id office uilc cca_2010071314270657 ---------- number release date from ---------------------- sent tuesday date pm to ----------------- cc ------------------------- subject tefra investor for your files on date the federal_circuit held that an overstatement of basis may not constitute an omission from gross_income for purposes of the six-year period of limitations under sec_6501 salman ranch ltd and william j 573_f3d_1362 fed cir on date the federal_circuit denied the government’s petition for rehearing from its adverse opinion filed on date the government did not file a petition for a writ of certiorari this case and the time period for filing a petition for writ of certiorari has ended thus the decision in this case is final although only salman ranch ltd and william j salman were named parties in this case nonpetitioning partners are nevertheless parties to the court_proceeding under sec_6226 the same as if they had personally petitioned section d provides that we are to issue any refunds automatically if we fail to issue refunds to any partners entitled to a refund they would have the right to file a refund claim under section c under that provision the decision of the above partnership case would be binding on the government for purposes of issuing the refund please note that this decision applies only to period ended date the year at issue in this case further only partners who previously made advance_payments on their potential liabilities are entitled to refunds or returns of their deposits


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp - plr-103480-99 date date distributing controlled sub business a business b state c date x date y a b d e plr-103480-99 f g h i j shareholder m shareholder n shareholder o shareholder p shareholder q this letter is in response to your request dated date for rulings relating to the federal_income_tax consequences of a proposed and partially completed transaction you submitted additional information in letters dated date date date and date the information submitted for consideration is substantially as set forth below distributing was established on date x as a state c_corporation distributing owns all of the stock of sub a state c_corporation distributing and its subsidiaries will file their first consolidated_return for the tax_year ending date distributing uses the accrual_method of accounting distributing has authorized a shares of common_stock of which b shares are outstanding distributing also has f shares of preferred_stock authorized of which g shares are outstanding shareholder m owns d shares of distributing common his brother shareholder p owns e shares of distributing common shareholders n o and q each have j shares of distributing common_stock all outstanding preferred distributing stock is owned by sub until date y distributing was directly engaged in business a and business b distributing has submitted for businesses a and b information representative of the active_conduct_of_a_trade_or_business for each of the past five years plr-103480-99 controlled was established on date y as a state c_corporation and a subsidiary of distributing controlled has authorized h shares of common_stock of which i shares are issued and outstanding distributing owns all i shares of controlled’s outstanding_stock upon the establishment of controlled distributing transferred all of the assets and liabilities of business b to controlled controlled uses the cash_method_of_accounting shareholder m and shareholder p have been unable to agree on the expansion debt personnel and other significant issues of the operation of businesses a and b the resulting corporate deadlock has hindered the progress and management of both businesses the proposed transaction will allow shareholder m and shareholder p to each operate a business independently alleviating the disputes and ending the corporate deadlock accordingly the following transaction is proposed and has been partially completed distributing formed controlled as a wholly owned subsidiary and transferred all of the assets of business b to controlled in exchange for all of the outstanding_stock of controlled shareholders p and q shareholder p’s spouse will surrender all of their distributing stock in exchange for all i shares of controlled immediately after the distribution shareholders m n and o will own all of the outstanding common_stock of distributing and shareholders p and q will own all of the outstanding_stock of controlled the following representations have been made in connection with the transaction a the fair_market_value of the controlled stock and other consideration received by each shareholder of distributing stock approximately equals the fair_market_value of distributing stock surrendered by the shareholder in exchange b no part of the consideration distributed by distributing is being received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing c following the proposed transaction distributing and controlled will each continue the active_conduct of their respective businesses independently and with their separate employees d the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing will each equal or exceed the sum of the liabilities to be assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities to be assumed in the transaction and the liabilities to which the plr-103480-99 transferred assets are subject were incurred in the ordinary course of the business and are associated with the assets being transferred e the indebtedness owed by controlled to distributing if any after the distribution of the controlled stock will not constitute stock_or_securities f no two parties to the transaction are investment companies as defined in sec_368 and iv g the five years of financial information submitted on behalf of distributing is representative of the corporation's present operations and there have been no substantial operational changes since the date of the last financial statement submitted h distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation subsequent to the transaction except in the ordinary course of business j there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled subsequent to the transaction k payments made in connection with all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length l neither distributing nor controlled is an s_corporation within the meaning of sec_1361 and there is no plan or intention by distributing or controlled to make an s_corporation_election pursuant to sec_1362 m the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled n there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 plr-103480-99 o immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations furthermore distributing’s excess_loss_account if any with respect to the controlled stock will be included in income immediately before the distribution p none of the assets which have been transferred from distributing to controlled include property for which an investment_tax_credit was taken in prior years q the distribution of the stock of controlled is carried out for the following corporate business_purpose to alleviate disputes between the shareholders which have hindered the ongoing management operations and expansion of distributing the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose based solely on the information submitted and on the representations set forth above it is held as follows the transfer by distributing to controlled of the assets described above in exchange for all the stock of controlled and the assumption of certain liabilities followed by the distribution of controlled stock to shareholders p and q in exchange for distributing stock will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized to distributing upon the transfer of assets to controlled in exchange for controlled stock and the assumption_of_liabilities sec_361 and sec_357 no gain_or_loss will be recognized to controlled on the receipt of the assets in exchange for all the shares of controlled sec_1032 the basis of the assets received by controlled will be the same as the basis of such assets in the hands of distributing immediately prior to the transaction sec_362 the holding_period of each asset received by controlled will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized to distributing upon the distribution of the controlled stock in exchange for the distributing stock surrendered by shareholders p and q sec_361 no gain_or_loss will be recognized to shareholders p and q and no amount plr-103480-99 will be included in the income of shareholders p and q upon receipt of controlled stock sec_355 the basis of the controlled stock to be received by shareholders p and q will equal the basis of the distributing stock exchanged therefor sec_358 the holding_period of the controlled stock in the hands of shareholders p and q will include the period for which such shareholder held the distributing stock provided that such stock was held as a capital_asset by such shareholder on the day of distribution sec_1223 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 and sec_1_1502-33 no opinion is expressed about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent each affected taxpayer should attach a copy of this letter to its federal_income_tax return for the taxable_year in which the transaction covered by this ruling letter is consummated sincerely yours assistant chief_counsel corporate plr-103480-99 by ken cohen senior technical reviewer branch


