petitioners submitted tax returns bank and financial statements and other information the record shows that both alps and fairfield received regular aid contributions and deposits from the state of ohio auditor for mcvee petitioners submitted tax returns bank statements and other financial information on date so hosking sent a letter to petitioners stating that he had completed review of their oics and could not recommend acceptance because their reasonable collection potential far exceeds the combined amount of their offers the letter included his analysis of petitioners’ reasonable collection potential explaining that petitioners had total equity of dollar_figure including dollar_figure invested in real_estate and business equity in alps fairfield mcvee apex mental health and prudential financial of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively the analysis also concluded that petitioners had monthly disposable income of dollar_figure resulting in collectible future income of dollar_figure and a total reasonable collection potential of dollar_figure mr velez petitioners’ counsel met with so fehr and so hoskings to discuss the oics on date petitioners did not present at that meeting any specific information to rebut the findings made in so hosking’s collection potential analysis however during that meeting the parties discussed the possibility of entering into an installment_agreement with an unspecified period during which petitioners would liquidate their real_estate_assets with the proceeds to be applied to their federal tax_liabilities petitioners were given until date to submit a final proposal for this collection alternative but they did not submit any such proposal on the basis of so fehr’s review of so hosking’s analysis and the documents petitioners provided during the cdp proceeding so fehr determined that petitioners’ oics should be rejected at the time of his determination on date petitioners had outstanding tax_liabilities of at least dollar_figure on date so fehr sent letters to petitioners notifying them that the appeals_office had rejected their oics also on date the appeals_office issued three notices of determination one to petitioners jointly and one to each petitioner separately sustaining respondent’s collection action with respect to the sec_6672 penalties for the quarterly tax periods involved and with respect to petitioners’ joint income_tax_liability for the notices included so hosking’s analysis as previously provided to petitioners along with his letter of date each notice_of_determination approved by appeals team manager dewayne turk stated that appeals rejected petitioners’ oics and sustained the filing of the notices of federal_tax_lien the appeals case memorandum acm attached to petitioners’ notices of determination submitted by so fehr states in pertinent part as follows ii issues raised by the taxpayer after the initial evaluation of the taxpayer’s oic his requested hearing was scheduled for date at mr velez’s request the hearing was rescheduled for date at that hearing the taxpayer was given until date to provide additional information or to submit another collection alternative there was no additional response from the taxpayer nftl - the taxpayer did not raise specific issues with regards to the filing of the nftl for appeals’ consideration appeals determined that all legal and administrative requirements for filing a nftl were followed finding no basis for granting relief on this issue appeals sustains the filing of the nftl collection alternative oic - mr vela submitted an oic to compromise his tax_liabilities for the joint income_tax due for and trust fund recovery penalties tfrp assessed against each individually the terms of mr vela’s short term deferred offer were as follows dollar_figure payable dollar_figure within days of acceptance and monthly payments in the same amount payable on the 23rd day of each month for months the evaluation of the taxpayer’s financial information concluded that the joint reasonable collection potential rcp was dollar_figure the work papers showing how the rcp was calculated are attached to this acm the taxpayer did not provide any additional information for consideration by the deadline of date appeals has rejected the taxpayer’s oic because the amount offered did not equal or exceed his rcp collection alternative - at the conference on date mr velez also inquired about the possibility of the taxpayer making payments with a period of time for liquidating real_estate_assets as of the deadline of date no specific proposal for appeals’ consideration was forthcoming the taxpayer did not raise any issues challenging the underlying tax_liability the taxpayer raised no other relevant issues iii balancing the need for efficient collection with the taxpayer’s concern that the collection action be no more intrusive than necessary has efficient tax collection been balanced with concern regarding intrusiveness of the filing of the nftl yes sec_6330 requires that the settlement officer consider whether any collection action balances the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary given the total balance due for all of the taxpayer’s tax_liabilities which is over dollar_figure the taxpayer’s failure to raise specific issues with regards to the filing of the nftl and her failure to negotiate a collection alternative both the filing of the nftl and the proposed levy action do balance the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary respondent moved for summary_judgment on the ground that so fehr and so hosking did not abuse their discretion in rejecting petitioners’ oics and in sustaining the collection action against petitioners petitioners filed a response to respondent’s motion urging that the motion be denied and that the case be remanded to the appeals_office i summary_judgment discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b when the case was called for trial counsel for petitioners stated as did counsel for respondent that no testimony or further documentary_evidence would be offered to supplement respondent’s motion for summary_judgment and that the relevant documents were contained in the administrative record therefore after reviewing the record we are satisfied that there is no genuine issue as to any material fact and a decision may be rendered as a matter of law ii standard of review petitioners do not contest their underlying federal tax_liabilities for the sec_6672 trust fund recovery penalties assessed against them for certain quarterly periods ending date through date and their joint federal_income_tax liability for they also do not challenge the validity of the notices of federal_tax_lien respondent filed for those taxable periods rather petitioners dispute only respondent’s rejection of their oics thus the court reviews respondent’s determination for abuse_of_discretion see 114_tc_604 114_tc_176 we have described the abuse_of_discretion standard as meaning arbitrary capricious or without sound basis in fact or law 129_tc_107 citing 112_tc_19 in reviewing for abuse_of_discretion we generally consider only arguments issues and other matter that were raised at the collection hearing or otherwise brought to the attention of the appeals_office 118_tc_488 see 411_f3d_621 6th cir giamelli v commissioner supra pincite cf 131_tc_197 iii offers-in-compromise sec_7122 provides that the secretary may compromise any civil case arising under the internal revenue laws whether to accept an oic is left to the secretary’s discretion see 447_f3d_706 9th cir affg tcmemo_2004_13 sec_301_7122-1 proced admin regs the regulations under sec_7122 set forth three grounds for the compromise of a tax_liability doubt as to liability doubt as to collectibility or promotion of effective tax_administration sec_301_7122-1 proced admin regs petitioners submitted oics based only on doubt as to collectibility the commissioner may compromise a tax_liability based on doubt as to collectibility where the taxpayer’s assets and income are less than the full amount of the liability sec_301 b proced admin regs but generally under the commissioner’s administrative pronouncements an oic based on doubt as to collectibility will be acceptable only if it reflects the taxpayer’s reasonable collection potential 125_tc_301 affd 469_f3d_27 1st cir revproc_2003_71 