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 intl b02 plr-131527-12 date date legend taxpayer us sub cfc country a partnership ------------------------------------ ----------------- --------- ------------------------------------- ------------- ----------------------------------------------------- foreign_corporation --------------------------------------------------------------------------------- de product x y dear ------------------ -------------------------------------------------- --------------------- ---- -------------- this is in response to a letter received in this office on date in which a ruling is requested to clarify that a controlled foreign corporation’s income from a business of producing and selling product under a long term outputs contract is not includible in foreign_base_company_income under sec_954 plr-131527-12 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts taxpayer is the ------percent owner of us sub which indirectly owns ----- percent of cfc a corporation for u s federal_income_tax purposes that is incorporated in country a and is a controlled_foreign_corporation within the meaning of sec_957 cfc owns -- ---- percent of the shares of partnership a country a entity that is classified as a partnership for u s federal_income_tax purposes foreign_corporation an unrelated country a corporation owns the remaining ---- percent of partnership partnership owns all of the outstanding equity of de a country a entity that is classified as a disregarded_entity for u s federal_income_tax purposes de is constructing a plant in country a to produce product de is and will be involved in the development design construction commissioning ownership and operation of the plant all of de’s assets and operations are in country a partnership’s business consists of the evaluation acquisition development construction operation leasing and other management of the product production business conducted by it through de as is typical of plants producing product the ongoing operation of the plant after its development and construction by de will require a relatively low level of activity and expense in terms of both personnel and raw materials as compared to plants for other types of y the operations of the plant will be managed by a general manager who is a full-time_employee of de the general manager’s role is to ensure that the plant is built on schedule within budget and to specifications and once the plant is operational that the plant operates in accordance with good industry practice to maximize its output the general manager will supervise the service providers’ performance oversee compliance under the plant’s outputs contract with the customer supervise actual performance of the plant develop budget and business plans maintain governmental approvals required for the project and supervise other employees of de among other functions the general manager will report to the board_of partnership de will hire a service provider to provide specialized services in the maintenance and operation of the plant in particular the service provider will provide de with certain continuous system monitoring performance engineering emergency response maintenance and similar functions the persons performing these duties will be hired and paid_by the service provider de will supervise the service provider’s performance but will have no direct relationship with the service provider’s employees except that plr-131527-12 de will retain the right to direct the service provider to remove any employee that falls below certain standards during the first x years of operation all of the product produced at the plant will be sold under an outputs contract to an unrelated country a corporation that is wholly owned by a subdivision of the country a government partnership does not purchase any personal_property from cfc or any person related to cfc product will be sold at a fixed price subject_to adjustment based on a local consumer_price_index thus during the period subject_to this long term contract de bears no meaningful economic exposure to variations in the price of product and cannot engage in speculative behavior with regard to the product it produces because all of product will be immediately provided to the purchaser at a pre-determined price taxpayer represents that substantially_all of cfc’s and partnership’s commodities are property described in sec_1221 or ruling requested cfc’s distributive_share of income from partnership’s business of producing and selling product is not includible in foreign_base_company_income under sec_954 law a u s shareholder of a controlled_foreign_corporation cfc is generally required to include in income on a current basis its pro_rata share of the cfc’s subpart_f_income sec_951 subpart_f_income includes foreign_base_company_income which consists of several categories of income including foreign_base_company_sales_income fbc sales income foreign_base_company_services_income fbc services income and foreign_personal_holding_company_income fphci sec_952 and sec_954 sec_954 defines fbc sales income to mean income whether in the form of profits commissions fees or otherwise derived in connection with the purchase of personal_property from a related_person and its sale to any person the sale of personal_property to any person on behalf of a related_person the purchase of personal_property from any person and its sale to a related_person or the purchase of personal_property from any person on behalf of a related_person where a the property which is purchased or in the case of property sold on behalf of a related_person the property which is sold is manufactured produced grown or extracted outside the country under the laws of which the cfc is created or organized and b the property is sold for use consumption or disposition outside such foreign_country or in the case of property purchased on behalf of a related_person is purchased for use consumption or disposition outside such foreign_country plr-131527-12 sec_954 provides that when the carrying on of activities by a cfc through a branch_or_similar_establishment outside the country of incorporation of the cfc has substantially the same effect as if such branch were a wholly owned subsidiary_corporation deriving such income the income attributable to the carrying on of such activities of such branch shall constitute fbc sales income sec_954 defines fbc services income to mean income derived in connection with the performance of technical managerial engineering architectural scientific skilled industrial commercial or like services which a are performed for or on behalf of any related_person and b are performed outside the country under the laws of which the controlled_foreign_corporation is created or organized sec_954 defines fphci to include interest dividends rents and royalties as well as the excess of gains over losses from transactions including futures forward and similar transactions in any commodities however net gains from transactions in commodities do not constitute fphci if one of three statutory exceptions applies one of these statutory exceptions applies to certain active business gains or losses from the sale of commodities specifically sec_954 provides that fphci does not include net gains from transactions in commodities if the gains are active business gains or losses from the sale of commodities and substantially_all of the cfc’s commodities are property described in sec_1221 or sec_1_952-1 states that a cfc's distributive_share of any item of partnership income is income that falls within a category of subpart_f_income described in sec_952 to the extent the item_of_income would have been income in such category if received by the cfc directly sec_1_954-1 provides that to determine the extent to which a cfc's distributive_share of any item_of_gross_income of a partnership would have been subpart_f_income if received by it directly if a provision of subpart_f requires a determination of whether an entity is a related_person within the meaning of sec_954 or whether an activity occurred within or outside the country under the laws of which the cfc is created or organized this determination shall be made by reference to the cfc and not by reference to the partnership sec_1_954-2 provides special rules for calculating fphci applicable to distributive shares of partnership income sec_1_954-2 provides that the exclusion provided by sec_1_954-2 shall apply only if such exception would have applied to exclude the income from fphci if the cfc had earned the income directly determined by taking into account only the activities of and property owned by the partnership and not the separate activities or property of the cfc or any other person plr-131527-12 sec_1_954-4 provides that a cfc’s distributive_share of a partnership’s services income will be deemed to be derived from services performed for or on behalf of a related_person within the meaning of sec_954 if the partnership is a related_person with respect to the cfc under sec_954 and in connection with the services performed by the partnership the cfc or a person that is a related_person with respect to the cfc provided assistance that would have constituted substantial assistance contributing to the performance of such services if furnished to the cfc by a related_person ruling accordingly based solely on the information and representations set forth above it is held that cfc’s distributive_share of income from partnership’s business of producing and selling product is not includible in foreign_base_company_income under sec_954 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office copies of this letter are being sent to taxpayer's representatives sincerely jeffery g mitchell chief branch office of the associate chief_counsel international


