significant index nos and release number release date - in re sponsor abc xyz date date date note in accordance with c f_r sec_301_6110-3 substitutions have been made in this document with respect to certain information deleted pursuant to ilr c sec_6110 dear the letter is in response to your request of for rulings with regard to the plan in particular you have requested the following rulings the plan is a 10_or_more_employer_plan described in sec_419a of the code and the plan is not a reportable_transaction within the meaning of sec_1 b of the regulations because it is not the same as or substantially_similar to arrangements described in notice_95_34 and identified in notice_2004_67 as listed transactions under sec_1_6011-4 of the regulations facts the plan states that it provides welfare benefits to employees of participating employers’ benefits are provided to participants both during their employment and ' for purposes of this ruling we are agsuming that the plan is a welfare_benefit_plan within the meaning of sec_419 but we are not addressing issues inherent in that assumption including whether the plan is a plan of deferred_compensation to which the deduction rules of sec_404 would apply and whether the plan provides constructive dividends to employees owners nor are we addressing whether the pian is a split-dollar_life_insurance arrangement finally this ruling through their retirement the plan provides death_benefits ‘death benefits as well as medical expense reimbursement benefits disability benefits and involuntary severance benefits collectively other_benefits the plan provides that if a participant’s employer voluntarily withdraws from the plan or the plan is terminated the other benefit and any accompanying death_benefit attributable to the participant may be transferred to another welfare_benefit_plan under code sec_419 or sec_419a the plan funds of the death and other_benefits through the purchase of cash_value life_insurance policies covering the lives of plan participants’ in particular the plan purchases a life_insurance_policy on the life of each participant with a face_amount equal to the participant's death_benefit and generally pays other_benefits by accessing the cash values of such policies the form of the life_insurance policies may be universal life variable life or traditional life the plan groups all participants into subgroups groups according to plan documents the groups are to be organized such that no employer normally contributes more than of the total contributions paid towards the insurance policies covering the lives of the members of a group who are employees of the employer_generally the policies purchased on each of the lives of the members of a group will be of the same insurance form if the insurance form is traditional life the required premium paying period will be the same number of years for each of the policies planned premium paying period will be the same for each of the policies if the insurance form is flexible premium universal life or variable life the in the other benefit of a participant for any year is generally determined in steps step one the total of the projected to the end of the policy year cash values of the insurance policies covering the lives of the members of the participant’s group is multiplied by a fraction the numerator of which is the participant's death_benefit and the denominator of which is the total of the death_benefits of all the members of the group in step two the result from step one is multiplied by a factor chosen by the plan actuary to leave a margin for expenses inexact projections and benefit claims early in the policy year for example participant p has a death_benefit of dollar_figure million and is a member of group r the total of the projected cash values of the insurance policies owned by the plan on the lives of the members of r for a year is dollar_figure and the total death_benefits of the members of r is dollar_figure million thus the result of the first step in the calculation of p’s other benefit is dollar_figure dollar_figure multiplied by dollar_figure million divided by dollar_figure million accordingly if the plan actuary chooses a factor of does not reach the issues of whether the plan is a single_plan rather than an aggregation of individual plans and whether the plan satisfies the compliance information requirements of sec_1_419a_f_6_-1 a of the regulations even though the ruling you requested implicitly requests such determinations see section of the plan and see section of the plan and et percent the other benefit of p for the year is dollar_figure this is the case regardless of the actual projected cash_value of the policy owned by the plan on the life of p employers must select as a check off line in the plan adoption_agreement either an other benefit plan or a death_benefit plan insurance policies covering the lives of the members of a group whose employers have selected an other benefit plan will build up faster than the cash values of the insurance policies covering the lives of the members of a group whose employers have selected a death_benefit plan in general the cash values of the each year a participating employer is required to contribute an amount dictated by the group assignments of the various eligible employees who are intended to be participants in the plan in particular the amount that a participating employer is required to contribute with respect to each group is generally determined as a level amount equal to the sum of the premiums required under each of the life_insurance policies on the lives of the members of the group multiplied by a fraction the numerator of which is the total of the death_benefits of the members of the group who are in his employ and the denominator of which is the total of the death_benefits of all the members of the group in situations in which the policy form of a group provides for flexible premiums the plan actuary determines a premium for each of the policies in the group such that the policies all become fully funded at the end of the planned premium payment period chosen for the group for example participant q an employee of employer e has a death_benefit of dollar_figure million and is member of group s participant q is the only employee of e who is a member of s the total of the death_benefits of the members of s is dollar_figure million the insurance policies purchased on the lives of the members of s are all of the flexible premium universal life form the plan actuary has determined that the total of the required premiums of the policies owned by the plan on the lives of the members of s for a year is dollar_figure million accordingly the required_contribution from e for the year with respect to q is dollar_figure dollar_figure million multiplied by dollar_figure million divided by dollar_figure million this is the case regardless of the actual premium determined by the actuary for the policy on the life of q a group is generally open to plan participants over a one-year time period‘ employees are assigned to groups based on the following factors e employees are placed in groups consisting of members with similar life_insurance risk profiles eg age gender and general health ‘ see of the included in the original submission hereinafter report which states see included in the original submission hereinafter report which states see also of report which states e e e e employees are placed into groups with employees of other employers who intend to contribute to the plan for the same number of years as the employee's employer’ employees are placed into groups with employees of other employers who intend to contribute similar amounts per dollar_figure million of coverage to the plan as the employee's employer’ employees are placed into groups with employees of other employers for whom the same mix of welfare benefits ie other benefit or death_benefit was chosen employees are placed into groups with employees of other employers who have similar investment risk tolerances as the employee’s employer for example certain employers might prefer the minimal risk that is found in insurance products where the investment return is based on the performance of the insurer's general account other employers might prefer the risk that is found in insurance products where the investment return is tied to an outside index still other employers might prefer the risk that is found in insurance products where the assets are invested in a separate_account as in a variable life_insurance_contract additional material submitted pursuant to section dollar_figure of revproc_2006_4 on date your authorized representative was informed of our tentative adverse position with respect to your request on date a conference of right was held with respect to our tentative adverse position on date a date which was after the conference of right your authorized representative submitted additional material including projections based on a group which the authorized representative for the plan stated existed as of the projections report and a document entitled abc employer welfare_benefit_plan rules dated date the rules’ the projections report which was prepared by the actuary for the plan shows the results of testing the expected contributions against the expected benefits for see of report which states and which states see abc plan_description of report which states see in particular of the report which states that emphasis added assets invested in a separate_account as in a variable life_insurance_contract e _ assets invested in the general account of the life_insurance_company with the credited interest rate tied to an outside index as in an equity indexed life_insurance_contract or e assets invested in the general account of the insurance_company without the credited interest rate tied to an outside index section of the plan provides that means the committee as defined by the plan plan participants in one of the groups the actuary’s conclusion with regard to such testing was that there is not a direct relationship between contributions and benefits for any specific participant and that there is a variation in the returns achieved defined as expected other_benefits less expected contributions the rules generally provide that the committee’s interpretations of the plan’s provisions must weigh in favor of maintaining the plan’s compliance with sec_419a of the code sec_1_419a_f_6_-1 of the regulations and applicable federal tax authorities promulgated thereunder collectively the applicable law’ furthermore the rules provide that matters which in the view of the committee are not clearly decided by the applicable law should be submitted to the plan‘s counsel for written advice and that values distributed from the plan must in the opinion of the plan actuary maintain the plan’s status as an employee welfare_benefit_plan that does not maintain an experience rated arrangement as to any single employer within the means of sec_419a of the code the rules include guidelines regarding the transfer of plan assets by employers to bona_fide single or multiple employer welfare_benefit plans permitted but only where such transfers are e e e e e the single employer