internal_revenue_service index no number release date cc dom p si - plr-116197-98 x a b c d e f g h i j k l m n o p q r s t u d1 d2 d3 year year year dear this responds to a letter dated date and subsequent correspondence 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 of year but until d2 of year x had no shareholders no assets and no operations the shareholders of x are a b c d e f g h i j k l m n o p q r s and t u as x's assistant secretary represents that although it was the intent of x and the shareholders of x for x to be an s_corporation beginning with year its first taxable_year as reflected in the resolution adopted at the first meeting of x’s board_of directors a form_2553 election by a small_business_corporation was not filed by legal counsel for x for year u represents that x had no items of income loss deduction or credit for year a form_2553 for x was filed on d3 of year effective for that year sec_1362 of the code 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 first taxable_year year accordingly provided that x makes an election to be an s_corporation by filing a 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 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries branch enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court jeffrey verne sawyer and diana lorraine ecker sawyer petitioners v commissioner of internal revenue respondent docket no 1821-11l filed date jeffrey verne sawyer and diana lorraine ecker sawyer pro sese s mark barnes for respondent memorandum findings_of_fact and opinion vasquez judge pursuant to sec_6320 and sec_6330 petitioners seek review of respondent’s determination to sustain the filing of the notice_of_federal_tax_lien nftl to collect petitioners’ unpaid federal_income_tax liability for unless otherwise indicated all section references are to the internal_revenue_code the sole issue for decision is whether respondent abused his discretion in sustaining the nftl findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in nevada petitioners filed a voluntary chapter bankruptcy case in the u s bankruptcy court for the district of nevada on date and their debts were discharged in bankruptcy on date on date petitioners filed their federal_income_tax return but failed to pay the tax shown as due on the return petitioners self-reported a tax_liability of dollar_figure and a withholding credit of dollar_figure leaving an unpaid balance of dollar_figure in date the internal_revenue_service irs audited petitioners’ and tax returns on date the irs sent petitioners an examination_report proposing an increase in tax for of dollar_figure interest of dollar_figure and an accuracy-related_penalty of dollar_figure and a decrease in tax for of dollar_figure petitioners appealed both years to the irs office of appeals appeals on date while petitioners’ audit was still open the irs sent petitioners letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with respect to their unpaid self-reported federal_income_tax liability for on date the irs received petitioners’ timely filed form request for a collection_due_process or equivalent_hearing in which they requested a collection_due_process cdp hearing to address whether the irs should not have filed a lien while their audit was open petitioners did not request that any collection alternatives be considered at the cdp hearing on date settlement officer corina mullins of appeals sent petitioners a letter scheduling a telephone cdp hearing for date petitioners would still have had an unpaid balance for if they had accepted the proposed changes to tax petitioners disputed both adjustments and believed that it was very very likely that they would have no tax_liability whatsoever upon conclusion of their appeal the nftl was for dollar_figure the sum of the dollar_figure which petitioners had self-reported on their return plus dollar_figure in interest and penalties petitioners’ federal_income_tax return had not been filed and was past due when they submitted their cdp hearing request on date petitioners sent settlement officer mullins a letter stating that the revenue_agent who conducted their audit and the appeals officer who considered their appeal had orally informed them that a lien would not be filed while their audit was open on date petitioners reached a settlement with appeals as to their and tax_liabilities and signed form_870 waiver_of_restrictions_on_assessment_and_collection of deficiency in tax and acceptance of overassessment petitioners agreed to an increase in tax of dollar_figure for and a decrease in tax of dollar_figure for on date settlement officer mullins contacted petitioners by telephone for the cdp hearing and they stated that they were out of town and would soon provide to settlement officer mullins written documentation in support of their claim on or before date petitioners sent to settlement officer mullins letters that they had received from the revenue_agent and the appeals officer these letters did not contain any representation that the irs would not file a lien while petitioners’ audit for was open settlement officer mullins determined that the documentation provided did not warrant the withdrawal of the nftl on date respondent sent petitioners a notice of petitioners still had an unpaid balance for after this decrease determination concerning collection actions s under sec_6320 and or sustaining the filing of the federal_tax_lien i jurisdiction and standard of review opinion sec_6321 imposes a lien in favor of the united_states on all property and rights to property of a taxpayer liable for taxes when a demand for payment of the taxes has been made and the taxpayer fails to pay those taxes sec_6320 provides that the secretary shall furnish the taxpayer with an nftl within five business days after the notice of lien is filed sec_6320 further provides that the taxpayer may request an appeals hearing within days beginning on the day after the 5-day period described above sec_6320 b sec_6320 provides that the appeals hearing generally shall be conducted consistent with the procedures set forth in sec_6330 sec_6330 provides for review with respect to collection issues such as spousal defenses the appropriateness of the commissioner’s proposed collection actions and the possibility of collection alternatives sec_6330 the taxpayer may also challenge the amount of the underlying tax_liability if a statutory_notice_of_deficiency was not received or the taxpayer did not otherwise have an opportunity to dispute the tax_liability sec_6330 pursuant to sec_6330 within days of the issuance of a notice_of_determination the taxpayer may appeal the determination to this court where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo 114_tc_604 114_tc_176 where the validity of the underlying tax_liability is not properly at issue however the court will review the commissioner’s determination for abuse_of_discretion sego v commissioner t c pincite goza v commissioner t c pincite ii abuse_of_discretion petitioners’ underlying tax_liability is not in dispute thus the court reviews appeals’ determination for abuse_of_discretion see sego v commissioner t c pincite goza v commissioner t c pincite to establish abuse_of_discretion the taxpayer must show that the decision complained of is arbitrary capricious or without sound basis in fact or law 129_tc_107 citing sego v commissioner