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-106931-00 date date legend x date this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the sole shareholder of x desired that x elect s_corporation treatment for x effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s plr-106931-00 corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely signed dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court paul t venable ii petitioner v commissioner of internal revenue respondent docket no 16217-16l filed date paul t venable ii pro_se susan t mosley for respondent memorandum findings_of_fact and opinion pugh judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination sustaining respondent’s notice_of_federal_tax_lien nftl to collect petitioner’s unpaid federal_income_tax liabilities for and years at issue the issues for decision are whether petitioner should be permitted to challenge his income_tax liabilities for the years at issue and if not whether settlement officer steven lerner so lerner abused his discretion in sustaining respondent’s nftl findings_of_fact some of the facts have been stipulated and are so found the stipulated facts are incorporated in our findings by this reference petitioner resided in idaho when he timely filed his petition respondent sent petitioner a notice_of_deficiency for the tax_year on date for the tax_year on date for the tax_year on date and for the tax_year on date the notices of deficiency for the and tax years were addressed to petitioner pincite n d street parma idaho but the notice_of_deficiency for the tax_year was addressed to petitioner pincite2 pet lane parma idaho petitioner never received the notice_of_deficiency for but did receive the unless otherwise indicated all section references are to the internal_revenue_code_of_1986 code as amended and in effect at all relevant times rule references are to the tax_court rules_of_practice and procedure others petitioner did not file petitions with respect to any of the notices of deficiency on date respondent filed an nftl and on date sent petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 for the years at issue on date petitioner submitted a timely form request for collection_due_process or equivalent_hearing and indicated only that he was seeking a discharge of the lien petitioner’s case was assigned to so lerner so lerner issued a notice_of_determination sustaining the collection action on date this notice states that he verified that the necessary legal requirements and administrative procedures were met that assessments were properly made for each year that notice_and_demand for payment was mailed to petitioner at his last_known_address and that balances remained outstanding when the nftl was filed petitioner then timely petitioned this court for review of the determination on date we remanded the case for further consideration for the appeals_office to specify the information so lerner relied upon for verification on remand so lerner compiled an administrative file that contained copies of the original information he retrieved to confirm that the requirements of applicable law and administrative procedure were met with respect to the determination and collection of petitioner’s unsatisfied income_tax liabilities for the years at issue the file included copies of the substitute u s postal service form_3877 certified mail lists 30-day letters and notices of deficiency related to the assessments of petitioner’s tax_liabilities for the years at issue in accordance with our remand order respondent offered petitioner a supplemental administrative hearing on date via telephone conference before the hearing on date so lerner sent petitioner information regarding how the deficiencies and additions to tax were computed for the years at issue along with copies of the forms w-2 wage and tax statement on which income determinations were based in response to so lerner’s letter on date petitioner faxed so lerner multiple affidavits containing a series of statements laying out petitioner’s arguments that he was not subject_to tax in his affidavits and during the date hearing petitioner claimed only that as written the laws of the united_states including the constitution do not impose the tax_liabilities on him that the internal_revenue_service determined specifically he argued then and again before us that the income_tax law does not ‘plainly and clearly lay’ any_tax upon petitioner or his revenue that the internal_revenue_code does not ‘plainly and clearly lay’ a tax on any of petitioner’s revenues and that petitioner’s revenues are not subject_to f ederal taxation by excise on date respondent issued a supplemental notice_of_determination concerning collection action s under sec_6320 and or supplemental notice the supplemental notice rejected petitioner’s arguments and sustained the filing of the nftl covering petitioner’s individual income_tax liabilities for the years at issue i challenge to underlying liabilities opinion sec_6330 provides that a taxpayer may challenge his underlying tax_liability during an administrative hearing if he did not receive a statutory_notice_of_deficiency or did not otherwise have a prior opportunity to dispute the underlying tax_liability the phrase underlying tax_liability includes the tax_deficiency any penalties and additions to tax and statutory interest 115_tc_329 if the underlying liability is properly at issue the court reviews any determination regarding that liability de novo the court reviews all other administrative matters for abuse_of_discretion 115_tc_35 114_tc_176 petitioner has not argued--nor is there evidence in the record--that he did not receive the notice_of_deficiency for or nor has he denied receiving the notices because he had a prior opportunity to challenge the liabilities for the and tax years we hold that he is precluded from challenging the liabilities for those years sec_6330 goza v commissioner t c pincite respondent concedes that petitioner did not receive the notice_of_deficiency for therefore he may challenge his underlying liability in an administrative hearing because he did not receive a notice_of_deficiency or otherwise have a prior opportunity to contest the liability see sec_6320 sec_6330 see also 114_tc_604 but this court considers a taxpayer’s challenge to his underlying liability in a collection action case only if he properly raised that challenge at his administrative hearing 129_tc_107 see sec_301 f q a-f3 f q a-f3 proced admin regs an issue is not properly raised at the administrative hearing if the taxpayer fails to request consideration of that issue by the settlement officer or if he requests consideration but fails to present any evidence after being given a reasonable opportunity to do so giamelli v commissioner t c pincite see also zook v commissioner tcmemo_2013_128 at holding that the taxpayer failed to properly raise her underlying liabilities when she failed to provide any documentation of the underlying liabilities and asserted frivolous arguments we find that petitioner had multiple opportunities to challenge his underlying liability for during his appeals hearing but he offered only frivolous arguments about why he was not subject_to tax as we have said before again and again w e perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir simply put petitioner is subject_to the income_tax laws sec_1 imposes an income_tax on taxable_income sec_63 defines taxable_income as gross_income minus deductions petitioner admitted that he received income when he was paid for the work he performed sec_61 defines gross_income to include that very category of income none of petitioner’s arguments absolves him from his obligations under the code the constitutionality of our income_tax system--including the role played within that system by the internal_revenue_service and the tax court--has long been established crain v commissioner f 2d