sec_4 2003_2_cb_517 petitioners filed identical offers-in-compromise of dollar_figure each payable dollar_figure within days of acceptance and monthly payments in the amount payable on the 23rd day of each month for months at the time the appeals_office rejected petitioners’ offers on date their unpaid tax_liabilities were at least dollar_figure iv reasonable collection potential as reflected in the appeals office’s analysis the following asset equity table shows the total amount of dollar_figure determined as being collectible from petitioners’ net realizable equity in assets asset equity table assets quick market percentage sale value value reduced encumbrances equity checking accounts dollar_figure dollar_figure -0- dollar_figure other accounts big_number big_number -0- big_number investments -0- -0- -0- -0- cash -0- life_insurance big_number big_number dollar_figure big_number life_insurance big_number big_number -0- big_number vehicle big_number big_number -0- big_number real_estate big_number big_number -0- big_number real_estate -0- -0- -0- -0- personal assets big_number big_number big_number -0- personal tools -0- -0- big_number -0- business_assets -0- -0- -0- -0- dissipated assets -0- -0- -0- -0- alps ltd big_number big_number -0- big_number fairfield academy big_number big_number -0- big_number mcvee holdings big_number big_number -0- big_number apex mental health big_number big_number -0- big_number prudential financial big_number big_number -0- big_number total big_number we find and conclude that most of the amounts in petitioners’ equities as set forth in the above table are correct and supported by the record any changes in the amount of the net realizable equity are discussed later most significant are petitioners’ equities in their personal real_estate holdings as follows real_estate value percent qsv encumbrances for offer equity hoover dollar_figure dollar_figure dollar_figure dollar_figure w church st big_number big_number big_number big_number westwood big_number big_number big_number big_number n 4th st big_number big_number big_number big_number mt vernon rd big_number big_number big_number big_number n columbus st big_number big_number big_number -0- total big_number in addition petitioners have substantial equities in the real_estate of mcvee holdings ltd a partnership wholly owned by them as follows real_estate value percent qsv encumbrances for offer equity pleasantville rd dollar_figure dollar_figure dollar_figure dollar_figure arcadia ave big_number big_number big_number big_number hollow rd big_number big_number big_number big_number 3rd st newark big_number big_number big_number -0- w church st and w church st total big_number big_number big_number big_number big_number petitioners assert that the appeals_office abused its discretion in rejecting their oics for several reasons first they argue that their proposed collection alternatives were denied because the settlement officers would not allow them the opportunity to liquidate their real_estate_assets and apply the proceeds to pay their tax_liabilities while respondent acknowledges that the parties discussed the possibility of petitioners’ satisfying some of their liabilities by selling their real_estate holdings and the settlement officers gave petitioners a reasonable_time to submit a definite proposal petitioners never submitted a proposal or a timeline for liquidating any of their real_estate_assets apparently petitioners never made any attempts in the years after the sec_6672 penalties were assessed to pay their tax obligations by selling their properties under the circumstances so fehr did not abuse his discretion in declining to grant petitioners a collection alternative based on the possibility of selling their properties at some unspecified time in the future see 454_f3d_688 7th cir clawson v commissioner tcmemo_2004_106 second in their response to respondent’s motion for summary_judgment petitioners assert that so hosking erred in calculating their future business income because he failed to consider that mcvee earned its income entirely from renting its properties and therefore the income would dissipate upon sale of the properties to satisfy their tax obligations similarly they claim that so hosking overestimated the future income of alps and fairfield because both companies would incur higher rental expenses after a sale of mcvee’s properties the internal_revenue_manual irm provides that when in determining reasonable collection potential the irs identifies an asset necessary for the production_of_income it may be appropriate to adjust the income or expense calculation for the taxpayer to account for the loss of the income stream if the asset is either liquidated or used as collateral to secure a loan to fund the offer so hosking included both petitioners’ equity in mcvee and their income from mcvee in the calculation of their reasonable collection potential respondent admits that petitioners’ reasonable collection potential cannot include the same amount of future business income from mcvee if petitioners sell mcvee’s assets to satisfy tax_liabilities and that so hosking erred in concluding otherwise but the collection potential if adjusted downward to correct his error would still surpass the offer to such a degree that we find no abuse_of_discretion we conclude that his projection of future income from alps and fairfield was reasonable third petitioners assert in their response that so hosking erred by assigning a 20-percent quick sale reduction to only some of their properties when determining their net realizable equity generally for oic purposes the irs considers in determining a taxpayer’s net realizable equity in assets the quick sale value of the assets reduced by any amounts owed to secured lien holders with priority over federal tax_liens irm pt date the irm defines quick sale value as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short time usually calendar days or less id pt date generally the irs calculates quick sale value pincite percent of fair_market_value however it may apply a higher or lower percentage depending on the type of asset and current market conditions if the value chosen represents a fair estimate of the price a seller could obtain when attempting to sell the asset quickly id pt of the six properties petitioners owned personally so hosking employed a 20-percent quick sale reduction for the three properties with respect to which petitioners had submitted current appraisals and other information verifying the property values and available equity for the remaining three properties the hoover property the 4th street property and the mt vernon property so hosking did not calculate quick sale values because of a lack of valuation information from petitioners for the hoover property petitioners provided a 3-year-old appraisal valuing the property at dollar_figure but no other information so hosking assigned a value of dollar_figure to the property but did not reduce it for a quick sale it is unclear from the record how he determined the value to be dollar_figure rather than dollar_figure we think he should have used the dollar_figure value without any quick sale reduction for the 4th street property petitioners provided no appraisal or information showing the current mortgage balance so hosking obtained information on the 4th street property from the licking county ohio auditor showing the appraisal value of the property as dollar_figure for tax purposes so hosking used the dollar_figure as a quick sale value and allowed petitioners an additional reduction of dollar_figure for encumbrances despite the lack of information verifying any encumbrances absent information from petitioners so hosking reasonably determined that the value for tax purposes determined by the licking county auditor represented a fair estimate of the amount petitioners could get for the 4th street property if they should attempt to sell it quickly for the mt vernon property petitioners likewise did not provide an appraisal however they submitted a copy of a promissory note showing a loan of dollar_figure taken out on the property on date but they did not verify the loan balance information from the licking county auditor shows that the property has a market_value of dollar_figure and no evidence suggests that so hosking acted