t c pincite and 112_tc_19 in reviewing for abuse_of_discretion we generally consider only the arguments issues and other matters that were raised at the cdp hearing or otherwise brought to the attention of appeals giamelli v commissioner t c pincite 118_tc_488 see also sec_301_6330-1 q a-f3 proced admin regs petitioners argue that the revenue_agent who audited their and returns and the appeals officer who considered their appeal falsely represented to them that a lien would not be filed while their audit was open we interpret as did respondent in his opening brief petitioners’ argument to be that respondent abused his discretion in sustaining the nftl because the irs was equitably estopped from filing the nftl equitable_estoppel is a judicial doctrine that ‘precludes a party from denying his own acts or representations which induced another to act to his detriment ’ 98_tc_695 quoting 74_tc_743 aff’d 673_f2d_784 5th cir in their petition petitioners also argued that the nftl was filed in violation of the automatic bankruptcy stay granted under u s c sec_362 and that they should have been allowed payment arrangements as an alternative means of collection both of these arguments lack merit petitioners’ debts were discharged in bankruptcy on date the nftl was filed on date the automatic bankruptcy stay terminated on the date of discharge see u s c sec_362 petitioners did not request that any collection alternatives be considered at the cdp hearing and moreover they would have been ineligible for collection alternatives because they were not in compliance with the tax_return filing requirement for see 133_tc_392 finding that the commissioner’s policy of requiring individuals seeking collection alternatives to be current with filing their tax returns is reasonable the doctrine_of equitable_estoppel is applied against the commissioner with utmost caution and restraint 312_f2d_311 9th cir aff’g 32_tc_998 and aff’g in part rev’g in part 32_tc_1017 the traditional elements of equitable estoppel--all of which must be satisfied to invoke the doctrine--are a false representation or misleading silence by the party against whom the doctrine is to be invoked an error in a statement of fact and not an opinion or statement of law ignorance of the fact by the representee reasonable reliance on the act or statement by the representee and detriment to the representee see 104_tc_13 aff’d 140_f3d_240 4th cir in addition to traditional elements the u s court_of_appeals for the ninth circuit to which an appeal in this case would lie requires the party seeking to apply the doctrine against the government to prove affirmative misconduct 1_f3d_932 9th cir the aggrieved party must prove ‘affirmative misconduct going beyond mere negligence’ and even then ‘estoppel will only apply where the government’s wrongful act will cause a serious injustice and the public’s interest will not suffer undue damage by imposition of the liability’ 872_f2d_277 9th cir quoting 847_f2d_515 9th cir affirmative misconduct requires ongoing active misrepresentations or a pervasive pattern of false promises as opposed to an isolated act of providing misinformation purcell f 3d pincite affirmative misconduct is a threshold issue to be decided before determining whether the traditional elements of equitable_estoppel are present id pincite petitioners have not offered any evidence of affirmative misconduct by respondent in fact the record shows quite the opposite petitioners testified that the revenue_agent and appeals officer made a mistake and that the lien was filed inaccurately because of the information given by these people because petitioners have not proven affirmative misconduct on the part of respondent we need not address the traditional conditions for application of equitable_estoppel see miller v commissioner tcmemo_2001_55 citing purcell f 3d pincite furthermore petitioners have not advanced any argument or introduced any evidence that would allow us to conclude that the determination to sustain the nftl was arbitrary capricious or without sound basis in fact or law settlement officer mullins determined that the requirements of applicable law and administrative procedure were met and concluded that sustaining the nftl appropriately balanced the need for efficient collection_of_taxes with petitioners’ concerns regarding the intrusiveness of the lien action accordingly we hold that respondent did not abuse his discretion in sustaining the nftl to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------------ ------------------------------------- ---------------------------------- ------------------------------- in re ------------------------------------- ---------------------------------- ------------------------------- department of the treasury washington dc third party communication congressional date of communication date person to contact -------------------------- ------------- telephone number --------------------- refer reply to cc psi b05 plr-164521-05 date date legend taxpayer state city agency year year year a dear --------------- ------------------------------------- ------------------------------ ------------------------------- ------------------------- -------------- ---------------------------- --------------------------------------------------------------- ------------ ------- ------- ------- ---- this letter responds to a letter dated date submitted on behalf of taxpayer concerning the applicable_percentage under sec_42 of the internal_revenue_code and the eligible_basis rules for existing buildings under sec_42 taxpayer represents that the facts are as follows plr-164521-05 facts taxpayer originally submitted an application_for an allocation of low-income taxpayer a state limited_partnership is the owner of a a-unit apartment complex in city property taxpayer began construction on property in year and completed in the fall of year property which is fully occupied and operating has been the subject of ongoing litigation between taxpayer and city since early in year the litigation has been heard in the local circuit_court numerous times the appellate court and the state supreme court property is currently the subject of a federal discrimination lawsuit with property 1’s lender as the plaintiff and city as the defendant property 1’s tenants are part of the lawsuit as intervenors housing credits to agency in year and again in year due to the ongoing litigation agency cancelled taxpayer’s credit reservation if taxpayer purchases an adjacent property property and tears it down to reduce density in order to enter maintain property as affordable housing taxpayer would create a new entity to which it would sell property the new entity would then acquire property and submit an application_for a new allocation of low-income_housing credits to agency the current ownership of taxpayer would own more than percent of the new entity property was placed_in_service by its current owner less than years ago at the urging of the court city has indicated a willingness to settle with taxpayer ruling requested taxpayer requests a ruling that would allow a the 70-percent present_value low-income_housing_credit on the acquisition by the new entity of property b the 70-percent present_value low-income_housing_credit be calculated on the entire acquisition price of property including the land regardless of the fact that it violates sec_42 and that property will be torn down c the 70-percent present_value low-income_housing_credit on the acquisition by the new entity of property and d a determination that there is no violation of sec_42 law and analysis sec_42 provides that the amount of the low-income_housing_credit for any taxable_year in the credit_period is an amount equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building sec_42 provides in the case of any qualified_low-income_building placed_in_service by the taxpayer after that the term aapplicable percentage means the appropriate percentage prescribed by the secretary for the month applicable under ' b a i or ii sec_42 provides that the percentages plr-164521-05 prescribed by the secretary for any month shall be the percentages that will yield over a 10-year period amounts of credit that have a present_value equal to i percent of the qualified_basis of new buildings that are not federally_subsidized for the taxable_year the 70-percent present_value low-income_housing_credit and ii percent of the qualified_basis