pincite8 this court consistently deems arguments against the constitutionality of income_tax laws frivolous a position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir as the settlement officer did in zook v commissioner tcmemo_2013_128 so lerner correctly rejected petitioner’s frivolous arguments and we conclude that petitioner did not properly raise his underlying liabilities in the appeals hearing because petitioner is precluded from addressing the underlying income_tax liabilities for the years at issue we will review so lerner’s actions for abuse_of_discretion see goza v commissioner t c pincite ii abuse_of_discretion in a collection_due_process_hearing the settlement officer must verify whether the requirements of applicable law and administrative procedure were met sec_6330 the settlement officer also must consider the issues raised by the taxpayer and whether the proposed collection action balances the government’s need for efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary sec_6330 sego v commissioner t c pincite the taxpayer bears the burden of proving that the settlement officer’s determinations were arbitrary capricious or without sound basis in fact or law rule a 112_tc_19 while petitioner alleged in his petition that respondent failed to comply with the verification requirement in his 100-page opening brief or his 30-page answering brief he did not identify any defects choosing instead to make the frivolous arguments we rejected above we therefore sustain respondent’s determination to proceed with collection against petitioner decision will be entered for respondent we also warn petitioner that sec_6673 authorizes the court to impose a penalty of up to dollar_figure for frivolous and groundless arguments or whenever it appears to the court that proceedings before us have been instituted or maintained by the taxpayer primarily for delay sec_6673 because this is petitioner’s first case before the court we will not impose a penalty but he may expect a penalty in a future case if he persists in maintaining the same frivolous and meritless positions or uses the court primarily for delay despite our warning


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-111388-02 date date legend x a d1 year dear this responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a the sole shareholder of x intended for x to be an s_corporation effective for the year taxable_year however a form_2553 election by a small_business_corporation was not timely filed for x’s year taxable_year sec_1362 provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 plr-111388-02 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc ita postf-145060-01 uil internal_revenue_service national_office field_service_advice memorandum for associate area_counsel from attn associate chief_counsel income_tax accounting subject this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer charity c date date dollar_figurea y years z years dollar_figureb c postf-145060-01 d date dollar_figuree dollar_figuref dollar_figureg dollar_figureh i years issue sec_1 if the sale of the contract rights at fair_market_value would have resulted in gain would any portion of the gain be ordinary_income or gain that was not long-term_capital_gain even if the contract rights would have resulted in long-term_capital_gain if exchanged for cash or other_property is taxpayer’s method of valuation of the rights at issue correct conclusion sec_1 further development is necessary in order to decide this question in particular we are unconvinced that a recapture provision should not apply to reduce the amount of the contribution to taxpayer’s basis in the contract while we do not know the basis for the suggested valuation of the contribution we urge you to closely examine this issue for example we note that in this industry patents are often quickly superceded by new patents the facts do not indicate the age of the patents which were given but we are concerned about the potential for inflated valuation of this part of the gift furthermore the short remaining life of the contract rights i years is another area of concern regarding taxpayer’s valuation postf-145060-01 facts in date taxpayer entered into a contract with charity to fund general research activities of charity the contract specified that the activities funded would be in areas of research that were related to taxpayer’s different business activities taxpayer has represented that the primary focus of the research was new developments in c c products were a core business unit of taxpayer at the time it entered into the contract with charity the contract between taxpayer and charity provided that taxpayer would provide charity with dollar_figurea for research over a period of y years from date to date in return charity granted numerous rights to taxpayer extending over a period of z years unless sooner terminated or renewed the rights taxpayer received pursuant to the contract are as follows an option for a stated period to acquire the exclusive worldwide licensing and sublicensing rights to develop make use or sell certain technology resulting from the general research over the z year period in order to exercise this right taxpayer agreed to pay charity an initial license fee and royalties based on net sales any sublicensees of taxpayer would also pay charity under a similar arrangement as if taxpayer had made the sales taxpayer’s licensing rights were transferable subject_to prior consent of charity charity reserved the right to use any of the licensed subject matter for education and research without liability to pay royalties to taxpayer or any sublicensees a right_of_first_refusal to license certain products resulting from the general research if charity received a third party proposal to license those products if taxpayer did not license those products charity had to pay taxpayer of all royalties received by charity from the third party licensee through a specified anniversary of the license charity would provide lab and office space to taxpayer at dollar_figureb per square foot per month the facts do not indicate any restrictions to this right so we assume the right was for the term of the contract in addition it appears that the following items were a part of the general research contract between taxpayer and charity a taxpayer had the right not to exceed three months to enter into separate specific research funding contracts with charity upon the request of charity the specific research contracts also had the potential to result in development of products and technology which could benefit taxpayer’s businesses if taxpayer declined and charity was offered funds from a third party taxpayer had a right_of_first_refusal and could reconsider its funding decision postf-145060-01 b if taxpayer did not exercise its right_of_first_refusal under a above and charity entered into a specific research funding agreement with a third party charity would pay taxpayer a set percentage of all royalties received by charity which resulted from products derived from the specific research this amount was capped at an amount equal to the amount of any general research money which was also used in the project if no general research money was used in a royalty producing project taxpayer would receive nothing in either case taxpayer specifically retained no rights to any technology or products resulting from specific research which it did not fund c taxpayer could pursue a patent infringement suit in charity’s name and was entitled to keep c of any judgment recovered d charity would provide taxpayer with its annual scientific report each year and disclose all research developments relating to certain of taxpayer’s businesses including c products that occurred during the term of the general research contract taxpayer had months after disclosure to request that charity file a u s patent application if a patent application was filed taxpayer would reimburse charity for costs associated with applying for the patent charity would retain title to the patent or any resulting technology from the patent and taxpayer would receive credits up to d of royalties payable to charity under any license taxpayer had which was associated with the patent these credits subject_to the d cap were specifically to reimburse taxpayer for its costs in obtaining the patent e if charity did not choose to file a patent application under d above taxpayer could do so and charity would assign grant or license all of its rights in the patent to taxpayer the contract further provided that if taxpayer did not elect within the 3-month period under d above to have a patent application filed charity could license the technology to anyone with an exception for technology or material relating to c products any technology or material relating to c products had to be made known to the