unreasonably in not reducing this value for a quick sale fourth petitioners assert in their response that so hosking erred in determining that they had equity of dollar_figure in prudential financial petitioners reported on their federal_income_tax return a dollar_figure dividend received from prudential financial they did not report ownership of any interest in prudential financial on their forms 433-a each petitioner later submitted a declaration with the response to respondent’s motion for summary_judgment that states i do not own an dollar_figure investment in prudential financial nor did i own such an investment at any time in so hosking used a 5-percent rate of return in determining petitioners’ interest in prudential financial to be dollar_figure which he included as equity in his calculation of their reasonable collection potential when they submitted their oics on date petitioners did not take advantage of the opportunity they were given to present information to rebut so hosking’s calculation of any interest they had in prudential financial before the appeals_office issued the notices of determination in opposition to the motion for summary_judgment petitioners averred that they did not own an dollar_figure investment in prudential financial at any time in even though they had received and reported dividend income from prudential financial in the record does not show that petitioners sold any investment they had had in prudential during petitioners did not show the source of the dividend they had received in and the value of their investment under the circumstances we find that so hosking’s determination of petitioners’ interest was reasonable on this record we conclude that the total reasonable collection potential from petitioners’ net realizable equity in assets is at least dollar_figure instead of dollar_figure after the dollar_figure reduction in the fair market and quick sale values of the hoover property we sustain the settlement officers’ determinations that petitioners’ monthly disposable income is dollar_figure and that the projected value of their future income is correct v doubt as to collectibility for the irs to accept an oic based on doubt as to collectibility absent special circumstances such as economic hardship or public policy or equity considerations the offer amount must equal or exceed a taxpayer’s reasonable collection potential murphy v commissioner t c pincite irm pt and date see also lloyd v commissioner tcmemo_2008_15 holding that an appeals officer did not abuse his discretion in rejecting an oic based on doubt as to collectibility where the reasonable collection potential if calculated as advocated by the taxpayer would still exceed the amount offered even if all of petitioners’ allegations are correct and the reasonable collection potential is calculated as they contend petitioners would still have at least dollar_figure in net realizable equity which is more than six times their present combined oics in fact their equity of dollar_figure in their residence the westwood property is almost double the combined amount they offered we point out however that we do not substitute our judgment for that of the appeals_office and we do not specify the amount we believe would be an acceptable offer-in-compromise see murphy v commissioner supra pincite see also fowler v commissioner tcmemo_2004_163 vi conclusion petitioners have not shown that the appeals office’s rejection of their oics was arbitrary capricious or without sound basis in fact or law nor have they set forth specific facts showing that there is a genuine issue for trial in that respect accordingly we find and hold that the appeals_office did not abuse its discretion in determining to reject petitioners’ oics to sustain the filing of the notices of federal tax_liens and to proceed with collection action the court views this as an egregious case in which petitioners willfully and deliberately failed to pay over large amounts of trust_fund_taxes for extended periods thus the irs is justified in pursuing collection and filing notices of federal_tax_lien we shall grant respondent’s motion for summary_judgment in reaching our holdings we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order and decision will be entered granting respondent’s motion for summary_judgment


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc tege eoeg et2 ------------- genin-137854-09 number info release date index uil no ----------------------------- -------------------------------------------- ----------------------------------- ------------------------- -------------------- ------------------------------------------- ----------------- dear --------------- we regret the delay in replying to your correspondence concerning the payment of employer and employee federal_insurance_contributions_act fica_taxes with respect to certain services you performed in the united_states according to the information submitted you performed a full-time teaching role at a college in the united_states hereinafter us college for two periods ----------------------- -------------------------------------------------------------------------------- both of these periods were teaching exchanges you were paid_by a foreign college located in ------------ hereinafter foreign college as if you were teaching at that institution both before and after each exchange you were teaching on staff at foreign college the person replacing you at foreign college was paid_by us college as if he were teaching at us college no totalization_agreement was in effect between the united_states and --------- -------------during your periods of employment in the united_states you have indicated that during the time you performed services in the united_states pursuant to the teaching exchanges no fica_taxes were deducted from the salary you received from foreign college and no fica_taxes were paid_by us college on your behalf you are interested in obtaining social_security coverage with respect to your periods of employment within the united_states although under revproc_2010_1 2010_1_irb_1 we can not provide a ruling as to your fica tax_liability we can provide the following general information genin-137854-09 fica_taxes consist of two taxes the old-age_survivors_and_disability_insurance_tax social_security_tax and the hospital_insurance_tax medicare_tax fica_taxes are imposed on wages which is defined in sec_3121 as remuneration for employment with certain specific exceptions employment is defined in sec_3121 as including services performed within the united_states irrespective of the citizenship or residence of the employer and the employee unless an exception applies thus generally remuneration for services performed within the united_states is subject_to fica_taxes regardless of the nationality of the employee special rules sometimes apply under totalization agreements in determining whether certain services are fica employment but as noted no totalization_agreement was in effect with the country in which foreign college is based during your period of employment in the united_states there is an exception from fica employment that may apply to nonresident_alien professors or nonresident_alien scholars from foreign universities who are performing services in the united_states pursuant to an exchange program sec_3121 provides an exception from employment for purposes of the fica for service which is performed by a nonresident_alien_individual for the period he is temporarily present in the united_states as a nonimmigrant under subparagraph f j m or q of sec_101 of the immigration and nationality act as amended and which is performed to carry out the purpose specified in subparagraph f j m or q as the case may be this exception only applies to nonresident_aliens who are present in the united_states performing services under these visas and does not apply to united_states citizens if no exception applies and services performed in the united_states are subject_to fica_taxes the employer reports both the employee and employer portions of fica_taxes on form_941 employer’s quarterly federal tax_return which the employer files with the internal_revenue_service irs the fica_taxes including the employee portion of the taxes withheld from the employee are paid_by the employer either by making deposits with depositary