of new buildings that are federally_subsidized for the taxable_year and existing buildings the 30-percent present_value low-income_housing_credit building for any taxable_year is an amount equal to the i applicable_fraction determined as of the close of the taxable_year of ii the eligible_basis of the building determined under sec_42 sec_42 provides that the qualified_basis of any qualified low-income sec_42 provides that the eligible_basis of an existing_building is i in the case of a building that meets the requirements of sec_42 its adjusted_basis as of the close of the first taxable_year of the credit_period and ii zero in any other case sec_42 provides that a building meets the requirements of sec_42 if i the building is acquired by purchase as defined in sec_179 ii there is a period of at least years between the date of its acquisition by the taxpayer and the later of i the date the building was last placed_in_service or ii the date of the most recent nonqualified_substantial_improvement of the building iii the building was not previously placed_in_service by the taxpayer or by any person who was a related_person with respect to the taxpayer as of the time previously placed_in_service and iv except as provided in sec_42 a credit is allowable under sec_42 by reason of sec_42 with respect to the building the legislative_history to sec_42 states eligible_basis consists of the cost of new_construction the cost of rehabilitation or the cost of acquisition of existing buildings acquired through a purchase and the cost of rehabilitation if any to such buildings incurred before the close of the first taxable_year of the credit_period only the adjusted_basis of the building may be included in eligible_basis the adjusted_basis is determined by taking into account the adjustments described in sec_1016 other than paragraphs and of sec_1016 relating to depreciation_deductions including for example the basis_adjustment provided in sec_48 for any rehabilitation credits allowed under sec_38 the cost of land is not included in adjusted_basis h_r rep no 99th cong 2d sess 1986_3_cb_89 is related to any person if the related_person bears a relationship to such person specified in sec_267 or sec_707 substituting percent for percent or the sec_42 provides that for purposes of sec_42 a person plr-164521-05 related_person and such person are engaged in trades_or_businesses under common_control within the meaning of sec_52 and b sec_42 provides that rehabilitation_expenditures paid_or_incurred by the taxpayer with respect to any building shall be treated for purposes of sec_42 as a separate new_building under sec_42 the credit_period for an existing_building shall not begin before the first taxable_year of the credit_period for rehabilitation_expenditures with respect to the building accordingly based solely on the plain language of sec_42 and its legislative_history and the representations of fact made by taxpayer we rule as follows a property is not eligible for the 70-percent present_value low-income_housing_credit because the 70-percent present_value low-income_housing_credit is only available to new buildings that are not federally_subsidized for the taxable_year b if an eligible_basis were calculated for the new entity’s acquisition of property it would be zero because under sec_42 there is not a period of at least years between the date of its acquisition by the new entity and the date the building was last placed_in_service even if this were not the case the eligible_basis would not include the cost of the land because the legislative_history to sec_42 states that the cost of land is not included in adjusted_basis in addition because property will not be rehabilitated and will be torn down the new entity may not claim low-income_housing credits for property c property is not eligible for the 70-percent present_value low-income_housing_credit upon its acquisition by the new entity because the 70-percent present_value low- income housing_credit is only available to new buildings that are not federally_subsidized for the taxable_year d if an eligible_basis were calculated for the new entity’s acquisition of property it would be zero because under sec_42 the building was previously placed_in_service by a person who was a related_person with respect to the new entity as of the time previously placed_in_service concerning the federal_income_tax consequences of the above described facts under any provision of the code or regulations specifically nothing in this ruling shall be construed to imply that either property or property are eligible for the 30-percent present_value low-income_housing_credit under sec_42 except as specifically set forth above no opinion is expressed or implied plr-164521-05 in accordance with the power_of_attorney filed for this request we are sending a copy of this letter to taxpayer’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely s paul f handleman paul f handleman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries -------------------------------------- ------------- -------------- ---------------------------- -------------------------- -------------------------- --------------------------------------- --------------------------------------------- ------------------------------ cc


internal_revenue_service number release date index numbers --------------------------------------- ------------------------ ------------------------------------ ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ---------------- telephone number ------------------ refer reply to cc psi b03 plr-128699-14 date date legend x y -------------------------------------------------------------------------------------------------- ---------------------------- -------------------------------------------------------------------------------------------------- ------------------------------ country ------- date ------------------ dear --------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 facts x was formed under the laws of country on date x’s sole owner is y x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes as of date however x failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective date plr-128699-14 law sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time 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 internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the plr-128699-14 election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on y filing within days of this letter all required returns and amended returns consistent with the requested relief granted in this letter to the extent appropriate these returns must include but are not limited to forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-128699-14 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs and special industries by _____ s ___________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ----------------- ------------------------------------------------------------ -------------- ----------------------------- ------------------------------------- ------------------------------------------------ ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc fip b03 plr-106601-17 date date legend reit reit reit partnership retail center state a state b city city utility state initiative a b c ----------------------------- --------------------------- ----------------------------- --------------------------- ----------------------------- --------------------------- ------------------------------------------ ------------------------------- -------------- -------------- ------------------ -------------------------------------------------------------- ---------------------------------- ------------ ------ ------ plr-106601-17 dear --------------- this letter responds to your letter dated date and a subsequent submission requesting a ruling on behalf of reit taxpayer that pursuant to sec_856 of the internal_revenue_code code taxpayer’s income from the base solar incentive amount as defined below will be considered qualifying_income for purposes of sec_856 and c facts taxpayer is a state a limited_liability_company that has elected to be taxed as a real_estate_investment_trust reit under sec_856 through of the code collectively taxpayer reit and reit wholly own partnership a state a limited_liability_company treated as a partnership for u s federal_income_tax purposes partnership owns an a square foot mixed-use shopping center retail center