general_public and charity could not file any patent application with respect to the technology the facts do not indicate any method by which charity was required to make this information available to the public taxpayer appears to retain no rights in technology or intellectual_property for which it does not choose to file a patent application from date to date taxpayer provided the funding required under the contract taxpayer entered into several specific research contracts with charity described in a above the specific research projects resulted in several patents but the facts are unclear as to which party to the contract applied for the patent application and postf-145060-01 thus had rights in the patent taxpayer did not exercise its option to enter into any licenses with respect to the patents taxpayer amortized dollar_figurea paid pursuant to the contract over the term of the contract field counsel informed this office by phone that taxpayer elected to amortize the cost pursuant to sec_174 of the internal_revenue_code in addition taxpayer claimed the sec_41 research_credit at some point during the term of the agreement taxpayer decided c products were no longer one of its core business units the c business unit was subsequently divested and on date taxpayer irrevocably assigned to charity all of its contractual rights under the agreement and any rights it had to any property derived as a result of the agreement the assignment specifically released charity from its disclosure obligations at the time of the assignment taxpayer’s basis in the agreement was dollar_figuree taxpayer claimed a deduction under sec_170 of the code for a charitable_contribution valued at dollar_figuref consisting of dollar_figureg which taxpayer claimed represented the fair_market_value of its remaining contract rights and dollar_figureh which taxpayer claimed represented the fair_market_value of the patent estate derived from the research performed under the contract law and analysis issue if the sale of the contract rights at fair_market_value would have resulted in gain would any portion of the gain be ordinary_income or gain which was not long- term capital_gain sec_170 of the code provides a deduction for charitable_contributions as defined in sec_170 payment of which is made within the taxable_year sec_170 of the code provides in pertinent part that the term charitable_contribution means a contribution or gift to or for_the_use_of a corporation trust community chest fund or foundation organized or created in the united_states and operated exclusively for charitable purposes sec_1_170a-1 of the income_tax regulations provides that if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution reduced as provided in sec_170 1however since part of the charitable_contribution_deduction was claimed for the value_of_the_gift of the patent estate we assume taxpayer did file at least one patent application postf-145060-01 sec_170 of the code provides that the amount of any charitable_contribution of property otherwise taken into account under this section shall be reduced by the amount of gain which would not have been long term capital_gain if the property contributed had been sold by the taxpayer at its fair_market_value determined at the time of such contribution sec_170 further provides for purposes of applying this paragraph other than in a case to which sec_617 sec_1245 sec_1250 sec_1251 sec_1252 or sec_1254 applies property which is property_used_in_the_trade_or_business as defined in sec_1231 shall be treated as a capital_asset sec_1_170a-4 of the regulations explains that sec_170 applies to the donation of ordinary_income_property ordinary_income_property is defined in the regulations as property in which any portion of the gain would not have been long- term capital_gain if the property had been sold by the donor at its fair_market_value on the contribution date sec_1_170a-4 of the regulations sec_1245 provides in relevant part that if sec_1245 property is disposed of the amount by which the lower_of alternate values exceeds the adjusted_basis of such property shall be treated as ordinary_income the alternate values are the recomputed_basis of the property or in the case of a sale exchange or involuntary_conversion the amount_realized or in any other_disposition the fair_market_value of the property sec_1245 provides that sec_1245 property is among other types of property personal_property that is or has been property of a character subject_to the allowance for depreciation provided in sec_167 thus if sec_1245 would have caused any amount of gain from a sale of the contract rights to be treated as ordinary_income the amount of the charitable_contribution should be reduced in accordance with sec_170 sec_170 provides that for purposes of sec_170 sec_1231 property is to be treated as a capital_asset however sec_1245 provides that sec_1245 shall apply notwithstanding any other provisions of this subtitle a furthermore relevant legislative_history dating from the enactment of sec_170 and sec_1245 indicates that congress intended sec_1245 to override income characterization provisions such as sec_1231 s fin comm rpt pincite although sec_1245 provides that sec_1245 shall not apply to transfers by gift sec_170 was enacted to act in tandem with the purposes of sec_1245 id pincite in this case you informed us by telephone that taxpayer amortized the contract pursuant to sec_174 we suggest you consider whether or not this was proper if the contract rights at issue were of a character subject_to the allowance for depreciation under sec_167 sec_1245 may be applicable despite the fact that taxpayer amortized the contract under sec_174 we further suggest you consider each postf-145060-01 contract right and patent separately in your analysis sec_1_174-4 of the regulations provides that the election to treat research or experimental expenditures as deferred expenses under sec_174 applies only to those expenditures which are chargeable to capital_account but are not chargeable to property of a character subject_to an allowance for depreciation or depletion under sec_167 or sec_611 respectively the regulation explains that this means that sec_174 only applies if the property resulting from the research or experimental expenditures has no determinable useful_life additionally we question whether revrul_85_186 1985_2_cb_84 which denies recapture with respect to amounts deducted in the development of an asset resulting from research_and_development expenditures under sec_174 is applicable to the research contract in this case which itself had a limited life and conferred significant rights revrul_85_186 concerned expenditures under a rather than amortization under b the ruling holds that the legislative purposes of sec_174 which are to encourage research and eliminate the uncertainty of research expenditures are accomplished in the year the deductions are allowed in contrast a sum of money paid in advance for research which simultaneously grants rights and privileges to the payor doesn’t seem to us to be the same type of expenditure described in sec_174 and discussed in the ruling also as stated above the issue remains as to whether the amortization under sec_174 was proper we also think you should consider that even if the contract was properly amortizable under sec_174 and thus arguably beyond the scope of sec_1245 the research expenditures which are allocable to patents or any other_property with a determinable useful_life possibly should be separately amortized under sec_167 pursuant to sec_1_174-4 this property would then be within the scope of sec_1245 and thus a sale would have resulted in recapture of ordinary_income thus if the patents had a value the amount of the charitable_contribution would be reduced under sec_170 issue even if the contract rights are a capital_asset and not subject_to recapture is taxpayer’s method of valuation of the rights at issue correct as noted at the beginning of this memo we urge you to closely examine this issue for example we note that in this industry patents are often quickly superceded by new patents the facts do not indicate the age of the patents which comprise the patent estate but we are concerned about the potential for inflated valuation of this part of the gift furthermore the short remaining life of the research contract rights i years is another area of concern regarding taxpayer’s valuation we think you should consider whether the contract rights could have been sold or if anyone would have purchased the contract rights if no willing buyer would have purchased postf-145060-01 i years of contract rights under these circumstances the fair_market_value of the contribution may be dollar_figure see sec_1_170a-1 of the regulations case development hazards and other considerations even if you decide the contract rights and patent rights at issue are capital and if sold would have resulted in capital_gain to the taxpayer we think that the assets may be significantly overvalued the contract was for z years there are i years left on that contract we urge you to contact of for further discussion on valuation this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions karin gross senior technician reviewer br office of associate chief_counsel income_tax accounting