or multiple employer welfare_benefit_plan in the opinion of plan counsel satisfies the applicable_requirements of sec_419 and sec_419a of the code the transfer of assets in the opinion of plan counsel and the plan actuary does not cause the plan to maintain an experience rating arrangement as to any covered employer or its employee participants under sec_419a and the regulations thereunder the transfer of assets in the opinion of the plan counsel and the plan actuary does not cause the plan to become a deferred_compensation arrangement the transferee_plan does not permit distributions of cash or value except upon the occurrence of a standard welfare_benefit trigger’ as defined under sec_419a of the code and the regulations thereunder and may not be amended to do so the transferee_plan is an employee welfare_benefit_plan under erisa and holds plan assets in a taxable trust only to be paid in the form of welfare benefits to participants of the transferee_plan the transferee plan’s language permits transfers or rollovers of plan assets from plans such as the plan the transferee_plan is in existence at the time the transfer is made and trustees of both the plan and the transferee_plan have agreed to the transfer the affected participant's benefits do not increase or diminish as a result of the transfer the covered employer's governing body has resolved in writing that the transfer is in the best interest of the participants of the covered employer the transfer does not result in a reversion of plan assets to the covered employer or in a distribution of benefits to the affected participants the participants individually voluntarily elect and agree to the transfer of plan assets example of plan operation based on the materials submitted with the request and numerous conversations with the authorized representatives of the sponsor it is our understanding that it is intended that the plan once it becomes fully operational will operate in a manner consistent with the operation illustrated in the following example participating employer f intends to make contributions to the plan for years and selects an other benefit plan thus the employees of f are placed in groups with employees of other employers who intend to make contributions to the plan for years and have selected other benefit plans in addition the employees of f are placed in groups with employees of other employers who have similar life_insurance risk profiles one employee of employer f g is a year old male non-smoker who is covered in employee g is assigned to a group k consisting of to year old male non-smoker employees of other employers who are first covered in and whose employers intend to contribute to the plan for years and who have selected other benefit plans’ first the plan purchases life_insurance policies of the same form on the lives of each of the members of group k the plan actuary then determines for each policy a premium amount such that it is likely that the policy will be fully funded after the payment of premiums because each of the members of k are of the same gender in the same age range and have the same smoking status the premiums per dollar_figure million of coverage for the policies purchased on the lives of the members of k will generally be similar this is true regardless of whether the policies are purchased from different insurers similarly the cash values of the policies per dollar_figure million of coverage on the lives of the members of group k will generally at any point in time be similar this is life_insurance_policy per dollar_figure million of overage is because the cash_value of a general a function of the policy's duration which will be the same for each policy in the group because each policy will be issued in the premium paying period the policy form and the insured’s age gender and smoking status in thus if the total of the premiums required under the policies on the lives of the members of group k was dollar_figure million and the total of the death_benefits of the although report uses as an example a group consisting of a mixture of male and female smokers and nonsmokers aged to report makes clear that tighter’ groups are intended members of the k was dollar_figure million and employee g’s death_benefit was dollar_figure million the contribution required from employer f with respect to g would be dollar_figure determined as dollar_figure million multiplied by dollar_figure million divided by dollar_figure million this amount would be required from f regardless of the actual premium required under the policy purchased on the life of g the g policy’ similarly if the total of the other_benefits on the policies on the lives of the members of group k in future year 200x was dollar_figure million the other benefit in year 200x with respect to employee g would be dollar_figure determined as dollar_figure million multiplied by dollar_figure million divided by dollar_figure million this dollar_figure would be the amount of the other benefit of g regardless of the actual cash_value of the g policy in the event that employer f were to terminate his participation in the plan in year 200x the other_benefits of employee g could be transferred to another welfare_benefit_plan under code sec_419 or sec_419a because the other benefit of g would not in all likelihood in year 200x be exactly the same as the cash_value of the g policy an adjustment to the cash_value would have to be made at the time of the transfer before the policy itself could be transferred if the adjustment to the cash_value of the g policy in year 200x was negative as would be the case if the cash_value of the g policy was greater than his other benefit of dollar_figure the cash_value of the g policy would be reduced by the excess of the cash_value of the g policy over his other benefit this excess would be transferred to the remaining policies within group k similarly if the adjustment to the cash_value of the g policy in year 200x was positive as would be the case if the cash_value of death_benefit of the g policy was less than his other benefit of dollar_figure the difference between g's other benefit and the cash_value of the g policy would be made up through transfers of cash values from the remaining policies within group k la sec_419a of the code provides that sec_419 and sec_419a shall not apply in the case of any welfare_benefit_fund which is part of a 10_or_more_employer_plan the preceding sentence shall not apply to any plan which maintains experience-rating arrangements with respect to individual employers sec_419a of the code provides that for purposes of subparagraph a the term 10_or_more_employer_plan means a plan ----- i ii to which more than employer contributes and to which no employer normally contributes more than percent of the total contributions contributed under the plan by all employers see section of the plan sec_1_419a_f_6_-1 of the regulations provides that a plan is a or it is a single_plan that more employer plan described in sec_419a only if does not maintain an experience-rating arrangement with respect to any individual employer sec_1_419a_f_6_-1 of the regulations provides that a plan maintains an experience-rated arrangement with respect to an individual employer and thus does not satisfy the requirements of paragraph a iii of that section if with respect to that employer there is any period for which the relationship of contributions under the plan to the benefits or other_amounts payable under the plan the cost of coverage is or can be expected to be based in whole or in part on the benefits experience or overall experience or a proxy for either type of experience of that employer or one or more employees of that employer for purposes of that paragraph b an employer’s contributions include all contributions made by or on behalf of the employer's employees sec_1_419a_f_6_-1 of the regulations provides that a plan will not be treated as maintaining an experience-rating arrangement with respect to an individual employer merely because the cost of coverage under the plan with respect to the employer is based in whole or in part on the benefits experience or the overall experience or a proxy for either type of experience of a rating group provided no employer normally contributes more than percent of all contributions with respect to that rating group for that purpose a rating group means a group of participating employers that includes the employer or a group_of_employees covered under the plan that includes one or more employees of the employer sec_1_419a_f_6_-1 of the regulations provides that the presence any of the characteristics described in paragraphs c through c of that section generally indicates that the plan is not a 10_or_more_employer_plan described in sec_419a accordingly unless established to the satisfaction of the commissioner that the plan satisfies the requirements of sec_419a and that section a plan having any of the following characteristics is not a 10_or_more_employer_plan described in sec_419a a plan’s lack of all the following characteristics does not create any inference that the plan is a 10_or_more_employer_plan described in sec_419a the characteristics are allocation of plan assets assets of the plan or fund are allocated to a specific employer or employers through separate_accounting of contributions and expenditures_for individual employers or otherwise sec_1_419a_f_6_-1 differential pricing the amount charged under the plan is not the same for all the participating employers and those differences are not merely reflective of differences in current risk or rating factors that are commonly taken into account in manual rates used by insurers such as current age gender geographic locale number of covered dependents and benefit terms for the particular benefit or benefits being provided sec_1_419a_f_6_-1 no fixed welfare_benefit package the plan does not provide fixed welfare benefits for a fixed coverage period for a fixed cost within the meaning of paragraph d of that section sec_1_419a_f_6_-1 unreasonably high cost the plan provides for fixed welfare benefits for a fixed coverage period for a fixed cost but that cost is unreasonably high for the covered risk for the plan as a whole sec_1_419a_f_6_-1 nonstandard benefit triggers benefits or other_amounts payable can be paid distributed transferred or otherwise provided from a fund that is part of the plan by reason of any event other than the illness personal injury or death of an employee or family_member or the employee’s involuntary separation from employment thus for example a plan exhibits this characteristic if the plan provides for the payment of benefits or the distribution of an insurance_contract to an employer's employees on the occasion of the employer's withdrawal from the plan a plan will not be treated as having the characteristic described in this paragraph merely because upon cessation of participation in the plan an employee is provided with the right to convert coverage under a group_life_insurance_contract to coverage under an individual life_insurance_contract without demonstrating evidence of insurability but only if there is no additional economic value associated with the