banks or by making payment with the return depending upon the amount of the liability for the fica_taxes combined with the liability for income_tax_withholding generally the liability of a taxpayer for fica_taxes for prior years is subject_to a period of limitations which is in part derived from the date the employer files a return for a particular period see sec_6501 of the internal_revenue_code generally except in the case of fraudulent_returns or in cases where the period of limitations has been extended with the consent of the employer an employer that filed form sec_941 on a timely basis for ---------------------would have no current_liability for fica_taxes for wages paid for periods in -------------------- however if an employer never filed an employment_tax return for these periods the period of limitations would remain open for purposes of fica tax_liability for those periods the question of whether fica tax_liability exists for the period during which an exchange professor performed services may therefore depend on whether the employer has filed a return for the period in which the services were performed if the professor from foreign college is an employee of the us college when performing services in the genin-137854-09 united_states and the us college has timely filed fica tax returns and paid the tax due on those returns the statute_of_limitations will have generally closed with respect to fica tax_liability for ---------------------unless the statute has been extended on the other hand if the professor for foreign college is an employee of foreign college when performing services in the united_states the statute_of_limitations will still remain open if foreign college never filed form_941 for these periods thus if an exchange professor was an employee of foreign college during periods of services within the united_states for ---------------------and the remuneration for such services was subject_to fica and the professor’s services were not excepted from fica employment as discussed above foreign college could pay the fica employer and employee tax with respect to such services foreign college could report the fica employer and employee tax on form_941 and pay the fica_taxes according to the instructions on form_941 and publication circular_e employer’s tax guide which are available on the irs web site generally the employer portion of fica tax is paid_by employers on the appropriate forms generally form there are a limited number of situations in which an employee reports the employee portion of the fica tax together with form_1040 u s individual_income_tax_return filed by the employee and pays the employee social_security and medicare_tax directly to the irs these situations include as follows a taxpayer is required to file form_8919 uncollected social_security and medicare_tax on wages and pay employee fica social_security and medicare taxes if four conditions are met the employee performed services for a firm the firm did not withhold the employee portion of social_security and medicare taxes the employee’s pay was not for services as an independent_contractor and one or more of the reasons listed on the first page of form_8919 see form attached apply to the employee if an employee failed to report tips to the employer and is liable for the employee portion of fica_taxes with respect to such unreported tips the employee files form_4137 social_security and medicare_tax on unreported tip_income to report and pay such fica_taxes when an employee has reported tips to an employer but the employer had inadequate funds available to deduct from the wages of the employee to pay the fica employee taxes the employee pays the uncollected social_security and medicare_tax on form_1040 and when an employer has provided group term life_insurance to a retired employee and has not deducted from the employee’s wages the employee fica_taxes due with respect to the amount of the group term life_insurance that is wages the employee pays the uncollected social_security and medicare_tax on form_1040 none of the above procedures to pay just the employee portion of social_security and medicare taxes seems to apply to the situation of a foreign exchange professor who wants to pay employer and employee fica_taxes on his wages as noted the form genin-137854-09 which is filed by the employer would normally be used to pay the employer and employee portion of fica_taxes we suggest that you contact the social_security administration if you have any questions about your entitlement to social_security_benefits with respect to social_security_benefits we note that the earnings record of an employee for social_security_benefit purposes is not necessarily the same as the record of wages on which fica_taxes were paid we hope the above information will prove helpful to you we emphasize that this is not a ruling as to your tax status sincerely _________________________ lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities enclosure form_8919


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number --------------------- refer reply to cc corp bo2 plr-134242-09 date date internal_revenue_service number release date index number ---------------------- ------------------------------------------- ------------------------------ legend x --------------------- y ------------------------ ---------------------------------------------------- corp -------------------------------------------------- ---------------------------- date date year year n a b c ------------------ ------------------ ------- ------- --- -------- -------- ---------- dear -------------- plr-134242-09 this letter responds to your date letter requesting rulings as to the federal_income_tax consequences of a proposed transaction the information provided in that letter and in later correspondence is summarized below facts on date x died under the terms of x’s will the will the executor of x’s estate the executor was to transfer x’s residuary_estate which contained all of the corp shares of stock the stock owned by x to the trustee the trustee of a revocable_trust the trust formed by x the executor timely elected to pay federal and state estate_taxes in installments pursuant to sec_6166 between year and year the executor periodically tendered some of the stock for redemption to provide him liquidity to meet required_installment payments of federal and state estate_taxes interest and other administrative expenses corp treated all such transactions as redemptions pursuant to sec_303 the executor has retained possession of some of the stock because federal and state taxes remain unpaid and thus the executor has potential personal liability for such estate_taxes the dispositive terms of the trust are a during y’s lifetime y a child of x is the trust’s sole income_beneficiary b the trustee is authorized to distribute principal even to the extent of the whole to y and only to y at the trustee’s discretion based solely upon y’s best interest c the trust is to terminate n years after the death of x thus the trust is to terminate on date if y dies prior to date the assets of the trust will be held for the benefit of all grandchildren of x if y lives until date all assets are to be distributed outright to y d e several beneficiaries of the trust sued each other with respect to the terms of the trust under the terms of a settlement agreement resolving this litigation x’s grandchildren and great-grandchildren assigned all their remainder rights in the estate and trust to y in exchange for y’s agreed upon cash payments the settlement agreement described this assignment as a purchase of the remainder interests by y the actuarial value of each grandchild’s interest in the trust was determined to be approximately a the aggregate value for all the grandchildren was b and for y c y’s c interest was nearly all of the value of the trust and the grandchildren’s b interest was a de_minimis amount plr-134242-09 pursuant to the settlement agreement the executor trustee and y concluded that y became the sole absolute fee owner of the trust assets accordingly the parties agreed that the trust corpus was distributable to y as soon as it was distributed by the executor to the trustee in lieu of the executor distributing property to the trustee and immediately thereafter the trustee distributing it to y the executor