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-104002-09 date date x trusts --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------ country --------------- date ------------------- dear--------------- this responds to a letter dated date and subsequent information submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a partnership the information submitted states x is an entity organized on date under the laws of country by five trusts with limited_liability x intended to be treated as a partnership for federal tax purposes effective date however x did not timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-2 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301_7701-3 unless it elects otherwise a foreign eligible_entity is classified as an plr-104002-09 association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code as a condition for this late election relief x and its partners must file all federal_income_tax returns for x and its partners consistent with x having made a timely election to be a partnership effective date plr-104002-09 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely curt g wilson deputy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court phillip james burke and gail agnes storey petitioners v commissioner of internal revenue respondent docket no 6182-02s filed date james e schneider for petitioners sylvia l shaughnessy for respondent pajak 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 unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioners’ federal_income_tax in the amount of dollar_figure the court must decide whether petitioner phillip james burke petitioner has a release from the custodial_parent so that he is entitled to claimed dependency_exemption deductions for his three children some of the facts in this case have been stipulated and are so found petitioners resided in san diego california when their petition was filed sec_7491 does not apply because this case involves a legal issue prior to his marriage to petitioner gail agnes storey petitioner was married to dorothy burke ms burke pursuant to a judgment of dissolution of marriage divorce decree entered by the superior court of california county of los angeles petitioner and ms burke were divorced on date at the time of their divorce petitioner and ms burke had three minor children brian megan and kathryn primary physical custody of the three minor children was awarded to ms burke with certain periods of physical custody awarded to petitioner the divorce decree contains the following provision petitioner is awarded the tax deduction for the children for which support is being paid until such time as respondent ms burke can provide evidence that her direct contribution to their support exceeds that of petitioner determination to be based on irs guidelines both petitioner and ms burke signed the divorce decree on date on line 6d of their joint federal_income_tax return petitioners claimed a total of five exemptions two personal exemptions and three dependency_exemptions for petitioner’s three children from his previous marriage to ms burke petitioners did not attach a form_8332 release of claim to exemption for child of divorced or separated parents to their federal_income_tax return ms burke was the custodial_parent of her three children during ms burke claimed dependent exemptions for each of her three children on her federal_income_tax return respondent allowed the dependent exemptions claimed by ms burke as the custodial_parent respondent issued a statutory_notice_of_deficiency to petitioners disallowing the three claimed dependency_exemptions sec_151 allows a taxpayer to deduct an annual exemption_amount for each dependent as defined in sec_152 under sec_152 the term dependent means in pertinent part a son or daughter of the taxpayer over half of whose support was received from the taxpayer sec_152 in the case of a child of divorced parents sec_152 provides in pertinent part that if a child receives over half of his support from his parents who are divorced under a decree of divorce and the child is in the custody of one or both of his parents for more than one-half of the year then the child will be treated as receiving over half of his support from the parent having custody for a greater portion of the calendar_year petitioner as the noncustodial_parent is allowed to claim the children as dependents only if one of three statutory exceptions in sec_152 applies if an exception applies the noncustodial_parent is treated as providing over half of a child’s support we focus on sec_152 the exception on which petitioner relies sec_152 applies if the custodial_parent signs a written declaration that such custodial_parent will not claim such child as a dependent and the noncustodial_parent attaches such written declaration to the noncustodial parent’s return for the taxable_year sec_1_152-4t a q a-3 temporary income_tax regs fed reg date provides that a noncustodial_parent may claim the exemption for a dependent_child only if the noncustodial_parent attaches to his her income_tax return for the year of the exemption a written declaration from the custodial_parent stating that he she will not claim the child as a dependent for the taxable_year beginning in such calendar_year the declaration required under sec_152 must be made on a completed form_8332 or otherwise conform to the substance of form_8332 sec_1_152-4t a q a-3 temporary income_tax regs supra the exemption may be released for a single year for a number of specified years or for all future years as specified in the declaration sec_1_152-4t a q a-4 temporary income_tax regs petitioner attached a statement and a copy of the applicable pages of the divorce decree to his income_tax return petitioner the noncustodial_parent claimed the dependency_exemptions for his minor children for the year in issue pursuant to a provision in the divorce decree which stated that petitioner is awarded the tax deduction for the children for which support is being paid until such time as respondent ms burke can provide evidence that her direct contribution to their support exceeds that of petitioner determination to be based on irs guidelines petitioner claims that his statement including the attachment constitutes a declaration which conforms to the substance of form_8332 respondent’s position is that the statement does not conform to the substance of form_8332 we agree with respondent we hold that petitioner is not entitled to claim the exemptions in question because the statement does not state unconditionally that ms burke will not claim the children as exemptions or otherwise conform to the substance of form_8332 as required by the applicable regulations sec_152 horn v commissioner tcmemo_2002_290 cafarelli v commissioner tcmemo_1994_265 white v commissioner tcmemo_1996_438 in fact ms burke claimed the three exemptions for her children on her income_tax return we also note that the statement does not conform with form_8332 because it does not expressly set forth the name of each of the three children although kathryn is mentioned in another provision and because it does not specify the year years or all future years 114_tc_184 lastly the statement is not an unrestricted release of the exemptions to petitioner because it is conditioned on a support_test reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc psi postn-105364-12 uilc date february to constance allison irs psp western area from bradford poston cc psi subject a b this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend a b x ------------------------------------------------------------------------------------------------------- ------------------------- ------------------------------------------------------------------------------------------------------- ------------------------- ----------------------------- year ------- we are notifying you of our refusal to issue the rulings requested by the above- captioned taxpayers pursuant to dollar_figure of revproc_2011_1 a and b have each submitted a private_letter_ruling request to determine the specific tax laws applicable to trusts that they purport to have been created by the social_security administration ssa a and b assert that the ssa created trusts in their names with each of them as trustee for the benefit of the us government they each provided a nearly identical postn-105364-12 instrument entitled simple social_security trust