conversion_right sec_1_419a_f_6_-1 sec_1_419a_f_6_-1 of the regulations provides that the term benefits or other_amounts payable includes all amounts that are payable or distributable or that will otherwise be provided directly or indirectly to employers to employees or their beneficiaries or to another fund as a result of a spinoff or transfer and without regard to whether payable or distributable as welfare benefits cash dividends credits rebates of contributions property promises to pay or otherwise sec_1_419a_f_6_-1 of the regulations provides that the benefits experience of an employer or of an employee or group of employers or employees means the benefits and other_amounts incurred paid or distributed or otherwise provided directly or indirectly including to another fund as a result of a spinoff or transfer with respect to the employer or employee or group of employers or employees and without regard to whether provided as welfare benefits cash dividends credits rebates of contributions property promises to pay or otherwise sec_1_419a_f_6_-1 of the regulations provides that the term overall experience means with respect to an employer or group of employers the balance that would have accumulated in a welfare_benefit_fund if that employer or those employers were the only employer or employers providing welfare benefits under the plan thus the overall experience is credited with the sum of the contributions under the plan with respect to that employer or group of employers less the benefits and other_amounts paid or distributed or otherwise provided with respect to that employer or group of employers or the employees of that employer or group of employers and adjusted for gain_or_loss from insurance contracts as described in paragraph b i of that section investment return and expenses overall experience as of any date may be a positive or a negative number sec_1_419a_f_6_-1 of the regulations provides that the term overall experience means with respect to an employee or group_of_employees whether or not employed by the same employer the balance that would have accumulated in a welfare_benefit_fund if that employee or those employees were the only employee or employees being provided welfare benefits under the plan thus the overall experience is credited with the sum of the contributions under the plan with respect to that employee or group_of_employees less the benefits and other_amounts paid or distributed or otherwise provided with respect to that employee or group_of_employees and adjusted for gain_or_loss from insurance contracts as described in paragraph b i of that section investment return and expenses overall experience as of any date may be a positive or a negative number sec_1_419a_f_6_-1 of the regulations provides that a plan provides for fixed welfare benefits for a fixed coverage period for a fixed cost if it --- a b c defines one or more welfare benefits each of which has a fixed amount that does not depend on the amount or type of assets held by the fund specifies fixed contributions to provide for those welfare benefits and specifies a coverage period during which the plan agrees to provide specified welfare benefits subject_to the payment of the specified contributions by the employer sec_1_419a_f_6_-1 of the regulations provides that a plan will not be treated as failing to provide for fixed welfare benefits for a fixed coverage period for a fixed cost merely because the plan does not pay the promised benefits or require all participating employers to make proportionate additional contributions based on the fund’s shortfall when there are insufficient assets under the plan to pay the promised benefits similarly a plan will not be treated as failing to provide for fixed welfare benefits for a fixed coverage period for a fixed cost merely because the plan provides a period of extended coverage after the end of the coverage period with respect to employees of all participating employers at no cost to the employers or provides a proportionate refund of contributions to all participating employers because of the plan-wide favorable actuarial experience during the coverage period sec_1_419a_f_6_-1 of the regulations illustrates the provisions related to experience-rating arrangements with a number of examples five of these examples example and examples involve the rule described in sec_1_419a_f_6_-1 for rating groups under the facts in example the amount charged to an employer under a 10_or_more_employer_plan each year is equal to the claims and other expenses expected with respect to that employer for the year multiplied by the ratio of actual claims for the previous year determined on a plan wide basis ie based on the actual claims for the employees of all employers over the expected claims for the previous year determined on a plan wide basis the regulations note that under these facts an employer's cost of coverage is based in part on the benefits experience of the employer as well as of all other participating employers however pursuant to sec_1_419a_f_6_-1 the arrangement will not be treated as maintaining experience-rating arrangements with respect to the individual employers merely because the employers’ cost of coverage is based on the benefits experience of a rating group in example the rating group includes all the employees of all the participating employers the regulations conclude that absent other facts the arrangement will not be treated as maintaining experience-rating arrangements with respect to individual employers under the facts in example the amount charged for the coverage of an employee in the rating group is initially determined from a rate-setting manual based on the benefit package and then adjusted to reflect the claims experience of the employers in that classification as a whole the regulations state that under the facts in example an employer participating in the plan should be able to establish that the plan does not maintain experience-rating arrangements with respect to individual employers even though the differential pricing characteristic is present under the facts in example the experience of each employer in the rating group for the prior year is reviewed and then the employer is assigned to one of the three classifications low cost intermediate cost or high cost based on the ratio of actual claims with respect to that employer the regulations state that the special rule for ratings groups can prevent a plan from being treated as maintaining experience- rating arrangements with respect to individual employers if the mere use of the rating group is the only reason the plan would be so treated under the arrangement described in example however an employer's cost for each year is based on the employer's benefit experience in two ways the employer's benefit experience is part of the benefits experience of the rating group that is otherwise permitted under the special rule for rating groups and the employer's benefit experience is considered annually in redetermining the rating group to which the employer is assigned accordingly the plan in example maintains experience-rating arrangements with respect to individual employers sec_1_6011-4 of the regulations provides that in general every taxpayer that has participated in a reportable_transaction and who is required to file a tax_return must attach a disclosure statement to its return for the taxable_year sec_1_6011-4 of the regulations provides that a reportable_transaction is a transaction described in any of the paragraphs b through of that section the term transaction includes all of the factual elements relevant to the expected tax treatment of any investment_entity plan or arrangement and includes any series of steps carried out as part of a plan there are six categories of reportable_transactions listed transactions confidential transactions transactions with contractual protection loss transactions transactions with a significant book-tax difference and transactions involving a brief asset holding_period sec_1_6011-4 of the regulations provides that a transaction that is the same as or substantially_similar to one of the types of transactions that the internal_revenue_service irs has determined to be a tax_avoidance transaction and identified by notice regulation or other form of published guidance as a listed_transaction listed_transaction is a sec_1_6011-4 of the regulations provides that the term substantially_similar includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy receipt of an opinion regarding the tax consequences of the transaction is not relevant to the determination of whether the transaction is the same as or substantially_similar to another transaction further the term substantially_similar must be broadly construed in favor of disclosure notice_95_34 1995_1_cb_309 alerts taxpayers and their representatives to some of the significant tax problems that may be raised by certain arrangements purporting to qualify as multiple employer welfare_benefit funds excepted from the limits of sec_419 and sec_419a of the code the arrangements described in notice_95_34 claim to satisfy the requirements for the 10-or-more employer plan exception under sec_419a of the code sec_419a provides an exception from the strict limits under sec_419 and sec_419a that otherwise apply to deductions for contributions to a welfare_benefit_fund the arrangements described in notice_95_34 attempt to use the exception provided by sec_419a of the code in order to avoid being subject_to the otherwise applicable deduction limits of sec_419 and sec_419a even though pursuant to formal or informal arrangements or practices a particular employer's contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers the service identified transactions described in notice_95_34 as listed transactions for purposes of sec_1_6011-4 sec_301 b and b notice_2004_67 2004_2_cb_600 analysis of first ruling_request sec_1_419a_f_6_-1 of the regulations provides that a plan having any of the characteristics in paragraphs c through c of that section is not a 10_or_more_employer_plan described in sec_419a unless it is established to the satisfaction of the commissioner that the plan satisfies the requirements of sec_419a and that section of the regulations in the instant case the plan exhibits four of the characteristics listed under sec_1_419a_f_6_-1 through c first assets of the plan are effectively allocated to specific employers this is the case even though there is a small amount of asset sharing among employers within the groups because of the high degree of participant homogeneity within a group in other words because all of any such asset sharing is not likely to be significant the members of any particular group will be of similar or identical age gender and general health and because the policies purchased on their lives will be of the same form and have been purchased within the same time period the values inherent in such policies will generally be similar thus to a significant extent employers are effectively purchasing policies on the lives of their own employees has access to a separate_accounting of its proportionate share of the aggregate assets associated with the policies on