was authorized by the trustee to distribute any property directly to y without passing the asset through the trust y is now requesting the executor to authorize a distribution of a portion of the stock to the trust and then that the trustee authorize a distribution of that stock to y y agrees to be liable for a proportionate obligation to pay estate_taxes relative to the value of the distributed stock the form of the proposed transaction will be a direct distribution of the stock from the executor to y it is likely that substantially_similar series of transactions will be undertaken in subsequent years representations in connection with the proposed transaction the following representations have been made a at the time of the redemption the cash to be received by y in the proposed redemption will be equal to the fair_market_value of the stock exchanged therefore b the aggregate fair_market_value for federal estate_tax purposes of the stock included in the gross_estate of x exceeded of the value of decedent’s gross_estate reduced by the sum of the amounts allowable as a deduction under sec_2053 and sec_2054 of the code for purposes of this representation the stock treated as included in determining the value of x’s gross_estate are the shares held by x’s estate c no shareholder of corp is obligated to purchase any of the shares of the stock to be redeemed by corp d the amount to be distributed to y in exchange for the stock to be redeemed will not exceed the lesser_of i the aggregate amount of such taxes and expenses referred to in sec_301 or of the code which remain unpaid immediately before the distribution or ii the aggregate of amounts referred to in sec_303 or which are paid during the one year period beginning on the date of the distribution e the redemption will take place within the period allowed in sec_303 of the f corp and y will each pay their own respective expenses if any incurred in connection with the proposed transaction code plr-134242-09 g y will not transfer or surrender any property in the redemption other than the stock of corp h there will be no declared but unpaid dividends or funds set apart for dividends on any of the stock to be redeemed from y conclusion based solely on the information submitted and the representations set forth above it is held as follows the amounts received by y in redemption of the stock as specified above will be treated under sec_303 as a distribution in full payment in exchange for the stock redeemed to the extent the amount received does not exceed the sums specified in sec_303 or sec_303 and provided further that all the requirements of sec_303 are satisfied and the sum of all distribution proceeds from corp’s redemptions of the stock treated as an exchange under sec_303 does not exceed the qualified amounts determined under sec_303 and as provided in sec_1001 of the code gain will be realized and recognized by y measured by the difference between the redemption price and the adjusted_basis of the shares of stock surrendered as determined under sec_1011 of the code provided the stock is a capital_asset in the hands of y the gain if any will constitute capital_gain subject_to the provisions and limitations of subchapter_p of chapter procedural statements the above rulings are effective to the extent that the amount distributed by corp to y equals the fair_market_value of the stock redeemed no opinion is expressed as to the tax effect of the amount if any by which the distribution by corp exceeds or is less than the fair_market_value of the stock redeemed a determination of the fair_market_value of the stock redeemed is reserved until the income_tax returns of the taxpayers concerned have been filed for the year in which the transaction is consummated in addition no opinion is expressed about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effect resulting from the transaction that are not specifically covered by the above rulings this ruling letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transactions described herein are completed alternatively a taxpayer filing its return electronically may satisfy this plr-134242-09 requirement by attaching a statement to its federal_income_tax return that sets forth the date and control number of this ruling under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely alison g burns chief branch office of associate chief_counsel corporate 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 tege eoeg teb presp-146663-06 date date dear --------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the project described in appendix a attached hereto is qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- ------------ the issuer a qualified issuer under sec_54 to issue up to dollar_figure---------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the project described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ---------------------------------------- of the office of division counsel associate chief_counsel tax-exempt and government entities on -------------------- not a toll-free call 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 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix presp-146663-06 a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-146663-06 borrower name appendix a project type project location ------------------------------- wind facility ------------ -------------------------------- -------------------------------- ------------------------ amount allocated dollar_figure-----------


cca_2016022212063602 id uilc number release date third party communication date of communication month dd yyyy from sent monday date pm to cc bcc subject sec_9832 and state medicaid health_plans hi --------------------------- these are responses to the questions raised in your date email regarding risk-bearing and non-risk bearing entities please let us know if we can be of more help thanks ----- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ----------------- issue whether an entity providing medicaid services is a health_insurance_issuer receiving premiums from providing health_insurance_coverage as those terms are defined in sec_9832 and thus within the definition of covered_health_insurance_provider for purposes of sec_162 in particular is a non-risk bearing entity a health_insurance_issuer within the meaning of sec_9832 is a risk-bearing entity a health_insurance_issuer within the meaning of sec_9832 if a risk-bearing entity becomes licensed as an insurance_company under state law in order to submit a bid for a medicaid contract is that entity a health_insurance_issuer within the meaning of sec_9832 do payments from a state under a medicaid contract to a risk-bearing entity that is a health_insurance_issuer qualify as premiums so that the entity may be a covered_health_insurance_provider under sec_162 if for taxpayer years beginning after date not less than percent of the gross premiums received from providing health_insurance_coverage is from minimum_essential_coverage as defined in sec_5000a background covered_health_insurance_provider the statute and regulations under sec_162 limit the available compensation deduction for a covered_health_insurance_provider for a taxable_year to dollar_figure per service provider which includes an employee the statute and regulations define the term covered_health_insurance_provider as a a health_insurance_issuer as defined in sec_9832 which b receives premiums from providing health_insurance_coverage as defined in sec_9832 sec_9832 and sec_54_9801-2 provide that the term health_insurance_issuer means an insurance_company insurance service or insurance organization including a health_maintenance_organization as defined in paragraph b which is licensed to engage in the business of insurance in a state and which is subject_to state law which regulates insurance within the meaning of sec_514 of the employee_retirement_income_security_act_of_1974 as in effect on the date of the enactment of this section sec_9832 and sec_54_9801-2 provide that the term health_insurance_coverage means benefits consisting of medical_care provided directly through insurance or reimbursement or otherwise under any hospital or medical service policy or certificate hospital or medical service plan contract or health_maintenance_organization contract offered by a health_insurance_issuer