each trust instrument states that it was created when ssa issued social_security cards in each of their names the instruments also state that a and b are stewards in the kingdom of israel that provide the consciousness and physical capacity for the trusts after making fica payments any net_income may be held invested used as fiduciary fees or distributed to its steward in their ruling requests a and b represent that the trusts contracted to perform services for x and that each trust also controls two units of ownership_interest in x the trusts were paid for services in connection with the contract with x in year however a and b state that they are unable to determine the proper income_tax treatment or filing_requirements for the trusts we have attached copies of a’s and b’s correspondence with this office including two documents entitled simple social_security trust this situation appears to be an abusive trust arrangement as described in notice_97_24 1997_1_cb_409 in which the taxpayer attempts to minimize income_taxation by transferring assets to a_trust with no meaningful change in the taxpayer’s control_over the assets see also 79_tc_714 aff’d 731_f2d_1417 73_tc_1235 the service has won several cases involving such sham trusts see zachman v commissioner t c memo accordingly your office may wish to examine the returns of a and b to determine whether these arrangements constitute sham trusts in addition to the attachments mentioned above we are including a copy of the letter which this office is sending to a and b copies of this memorandum and the supporting documentation are also being provided to the office of division counsel associate chief_counsel criminal tax please call if you have any further questions


t c summary opinion united_states tax_court ranbir singh balvinder kaur petitioners v commissioner of internal revenue respondent docket no 5032-o00s filed date ranbir singh pro_se andrew j wyman for respondent dinan 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 unless otherwise indicated subseguent section references are to the internal_revenue_code in effect for the years in issue - respondent determined deficiencies in petitioners’ federal income taxes of dollar_figure and dollar_figure for the taxable years and the issues for decision are whether petitioners are entitled to a sec_21 child_care_credit in each of the years and and whether petitioners are entitled to a dependency_exemption deduction for heche singh in some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioners resided in san jose california on the date the petition was filed in this case during the years in issue several children resided with petitioners one of these children heche who is petitioner husband’s ranbir’s daughter was placed in foster care on date and remained in foster care through the end of and through all of in both and petitioner wife balvinder cared for the children at home in addition to working a graveyard shift balvinder’s mother jagdish visited petitioners in the united_states in through may and then again in from june through the end of the year during these periods she helped care for the children before during and after the years in issue petitioners spent approximately dollar_figure to dollar_figure on expenses_incurred by jagdish for travel and while in the united_states petitioners filed a joint federal_income_tax return for each of the years and in each year petitioners claimed a child_care_credit in the amount of dollar_figure for expenses of dollar_figure related to care allegedly provided by caclia g bravo respondent disallowed the credit in each year and disallowed a dependency_exemption deduction which petitioners claimed in for heche the first issue for decision is whether petitioners are entitled to a sec_21 child_care_credit for each of the years in issue subject_to requirements not applicable here a taxpayer is entitled to a credit under sec_21 in an amount equal to a portion of certain child care and related expenses paid during the taxable_year petitioners argue that the expenses they incurred in connection with jagdish are child care expenses which fall under sec_21 petitioners did not identify caclia g bravo or otherwise explain why the care provider listed on the return is a person other than jagdish but respondent stated that petitioners claim to have used this person’s name address and social_security_number because they did not have a social_security_number for jagdish q4e- petitioners are not entitled to a child_care_credit in either of the years in issue first balvinder was the main care provider for the children and jagdish assisted her only during the periods of time she was in the country second petitioners have not shown that they paid any child care expenses other than the expenses_incurred in connection with jagdish these are clearly personal and family_expenses and as such are not deductible pursuant to sec_262 finally the false information provided on each of the returns for the years in issue--with an identical amount of expenses in each year which was just enough to provide petitioners with the maximum allowable credit---persuades us that the alleged expenses had no connection with any services provided by jagdish the second issue for decision is whether petitioners are entitled to a dependency_exemption deduction for heche in subject_to limitations not applicable here a deduction is allowed under sec_15l a for each dependent of a taxpayer sec_15l1 a and c a taxpayer’s child is a dependent of the taxpayer only if the taxpayer provides over half of the child’s support for the taxable_year sec_152 heche was in foster care throughout all of and although petitioners made payments for her support after that year they made no such payments in the year in issue we - - therefore sustain respondent’s disallowance of the dependency_exemption deduction for reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


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 b09 plr-150545-03 date date -------------------------- ------------------------------------------------------------------------ legend legend taxpayer trust ---------------------------------------------------------------------------------------------------------------- -------------------------- --------------------- date ---------------------- date ------------------- dollar_figurea ------------- state -------------------------- husband ---------- state ------- year ----------------- date district_court ------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- date family_foundation ----------------------------------------------------------------------------------------------------------- dear ------------------- correspondence in which you requested rulings regarding the tax consequences of a proposed division of a charitable_remainder_unitrust crut ------------------------- ------------------------------------------------------------------------ this is in response to your letter of date and subsequent the facts submitted and representations made are summarized as follows taxpayer created trust on or about date taxpayer represents that trust qualifies as a net-income with makeup charitable_remainder_unitrust nimcrut under the provisions of sec_664 of the internal_revenue_code code taxpayer is the sole trustee and sole unitrust beneficiary of trust the remainder beneficiaries of trust are plr-150545-03 charitable organizations described in sec_170 sec_170 sec_2055 and sec_2522 as shall be designated by taxpayer trust's assets consist primarily of stock bonds membership interests in limited_liability companies and limited_partnerships and investments in real_estate currently trust distributes to taxpayer in quarterly installments a unitrust_amount equal to the lesser_of i the trust income for the taxable_year and ii ten percent of the net fair_market_value of the assets of the trust valued as of the first day of each taxable_year of the trust the unitrust_amount for any year also includes any amount of trust income for such year that is in excess of the amount required to be distributed under ii to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as ten percent of the net fair_market_value of the trust assets as of date the value of trust’s assets was approximately dollar_figurea at the time trust was created taxpayer was a resident of state accordingly trust provides that state law governs the interpretation of trust taxpayer and husband changed their residence to state in year in date taxpayer filed a petition with district_court requesting a transfer of the place of administration of trust and the governing law of trust to state by order dated date district_court granted the petition subject_to receipt of a favorable ruling from the internal_revenue_service or a determination that a ruling was not necessary taxpayer and husband are the