the lives of the group members accordingly the plan exhibits the characteristic of allocation of plan assets within the meaning of sec_1_419a_f_6_-1 of the regulations each employer second the amounts charged under the plan are not the same for all participating employers and these differences are not merely reflective of differences in current risk or rating factors that are commonly taken into account in manual rates used by for example two employers who chose death_benefit plans would be insurers charged different amounts for the same benefits depending upon whether they chose to fund the benefits over years or years although insurers generally take into account the length of the premium paying period in setting manual rates premium paying period is generally not considered a current risk or rating factor but merely the number of years selected by the insurance_contract owner over which the owner agrees to in effect fund an amount determined by the insurer equal to the present_value of the sum of the benefits provided by the contract plus the insurer's in addition for those costs of operation including profit allocable to the contract participating employers choosing to provide other_benefits the differences in contribution amounts are not reflective of the risk or rating factors commonly taken into account in manual rates used by insurers for the other_benefits provided under the plan thus the plan exhibits the characteristic of differential pricing within the meaning of sec_1_419a_f_6_-1 of the regulations third the plan does not provide for fixed welfare benefits for a fixed coverage period for example an employer who chose a death_benefit plan ie one for a fixed cost in which the other_benefits are not significant would be charged a varying amount depending on the number of years the employer chose to make contributions to the similarly employers who placed their employees in groups that were funded plan with universal life or variable life policies would not have fixed other_benefits because the other_benefits are based on the cash values of the policies of the group which in turn are based on unknown future investment returns in all situations the actual cash values of the policies of a group and the safety margin between such cash values and the other_benefits of the group determined by the plan actuary are also not fixed thus the plan exhibits the characteristic of no fixed welfare_benefit package within the meaning of sec_1_419a_f_6_-1 c of the regulations in addition fourth benefits can be transferred from the plan by reason of an event other than the illness personal injury or death of an employee or family_member or the employee’s involuntary separation from the employer in particular benefits can be transferred to another welfare_benefit_plan under code sec_419 or sec_419a if a participant’s employer withdraws from the plan or the plan is terminated thus the plan exhibits the characteristic of nonstandard benefit triggers within the meaning of sec_1_419a_f_6_-1 of the regulations because the plan exhibits at least one of the characteristics listed under sec_1_419a_f_6_-1 of the regulations the plan must establish to the satisfaction of the commissioner that the plan satisfies the requirements of sec_419a and sec_1_419a_f_6_-1 of the regulations the plan cannot do so in particular the plan maintains experience-rating arrangements with respect to individual employers because the cost of coverage of an employer is based ona proxy for the overall experience of that employer an employer's contributions for the benefits or other_amounts payable to its employees under the plan are based in whole or in part on the sum of amounts determined with respect to each of the employer's covered employees for each such employee that amount is a specified portion of the aggregate cash_value of all of the policies covering employees whether employed by that employer or another in the group to which that employee is assigned that specified portion is a proxy for the cash_value of the policy on the life of that particular employee the sum of these individual amounts in turn is a proxy for the employer's overall experience concept see example sec_4 and in sec_1_419a_f_6_-1 of the regulations an employer's overall experience is the balance that would have accumulated in the trust if that employer were the only employer providing welfare benefits under the plan the sum of the employer's contributions less the benefits or other_amounts paid or distributed with respect to the employer adjusted for gains and losses investment return and expenses n this case if an employer had been the plan's only employer so that each year's contributions were used to pay premiums for cash_value life_insurance policies on the lives of its employees the balance of assets accumulated in the trust would essentially equal the aggregate cash_value of the life_insurance policies thus a participating employer's cost of coverage under the plan is based on a proxy for that employer's overall experience accordingly the plan maintains experience-rating arrangements with respect to an individual employer furthermore the special rule in section '1 419a f -1 b iii for experience rating by group of employers or group_of_employees rating groups does not change that result ’ for illustrations of this for purposes of determining whether a plan maintains an experience-rating arrangement with respect to an individual employer the definitions of benefit experience and overall experience both refer to an employer or a group of employers under the special rule for rating groups provided that no employer in the group normally contributes more than of all contributions with respect to the group a plan will not be treated as maintaining an experience-rating arrangement with respect to an individual employer merely because the cost of coverage under the plan is based in whole or in part on the benefits experience or the overall although we have not determined that the groups are rating groups within the meaning of sec_1_419a_f_6_-1 of the regulations we are assuming that they are for purposes of this ruling additionally you have represented that no employer normally contributes more than percent of all contributions with respect to each group experience or a proxy for either type of experience of a particular group of employers referred to in the regulations as a rating group one of the reasons the arrangements maintained by the plan come within the meaning of maintaining experience-rating arrangements with respect to individual employers as defined in sec_1_419a_f_6_-1 is that the cost of coverage is based in whole or in part on the experience of a group of employers group however that is not the only reason as described more fully below the experience-rating arrangements maintained under the plan in this case are not merely with respect to one or more groups the plan also maintains experience-rating arrangements with respect to each individual employer the assignment process ensures that each member of a group has very similar experience and that overall costs to a particular employer will reflect the expected experience of that particular employer's workforce this effect is achieved by assigning participants who enter the plan within the same 1-year time period to groups based upon the same or similar risk or rating factors that are commonly taken into account in manual rates used by insurers for the benefits being provided thus an insurance_policy on the life of one member of a group will at all times require essentially similar premiums per dollar_figure million of death_benefit coverage and have essentially similar values per dollar_figure million of coverage as insurance policies on the lives of other members of the same group accordingly regardless of the actual experience of any particular employee the employer of any other member of a group can expect that its cost of coverage will not be affected to a significant degree by that experience policy with a face_amount equal to the member’s death_benefit and for example if a member of a group dies the plan will receive funds from the insurer in sufficient amounts to pay the member's beneficiary because the plan purchased a the required premiums of the policies on the lives of the other members of the group will generally be affected only to the extent that the premium for the deceased participant differed from the average premium within the group thus if the average premium per dollar_figure million of coverage was dollar_figure ie the contribution amount per dollar_figure million required of each employer of a member of the group for a group consisting of twenty members and the premium on the policy on the life of the deceased participant was dollar_figure per dollar_figure million of coverage the average premium per dollar_figure million of coverage of the group might merely increase to dollar_figure per dollar_figure million of coverage in the following year similarly if a member of a group incurs a relatively small other benefit the other_benefits of other members of the group would not be affected to a significant degree for example if the other benefit per dollar_figure million of death_benefit coverage for a group consisting of twenty members is dollar_figure and a member incurs an other benefit of dollar_figure the other benefit for the group might otherwise ie absent the affect of increases due to additional employer contributions merely decrease to dollar_figure per dollar_figure million of coverage in the following year of coverage for example if the other benefit per dollar_figure million of death if a member of a group consistently incurs large other_benefits the other_benefits of the other members of the group could possibly be affected to a significant degree in the following years if the employers of such other members were to continue their participation in the plan benefit coverage for a group consisting of twenty members is dollar_figure and a member y incurs the maximum other benefit of dollar_figure the other_benefits for the group might otherwise ie absent the effect of increases due to additional employer contributions decrease to dollar_figure per dollar_figure million of coverage in the following year of coverage if in that following year y again incurs the maximum other benefit now dollar_figure the other_benefits for the group might further however under the terms of the decrease to dollar_figure in the second following year plan the employers of the other members of the group can at any time terminate their participation and so avoid an adjustment in the second following year thus in the example in the preceding paragraph after y incurred the maximum other benefit in the first year each of the employers could have terminated their participation in the plan and have the dollar_figure per dollar_figure million of coverage other_benefits on their own employees who are members of the group transferred to another welfare_benefit_plan to avoid the risk of having their employees’ other_benefits reduced by continuing large other benefit claims by y as might be the case if for example y developed a chronic non life-threatening disease or