and the land on which such shopping center is located partnership leases space at retail center to tenants for use as retail outlets retail center features anchor stores boutique specialty shops personal services restaurants and other retail outlets typically found in a mixed-use regional shopping center along with associated common spaces parking and landscaping taxpayer represents that retail center is a building within the meaning of sec_1_856-10 of the income_tax regulations and is therefore real_property within the meaning of sec_1_856-10 taxpayer also represents that the rental income that is generated from leasing space at retail center is qualifying_income for purposes of sec_856 and c the state initiative mandates that all state b electric utilities implement a solar incentive program in accordance with the state initiative the city utility has established a solar incentive program solar incentive program that offers an estimated performance-based incentive solar incentive to city utility customers who purchase or lease and install solar pv systems and who meet certain other eligibility requirements including a requirement that the solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a city utility customer who demonstrates their rights to the roof space for the duration of the incentivized period the solar incentive consists of a one-time lump sum upfront payment that is the lesser_of the amount calculated by a formula that estimates the expected performance of the customer’s solar pv system incentive formula or the net installed cost of the system after any_tax benefits or other outside funding sources are subtracted from the gross cost of the system thus in no case will the amount of the solar incentive exceed the net installed cost of the solar pv system the incentive formula is based on the capacity of the solar pv system adjusted to consider inverter and module losses and a design factor that compares the plr-106601-17 estimated output of the solar pv system to the simulated output of an optimal reference system these factors are multiplied by one of two incentive rates depending on whether or not a participant in the solar incentive program retains ownership of renewable energy credits recs or transfers the recs to city utility the incentive rate for a city utility customer that transfers its recs to city utility is dollar_figureb per watt rec incentive rate the incentive rate for a customer that retains ownership of its recs is dollar_figurec per watt base incentive rate taxpayer represents that partnership intends to purchase or lease and permanently install a solar pv system on the roof of retail center taxpayer represents that the solar pv system will be designed and intended to produce electricity only to serve retail center and that partnership will not sell any electricity generated by the solar pv system to third parties taxpayer also represents that the solar pv system will be a structural_component within the meaning of sec_1_856-10 taxpayer intends for the solar pv system to comply with the terms of the solar incentive program and allow partnership to apply for and receive a solar incentive from city utility taxpayer represents that partnership intends to transfer any recs that it receives in connection with the solar pv system and would therefore qualify for the rec incentive rate taxpayer is not seeking a ruling with respect to its receipt of any portion of the solar incentive that is attributable to the transfer of recs to city utility solar incentive rec component and taxpayer intends to treat such an amount as non-qualifying income for purposes of sec_856 and c the portion of the solar incentive that is not attributable to the transfer of recs to city utility is the base solar incentive amount thus taxpayer intends to treat the difference between the solar incentive calculated using the rec incentive rate and the solar incentive calculated using the base incentive rate as non-qualifying income for purposes of sec_856 and c taxpayer is seeking a ruling under sec_856 that the base solar incentive amount will be considered qualifying_income for purposes of sec_856 and c law and analysis sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property other than sec_1221 property abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees and gain from certain_sales or other dispositions of real_estate_assets sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by mortgages on real_property or interests_in_real_property gain plr-106601-17 from the sale_or_other_disposition of real_property other than sec_1221 property dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit's gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business under sec_1_856-3 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 interest of a partner 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 income attributable to the receipt of the base solar incentive amount constitutes gross_income not listed as qualifying_income under sec_856 or c taxpayer will earn the base solar incentive amount for purchasing or leasing and installing a solar pv system on the roof of retail center in accordance with the state solar initiative in order to be eligible for the solar incentive program a solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a party who demonstrates its rights to the roof space for the duration of the incentivized period taxpayer represents that partnership intends to permanently install a solar pv system on the roof of retail center taxpayer also represents that the solar pv system once completed will be a structural_component within the meaning of sec_1_856-10 that it will therefore be real_property within the meaning of sec_1_856-10 and that substantially_all of the other income taxpayer derives from retail center will be qualifying_income for purposes of sec_856 and c plr-106601-17 under these circumstances treating income from the base solar incentive amount as qualifying_income does not interfere with or impede the objectives of congress in enacting sec_856 and c accordingly pursuant to sec_856 the base solar incentive amount is treated as qualifying_income for purposes of sec_856 and c conclusion based on the fact submitted and representations made by taxpayer we hereby rule that pursuant to sec_856 taxpayer’s income from the base solar incentive amount is considered qualifying_income for purposes of sec_856 and c this ruling’s application is limited to the facts representations code sections and regulations cited herein 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 in particular no opinion is expressed with regard to whether taxpayer otherwise qualifies as a reit under subchapter_m of the code additionally no opinion is expressed regarding whether any credits or offsets earned in connection with the solar incentive program constitute gross_income whether such income is qualifying_income for purposes of sec_856 and c and whether any credit or offset qualifies as real_property for purposes of sec_856 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 _________________________________ julanne allen assistant branch chief branch office of the associate chief_counsel financial institutions products enclosure copy for sec_6110 purposes