founders trustees and substantial contributors to family_foundation a charitable_organization described in sec_170 sec_170 sec_2522 and sec_2055 taxpayer proposes to make contributions of an undivided portion of her unitrust_interest in trust to foundation in order to accomplish this result taxpayer in her individual capacity and as trustee of trust proposes the following transaction first taxpayer as trustee will divide trust into two separate trusts trust a and trust b the terms of trust a and trust b will be the same as the terms of trust taxpayer as trustee will then allocate to trust a and trust b assets that are fairly representative of the aggregate adjusted bases of trust's assets and their overall appreciation or depreciation trust a will consist of a certain percentage of the pre-division value of trust trust b will consist of the remaining percentage of such value finally taxpayer will contribute her unitrust_interest in trust b to family_foundation and designate family_foundation as the remainder beneficiary of trust b taxpayer represents that under state law the segregation of assets into trust b the contribution to family_foundation of taxpayer's unitrust_interest in trust b and the designation of family_foundation as the remainder beneficiary of trust b will result in a merger of the unitrust and remainder interests in trust b taxpayer as trustee of trust proposes to amend trust to make it clear that the trustee may divide trust in the manner proposed and may make present plr-150545-03 transfers of undivided interests in the corpus that coincide with the undivided_interest in the unitrust interests that taxpayer makes taxpayer represents that she did not divide her interest in the property contributed to trust in in order to avoid the partial interest rule_of sec_170 you have requested the following rulings with regard to the proposed division of trust reformation and amendment of trust to change the place of administration and governing law and to add a provision specifically authorizing division of trust into separate trusts and further authorizing transfers of property to charitable organizations during the term of the trust upon the occurrence of a merger or partial merger of the unitrust and remainder interests will not affect trust’s status as a charitable_remainder untirust within the meaning of sec_664 for the year or years in which taxpayer transfers an undivided portion of her unitrust_interest to a charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 taxpayer will be entitled to a charitable income_tax deduction under sec_170 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer calculated as provided in sec_664 and sec_7520 and sec_25_2512-5 of the gift_tax regulations for the year or years in which taxpayer transfers an undivided portion of her unitrust_interest to a charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 taxpayer will be entitled to a charitable gift_tax deduction under sec_2522 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer calculated as provided in sec_664 sec_7520 and sec_25_2512-5 the division of trust by taxpayer as trustee of trust into trust a and trust b and the inter_vivos distribution to a qualifying charity of the entire corpus of trust b corresponding to the undivided unitrust_interest gifted by taxpayer will not cause trust a to cease to be a_trust as described in sec_664 if at the time of any transfers by taxpayer of an undivided portion of her unitrust_interest to a charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 trust has realized capital_gain income in prior years which income was not included in the unitrust amounts paid to taxpayer and therefore not recognized by taxpayer capital_gain will not then be included in taxpayer’s income by the reason of her transfer of a portion of her unitrust_interest to a charitable_organization any gifts by taxpayer and trust to family_foundation provided that it is then recognized as a tax-exempt_organization as described in sec_501 and as a private_operating_foundation as described in sec_4942 will not be treated as direct or indirect acts of self-dealing under sec_4941 plr-150545-03 ruling sec_1 and sec_664 provides generally that a charitable_remainder_unitrust shall be exempt from federal_income_tax sec_664 provides that a charitable_remainder_unitrust is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in sec_664 all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined in sec_4975 in a qualified_gratuitous_transfer as defined by sec_664 and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_1_664-3 of the income_tax regulations provides that no amount other than the unitrust_amount may be paid to or for_the_use_of any person other than an organization described in sec_170 however the governing instrument may provide that any amount other than the unitrust_amount shall be paid or may be paid in the discretion of the trustee to an organization described in sec_170 provided that in the case of distributions in_kind the adjusted_basis of the property distributed is fairly representative of the adjusted_basis of the property available for payment on the date of payment plr-150545-03 in this case taxpayer proposes to modify trust to i change the place of administration of trust to state ii change the governing law of trust to state and iii add a provision allowing the trustee to divide trust and make present transfers from the trust to charitable organizations based on the facts presented and representations made we conclude that the proposed modifications to trust will not affect trust’s status as a charitable_remainder untirust within the meaning of sec_664 following the modification of trust taxpayer proposes to divide trust into trust a and trust b the terms of trust a and trust b would be the same as the terms of trust taxpayer would then contribute to family_foundation her unitrust_interest in trust b and designate family_foundation as the remainder beneficiary of trust b thereby effectuating a merger of interests under state law although this merger will cause a termination of trust b_trust a will continue to be in the form of and will continue to function as a charitable_remainder_unitrust within the meaning of sec_664 thus the division of trust into trust a and trust b and the inter_vivos distribution of the entire corpus of trust b to family_foundation will not cause trust a to cease to function as a charitable_remainder_unitrust within the meaning of sec_664 sec_170 provides that there shall be allowed as a deduction any ruling charitable_contribution as described in sec_170 payment of which is made within the taxable_year of less than the taxpayer's entire_interest in property is not allowed as a charitable_contribution_deduction except to the extent such contribution would have been allowed as a deduction had it been transferred in trust sec_170 provides that a contribution not made by a transfer in trust sec_170 provides that sec_170 does not apply to a contribution of an undivided portion of the taxpayer's entire_interest in property sec_1_170a-6 and sec_1_170a-7 provide that a deduction is allowed for a contribution of a partial interest in property if such interest is the taxpayer's entire_interest in the property such as an income_interest or a remainder_interest if however the property in which such partial interest exists was divided in order to create such interest and thus avoid certain provisions of sec_170 the deduction will not be allowed revrul_86_60 1986_1_cb_302 situation considered whether a donation qualifies for the charitable_contribution_deduction under sec_170 if a taxpayer a who is the grantor and life_beneficiary of a charitable_remainder_annuity_trust crat donates a's annuity interest in the crat to the remainder beneficiary of the crat in a had created a crat described in sec_664 a retained an annuity interest in the crat for life although a had previously divided the interest a held in the property the division was not to avoid sec_170 the reminder beneficiary was x a plr-150545-03 charitable_organization described in sec_170 in a transferred the annuity interest in the crat to x revrul_86_60 concludes based on sec_1_170a-6 and sec_1_170a-7 of the regulations that the gift by a the grantor to the remainder beneficiary of a's retained life_annuity in the crat qualifies for a charitable_contribution_deduction under sec_170 the present case is analogous to situation of revrul_86_60 in the present case taxpayer retained a unitrust_interest in trust which she created on or about date now taxpayer proposes to transfer a portion of her unitrust_interest to family_foundation a charity described in sec_170 and sec_170 unlike the situation in revrul_86_60 trust will be divided into two trusts trust a and trust b taxpayer proposes to contribute her unitrust_interest in trust b which will