sustained a severe injury under the plan the other_benefits of an employer's employees are directly related to the cash_value of the policies purchased on the lives of the employees sec_1_419a_f_6_-1 does not except plans that have rating groups from being treated as maintaining an experience-rating arrangement with respect to an individual employer rather it provides that the fact that the cost of coverage under a plan with respect to an employer is based in whole or in part on the benefits experience or the overall experience or a proxy for either type of experience of a rating group does not in and of itself mean that the plan is maintaining an experience-rating arrangement with respect to that employer as explained above under the plan the cost of coverage to an employer is based on a proxy for the overall experience of that particular employer not merely the benefits experience or overall experience of a group thus the plan maintains experience-rating arrangements with respect to individual participating employers as described in sec_1_419a_f_6_-1 of the regulations and so fails to satisfy the requirements of sec_1_419a_f_6_-1 of the regulations accordingly the plan is not a 10_or_more_employer_plan described in sec_419a of the code comments regarding additional material submitted pursuant to revproc_2006_4 although the actuary for the plan concluded with regard to one group that there was not a direct relationship between contributions and benefits for any specific participant the structure of the group tested in the projections report bears little relationship to the ultimate intended structure of the groups as described in the taxpayer's original submission in particular it is stated in the original submission that a group is generally open to plan participants over a one-year time period see footnote in the facts section the group tested in the projections report included participants with policy issue dates that range from to furthermore it is stated in the original submission that the assignment of a participant to a group is made according to their risk characteristics such as issue age and class see footnote in the facts section the group tested in the projections report includes participants whose years of birth range from to accordingly the fact that the actuary for the plan believes that there is not a direct relationship between contributions and benefits for any specific participant for one purported group as it existed as of is not determinative with respect to the issues of whether the plan maintains experience-rating arrangements with respect to individual employers within the meaning of sec_419a of the code the rules in effect provide that the committee will administer the plan in accordance with the provisions of sec_419a as interpreted by the plan counsel and plan actuary however a mere statement that the plan will be administered in accordance with the law does not accord the plan the status of meeting the requirements of sec_419 of the code accordingly the provisions of the rules are similarly not determinative with respect to the issues of whether the plan maintains experience- rating arrangements with respect to individual employers within the meaning of sec_419a of the code analysis of second ruling_request in determining whether a transaction arrangement is substantially_similar_to_a_listed_transaction the following definition is set forth in sec_1 c of the regulations the term substantially_similar includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy substantially_similar must be broadly construed in favor of disclosure further the term the intended tax consequences of this arrangement and the arrangements described in notice_95_34 are the same or of similar type - the avoidance of the strict limits of sec_419 and sec_419a on the amount of tax-deductible contributions to a welfare_benefit_fund moreover the arrangement is both factually similar to and based on the same or similar tax strategy as the arrangements described in notice_95_34 the tax strategy employed by the arrangements described in notice_95_34 is to deduct the employer's contributions in the year paid based on the exception from the sec_419 and sec_419a deduction limits that is provided by sec_419a of the code for or more employer plans that do not maintain experience-rating arrangements with respect to individual employers while structuring the arrangements so that an employer's contributions or its employees’ benefits are determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers in the instant case the sponsor and the plan claim that contributions to the plan are deductible when paid because the plan is a 10_or_more_employer_plan described in sec_419a of the code while in reality the plan is structured so that most participants will receive benefits in amounts related to the contributions made on their behalf by their employer more specifically as is described above in the analysis of first ruling_request section describing why the plan maintains experience-rating arrangements with respect to individual employers the group assignment process effectively ensures that each employee member of a group will have substantially the same overall experience and accordingly will not be significantly affected by the experience of any other employee thus the plan is structured to insulate an employer to a significant extent from the experience of the other participating employers therefore under sec_1 c the plan is based on the same or similar tax strategy as the arrangement described in notice_95_34 some of the factual elements described in notice_95_34 include the existence of a_trust providing benefits such as life_insurance disability and severance_pay benefits that invests in cash_value life_insurance contracts on the lives of the covered employees large employer contributions relative to the cost of the amount of term_insurance that would be required to provide the death_benefits under the arrangement the use of the cash values within the insurance contracts owned by the trust to pay benefits other than death_benefits separate_accounting of the assets attributable to the contributions made by each subscribing employer determination of an employer's contributions or its employees’ benefits in a way that insulates the employer to a significant extent from the experience of other subscribing employers and the provision of benefits to most participants whether or not there has been an occurrence of an unanticipated future event the plan is factually similar to the arrangements described in notice_95_34 in that there is a_trust providing benefits such as life_insurance disability and severance_pay benefits that invests in cash_value life_insurance contracts on the lives of the covered employees the plan requires large employer contributions relative to the cost of the amount of term_insurance that would be required to provide the death_benefits under the plan the plan intends to use the cash within the insurance contracts owned by the trust to pay other than death_benefits through the group process the plan separately accounts for the assets attributable to the contributions made by each subscribing employer and generally bases benefits and other_amounts that are provided to the subscribing employer's employees on such accounts thereby insulating the experience of each employer from that of every other employer consequently under sec_1_6011-4 the plan is factually similar to the arrangements described in notice_95_34 based on the facts submitted representations made and considering all the facts and circumstances of this transaction we conclude that under sec_1 c the arrangement of which the plan is a part is the same as or substantially_similar to the listed_transaction described in notice_95_34 conclusions the plan is not a 10_or_more_employer_plan described in sec_419a of the code because it maintains experience-rating arrangements with respect to individual employers and the plan is a reportable_transaction within the meaning of sec_1 b of the regulations because it is the same as or substantially_similar to arrangements described in notice_95_34 and identified in notice_2004_67 as listed transactions under sec_1_6011-4 of the regulations this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described under any provision of the code a copy of this letter is being furnished to your authorized representative pursuant to a power_of_attorney form on file if you have any questions on this ruling letter please contact sincerely james e holland jr manager employee_plans technical ne among others we also do not herein address issues referred to in footnote


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 b02 plr-134841-11 date february trust a b date ----------------------------------------------------------------------------------------------------- ------------------------ ------------ ---------------------- ------------------ dear --------------- this responds to a letter dated date submitted on behalf of trust by trust’s authorized representative requesting a ruling under sec_642 of the internal_revenue_code the information submitted states that trust is an irrevocable_trust created on date a and b both individuals are the primary beneficiaries of the trust subparagraph of the trust agreement provides that a has a lifetime limited_power_of_appointment over trust as follows t he trustee shall distribute all or any portion of the trust estate including both income and principal as a may appoint at any time and from time to time during a’s lifetime or upon a’s death to any one or more organizations each of which is at the time contemplated for an actual distribution to such organization exempt from federal income_taxation under sec_501 as an organization described in sec_501 and also is described in al of sec_170 sec_2055 and sec_2522 following a’s death if b is then living then b has a lifetime limited_power_of_appointment over the trust subject_to the same terms as a’s lifetime limited_power_of_appointment plr-134841-11 a intends to exercise the limited_power_of_appointment to cause the trustee of trust to distribute part or all of the income of the trust to one or more charitable organizations as defined in the trust agreement sec_642 provides that in the case of an estate_or_trust other than a_trust meeting the specifications of subpart b of part i of subchapter_j of chapter there shall be allowed as a deduction in computing its taxable_income in lieu of the deduction allowed by sec_170 relating to deduction for charitable etc contributions and gifts any amount of the gross_income without limitation which pursuant to the terms of the governing instrument is during the taxable_year paid for a purpose specified in sec_170 determined without regard to sec_170 sec_1_642_c_-1 provides that any part of the gross_income of an estate_or_trust which pursuant to the terms of the governing instrument is paid or treated under paragraph b of sec_1 as paid during the taxable_year for a purpose specified in sec_170 shall be allowed as a deduction to such estate_or_trust in lieu of the limited charitable_contributions deduction authorized by sec_170 based solely on