sec_1_162-31 provides that for purposes of sec_162 premiums from providing health_insurance_coverage are premiums written determined in a manner consistent with the requirements for reporting under the supplemental health care exhibit published by the naic or the mlr annual reporting form filed with the center for medicare medicaid services’ center for consumer information and insurance oversight of the u s department of health and human services sec_1_162-31 excludes direct service payments from the definition of premiums sec_1 b iv defines a direct service payment as a payment made by a health_insurance_issuer or other entity that received premiums from providing health_insurance_coverage as defined in sec_9832 to another organization as compensation_for providing managing or arranging for the provision of healthcare services by physicians hospitals or other healthcare providers neither the internal_revenue_code nor any accompanying regulations define the term_insurance or insurance_contract the united_states supreme court however has explained that in order for an arrangement to constitute insurance for federal_income_tax purposes both risk-shifting and risk- distribution must be present see 312_us_531 neither sec_162 nor the accompanying regulations categorically except from the definition of covered_health_insurance_provider an entity that provides medicaid services the preamble of the final regulations specifically notes that the treasury_department and the irs do not adopt the suggestion to provide in the final regulations that clinical risk-bearing entities medicare and medicaid providers and other recipients of payments from government entities in connection with providing benefits under government sponsored health care programs are categorically excluded from being covered health insurance providers or that the amounts received by these organizations are categorically excluded from classification as premiums from providing health_insurance_coverage the preamble further acknowledges that to be a covered_health_insurance_provider under sec_162 a person must be a health_insurance_issuer as defined in sec_9832 that receives premiums from providing health_insurance_coverage as defined in sec_9832 and that meets certain other requirements therefore if a person is not a health_insurance_issuer or does not receive premiums from providing health_insurance_coverage the person is not a covered_health_insurance_provider for purposes of sec_162 medicaid the medicaid program provides medical benefits to low-income people who have no medical insurance or have inadequate medical insurance the medicaid program is jointly funded by the federal government and states the federal government pays states for a specified percentage of program expenditures the federal government establishes general guidelines for the administration of medicaid benefits however specific eligibility requirements to receive medicaid benefits as well as the type and scope of services provided are determined by each individual state states generally pay for medicaid services through risk-bearing and non-risk-bearing arrangements under non-risk-bearing arrangements states pay providers directly for services such arrangements can include an entity paid an administrative fee for case management services although actual medical_care is reimbursed on a fee-for-service basis that is the states reimburse providers directly for each individual to whom services are furnished under risk-bearing arrangements in exchange for capitation payments or other set payments an entity provides the prescribed medical services or arranges for providers to provide the prescribed medical services to medicaid enrollees on a similar basis as services are provided to other medicaid beneficiaries under risk-bearing arrangements the entity assumes risk for the cost of furnishing the services under the arrangement and incurs loss if the cost of furnishing the services exceeds the set payments under the arrangement or gain if the cost of services is less than the set payments in many cases licensure as an insurance_company under state law is a requirement that must be satisfied before an entity may participate in a state medicaid contract bidding process the entity participating in the bidding process may be either a risk-bearing or non-risk-bearing entity analysis and conclusions is a non-risk bearing entity a health_insurance_issuer under sec_9832 a non-risk-bearing entity providing services under a state medicaid program does not have the risk- shifting or risk-distribution elements of insurance and consequently a non-risk-bearing entity is not a health_insurance_issuer under sec_9832 because the state reimburses the entity for medical_care provided on a fee-for-service basis based on the actual services provided to the covered individuals the entity generally is not at risk for the cost of the services exceeding the amount of reimbursements paid_by the state is a risk-bearing entity a health_insurance_issuer under sec_9832 a risk-bearing entity that is licensed to engage in the business of insurance in a state and is subject_to state law which regulates insurance and that has the risk-shifting or risk-distribution elements of insurance is a health_insurance_issuer under sec_9832 because a risk-bearing entity is at risk of loss for the cost of the services exceeding the amount of payments received from the state or has the possibility of gain in cases in which the amount of payments paid_by the state exceeds the cost of services provided the entity is at risk for the cost of the services exceeding the amount of reimbursements paid_by the state if a risk-bearing entity becomes licensed as an insurance_company under state law in order to submit a bid for a medicaid contract is that entity considered to be a health_insurance_issuer under sec_9832 a risk-bearing entity that becomes licensed as an insurance_company under state law whether to satisfy a contractual requirement or otherwise is licensed to engage in the business of insurance in the state and satisfies the requirement under sec_9832 that a health_insurance_issuer be an insurance_company licensed to engage in the business of insurance in a state moreover as an insurance_company licensed to engage in the business of insurance in a state that entity is also subject_to the state laws which regulate insurance which is the other requirement under sec_9832 for an entity to be a health_insurance_issuer as such that entity is a health_insurance_issuer this is in contrast to situations in which the entity’s contract with the state imposes conditions similar or identical to the state law requirements but the entity is not in fact directly subject_to the state insurance laws do payments from a state under a medicaid contract to a risk-bearing entity that is a health_insurance_issuer qualify as premiums so that the entity is a covered_health_insurance_provider under sec_162 even if an entity is a health_insurance_issuer under sec_9832 there remains the question of whether payments received by the risk-bearing entity are premiums from providing health_insurance_coverage direct service payments under sec_1_162-31 are excluded from the definition of premiums a direct service payment is a payment made by a health_insurance_issuer or other entity that received premiums from providing health_insurance_coverage as defined in sec_9832 to another organization sec_1_162-31 provides that premiums from providing health_insurance_coverage are premiums written determined in a manner consistent with the requirements for reporting under the supplemental health care exhibit published by the naic or the mlr annual reporting form filed with the cms ciiio of hhs but as reflected in the treatment of direct service payments to constitute the payment of a premium for health_insurance_coverage the payment must result in a legal relationship between the covered individual and the entity receiving the payment whether this relationship exists depends on whether the medicaid beneficiaries could assert rights against the entity analogous to those between covered individuals and health insurance issuers in the private market and as required under state law this type of relationship exists between the entity and the medicaid beneficiaries whether directly or indirectly the payments received by the entity are premiums from provided health_insurance_coverage paid_by the state on behalf of the medicaid beneficiaries because for example the individual’s rights under the arrangement are only enforceable against the state then the relationship between the state and the entity is more akin to a direct service provider see the preamble to the sec_162 proposed_regulations reg-106796-12 pincite fr whether there is an insurance relationship between the covered individual and the state is not necessary to determine because a state would not meet the definition if this type of relationship does not exist if