be segregated from trust instead of all of her interest in trust taxpayer represents that family foundation’s unitrust and reminder interests will merge and family_foundation will be entitled to an immediate distribution of the trust b corpus it is represented that taxpayer did not divide her interest in the property originally transferred to the trust to avoid the partial interest rules taxpayer now intends in effect to contribute an undivided portion of her entire current interest in the property to family_foundation taxpayer intends to do this by dividing trust into two trusts then contributing her interest in trust b to family_foundation similar to taxpayer a in revrul_86_60 taxpayer would be entitled to a charitable_contribution_deduction for a contribution of an undivided portion of her unitrust_interest in trust to family_foundation under the rule in sec_170 that taxpayer as trustee will divide trust before making the contribution does not adversely affect the charitable_contribution_deduction therefore taxpayer’s transfer of her interest in trust b will qualify for a charitable_contribution_deduction under sec_170 the value of taxpayer’s contribution under sec_170 will be the present_value of the right to receive unitrust payments as provided in trust b for a term starting on the date of the transfer of the unitrust_interest to family_foundation and ending on taxpayer’s date of death the deduction will be subject_to any applicable limitations under sec_170 including sec_170 and subject_to any applicable limitations under other sections of the code ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible plr-150545-03 under sec_2512 if a gift is made in property the value of the property on the date of the gift is the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift under sec_25_2512-5 of the gift_tax regulations the fair_market_value of an annuity or unitrust_interest is its present_value determined in accordance with sec_25_2512-5 sec_2522 provides that in computing taxable_gifts for the calendar_year there shall be allowed as a deduction the amount of all gifts made during such year to or for_the_use_of a corporation or trust or community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_2522 disallows the gift_tax_charitable_deduction where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use described in sec_2522 and an interest in the same property is retained by the donor or is transferred or has been transferred for less than an adequate_and_full_consideration in money_or_money's_worth from the donor to a person or for a use not described in sec_2522 unless-- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly a unitrust_interest under sec_25_2522_c_-3 the present_value of a unitrust_interest is determined by subtracting the present_value of all interests in the transferred property other than the unitrust_interest from the fair_market_value of the transferred property under sec_25_2522_c_-3 the present_value of a remainder_interest in a charitable_remainder_unitrust is to be determined under sec_1_664-4 situation of revrul_86_60 considers a situation where a in creates a charitable_remainder_annuity_trust pursuant to which a retained the right to receive an annuity interest for life on a's death the trust corpus is to pass to charity in a transfers a's entire annuity interest to the charitable_remainder beneficiary following the transfer a did not retain any interest in the trust and neither at that time nor at any prior time did a make a transfer of trust property for private purposes although the transfer of the remainder_interest to charity divided a's prior interest that transfer was for charitable not private purposes consequently a's transfer of the annuity interest to charity was not required to be in a form described in sec_2522 and sec_25 c - plr-150545-03 c in order to qualify for the charitable deduction accordingly a's transfer of the annuity interest to charity qualifies for a deduction under sec_2522 the facts in this case are similar to those described in situation of revrul_86_60 except that taxpayer intends to divide trust into trust a and trust b following the division of trust taxpayer will transfer her entire unitrust_interest in trust b to family_foundation and will name family_foundation as the remainder beneficiary of trust b thereby effectuating a merger of interests under state law after the transfer taxpayer will not retain any interest in trust b further taxpayer has not made a transfer for private purposes either before or at the time of her unitrust_interest in trust b to family_foundation based on the foregoing we conclude that for the year in which taxpayer based solely on the facts and the representations submitted we conclude that no transfers the entire balance of her unitrust_interest in trust b to family_foundation taxpayer will be entitled to a gift_tax_charitable_deduction under sec_2522 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer ruling amounts should be included in taxpayer’s gross_income by reason of the prior capital_gains realized by trust in connection with taxpayer’s charitable_contribution of a portion of her unitrust_interest the above conclusion is based on the fact that at the time trust is divided the assets allocated to trust a and trust b must be fairly representative of the aggregate adjusted bases of the trust assets and that the division of the assets between trust a and trust b must be on a pro_rata basis with respect to each major class of investments held at the date of the division and within each class must be fairly representative of the overall appreciation or depreciation of the assets therein ruling foundation and any of its disqualified persons defined in sec_4946 to or use by or for the benefit of a disqualified_person of any of the income or assets of a private_foundation however sec_4941 does not prohibit a disqualified person’s cash or donations going for no consideration to such person’s private_foundation provides that an incidental or tenuous benefit to a disqualified_person does not constitute an act of self-dealing sec_53_4941_d_-2 of the foundation and similar excise_tax regulations sec_4941 provides that an act of self-dealing includes any transfer sec_4941 imposes excise_tax on any act of self-dealing between a private plr-150545-03 sec_4947 describes split-interest_trusts as those that are not exempt from federal_income_tax under sec_501 not all of the unexpired interests in which are devoted to purposes in sec_107 and which have amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 sec_4947 provides that the term disqualified_person does not include any organization that is described in sec_501 other than an organization described in sec_509 as a charitable_remainder_unitrust under sec_664 trust is a split-interest trust described in section sec_4947 and is therefore subject_to sec_4941 which imposes an excise_tax on acts of self-dealing taxpayer and husband are disqualified persons with respect to trust because they are the creators or and are substantial contributors to trust sec_53_4946-1 states that an organization described in sec_501 is not a disqualified_person with respect to another entity that is or is treated as a private_foundation unless it is an organization described in sec_509 the division of the trust and the transfer of assets to family_foundation will not constitute an act of self- dealing the proposed transaction will not adversely affect the interest of any charitable_beneficiary and will instead accelerate the benefit by providing operating funds at an earlier date than under the current terms of trust provided that family_foundation is then recognized as a tax-exempt_organization as described in sec_501 and as a private_operating_foundation as described in sec_4942 will not be treated as direct or indirect acts of self-dealing under sec_4941 and the regulations thereunder the above conclusion is based on the assumption that the proposed transaction is not prohibited by state law and that the proposed transaction will be made pursuant to a court order resulting from a proceeding of which the state attorney_general has been given notice accordingly we rule that any gifts by taxpayer and trust to family_foundation except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we do not express or imply an opinion regarding whether trust otherwise qualifies as a crut under sec_664 in addition we express no opinion as to the method of determining the present_value of the unitrust_interest in trust b for purposes of calculating the amount of the income and gift_tax charitable deductions under sec_170 or sec_2522 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-150545-03 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman branch chief branch passthroughs special industries enclosures copy for purposes