internal_revenue_service number info release date index number student life publishing inc attn randy hall ceo parkway lake drive hoover alabama department of the treasury washington dc third party communication none date of communication not applicable_person to contact jolene j shiraishi id no telephone number refer reply to cc psi b01 genin-133632-04 date august student life publishing inc ein legend taxpayer dear mr hall we are responding to a letter dated date submitted on behalf of the taxpayer with respect to an incorrect employer_identification_number ein listed on a form_2553 we contacted the ogden service_center service_center on the taxpayer’s behalf the service_center has informed us that it has accepted the taxpayer’s late s election effective date under the correct ein if the taxpayer has not received notice of the acceptance from the internal_revenue_service the taxpayer may request one from the service center’s entity control unit we hope that the above information proves helpful sincerely s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number 6050w --------------- --------------------------------------- ----------------------------------- ----------------------------- 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 pa plr-146802-14 date date legend taxpayer ------------------------------------------- - customers ----------------------------------------- ---------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------------ dear --------------- this is in response to your ruling_request submitted by your authorized representative concerning the federal_income_tax reporting requirements for taxpayer under sec_6050w and sec_6041 of the internal_revenue_code code and the regulations thereunder specifically taxpayer requested a ruling that it is not a third_party_settlement_organization operating a third_party_payment_network and therefore does not have an information reporting obligation under sec_6050w taxpayer also requested a ruling that it is not subject_to information reporting under sec_6041 or backup withholding under sec_3406 facts taxpayer is an ------------------company providing ---------------------------------------------------- ------------------------- to its customers through a number of -------------------------- -------------- ------------------------------------------------------------------------------------------------------------------- as well as through third party ------------- taxpayer also provides ---------------------- to customers through distribution agreements with ---------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-146802-14 ------------------------------------------------------------------------------------------------------------- through these various channels customers can --------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ------- -------------------------------------------- from third-party -------- providers taxpayer’s agreements with customers through agreements with customers and providers taxpayer ------------- ------------------- -------------------------- with providers on behalf of customers taxpayer enters into agreements with customers in which it agrees to ------------ ------------------------------------- ------------ with providers as part of these arrangements taxpayer agrees to make payment to providers of ---------------------- taxpayer also provides ancillary services such as --------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- taxpayer determines the amount charged to customers for providers’ ---------------------- providers have no control_over or knowledge of this amount payments made by customers to taxpayer for ---------------------- to be provided by providers are made by credit card or debit card taxpayer acknowledges that these transactions between taxpayer and customer are payment_card transactions subject_to information reporting under sec_6050w taxpayer receives forms 1099-k for these transactions from various merchant acquiring entities or electronic payment facilitators these transactions are not at issue in this ruling taxpayer’s agreements with providers taxpayer also enters into agreements with providers through which taxpayer ------------ ----------------------------------------------- of providers’ ---------------------- customers are not a party to the agreements between taxpayer and providers under these agreements providers agree to provide ---------------------- ------------------ by taxpayer’s customers and agree to -------- ----------------- made by customers through taxpayer similarly under the agreements taxpayer agrees to ------------- providers’ ---------------------- -------- ------------------------------------------ -------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------monthly or twice monthly payments to providers for ---------------------- ------ --------------------------and third party affiliated ------------- - payment process with respect to orders received through -------------------------- ------------- and affiliated third-party ------------- taxpayer collects payment from customers at the time the --------- ------------ are ----------- once a provider has provided ---------------------- taxpayer pays the provider the -------------------- rate for its ---------------------- taxpayer pays providers on a monthly or twice monthly basis typically by automated clearinghouse network or other electronic funds transfer plr-146802-14 third party merchants - payment process with respect to orders received through third party merchants taxpayer collects payment from the third party merchant after the provider provided the ------------------------ ------------------------------------------------------------------------------------------------------------------- to the customer once the provider has provided ---------------------- taxpayer pays the provider the -------------------- ------ for its ---------------------- taxpayer pays providers on a monthly or twice monthly basis typically by automated clearinghouse network or other electronic funds transfer law and analysis sec_6050w sec_6050w of the code as enacted by the housing assistance tax act of requires payment settlement entities to file an information_return for each calendar_year with respect to payments made in settlement of reportable_payment transactions sec_6050w covers two types of transactions payment_card transactions and third party network transactions a payment_settlement_entity in the payment_card context is a merchant_acquiring_entity in the third party network context it is a third_party_settlement_organization tpso sec_6050w the code and regulations define a merchant_acquiring_entity as the bank or other organization with the contractual obligation to make payments to participating payees in payment_card transactions a payment_card_transaction is any transaction in which a payment_card is accepted as payment sec_6050w - 6050w c sec_1_6050w-1 - the code and regulations define a tpso as the central organization that has the contractual obligation to make payments to the participating payees of third party network transactions sec_6050w sec_1_6050w-1 a third_party_network_transaction is any transaction that is settled through a third_party_payment_network sec_6050w a central organization is a tpso with a reporting obligation if it provides a third_party_payment_network that allows purchasers to transfer funds to providers of goods and services sec_1_6050w-1 a third_party_payment_network is any agreement or arrangement that i involves the establishment of accounts with a central organization by a substantial number of providers of goods or services who are unrelated to the central organization and who have agreed to settle transactions for the provision of goods or services with purchasers according to the terms of agreements ii provides standards and mechanisms for settling the transactions and iii guarantees payments to the providers of goods and services in settlement of transactions with purchasers sec_6050w sec_1_6050w-1 plr-146802-14 example healthcare network of the regulations under sec_6050w provides an illustration of circumstances in which there is a third party but no third party network sec_1_6050w-1 example the health care network is operated by a health carrier that i collects premiums from covered members pursuant to contractual agreements between the covered_member and the health carrier to allow the covered members access to the health care network and ii pays health care providers pursuant to a separate contractual agreement between the health care provider and the health carrier to compensate the health care providers for services rendered to covered members the example concludes that the health carrier is not a tpso operating a third_party_payment_network that enables purchasers to transfer funds to providers of goods and services sec_6050w analysis taxpayer is not a tpso because it does not enable purchasers taxpayer’s customers to transfer funds through the use of a payment network to providers of ----------------------- ------------------------------------------------------------------------------------------------------------------- the providers instead the taxpayer engages in two separate agreements an agreement with customers to ------------ ------------------ on behalf of its customers and an agreement with providers to -------------------------- for ----------------------for its customers and pay amounts invoiced by providers through an automated clearinghouse network or other electronic funds transfer for taxpayer’s agreements with its providers the primary business model of the taxpayer is to -------------------------- for providers’ ---------------------- then offer those ------ ---------------------- for sale to customers through its ------------- and other distribution channels the rates that taxpayer charges customers for provider’s ------------------------ are determined by taxpayer not by providers these rates are determined on a provider-by-provider basis and do not consist of the amount_paid to the provider plus a fixed or percentage fee the service that taxpayer provides is not focused on the settlement of a transaction between customer and provider rather it is focused on --- ------------------------------------------------------------------------------ when taxpayer sells ------- ----------------------to a customer it is only obligated to pay the provider of the --------------- -------------the --------------------- and established in its separate contract with provider the -------------------------- is not known to the customer nor is the customer a party to the taxpayer-provider contract the customer and the provider do not have a direct relationship thus taxpayer’s primary function is not the facilitation of the settlement the agreements between taxpayer and customers and taxpayer and providers are not perfectly analogous to the agreements described in example healthcare network of the regulations under sec_6050w but they are similar to them in some respects specifically the payments between customers and taxpayer and taxpayer and providers are not directly linked in that manner taxpayer’s situation resembles that of the health carrier who collects certain amounts from covered members plr-146802-14 of a transaction between the buyer and the seller of ---------------------- in conclusion taxpayer is not a tpso and thus does not have a reporting obligation under sec_6050w sec_6041 sec_6041 of the code provides that all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year shall render a true and accurate return setting forth the amount of such gains profits and income and the name and address of the recipient sec_1_6041-1 states that except as provided in sec_1_6041-3 every person engaged in a trade_or_business shall make an information_return for each calendar_year with respect to payments made by him during the calendar_year in the course of his trade_or_business to another person of fixed or determinable salaries wages commissions fees and other forms of compensation_for services rendered aggregating dollar_figure or more sec_1_6041-3 provides that returns of information are not required with respect to payments of bills for merchandise telegrams telephone freight storage and similar charges the word merchandise is commonly defined and understood to include goods and commodities see eg 420_f2d_352 1st cir stating that for purposes of sec_471 the term merchandise generally referred to ’goods purchased in condition for sale ’ ‘goods awaiting sale ’ ‘articles of commerce held for sale’ the common denominator however seems to be that the items in question are merchandise if held_for_sale black’s law dictionary 9th ed defining merchandise as a movable object involved in trade or traffic that which is passed from one person to another by purchase and sale sec_3406 of the code provides that in the case of any reportable_payment and where certain circumstances exist the payor shall deduct and withhold from such payment a tax equal to the product of the fourth lowest rate_of_tax applicable under sec_1 and such payment sec_3406 states that the term reportable_payment means any reportable_interest_or_dividend_payment and any other_reportable_payment sec_3406 defines other reportable payments as any payment of a kind and to a payee required to be shown on a return required under sec_6041 among others sec_6041 analysis pursuant to contractual agreements and pays other_amounts to health care providers under separate contractual agreements plr-146802-14 taxpayer is subject_to reporting under sec_6041 taxpayer is engaged in a trade_or_business during the course of which it makes payments to providers which fall within the broad language of sec_6041 the payments made by taxpayer to providers clearly fall within at least one of the categories of payments included in sec_6041 including rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income moreover these payments do not fit within any of the exceptions provided in sec_1_6041-3 specifically we conclude that the payments are not made for merchandise or similar charges and thus do not fall within the exception contained in sec_1_6041-3 the payments to providers are made for the provision of -------------------- provided to customers at no time does taxpayer hold such ---------------------- in order to sell them to customers the ----------------------are provided directly to customers after customers have ----------------------------------------- taxpayer unlike merchandise in the traditional sense taxpayer does not hold title to or possess the -------------------------- ultimately provided to customers by providers moreover a revenue_procedure that classifies businesses by merchant category codes according to whether they predominantly furnish services or predominantly provide goods provides further support for the position that taxpayer is predominately providing services and not goods or merchandise revproc_2004_43 2004_2_cb_124 obsoleted by t d removing regulations relating to information reporting and backup withholding for the qualified_payment_card_agent_program under the revenue_procedure the following types of businesses among others are considered to predominately provide services and thus are subject_to reporting under sec_6041 -- -------------------------------------------------------------------------------------------- taxpayer’s providers fit within both of these business types further supporting our conclusion that taxpayer is making payments for services not for goods or merchandise revproc_2004_43 was obsoleted following the enactment of sec_6050w and the payment_card reporting regime but it still provides guidance in determining whether a particular business is a type that should be classified as one predominately furnishing services taxpayer argues that the payments to providers fall within the exception found in sec_1_6041-3 which exempts from reporting under sec_6041 payments for merchandise telegrams telephone freight storage and similar charges in making this argument taxpayer contends that the payments can be classified as for merchandise or similar charges as discussed above we do not view payments to providers for ----------------------as merchandise rather these are payments for services furthermore we are not persuaded by the argument that the payments are for a similar charge the reporting exception contained in sec_1_6041-3 encompasses costs relating to maintaining transporting and storing items held_for_sale including specific enumerated charges-merchandise telegrams telephone freight and storage-and additional similar charges that are not listed the payments to providers are neither payments for merchandise nor payments related to maintaining storing or plr-146802-14 transporting merchandise rather these payments are payments for the core service that taxpayer provides to customers-offering ----------------------for sale thus these payments do not fit within the reporting exception in sec_1_6041-3 taxpayer further argues that even if the payments to providers are for services taxpayer is not required to report them under sec_6041 because the payments are for services that are being resold to customers not for services directly provided to taxpayer the fact that taxpayer will ultimately resell these ----------------------does not change the nature of the payment to providers the payment is made for services regardless of who ultimately receives the ---------------------- taxpayers did not provide any controlling authority to establish that the resale of such services would be treated differently for purposes of sec_6041 thus our conclusion regarding the applicability of sec_6041 is not changed by the fact that taxpayer is reselling the --------------------- purchased from providers because we conclude that taxpayer is making payments described in sec_6041 and does not qualify for any exception to reporting under sec_6041 taxpayer is subject_to reporting under sec_6041 with respect to payments to providers to the extent that such amounts paid to a particular provider are equal to or exceed dollar_figure during the taxable_year moreover to the extent that payments are subject_to reporting under sec_6041 they are subject_to the backup withholding rules pursuant to sec_3406 conclusion based exclusively on the information provided and the representations made we have determined that taxpayer does not have a reporting obligation under sec_6050w as a tpso we have concluded that taxpayer does have a reporting obligation under sec_6041 and is subject_to the backup withholding rules under sec_3406 in light of your request for a closing_agreement we will accordingly approve a closing_agreement with taxpayer with respect to those issues affecting its obligations related to information reporting on the basis set forth above the necessary closing_agreement for taxpayer has been prepared in triplicate and is enclosed in pursuance of our practice with respect to such agreements the agreement contains a stipulation to the effect that any change or modification of applicable statutes enacted subsequent to the date of this agreement and made applicable to the taxable_period involved will render the agreement ineffective to the extent that it is dependent upon such statutes this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-146802-14 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 drita tonuzi associate chief_counsel procedure administration


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------- ---------------------------------------- ------------------------------------ -------------------------- in re ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------ --------- telephone number --------------------- refer reply to cc psi b04 plr-132939-07 date date legend legend decedent daughter trust ------------------------------ ------------------------------------------------------ ---------------------------------------------------------------------------- ---------------------------------------------------------- ---------------- ------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- -------------------------------- state state law state law state law state law state law state law state law date dear -------------------------------------------------------- this is in response to your letter received on date and prior correspondence requesting a ruling regarding the generation-skipping_transfer gst tax consequences of a proposed modification of a_trust the facts submitted and the representations made are as follows on a date prior to date decedent died pursuant to the terms of decedent’s will trust was established for the benefit of daughter article sixth paragraph c of the will provides that the trustees have the discretion to distribute income to daughter during her lifetime the trustees also have the discretion to use all or any portion of trust’s income for the benefit of daughter’s children during daughter’s lifetime plr-132939-07 under article sixth paragraph c upon daughter’s death trust will continue until the youngest of daughter’s surviving children attain age at which time trust will terminate and the trust estate will be equally distributed among daughter’s surviving children under state law the parties interested in a_trust may resolve matters through written agreements in a nonjudicial binding procedure under state law such agreements may be filed with the court having jurisdiction over the trust and upon filing the agreement has the effect of a final court order binding on all persons interested in the trust the trustees and the beneficiaries of trust entered into a nonjudicial binding agreement agreement under which trust will be modified to facilitate the administration and investments trust pursuant to state law and state law daughter’s children as virtual representatives of their issue entered into agreement for their issue agreement becomes effective upon the receipt of a favorable ruling from the internal_revenue_service agreement provides that article sixth paragraph c of the will will be modified to provide that the trustees have the discretionary authority to distribute to daughter and her children a unitrust_amount instead of trust’s income state law authorizes the conversion of an interest in income into a unitrust_amount the unitrust_amount will be equal to the greater of i the annual income of trust or ii an amount equal to four and one-half percent of the average fair_market_value of trust valued as of the close of the last business_day of the five preceding years or such lesser number of years as are available for the first five years starting as of date the unitrust_amount and adjustments thereto are to be calculated without regard to the fair_market_value of certain assets held by trust for which there is no established public market state law defines the term unitrust distribution as equaling four percent and the term payout percentage to mean the net fair_market_value of the trust’s assets averaged over the lesser_of the three preceding years or the period during which the trust has been in existence in this case agreement provides for four and one-half percent and the five preceding years however state law also provides that the trustee or beneficiary of a_trust may petition the court to select a payout percentage different than four percent under state law nothing in state law restricts the application of state law to issues that arise under trust and may be resolved nonjudicially further under state law the parties to agreement may exercise their rights to agree to a five-year period and to exclude assets for which there is no established market_value it has been represented that no additions have been made to trust since decedent's death plr-132939-07 trustees are requesting a ruling that the proposed modification to trust as described in agreement will not result in a shift of a beneficial_interest to a lower generation beneficiary and therefore will not affect the status of trust as exempt from the gst tax law and analysis sec_2601 imposes a tax on every generation-skipping_transfer section b a of the tax_reform_act_of_1986 and ' b i of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in ' b ii b or c relating to property includible in the grantor's gross_estate under and sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under ' b or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in ' b are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of ' sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraphs b i a b or c of this subsection by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 example considers a situation where a_trust that is otherwise exempt from the gst tax provides that trust income is payable to a for life and upon a's death the remainder is to pass to a's issue per stirpes in the plr-132939-07 appropriate local court approves a modification to the trust that converts a's income_interest into the right to receive the greater of the entire income of the trust or a fixed percentage of the trust assets valued annually unitrust_interest to be paid each year to a for life the example concludes that the modification does not result in a shift in a beneficial_interest to a beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification rather the modification can only operate to increase the amount distributable to a and decrease the amount distributable to a's issue in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case trust is an irrevocable_trust that was established prior to date it is represented that no additions were made to trust after date consequently trust is currently exempt from the gst tax the proposed modification of trust will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the conversion of the income_interest into a unitrust_interest further the proposed modification will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in trust prior to the modification accordingly based on the facts submitted and representations made we conclude that the proposed modification of trust will not affect the status of trust as exempt from the gst tax except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 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 plr-132939-07 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 lorraine gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for ' purposes