significant index no a vest department of the treasury internal_revenue_service washington d c tax exempt and government ee aug elt er ra ts company wl policy qp rider ap rider app rider co rider ' eo rider contract vu430 n dear this letter is in response to your request for rulings regarding the application of the incidental death_benefit rule in situations in which contracts are issued on the lives of participants in retirement plans qualified under sec_401 of the code qualified_plans specifically you have requested rulings that each wl policy with the qp rider and any or all of the other four riders contract that is acquired on the life of a qualified_plan participant qualifies as an ordinary_life_insurance contract within the meaning of revrul_54_51 1954_1_cb_147 death_benefits provided to participants in a qualified_plan through such contracts will be considered incidental within the meaning of sec_1_401-1 of the regulations provided that with respect to each participant less than of the total contributions allocated to the participant are applied to pay premiums on the contract or any other life_insurance_contract insuring the life of the participant included in your submission were ‘policy specification pages for the wl policy for sample participants ages unisex gender basis for face amounts dollar_figure a preferred non-nicotine standard non-nicotine and nicotine underwriting basis accordingly you submitted sets of policy specification pages hereinafter each one of these age gender face_amount underwriting class combinations will be known as a ‘ onamale female and dollar_figure million and dollar_figure and on also included in your submission were tables of current cost of insurance coi charges and tables of current and maximum surrender charges covering all ages and all durations facts the wl policy is a level premium level face_amount whole_life_insurance policy as long as premiums are paid in the amount and at the times specified in the wl policy the scheduled premiums the death_benefit may only differ from the face_amount listed in the policy specification pages under two circumstances decreases in accordance with the decreases in face_amount provision of the policy and increases necessary to ensure that the policy qualifies as a life_insurance_contract for federal tax purposes under sec_7702 of the code in the event of a face_amount decrease the scheduled premium and guaranteed cash values will be reduced in the same proportion that the face_amount is reduced o o l cash values under the wl policy are determined as the greater of the guaranteed cash_value and the account value less any applicable the wl policy states that the cash values provided by surrender charges the wl policy are not less than the minimum values and benefits required by the insurance laws of the state in which the wl policy is issued and delivered the basis for computations for the guaranteed cash_value is interest at an annual rate of x percent and the commissioners standard ordinary mortality_table the account value is generally determined as cumulative premiums received plus interest credits less‘coi charges and less other charges other than coi charges other than coi charges include a percent of premium charge percent of premium charge a monthly per dollar_figure monthly per charge and a monthly administrative charge the monthly administrative charge is dollar_figurey per month the wl policy lists maximum charges the percent of premium charges and maximum monthly per dollar_figure company states that it always charges the maximum percent of premium charge and the maximum monthly per dollar_figure charge of face_amount charge there are no provisions in the wl policy for the payment of premiums other than scheduled premiums with respect to the submitted cells guaranteed cash values atages year olds with the exception of a de minimus number of cells’ exceed fifty percent of the applicable scheduled premium accumulated at a rate of x percent to the comparable age eg a guaranteed cash_value at age __ would be compared to the scheduled premium accumulated to age age _ inthe case of contracts issued to and for example the scheduled premium for a year old male issued a wl policy with a face_amount of dollar_figure on a standard non-nicotine basis is dollar_figurej the guaranteed cash values of such a policy at age sec_55 and sec_65 are dollar_figurek and dollar_figurel respectively percent to age sec_55 and sec_65 are dollar_figurem and dollar_figuren respectively accordingly with respect to this submitted cell the guaranteed cash_value represent sec_66 percent of the accumulated scheduled premium at age and percent of the accumulated scheduled premiums at age the scheduled premiums accumulated at a rate of x the op rider is a generic agreement between the insurer and the qualified_plan fiduciary which owns the policy to which the rider is attached the stated purpose of the qp rider is to help maintain the qualification of any qualified_plan that holds the policy and the qp rider the qp rider generally ' there were z cells in which the ratios of the accumulated premiums to the guaranteed cash values were between and percent it does not appear that any of these z cells will comprise a significant portion of total contract sales precludes any assignment or transfer of policy benefits and in addition specifically precludes policy_loans including automatic premium loans and specifically precludes face_amount reductions while the policy is owned by a qualified_plan fiduciary the ap rider is a generic rider that adds an additional premiums provision to the policy to which it is attached the ap rider generally permits the payment of premiums toward the policy above and beyond any scheduled premiums such premiums have no effect on the guaranteed cash_value of the policy but will serve to increase the account value of the policy the payment of additional premiums under the provisions of the ap rider will not increase the death_benefit of the policy except as necessary to comply with the limits of sec_7702 of the code the app rider is a generic rider that adds an automatic premium payment provision to the policy to which it is attached the app rider provides that in the event a scheduled premium is due and unpaid at the end of the policy grace period the scheduled premium will be paid_by an automatic deduction from the account value of the policy however this deduction will be made only if the account value exceeds the guaranteed cash_value by more than the amount of the scheduled premium’ the co rider is a generic rider that adds a conversion option to the policy to which it is attached the pre-conversion policy the conversion option described in the co rider is not available while the pre-conversion policy is owned by a tax-qualified retirement_plan fiduciary the e o rider is a generic rider that adds an extended insurance option to the policy to which it is attached the e1o rider's benefits are not available while the policy is owned by a tax-qualified retirement_plan fiduciary law sec_401 of the code 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 benefit of his employees or their beneficiaries shall constitute a qualified_trust under that section if contributions are made to the trust by such employer or employees or both for the purpose of distributing to such the automatic premium provision provided under the app rider differs substantively from a loan provision including an automatic premium loan provision which are not permitted under the qp rider under the former excess cash_value ie cash_value in excess of the guaranteed cash_value is withdrawn and used to pay a premium once the premium is paid and the excess cash_value is