the information submitted and the representations made we conclude that a distribution of gross_income from trust to one or more charitable organizations made pursuant to a’s limited_power_of_appointment will be made pursuant to the terms of the governing instrument as provided in sec_642 therefore provided that the other requirements of sec_642 are satisfied such distribution from trust will qualify for the charitable_contribution_deduction under sec_642 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code the ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to trust’s authorized representative sincerely melissa c liquerman chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court patricia r carpentier petitioner v commissioner of internal revenue respondent docket no filed date douglas d potratz for petitioner ralph w jones for respondent memorandum opinion armen special_trial_judge this matter is before the court on respondent's motion for summary_judgment filed pursuant to rule a as explained in detail below we will grant tt all rule references to the tax_court rules_of_practice and procedure - - respondent partial summary_judgment with respect to all matters deemed admitted as a consequence of petitioner's failure to respond to respondent's second request for admissions and petitioner's failure_to_file a reply to respondent's amendment to answer background on date respondent issued notices of deficiency to patricia r carpentier petitioner determining deficiencies in and additions to her federal income taxes for and respondent determined that petitioner failed to file tax returns for the years in issue failed to report various items of income including interest dividends rents capital_gains and a tax_refund and failed to pay estimated_taxes petitioner filed a timely petition for redetermination with the court on date kevin o'hara filed an entry of appearance on behalf of petitioner on date mr o'hara filed a motion to withdraw from the case citing petitioner's interference in his efforts to settle the case the court granted mr o'hara's motion to withdraw on date timothy p peabody filed an entry of appearance on behalf of petitioner on date respondent filed a second request for admissions requesting that petitioner admit the following a during the year you sold securities in a net_capital_loss in the aggregate amount dollar_figure b during the year you sold securities in a net_capital_loss in the aggregate amount dollar_figure c during the year gains or losses resulting of resulting of you did not have any capital during the year you sold securities resulting in a net_capital_loss in the aggregate amount of d dollar_figure e during the year income in the amount f during the year income in the amount g during the year income in the amount h during the year income in the amount during the year income in the amount j during the year income in the amount k during the year income in the amount during the year income in the amount m during the year income in the amount n during the year income in the amount you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure you received of dollar_figure taxable taxable taxable taxable taxable taxable taxable taxable taxable taxable interest interest interest interest interest dividend dividend dividend dividend dividend oo pp during the year you received an income_tax refund from the state of california in the amount of dollar_figure during the distribution s q during the distribution s_r during the distribution s year you in the amount year you in the amount year you in the amount the refund is includable in your taxable_income for received taxable form k-1 of dollar_figure received taxable form k-1 of dollar_figure received taxable form k-1 of dollar_figure ss during rent income the year in the amount t during rent income the year in the amount u during rent income the year in the amount vv during rent income the year in the amount ww during the year rent income in the amount xx your filing_status for single with one exemption y- your filing_status for single with one exemption ze your filing_status for single with one exemption aa your filing_status for single with one exemption ab your filing_status for single with one exemption ac taxable_year you received taxable of dollar_figure you received taxable of dollar_figure you received taxable of dollar_figure you received taxable of dollar_figure you received taxable of dollar_figure you failed to file an income_tax return ground ground ground ground ground the taxable_year the taxable_year is the taxable_year is the taxable_year is the taxable_year is for the ad you failed to taxable_year ae you failed to taxable_year af you failed to taxable_year ag you failed to taxable_year ah your failure taxable_year ai your failure taxable_year aj your failure taxable_year ak your failure taxable_year al your failure taxable_year am year you failed to an year you failed to ao year you failed to ap year ag you failed to year file file file file to file was not to file was not to file was not to file was not to file was not pay pay pay pay an an an an estimated estimated estimated estimated income_tax income_tax tax income income_tax an income_tax return for return return return return for the for the the for for the due to reasonable_cause an income_tax return for due to reasonable_cause an income_tax return for due to reasonable_cause an income_tax return for due to reasonable_cause an income_tax return for due to reasonable_cause tax tax tax tax for the for the for the for the you failed to pay estimated_tax for the taxable taxable taxable taxable taxable the the the the the paragraphs a b c and d of respondent's second request for admissions as quoted above represent concessions by respondent that contrary to respondent's determinations in the - - notices of deficiency petitioner did not realize capital_gains during the taxable years and respondent conceded that petitioner either incurred capital losses or had no capital_gains during those years petitioner failed to file a response to respondent's second reguest for admissions as a consequence the matters quoted above were deemed admitted pursuant to rule c see 85_tc_267 65_tc_333 affd 565_f2d_954 5th cir on date respondent filed a motion for leave to file an amendment to answer and lodged an amendment to answer with the court on date the court granted respondent's motion for leave and filed respondent's amendment to answer the amendment to answer included affirmative allegations that petitioner had received income in the form of ground_rents during the years in issue as follows a during each of the years through petitioner owned an interest in certain real_estate that was managed in her behalf by charles dunn company b petitioner was entitled to receive ground_rents from tenants leasing the real_estate during each of the years through c charles dunn company collected the ground_rents from the tenants after subtracting amounts paid for the maintenance of the property and its management fee charles dunn company paid net amounts to petitioner in each of the years through - j- d petitioner received rents from the real_estate managed by charles dunn company for through in the respective amounts of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure e petitioner received rents from the real_estate in amounts greater than determined in the notices of deficiency issued to the petitioner in the respective amounts of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure f because of concessions by respondent with regard to the capital_gains income received by petitioner in the years in question the increased income will not result in deficiencies greater than the amounts determined by respondent in the notices of deficiency petitioner failed to file a reply to respondent's amendment to answer on date respondent filed a motion pursuant to rule c requesting that all undenied allegations set forth in respondent's amendment to answer be deemed admitted although petitioner was notified of respondent's motion petitioner failed to file either a response to the motion or a reply to respondent's amendment to answer on date the court granted respondent's rule c motion on date mr peabody filed a motion to withdraw from the case citing petitioner's failure to communicate with him the court granted mr peabody's motion on date prior thereto on date douglas d potratz filed an entry of appearance on behalf of petitioner mr potratz is petitioner’s current counsel --- - as indicated respondent filed a motion for summary_judgment respondent contends that petitioner's dilatory conduct in this litigation considered in conjunction with the matters that petitioner is deemed to have admitted pursuant to rule sec_37 and sec_90 justifies entry of summary_judgment in respondent's favor petitioner filed an opposition to respondent's motion blaming mr peabody for failing to respond to respondent's second reguest for admissions and amendment to answer petitioner further asserts that respondent's motion should be denied insofar as petitioner intends to show that she is entitled to deductions for real_estate_taxes and other miscellaneous expenses_incurred during the years in issue this matter was called for hearing at the court's motions session in washington d c counsel for respondent appeared at the hearing and offered argument in support of respondent's motion although petitioner did not attend the hearing she did file a written_statement with the court pursuant to rule c discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see 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 b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment see 85_tc_812 79_tc_340 as previously discussed petitioner is deemed to have admitted the various matters set forth in respondent's second request for admissions and respondent's amendment to answer there is no dispute as to any material fact as to the matters set forth therein the allegations deemed admitted quoted above in their entirety establish the nature and amount of various items of income that petitioner failed to report during the years in issue the allegations deemed admitted also establish that petitioner is liable for the additions to tax determined in the notices of deficiency petitioner opposes respondent's motion for summary_judgment on the ground that she is entitled to deductions for real_estate -- - taxes and other miscellaneous expenses_incurred during the years in issue respondent's second request for admissions and respondent's amendment to answer are silent with respect to the nature and amount of the deductions to which petitioner may be entitled for the years in issue under the circumstances we will grant respondent partial summary_judgment in that petitioner will be precluded from contesting the matters set forth in respondent's second request for admissions and respondent's amendment to answer however we hold that respondent is not entitled to full summary_judgment insofar as material issues of fact remain in dispute with respect to petitioner's entitlement to various deductions for the years in issue any trial in this case will therefore be limited to the issue of the nature and amount of petitioner's deductions for the years in issue to reflect the foregoing an order granting respondent partial summary_judgment will be issued


internal_revenue_service number release date index number -------------------------- ------------------------------- -------------------------------------------------- ------------------------------ ------------------------------ legend department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc fip b2 plr-131937-16 date date -------------------------------------------------- fund a ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- ---------------------------------- fund b ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------------- dear ---------------- this letter revokes plr plr-123928-061 issued to funds a and b the funds on date and in response to a request from your authorized representative dated date limits the retroactive effect of such revocation pursuant to sec_7805 of the internal_revenue_code in plr the internal_revenue_service the service issued a ruling that income and gain from certain commodity-linked notes constitute qualifying_income under sec_851 the cln ruling in a letter dated date the service notified the funds that it was considering revoking the cln ruling on date the funds requested that the service exercise its discretionary authority under sec_7805 to limit the retroactive effect of any revocation plr-123928-06 is the controlling plr number for a multi-filer private_letter_ruling each of funds a and b were assigned a separate plr number this letter refers to the controlling plr number but applies equally to the rulings issued to both funds under their respective separately assigned plr numbers plr-131937-16 since issuing plr the service has determined that having provided a private_letter_ruling on the issue in the cln ruling is not in accord with the current views of the service see revproc_2016_50 2016_43_irb_522 superseded by revproc_2017_3 i r b sec_4 see also reg-123600-16 fed reg date section dollar_figure of revproc_2017_1 2017_1_irb_1 provides in part that unless it was part of a closing_agreement a letter_ruling found to be in error or not in accordance with the current views of the service may be revoked or modified accordingly plr is revoked section dollar_figure of revproc_2017_1 also provides that if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations on assessment unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation in accordance with the funds’ request the service has decided to grant relief under sec_7805 the revocation of plr will apply prospectively only to commodity-linked notes acquired by the funds after date in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to the funds’ authorized representative we are also sending a copy of this letter to the appropriate operating division sincerely andrea m hoffenson andrea m hoffenson branch chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service number release date index number --------------- ------------------------------------ ---------------------------- ----------------------- -------------------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc fip b02 plr-148681-07 date march legend taxpayer operating partnership property a date date dear ------------ ---------------------------- --------------------------- --------------------------------------------------------------- ---------------------------------- ---- -------------------- ------------------- this is in reply to a letter dated date requesting a ruling on behalf of taxpayer specifically you requested a ruling that the sale of certain real_property will not constitute a prohibited_transaction under sec_857 of the internal_revenue_code by reason of the safe_harbor provisions of sec_857 in particular subparagraphs i and iv of sec_857 facts taxpayer is a domestic_corporation that has elected to be treated as a real_estate_investment_trust reit under sec_856 plr-148681-07 taxpayer is an a partner in operating partnership which operates numerous real properties throughout the united_states_property the real_property at issue in this ruling_request is owned and operated by operating partnership and is rented to retail tenants the property was acquired by operating partnership on date in a nonrecognition exchange under sec_1031 the exchange in exchange for the property operating partnership relinquished like-kind_property consisting of an interest in certain real_estate the relinquished_property and cash operating partnership had acquired the relinquished_property on date taxpayer represents that at the time of the exchange the relinquished_property was property described in sec_1231 and was a real_estate asset as defined in sec_856 additionally operating partnership held both the relinquished_property and the property for the production of rental income under sec_857 taxpayer wishes to reconfigure its portfolio of properties and proposes that operating partnership dispose_of the property in a taxable sale after the first fiscal quarter of taxpayer represents that operating partnership’s combined holding_period of the relinquished_property and the property is no less than years in addition taxpayer represents that the aggregate amount of cash consideration paid in the exchange for the property combined with the total amount of expenditures made by the operating partnership during the years preceding the sale of the property which are or were includible in the basis of the relinquished_property and the property will be less than percent of the net selling_price of the property in accord with sec_857 taxpayer further represents that clauses iii and v of sec_857 are or will be satisfied with respect to the property taxpayer seeks a ruling that the holding_period of the property includes the holding_period of the relinquished_property under sec_1223 and accordingly the sale of the property by operating partnership will not constitute a prohibited_transaction under sec_857 by reason of the application of sec_857 law and analysis least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed therein which include dividends and interest ii derive at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed therein including rents_from_real_property and interest on obligations secured_by mortgages on real_property or on interests_in_real_property sec_856 provides that to qualify as a reit a corporation must i derive at plr-148681-07 sec_856 requires that at the close of each quarter of the taxable_year at least percent of the value of a reit’s assets is represented by real_estate_assets cash cash items and government securities sec_856 includes in the definition of real_estate asset real_property including interests_in_real_property and in mortgages on real_property as well as shares in other reits sec_1_856-3 of the income_tax regulations provides that a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the partner’s interest in the partnership’s assets is determined in accordance with the partner’s capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 additionally sec_1_856-3 provides that the holding_period attributed to the reit with respect to partnership property is the lesser_of the period that the partnership has held the property or the period that the trust is a member of the partnership sec_857 imposes a percent tax on the net_income a reit derives from prohibited_transactions sec_857 defines prohibited_transaction to mean a sale_or_other_disposition of property described in sec_1221 which is not foreclosure_property sec_1221 describes property which is generally used in a taxpayer’s trade_or_business stock in taxpayer’s trade other_property of a kind which would properly be included in taxpayer’s inventory if on hand at the close of the taxable_year or property_held_for_sale to customers in the ordinary course of taxpayer’s trade_or_business sec_857 however provides a safe_harbor excluding from the term prohibited_transaction certain_sales of real_estate_assets as defined in sec_856 if i the property is held by the reit for not less than four years ii aggregate expenditures during the four-year period preceding the date of sale which are includible in the property’s basis do not exceed thirty percent of the net selling_price of the property iii during the taxable_year i the reit does not make more than seven sales of property other than sales of foreclosure_property or where sec_1033 applies or ii the aggregate adjusted bases of property sold other than sales of foreclosure_property or where sec_1033 applies does not exceed ten percent of the aggregate bases of all assets held by the reit at the beginning of the taxable_year iv in the case of property which consists of land or improvements not acquired through foreclosure or lease termination is held by the reit for not less than four years for the production of rental income and v if the requirement of clause iii i is not satisfied substantially_all of the marketing and development_expenditures with respect to the sec_1031 provides for the nonrecognition_of_gain_or_loss on a like-kind plr-148681-07 property were made through an independent_contractor so that the reit did not derive or receive any income from such activities sec_1223 provides that in determining the period for which a taxpayer has held property received in an exchange there shall be included the period for which the taxpayer held the property exchanged if under this chapter the property received has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in its hands as the basis of the property exchanged and the property exchanged at the time of the exchange was a capital_asset under sec_1221 or property described in sec_1231 exchange sec_1031 provides that the basis of the newly acquired property in a exchange shall be the same as that of the property exchanged decreased by the amount of cash received by the taxpayer and increased by any gain or decreased by any loss recognized by taxpayer on such exchange sec_1_1031_d_-1 provides that if taxpayer gives additional consideration in a sec_1031 exchange the basis of the newly acquired property shall be the basis of the property exchanged plus the amount of any additional consideration given in the exchange code or regulations however in determining whether operating partnership held the property for no less than four years sec_1223 provides that the holding_period of the property includes the holding_period of the relinquished_property because under sec_1031 the basis of the property is the same as the basis in the relinquished_property subject_to the adjustments specified in sec_1031 accordingly based on taxpayer’s representations at the time of the sale of the property operating partnership will have held the property for not less than four years thereby meeting the holding_period requirements of sec_857 and iv conclusion that the sale of the property falls within the safe_harbor provisions of sec_857 and therefore will not constitute a prohibited_transaction under sec_857 because pursuant to sec_1223 operating partnership’s holding_period of the property includes the holding_period of the relinquished_property transaction under any provision not specifically addressed herein no opinion is expressed or implied concerning whether taxpayer qualifies as a reit under subchapter_m part ii of chapter of the code in addition no opinion is expressed or implied as to whether sec_1031 of the code applies to the exchange or as to whether sec_1231 applies to the relinquished_property based on the information submitted and the representations made we conclude no opinion is expressed or implied as to the federal tax consequences of this sec_1223 is not expressly made applicable to sec_857 by the this ruling is directed only to the taxpayer requesting it sec_6110 of in accordance with the power_of_attorney on file we are sending a copy of this plr-148681-07 the code provides that is may not be used or cited as precedent letter to taxpayer’s authorized representatives sincerely thomas m preston thomas m preston senior counsel branch office of associate chief_counsel financial institutions products


t c summary opinion united_states tax_court allen r krawczyk petitioner v commissioner of internal revenue respondent docket no 3202-01s filed date allen r krawczyk pro_se russell f kurdys for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority all references to sec_7430 are to that section as in effect at the time the petition was filed unless otherwise indicated all other section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure this case is before the court on petitioner’s motion for award of litigation costs pursuant to sec_7430 after concessions the issue for decision is whether petitioner is a prevailing_party that may be awarded a judgment for reasonable_litigation_costs incurred in connection with this court_proceeding as explained in further detail below we hold that respondent’s position was substantially justified and therefore we shall deny petitioner’s motion for award of litigation costs background petitioner filed a federal_income_tax return for the taxable_year tax_return he claimed head-of-household filing_status the earned_income_credit and two dependency_exemption deductions in date respondent began an examination of petitioner’s tax_return by requesting documentation from petitioner to verify the claimed filing_status dependency_exemption deductions and earned_income_credit respondent then respondent concedes that petitioner has substantially prevailed with respect to the amount in controversy or has substantially prevailed with respect to the most significant issue or set of issues presented sent petitioner a so-called 30-day_letter dated date proposing adjustments to petitioner’s tax_return in a letter dated date petitioner sent respondent copies of several utility bills social_security cards for himself and his two children and two letters from a school stating that the children resided with petitioner respondent responded by issuing a notice_of_deficiency dated date stating in part we have received your correspondence on date in regard to the examination of your tax_return after reviewing the correspondence you submitted we have determined that additional information is necessary to resolve the issues please see the enclosed explanations listing the adjusted items in order for us to reconsider the proposed_adjustment you must submit the documentation explained on the attachments petitioner did not submit any of the requested documentation without the benefit of additional information from petitioner respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year petitioner filed a petition on date and an amended petition on date at the time of filing the petition petitioner resided in johnstown pennsylvania from date to date respondent’s pittsburgh appeals_office sent petitioner six letters seeking information regarding his case respondent’s counsel also sent petitioner two letters one dated date and another dated date petitioner did not respond to any of these letters beginning in date petitioner suffered from anxiety and depression by notice dated date this case was set for trial at a pittsburgh pennsylvania trial session scheduled to commence date petitioner brought with him information regarding his tax_return on date the parties filed a stipulation and stipulation of settled issues which resolved all issues in petitioner’s favor on date petitioner filed a motion for award of litigation costs petitioner seeks an award of dollar_figure respondent contends that petitioner is not the prevailing_party within the meaning of sec_7430 because while the stipulation and stipulation of settled issues resolved all issues in petitioner’s favor respondent’s position was substantially justified in addition respondent contends that petitioner did not exhaust administrative remedies and that petitioner unreasonably protracted the proceedings because of petitioner’s failure to appear at the calendar call respondent filed a motion to dismiss for lack of prosecution upon petitioner’s subsequent appearance we denied respondent’s motion to dismiss while the documents were initially titled stipulation and decision the court changed the designation when it became apparent that petitioner intended to make a claim for litigation costs neither party has requested a hearing and we conclude that a hearing is not necessary rule a accordingly we decide petitioner’s motion on the basis of the motion respondent’s notice of objection petitioner’s response and exhibits submitted by both parties discussion subject_to certain limitations the prevailing_party in any court_proceeding may be awarded a judgment for reasonable_litigation_costs incurred in connection with such court_proceeding sec_7430 the prevailing_party must exhaust the administrative remedies available to it within the internal_revenue_service and the prevailing_party must not have unreasonably protracted any portion of the administrative or court_proceeding see sec_7430 the term prevailing_party means any party which i has substantially prevailed with respect to the amount in controversy or ii has substantially prevailed with respect to the most significant issue or set of issues presented sec_7430 and in the case of an individual taxpayer the term also means any party which had a net_worth that did not exceed dollar_figure at the time the civil tax case proceeding was commenced sec_7430 referring to u s c sec d b and b however a party shall not be treated as the prevailing_party if the commissioner can establish that his position was substantially justified sec_7430 respondent contends that petitioner is not the prevailing_party within the meaning of sec_7430 because while the stipulation and stipulation of settled issues resolved all issues in petitioner’s favor respondent’s position was substantially justified the commissioner’s position is substantially justified if based on all of the facts and circumstances and the legal precedents relating to the case the commissioner acted reasonably 487_us_552 89_tc_79 affd 861_f2d_131 5th cir in other words to be substantially justified the commissioner’s position must have a reasonable basis in both law and fact pierce v underwood supra 900_f2d_655 3d cir affg in part and revg in part on other grounds 92_tc_510 a position is substantially justified if the position is justified to a degree that could satisfy a reasonable person pierce v underwood supra pincite construing similar language in the equal_access_to_justice_act thus the commissioner’s position may be incorrect but nevertheless be substantially justified ‘if a reasonable person as discussed above respondent also contends that petitioner did not exhaust administrative remedies and that petitioner unreasonably protracted the proceedings as a result of our conclusion herein we need not address respondent’s additional contentions could think it correct’ 108_tc_430 quoting pierce v underwood supra pincite n the relevant inquiry is whether the commissioner knew or should have known that his position was invalid at the onset 55_f3d_189 5th cir affg tcmemo_1994_182 we look to whether the commissioner’s position was reasonable in light of and subject_to the available facts and circumstances at the time that the commissioner took his position maggie mgmt co v commissioner supra pincite 85_tc_927 the fact that the commissioner eventually concedes or even loses a case does not establish that his position was unreasonable 931_f2d_1044 5th cir 92_tc_760 however the commissioner’s concession does remain a factor to be considered 100_tc_457 affd in part revd in part and remanded on another issue 43_f3d_172 5th cir as relevant herein the position_of_the_united_states that must be examined against the substantial justification standard with respect to the recovery_of litigation costs is the position taken by the commissioner in the answer to the petition 861_f2d_131 5th cir see sec_7430 in the present case respondent did not file an answer to the petition but we note that respondent’s position was essentially the same in the administrative and litigation proceedings more specifically respondent’s position was that petitioner was not entitled to the head-of-household filing_status the earned_income_credit and two dependency_exemption deductions considering all the facts and circumstances respondent did not know and could not have known that his position was invalid after the petition was filed petitioner’s marital status and the amount of support he provided to his children for the taxable_year were unknown to respondent see sec_2 on at least eight separate occasions respondent requested that petitioner provide documents to substantiate such rule b provides generally that no answer is required where a petition is filed pursuant to sec_7463 the motion filed by petitioner seeks only the recovery_of litigation costs and not that of reasonable_administrative_costs if petitioner had sought to recover such costs then we would review the commissioner’s position as of the date of the notice_of_deficiency to determine whether he was substantially justified with respect to the recovery_of administrative costs see sec_7430 in the present case respondent received information from petitioner in a letter dated date before the issuance of the notice_of_deficiency dated date however the information provided by petitioner was insufficient to invalidate respondent’s position accordingly petitioner would not be entitled to recovery_of reasonable_administrative_costs information petitioner declined to respond the documents provided by petitioner in a letter dated date while helpful did not invalidate respondent’s position more documentation was necessary for petitioner to establish that he was entitled to the claimed filing_status deductions and credit we note that when petitioner did bring the necessary documents on date the case was quickly resolved we hold that petitioner is not entitled to an award for litigation costs because respondent’s position was substantially justified in so holding we have carefully considered the remaining arguments made by the parties and to the extent not discussed above we consider those arguments to be without merit reviewed and adopted as the report of the small_tax_case division in order to reflect the foregoing an appropriate order and decision will be entered