reduced the slate is in effect drawn clean in contrast under a loan provision amounts are borrowed to pay a required premium and interest accrues on the loaned amounts thus should the policy owner fail to repay the loan the policy may lapse even if all future premiums are paid n t employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan sec_1_401-1 of the regulations provides that a pension_plan may provide for the payment of a pension due to a disability and may also provide for the payment of incidental death_benefits through insurance or otherwise revrul_54_51 states that an investment by a profit-sharing_trust in an ordinary_life_insurance contract for each insurable participant under the trust will be considered incidental and subordinate to the primary purpose of a qualified profit-sharing_plan where the aggregate premiums for life_insurance in the case of each participant is less than one-half of the aggregate of the contributions allocated to him at any particular time and the plan shall require the trustee to convert the entire value of the life_insurance_contract at or before retirement to provide periodic_income so that no portion of such value may be used to continue life_insurance beyond retirement revrul_61_164 states that the following interpretation of ‘incidental’ will be applied with respect to qualified_plans providing one or more life or accident_or_health_insurance benefits for participants with funds that have not been accumulated for the period prescribed by the plan for the deferment of distributions if only ordinary_life_insurance contracts are purchased the amount expended for premiums may not exceed the percentage permitted in revrul_54_51 if only accident and or health insurance contracts including hospitalization major medical or similar types of insurance are purchased the amount expended for premiums may not exceed percent of the funds allocated to an employee’s account that have not been accumulated for the period prescribed by the plan for the deferment of distributions if both ordinary life and accident and or health insurance contracts are purchased the amount expended for accident and or health premiums plus one- half of the amount expended for ordinary_life_insurance premiums may not in the aggregate exceed percent of the funds allocated to an employee's account that have not been accumulated for the period prescribed by the plan for deferment of distributions at no time may this percentage be exceeded revrul_66_143 states that in essence a 25-percent limitation on pure insurance protection is applicable under a profit-sharing_plan or a pension_plan of the money purchase type since the 50-percent limitation on amounts credited to a participant’s account which may be expended for premiums on ordinary_life_insurance contracts under such plans takes into account the fact as stated in revrul_61_164 that only approximately one-half of the premiums_paid for such contract are for pure insurance protection the remainder being applied to the building up of a reserve analysis the wl policy is similar to an ordinary whole_life_insurance policy’ in that it provides death_benefit coverage for life in a stipulated level amount as long as scheduled level premiums are paid as they fall due it differs from an ordinary whole life policy in that cash values will exceed the guaranteed cash_value whenever the account value less the surrender charges is greater than the guaranteed cash_value thus at all times cash values under the wl policy will equal or exceed the minimum cash values under an ordinary whole_life_insurance policy moreover as guaranteed cash values under the wl generally exceed percent of the accumulated scheduled premiums it is clear for the block of business as a whole that less than percent of the scheduled premiums will be used for pure insurance protection accordingly the wl policy when looked at without the addition of any riders may be treated as an ordinary_life_insurance contract for purposes of applying the rules set forth in revrul_54_51 1954_1_cb_147 in particular while the policy is owned by a qualified_plan the addition of the qualified_plan rider and any or all of the other four riders to the wl policy does not alter this analysis this is so because the addition of the qualified_plan rider and any of these riders either individually or in combination can not result in an increase in pure insurance protection beyond that found in a comparable ordinary whole_life_insurance policy fiduciary not one of the other four riders allow for or permits any reduction in the guaranteed cash_value or any increase in the face_amount of the wl policy except as necessary to comply with the limits of sec_7702 of the code note that any increase in the face_amount of the wl policy required in order to maintain compliance with sec_7702 can only occur in a situation in which the amount of pure insurance protection is so small that if not for the increase the policy would be deemed not to be life_insurance for purposes of title_26 and subsequent to the increase the amount of pure insurance protection is at the minimum amount permissible under sec_7702 of the code conclusion each contract acquired on the life of a participant in a qualified_plan will be treated as an ordinary_life_insurance contract for purposes of applying the rules set forth in revrul_54_51 1954_1_cb_147 death_benefits provided to qualified_plan participants through such contracts will be considered incidental within the meaning of sec_1_401-1 of the regulations provided that with respect to the term ordinary_life_insurance is used herein to describe policies that provide life_insurance for the whole of life with premiums that are payable for the whole of life under such policies cash values are guaranteed and determined in accordance with state non-forfeiture laws and generally listed in the policy ay - each participant in the qualified_plan less than of the total contributions allocated to the participant are applied to pay premiums on the contract or any other life_insurance_contract insuring the life of the participant if you have any questions on this ruling letter please contact sincerely a i sa david m ziegler manager employee_plans actuarial group


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-101535-17 date date legend x --------------------------------- ---------------------------------------------------------------------- a ---------------------------------------------------------------------------------------- --------------------------- b ------------------------------------------------------------------------ -------------------- ----------------------------------- c ------------------------------------------------------------------------ d ----------------------------------- ------------------------------------------------------------------------ state d1 year -------------- -------------------- ------- dear ------------- plr-101535-17 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 under sec_754 of the internal_revenue_code facts x was formed as a limited_liability_company in state x is treated as a partnership for federal tax purposes the members of x were a b c and d before d1 when a died b acquired a’s interest in x x relied on its tax advisor for advice x’s partnership return for year the year of the acquisition of a’s interest was timely filed however x inadvertently failed timely to make a sec_754 election x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not plr-101535-17 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 that granting relief will not prejudice the interests of the government conclusion based solely upon the information submitted and the representations made we 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 following the date of this letter to make an election under sec_754 effective for year the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose except as expressly set forth above we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the code specifically we express or imply no opinion as to whether or not x is a partnership for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely john p moriarty acting associate chief_counsel passthroughs special industries joy c spies _______________________________ joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes