internal_revenue_service number release date index number 468a ------------------- ------------- -------------------------------------------- --------------------- ------------------------------------------------ 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 b06 plr-111437-12 date august re revised schedule of ruling amounts re revised schedule of ruling amounts -------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------------- ---------------------------------- ----------- ----------------------------------------------------- ------------------------------------------------------ --------------------------------------------------------------------------------- legend taxpayer --------------------------------------------------------------------------------------------------------- parent ------------------------------------------------------------------------------------------------------------ plant location method commission a commission b independent study -------------------------------------------------------------------------------------------------------- order order --------------------------------------------------------------------------------------------------------------- a b c d e date date date a b c year year year ------ -------- ------ -- ------ ------------------------- ------------------- -------------------------- ----------------- ------------------- -------------- ------- ------- ------- ----------------------------------------------------------- --------------------------------------------------------------------------------- ------- ------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------ plr-111437-12 year fund industry director dear --------------- this letter responds to your request dated ------------------- for a mandatory revised schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1_468a-3 of the income_tax regulations taxpayer was previously granted revised schedules of ruling amounts most recently on date this request is prompted by the fact that the nuclear regulatory commission nrc has issued an extension of the plant’s nuclear operating license order taxpayer submitted supplemental information by letters on -----------------and ------------------ information was submitted pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for rulings as follows taxpayer is a subsidiary of parent and a member of parent’s consolidated_group parent is under the audit jurisdiction of the industry director taxpayer owns a percent of the qualifying interest in the plant at location the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a b percent and commission b c percent on its interests in the plant as a result of the nrc granting taxpayer’s request for an extension of the operating license for the plant taxpayer commissioned the independent study on date taxpayer filed a request with commission a to decrease revenue recovered through the nuclear decommissioning cost adjustment with respect to the plant based on the information included in the independent study the commission accepted this material when filed and used it as the basis to issue the current rate order order on date the estimated cost of dollar_figurea in year dollars was used as a base cost for decommissioning taxpayer’s interest in the plant the estimated cost of decommissioning taxpayer’s interest in the plant in future dollars is dollar_figureb in year dollars it is estimated that substantial decommissioning costs will first be incurred in year and that decommissioning will be substantially complete at the end of year the methodology used to convert the year dollars to future dollars was by escalating the estimated costs at an inflation rate of d percent to the year of estimated expenditure the assumed after-tax rate of return to be earned by the amount collected for decommissioning is e percent plr-111437-12 sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest under sec_1_468a-1 nuclear decommissioning costs include all otherwise deductible expenses_incurred in connection with the entombment decontamination dismantlement removal and disposal of the structures systems and components of a nuclear power plant nuclear decommissioning costs include costs incurred in connection with the construction operation and ultimate decommissioning of a facility used solely to store pending acceptance by the government for permanent storage or disposal spent nuclear fuel generated by the nuclear power plant or plants located on the same site as the storage_facility nuclear decommissioning costs do not include plr-111437-12 otherwise deductible expenses to be incurred in connection with the disposal of spent nuclear fuel under the nuclear waste policy act of public law sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2 does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated plr-111437-12 its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances plr-111437-12 sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment deadline for the taxable_year that includes the date on which the license extension is granted sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer owns a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of a qualifying interest in the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was based on order issued by commission a thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations plr-111437-12 based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year -------------------------------------------- ruling_amount ----------- if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which this schedule of ruling amounts is received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above specifically no determination is made whether the independent decommissioning study conforms to industry standards and practices this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 we are also sending a copy of this letter_ruling to the industry director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries


internal_revenue_service number release date index number sec_301 ----------------- ----------------------------------------------------- -------------------------------------------- ------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------- telephone number --------------------- refer reply to cc corp b03 plr-113958-12 date date legend taxpayer ------------------------------------------------------------ ------------------------------------------------ successor ------------------------------------------------------------------------------------------------ ------------------------------------------- exchange state a a year dear --------------- ------------------------------------ ------------- ----------------- ------- this letter responds to a date letter requesting rulings under sec_301 and sec_305 additional information was received in letters dated date and date the information received in these letters is summarized below facts taxpayer is a state a corporation that is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return on a calendar_year basis taxpayer has one class of common_stock outstanding taxpayer stock which is publicly traded and listed on the exchange plr-113958-12 taxpayer intends to elect under sec_856 to be treated as a real_estate_investment_trust reit effective the first day of year in connection with the reit election prior to the end of year taxpayer intends to distribute to its shareholders with respect to taxpayer stock all of its earnings_and_profits that were or will be accumulated by taxpayer for all taxable periods ending prior to year c corp e_p as required by sec_857 taxpayer will distribute the c corp e_p in one or two distributions each a proposed distribution taxpayer expects to make the first proposed distribution prior to year prior to the first proposed distribution taxpayer will merge with and into successor a newly formed wholly owned subsidiary_corporation incorporated in state a the merger taxpayer represents that the merger qualifies as a tax-free reorganization under sec_368 references herein to taxpayer include successor as appropriate pursuant to the first proposed distribution taxpayer's shareholders will have a right to elect to receive cash or taxpayer stock except as described below each shareholder as of the record_date of the first proposed distribution will be entitled to elect to receive its distribution in the form of either percent cash or percent taxpayer stock if a shareholder fails to make a valid election by the election deadline that shareholder will be deemed to have made an election to be determined by taxpayer in its sole discretion taxpayer intends to limit the total amount of the cash in the first proposed distribution to percent of the value of the first proposed distribution the maximum cash distribution if the total number of shares of taxpayer stock for which an election to receive cash is made would result in the payment of cash in an aggregate amount that is less than or equal to the maximum cash distribution then all shares for which such cash election is made will receive the distribution entirely in cash if the total number of shares of taxpayer stock for which an election to receive cash is made would otherwise result in the payment of cash in an aggregate amount in excess of the maximum cash distribution then each shareholder electing to receive cash will receive a prorated amount of cash with the remainder of its distribution paid in the form of shares of taxpayer stock but in no event will any shareholder electing to receive cash receive less than percent of its entire distribution in cash the calculation of the number of shares to be received by any shareholder will be determined over a period of up to two weeks ending as close as practicable to the payment_date based upon a formula utilizing market prices that is designed to equate in value the number of shares to be received with the amount of money that could be received instead taxpayer has outstanding convertible debt with an aggregate principal_amount of dollar_figurea the convertible debt in connection with the first proposed distribution and pursuant to the terms of the convertible debt the conversion rate applicable to the convertible debt will be increased the adjustments which will entitle the convertible debt holders the holders to receive upon conversion a greater number of shares of plr-113958-12 taxpayer stock than they would otherwise be entitled to receive if the adjustment to the convertible debt conversion ratio were not made accordingly the adjustments will entitle the holders to receive upon conversion a greater proportionate interest in the assets or earnings_and_profits of taxpayer than they would otherwise receive if the adjustments were not made provided cash is distributed in the first proposed distribution taxpayer may make the second proposed distribution with respect to taxpayer stock during year in the event that it determines that taxpayer’s calculation of its c corp e_p was too low in that case taxpayer may use an elective cash stock_distribution as described above holdings based solely on the information submitted and the representations made we rule as follows any and all of the cash and taxpayer stock distributed in a proposed distribution by taxpayer to holders of the taxpayer stock using the cash stock_distribution election as described above shall be treated as a distribution_of_property with respect to the taxpayer stock to which sec_301 applies sec_301 and sec_305 the amount of the distribution of stock shall be the fair_market_value of such stock on the date of distribution if such proposed distribution occurs before year sec_1_305-1 provided taxpayer elects to be taxed as and qualifies as a reit as of year the amount of the distribution of stock shall be considered to equal the amount of cash which could have been received instead if such proposed distribution occurs during year sec_1_305-1 and sec_1 b example provided that cash is distributed using the cash stock_distribution election as described above in a proposed distribution by taxpayer to any holders of taxpayer stock then the adjustments made in connection with that proposed distribution to the convertible debt shall constitute a deemed_distribution of taxpayer stock to the holders to which sec_301 applies by reason of sec_305 and c revrul_75_513 1975_2_cb_114 the amount of the deemed_distribution of stock shall be measured by the fair_market_value as of the date of the adjustments of the number of shares of taxpayer stock deemed distributed to the holders sec_1_305-1 and sec_1_305-3 examples and revrul_75_513 caveats holdings concerning a proposed distribution are void and no opinion is expressed as to a proposed distribution if that proposed distribution is not completed by the end of year no opinion is requested and no opinion is expressed as to the second proposed distribution if that distribution is made entirely in cash additionally plr-113958-12 except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed with regard to whether taxpayer qualifies as a reit under subchapter_m of the code or whether the merger qualifies as a reorganization under sec_368 procedural statements the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this ruling is directed only to the taxpayer requesting it 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 this letter_ruling 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 russell p subin senior counsel branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury number release date index number legend employer plan washington dc person to contact telephone number refer reply to cc tege eb qp2-plr-115874-00 date date dear this is in response to your letter dated date requesting a ruling on the federal tax consequences of certain specified amendments proposed to be made to the plan employer is a municipality and an eligible_employer within the meaning of sec_457 of the code the plan is intended to be an eligible_deferred_compensation_plan to which sec_457 applies employer received a private_letter_ruling with respect to the plan on date the plan was subsequently amended and employer received a private_letter_ruling with respect to the plan on date to the effect that the plan complies with sec_457 as amended by the small_business job protection act of under the plan an employee may elect to defer compensation he or she would have received for services rendered to the employer in any taxable_year the deferral extends until the participant reaches age ½ separates from service dies or has an unforeseeable_emergency the election to defer compensation_for any calendar month must be made before the beginning of such month the plan provides for a maximum amount that may be deferred by a participant in any taxable_year and for a catch-up computation for amounts deferred for one or more of the participant's last three taxable years ending before normal_retirement_age under the plan the amounts that may be deferred under the annual maximum limitation and the catch-up provision are within the limitations set out in sec_457 of the code a participant or his beneficiary may elect the manner in which his or her deferred amounts will be distributed these include substantially equivalent monthly quarterly semi-annual or annual installments partial lump-sum payment the rest to be paid in substantially equivalent monthly quarterly semi-annual or annual plr-115874-00 installments or a lump sum cash payment the election must be made prior to the date any such amounts become payable to the participant or the beneficiary if the participant fails to make a timely election concerning distribution of the deferred amounts following separation_from_service payment will be made in substantially equivalent quarterly installment payments over the life expectancy of the participant if the beneficiary fails to make a timely election concerning distribution of the deferred amounts following the death of participant payment will be made in one cash lump sum within days after the expiration of the period in which to make an election the manner and time of benefit payments must meet the distribution_requirements of sec_401 and sec_457 of the code a basic requirement prescribed by sec_457 is that an eligible sec_457 plan must meet the sec_457 distribution_requirements described above in order to retain its tax-deferred eligible status a sec_457 plan would violate these provisions of sec_457 and the regulations thereunder if the participant or anyone else received a distribution earlier than the earliest date established in sec_457 the plan however permits an exception to the above distribution_requirements the plan in accordance with sec_457 of the code includes a provision permitting a lump sum in-service distribution of dollar_figure or less of a participant’s account during an annual de_minimis payout period if the participant elects within sixty days after receiving notice from the plan_administrator to receive such a distribution or at any other time the participant elects to receive such a distribution provided that there has been no amount deferred by the participant during the two year period ending on the date of distribution and there has been no prior distribution received by the participant pursuant to sec_457 deferrals under the plan will be held in a custodial_account pursuant to a custodial_account agreement amounts deferred under the plan will be transferred to the custodian or its agent as promptly possible but in no event later than two business days after the applicable payroll date and will be invested promptly in accordance with the investment directions of the participant but in no event later than two business days following receipt of the amounts by the custodian or its agent the custodial_account agreement provides that it shall be impossible prior to the satisfaction of all liabilities with respect to plan participants and their beneficiaries for any part of the funds of the custodial_account to be used for or diverted to purposes other than for the exclusive benefit of the participants or their beneficiaries as provided for in the plan it further provides that the assets of the custodial_account will never inure to the benefit of the employer and will be held for the exclusive purposes of providing reasonable expenses of administering the plan and the custodial_account no amount payable at any time under the plan will be subject in any manner to alienation by anticipation sale transfer assignment pledge attachment charge or encumbrance of any kind plr-115874-00 the plan and custodial agreement provide that all amounts of compensation deferred pursuant to the plan all property and rights purchased with such amounts and all income attributable to such amounts property or rights shall be held in trust for the exclusive benefit of participants and beneficiaries under the plan the plan provides that no payments to an alternate_payee pursuant to a domestic_relations_order may be made prior to the earliest date as of which payments to a participant could commence under the plan upon the receipt of a plan certified domestic_relations_order a portion of the participant’s account as determined under the plan certified domestic_relations_order shall be segregated in an account maintained on behalf of the alternate_payee the plan permits participants beneficiaries and alternate payees under plan certified domestic relations orders to file requests for withdrawals in the case of unforeseeable emergencies based on severe financial hardships suffered by participants beneficiaries or alternate payees an amount is not considered to be reasonably needed to meet the financial need created by an unforeseeable_emergency to the extent that the need is or may be relieved i through reimbursement or compensation by insurance or otherwise ii by liquidation of the participant’s beneficiary’s or alternate payee’s assets to the extent the liquidation of the assets would not itself cause severe financial hardship or iii by cessation of deferrals under the plan sec_457 of the code provides rules for the deferral of compensation by an individual participant in an eligible_deferred_compensation_plan as defined in sec_457 sec_457 provides that in the case of a participant in an eligible_deferred_compensation_plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary sec_457 prescribes that an eligible_deferred_compensation_plan must meet the distribution_requirements of sec_457 sec_457 provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ½ when the participant is separated from service with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under treasury regulations however sec_401 generally allows plans to postpone the required_beginning_date until april of the calendar_year following the later of the calendar_year in which the employee retires or in which he plr-115874-00 attains age ½ sec_1_457-2 of the income_tax regulations defines an unforeseeable_emergency as severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant or of a dependent loss of the participant's property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant sec_457 provides that a plan maintained by an eligible governmental employer shall not be treated as an eligible_deferred_compensation_plan unless all assets and rights purchased with such deferred_compensation amounts and all income attributable to such amounts property or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries sec_457 provides that for purposes of sec_457 custodial accounts described in sec_457 shall be treated as trusts based upon the provisions of the plan summarized above and provided that the plan is amended as proposed in the draft plan language submitted on date we conclude as follows the plan continues to be an eligible_deferred_compensation_plan as defined in sec_457 of the internal_revenue_code_of_1986 amounts of compensation deferred under the plan including any income attributable to the deferred_compensation will be includible in gross_income for the taxable_year or years in which amounts are paid or otherwise made available to a participant or a participant’s beneficiary in accordance with the terms of the plan the custodial_account established under the plan will be treated as a_trust for purposes of g no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than the plan described above in addition this ruling applies only to deferrals made after the date of this ruling this ruling is directed only to employer and the participants of the plan sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see section dollar_figure of revproc_2001_1 2001_1_irb_1 plr-115874-00 however when the criteria in section dollar_figure of revproc_2001_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances sincerely yours robert d patchell assistant chief qualified_plans branch office of the division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes


t c memo united_states tax_court david e christensen petitioner v commissioner of internal revenue respondent docket nos filed date david e christensen pro_se ron s chun for respondent memorandum findings_of_fact and opinion haines judge respondent determined deficiencies in petitioner’s federal_income_tax as follows year at issue deficiency sec_6651 sec_6662 dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number n a dollar_figure big_number big_number big_number the issues to be decided are whether petitioner failed to report dollar_figure in as income for federal_income_tax purposes whether petitioner failed to substantiate his claimed schedule c profit or loss from business_expenses for and whether petitioner is liable for additions to tax under sec_6651 for all years at issue and whether petitioner is liable for accuracy-related_penalties under sec_6662 for and findings_of_fact petitioner resided in glendora california at the time the petitions were filed during the years at issue petitioner was employed by various companies as a systems engineer the work he performed as a systems engineer was done out of his home in addition he started his own company in called connect4less in this capacity he repaired computers programmed computers and developed web sites for individuals petitioner also operated connect4less out of his home petitioner did not file a federal_income_tax return for he did not make estimated_tax payments for petitioner did not file his and federal unless otherwise indicated all section references are to the internal_revenue_code as amended all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated amounts are rounded to the nearest dollar income_tax returns until date on date respondent prepared a substitute for return for on date respondent issued notices of deficiency to petitioner for the years at issue respondent determined petitioner received taxable_income in based upon the internal_revenue_service administrative record of petitioner’s third-party payor information administrative record based upon the administrative record petitioner received w-2 wage and tax statement income of dollar_figure consisting of a dollar_figure from auspex systems inc b dollar_figure from microcadam inc and c dollar_figure from npc admin services dcp npc 1099-int interest_income income of dollar_figure consisting of a dollar_figure from capital one fsb b dollar_figure from glendale federal bank and c dollar_figure from pasadena federal credit_union and 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc income of dollar_figure from the public employees’ retirement_system for the state of california respondent disallowed petitioner’s schedule c expenses of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively for lack of substantiation the disallowance of schedule c expenses caused petitioner’s adjusted_gross_income to increase as a result petitioner’s schedule a itemized_deductions deductions were reduced by dollar_figure dollar_figure and dollar_figure in and respectively on date petitioner timely filed petitions contesting the deficiencies for the years at issue petitioner did not cooperate with respondent in preparing for trial he did not identify or exchange any documents identify witnesses or file a pretrial memorandum as required by the standing_pretrial_order respondent complied with these requirements on date the cases were consolidated for trial trial was held on this matter on date the parties submitted their stipulation of facts at the beginning of trial opinion petitioner asserts he is not liable for respondent’s deficiency determinations penalties and additions to tax because he did not receive taxable_income of dollar_figure in he properly substantiated his schedule c expenses for and he is not liable for additions to tax under sec_6651 for all years at issue and he is not liable for accuracy-related_penalties under sec_6662 for and generally the taxpayer bears the burden of proving the commissioner’s determinations are erroneous rule a however the burden_of_proof may shift to the commissioner under sec_7491 if the taxpayer has produced credible_evidence relating to the tax_liability at issue has met his substantiation requirements maintained records and cooperated with the secretary’s reasonable requests for documents witnesses and meetings in this case petitioner bears the burden_of_proof because he did not substantiate his expenses maintain the required records and cooperate with respondent’s requests sec_7491 see 116_tc_438 a sec_6201 if a taxpayer asserts a reasonable dispute with respect to any item_of_income reported on a third-party information_return and the taxpayer has fully cooperated with the secretary the secretary has the burden of producing reasonable and probative information concerning that deficiency in addition to the information_return sec_6201 in this case petitioner did not fully cooperate with respondent therefore the court concludes respondent does not have the burden of production under sec_6201 for the tax_year sec_7491 applies to all years at issue because the examination of petitioner’s returns for all years at issue began after date the effective date of sec_7491 determination in unreported income cases the court_of_appeals for the ninth circuit has determined that in order for the presumption of correctness to attach to a deficiency determination in unreported income cases the commissioner must establish some evidentiary foundation connecting the taxpayer to the income-producing activity 596_f2d_358 9th cir revg 67_tc_672 or demonstrate the taxpayer received unreported income 680_f2d_1268 9th cir once there is evidence of actual receipt of income by the taxpayer the taxpayer has the burden of proving that all or part of the income is not taxable 87_tc_74 a deficiency determination which is not supported by some evidentiary foundation is arbitrary and erroneous weimerskirch v commissioner supra pincite in these circumstances the commissioner has the burden of coming forward with evidence establishing the existence and amount of a deficiency 73_tc_394 in this case there is sufficient evidence linking petitioner to all the income-producing activities except the amounts reported by npc with respect to the administrative record petitioner testified he was employed by auspex systems inc and microcadam inc in he had a mortgage with glendale federal bank and had accounts with capital one and pasadena federal credit_union and he received income from the public employees’ retirement_system for the state of california thus there is sufficient evidence linking petitioner to dollar_figure however even though the administrative record indicated petitioner received dollar_figure from npc in petitioner testified he was not employed by nor did he receive income from npc in at trial respondent was unable to provide the court a form_w-2 statement from npc or any other evidence linking petitioner to receipt of income from npc respondent informed the court he attempted to issue a subpoena to npc however he was unable to find its location the court finds respondent’s administrative record of npc’s third-party information without more is an insufficient evidentiary foundation because petitioner disputes receipt of such income therefore this court concludes respondent presented evidence linking petitioner to only dollar_figure of unreported income in not the alleged dollar_figure finally petitioner provided no evidence to dispute respondent’s determination of petitioner’s receipt of income for as reduced by the court therefore the court finds petitioner received taxable_income of dollar_figure in b petitioner argues his business_expenses for and were properly substantiated solely by his testimony the court disagrees under sec_162 a taxpayer may deduct ordinary and necessary business_expenses incurred or paid during the taxable_year however deductions are a matter of legislative grace and the taxpayer must clearly demonstrate entitlement to the claimed deductions 503_us_79 the taxpayer must keep records sufficient to establish the amount of his deductions sec_162 sec_6001 sec_1_6001-1 income_tax regs the taxpayer bears the burden of substantiation 65_tc_87 affd per curiam 540_f2d_821 5th cir petitioner testified all substantiating documents were either destroyed in hard disk crashes or lost while moving when a taxpayer’s records have been destroyed or lost due to circumstances beyond the taxpayer’s control such as fire flood earthquake or other_casualty the taxpayer has a right to substantiate the deductions by a reasonable reconstruction of the expenditures or uses sec_1_274-5t temporary income_tax regs fed reg date if documentation is unavailable the court may although it is not required to do so accept the taxpayer’s testimony to substantiate the deduction see 122_tc_305 watson v commissioner tcmemo_1988_29 during petitioner’s testimony he contradicted himself admitted to errors in the schedules c relative to expenses and in some instances could not recall what the claimed expenses were further petitioner did not make a good_faith effort to reconstruct his expenses provide documentation or provide corroborating evidence to bolster the credibility of his testimony see tokarski v commissioner supra pincite smith v commissioner tcmemo_1998_33 therefore the court finds petitioner’s testimony was insufficient to substantiate his deductions boyd v commissioner supra watson v commissioner supra finally petitioner failed to reconstruct his records submit any documentation or otherwise provide sufficient evidentiary basis for the court to estimate his expenses under the cohan_rule see 39_f2d_540 2d cir 85_tc_731 therefore the court sustains respondent’s determination disallowing petitioner’s schedule c expenses of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively as a result of the above the court sustains respondent’s determination disallowing schedule a deductions of dollar_figure dollar_figure and dollar_figure in and respectively c penalties and additions to tax sec_6651 pursuant to sec_7491 respondent has the burden of production with respect to any penalty addition_to_tax or additional_amounts the burden of production only requires respondent to come forward with sufficient evidence indicating it is appropriate to impose additions to tax 116_tc_438 in this case respondent has carried the requisite burden of production with respect to the additions to tax under sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a required return on or before the prescribed filing_date unless it is shown that such failure is due to reasonable_cause and not due to willful neglect a showing of reasonable_cause requires the taxpayer to demonstrate he exercised ordinary business care and prudence and nevertheless was unable to file the return by the due_date sec_301_6651-1 proced admin regs petitioner did not file a return for and he did not timely file his and tax returns petitioner did not offer a legitimate explanation for these failures thus petitioner is liable for additions to tax for failure to timely file under sec_6651 in and in amounts to be determined under rule calculations sec_6662 sec_6662 imposes an accuracy-related_penalty upon any underpayment_of_tax resulting from a substantial_understatement_of_income_tax the penalty is equal to percent of any underpayment that constitutes a substantial_understatement_of_income_tax sec_6662 the term substantial_understatement is defined as the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 petitioner reported tax on his income_tax returns and respondent determined deficiencies based upon corrected tax resulting in understatements of the following amounts tax_year tax on return corrected tax understatement dollar_figure -0- dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number in this case the amount of the understatement for each of the years and is more than percent of the tax required to be shown and greater than dollar_figure thus petitioner substantially understated his income_tax for and thus respondent has met the burden of production and petitioner having failed to show reasonable_cause substantial_authority or other basis for reducing the understatement is liable for the sec_6662 penalty for and the court in reaching its holding has considered all arguments made and concludes that any arguments not mentioned above are moot irrelevant or without merit to reflect the foregoing decisions will be entered under rule


internal_revenue_service number release date index number ----------------------------------------- ------------------------------------------------------------ ----- ------------------------------------------ ---------------------------------- - - department of the treasury washington dc person to contact ----------------------- ----------------------------- ---------------------------------------------------- telephone number -------- -------------- refer reply to cc psi b03 plr-143957-13 date date x ------------------------------------------------------------ ------------------------------------------------- trust ------------------------------------------------------------ --------------------------------------- trust agreement date date a b c d e ---------------------------------------- --------------------- ------------------------ -------- -- -------- ---------------- ----- dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x and trust requesting rulings on several plr-143957-13 issues arising from the establishment funding and potential termination of trust under sec_646 of the internal_revenue_code and other provisions background in the alaska native claims settlement act of ancsa u s c et seq settled the alaska natives’ claims to land and resources the ancsa implements the settlement of native alaskans’ aboriginal land claims by providing for the conveyance of certain lands and money alaska native fund or anf to alaska native corporations ancs established by qualified alaska natives as compensation the ancsa provides that u s citizens with ¼ or more of alaska indian eskimo or aleut blood who were living on date were qualified to participate in the settlement the natives who qualified to participate in the settlement were allowed to enroll as stockholders and receive stock settlement_common_stock in one of the twelve regional corporations and in one local village corporation created under the act to receive assets the ancsa as originally enacted provided that for a period of years after date the stock inchoate rights thereto and any dividends_paid or distributions made with respect thereto may not be sold pledged subjected to a lien or judgment execution assigned in present or future or otherwise alienated this limitation however did not apply to transfers of stock pursuant to a court decree of separation divorce or child_support by a stockholder who is a member of a professional organization association or board that limits the ability of that stockholder to practice his profession because of holding such stock or by inter_vivos gift to certain family members the ancsa also provided that upon the death of any stockholder ownership of such stock shall be transferred to any person in accordance with the last will and testament of the deceased or under the applicable laws of intestacy except that during the 20-year period after date such stock shall carry voting rights only if the holder thereof through inheritance is also an alaska native subsequent amendments to the ancsa generally extend beyond date the alienability restrictions on the settlement_common_stock of an anc unless and until the shareholders of the corporation decide to terminate them u s c 1629c if the shareholders vote to terminate the alienation restrictions on the stock all settlement_common_stock is canceled as a matter of law and is replaced with unrestricted replacement common_stock u s c h thereupon the special character of the corporation as an anc created under the ancsa ceases and plr-143957-13 the corporation becomes a regular domestic_corporation subject_to regulation under securities laws to accommodate the desire of certain ancs to transfer a portion of their assets out of the corporate form the alaska native claims settlement act amendment of authorizes the conveyance of certain assets of an anc to a state-chartered settlement_trust u s c 1629e the general purpose of a settlement_trust is to preserve native heritage and culture and to promote the health education and economic welfare of its beneficiaries the shareholders of the transferor anc and their lawful successors the trust is to be used to insulate permanently land as well as other assets transferred to it from the business risks undertaken by the corporation such trusts may not operate as a business nor may they make a subsequent transfer of land or interests therein except for a reconveyance to the transferor_corporation if such reconveyance is authorized in the trust instrument u s c 1629e if the board_of directors of an anc adopts a resolution to establish a settlement_trust the resolution to establish the trust must be submitted to a vote of the corporation’s shareholders for approval u s c a and 1629b b the shareholders however are not required to approve the conveyance of any assets by the corporation to the trust unless all or substantially_all of the assets of the corporation are to be conveyed u s c 1629e a b sec_646 was enacted as part of the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra sec_646 addresses several aspects concerning the tax treatment of alaska native settlement trusts facts the information submitted states that x was incorporated as an anc pursuant to the ancsa and alaska state law x has approximately a shareholders predominantly of alaskan native descent on date x’s board_of directors approved a plan to establish trust on date x’s shareholders approved trust as a settlement_trust pursuant to the ansca and alaska state law in addition to a contribution of dollar_figurec already made to trust upon receipt of this letter_ruling x’s board_of directors anticipate contributing approximately dollar_figured to trust under the ancsa the purpose of a settlement_trust is to promote the health education and welfare of its beneficiaries and preserve the heritage and culture of the alaska natives trust also provides periodic financial benefits to x’s elders under the trust agreement in addition to the contribution of dollar_figurec and dollar_figured to trust the trust agreement provides that x is authorized to convey additional property to trust in the future trust is irrevocable and may not be altered amended or terminated except as plr-143957-13 provided in the trust agreement and as required by the ancsa the trust agreement provides for termination if trust experiences an event that has a materially adverse effect on trust objectives or trust has no remaining beneficiaries trust’s beneficiaries will be those living individuals who are years old or older and who were originally enrolled to x by virtue of the final alaska native roll issued by the united_states secretary of the interior as of the beneficiaries will not include any residuary or contingent beneficiary pursuant to the trust agreement additional beneficiaries may be added upon written resolution of x’s board_of directors and a majority vote of each of x’s board_of directors and shareholders the trust agreement also provides that the trustees shall distribute dollar_figuree quarterly to the each beneficiary each person who as of the date selected by the trustees meets the definition of beneficiary shall receive an equal share of trust’s distribution each beneficiary may by delivering an executed and completed form disclaim any right to a future distribution or set of future distributions from trust the disclaimer will extinguish all legal right of the beneficiary to the distributions disclaimed a spendthrift provision in the agreement prohibits a beneficiary from selling assigning hypothecating or transferring any interest in trust the trust agreement provides that there shall be b trustees the trustees are employees of x holding specific positions trust’s board_of trustees will appoint successor trustees pursuant to the trust agreement in the event one of the specific positions is eliminated however if x is merged dissolved or consolidated or if x’s shareholders vote to terminate the alienation restrictions on the x settlement_common_stock but trust does not terminate each serving trustee shall be converted to a term appointment as trustee at that time each beneficiary will be notified of an impending vacancy and will be eligible to declare their candidacy the candidates with the most votes shall be elected to the positions to be filled in order of the most votes received the trustees are prohibited from exercising any power primarily for the benefit of x or its affiliates rather than for the benefit of trust’s beneficiaries the trustees are also prohibited from operating a business within trust the trust agreement provides that except as provided in u s c 1629e c trust assets are not subject_to the claims of the creditors of x or to satisfy any liabilities of x x represents that any transfer to trust will consist of less than substantially_all of x’s assets so that the shareholders will not be required to approve the conveyance of assets to trust at the time of the transfer of any assets to trust the transfer will not render x unable to satisfy claims based upon u s c plr-143957-13 1629e c or render x insolvent or occur when x is insolvent after any transfer of assets to trust the assets retained by x will be more than adequate to meet its obligations and trust will make the election under sec_646 to have the provisions of sec_646 apply to trust x proposes to enter into service agreements with trust for trust’s use of goods services and facilities provided by x for trust’s administrative responsibilities x may be paid a fee by trust for such use any fee paid will constitute a reasonable amount and will be no more than a fee that would be charged by an unrelated third party law discussion sec_301_7701-4 of the procedure and administration regulations provides that in general an arrangement will be treated as a_trust under the code if the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_646 provides that if a sec_646 election is in effect with respect to any settlement_trust the provisions of sec_646 shall apply in determining the income_tax treatment of the settlement_trust and its beneficiaries with respect to the settlement_trust accordingly subpart e of part of subchapter_j of chapter of the code the grantor_trust provisions under sec_671 through will not govern the income_tax treatment of trust during any period that the sec_646 election is in effect for trust sec_301 provides in general that except as otherwise provided a distribution_of_property as defined by sec_317 made by a corporation to a shareholder with respect to its stock shall be treated in the manner provided in sec_301 under sec_301 and sec_316 the distribution shall be taxable as a dividend to the extent of the earnings_and_profits of the distributing_corporation sec_301 provides that the basis_of_property received in a distribution to which sec_301 applies shall be the fair_market_value of such property sec_311 provides that if a corporation distributes property other than an obligation of the corporation to a shareholder in a distribution to which subpart a applies and the fair_market_value of the property exceeds its adjusted_basis in the hands of the distributing_corporation then gain shall be recognized to the distributing_corporation as if such property were sold to the distributee at its fair_market_value plr-143957-13 sec_646 provides that there is imposed on the taxable_income of an electing_settlement_trust other than its net_capital_gain a tax at the lowest specified rate in sec_1 sec_646 provides that in the case of an electing_settlement_trust with a net_capital_gain for the taxable_year a tax is imposed on such gain at a rate_of_tax that would apply to such gain if the taxpayer were subject_to a tax on its other taxable_income at only the lowest rate specified in sec_1 sec_646 provides that in the case of an electing_settlement_trust no amount shall be includible in the gross_income of a beneficiary of such trust by reason of a contribution to the trust sec_646 provides that the earnings_and_profits of the sponsoring_native_corporation shall not be reduced on account of any contribution to such settlement_trust sec_646 provides that the taxable_income of an electing_settlement_trust shall be determined under sec_641 without regard to any deduction under sec_651 or sec_661 sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which the property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person conclusions accordingly based solely on the facts submitted and the representations made in this ruling_request and provided that trust meets all the requirements to be a settlement_trust and makes an election under sec_646 which remains in effect we rule as follows trust will be classified as a_trust for federal tax purposes and is not an association or a partnership and is a separate_entity for federal tax purposes sec_301_7701-4 the income_tax treatment of trust will be governed by sec_646 sec_646 plr-143957-13 no amount will be included in the gross_income of x’s shareholders or trust’s beneficiaries when x contributes property including cash to trust sec_646 x’s contributions to trust will not constitute gross_income to trust x’s earnings_and_profits will not be reduced on account of any contribution by x to trust sec_646 x will not be allowed any deduction for any amounts contributed to trust x will recognize gain on any property including ancsa land contributed to trust that has a fair_market_value in excess of its basis in an amount equal to the excess of the property’s fair_market_value over its adjusted_basis for x sec_311 the basis of such property in the hands of trust will be equal to its fair_market_value on the day the property is contributed to trust sec_301 trust’s holding_period for the property contributed to trust to which x must recognize gain under sec_311 will begin on the day trust receives the property cf sec_1223 the service agreements will not affect the sec_646 election of trust nor cause the grantor_trust_rules to apply to trust except as specifically set forth above we express or imply no opinion as to the federal tax consequences of the transaction described above under any other provisions of the code furthermore we express no opinion as to trust’s basis in property contributed by x to trust where x does not have to recognize gain under sec_311 we also express or imply no opinion as to whether the expenses_incurred by trust with respect to the service agreements are reasonable or represent fair value this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to trust and to x and trust’s authorized representative plr-143957-13 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 rulings requested it is subject_to verification on examination sincerely james a quinn senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures a copy of this letter a copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division ni nov e pn ar t- ep rat me l legend grantor ira x custodian a beneficiary e beneficiary f beneficiary g beneficiary h beneficiary this is in response to a request for a private_letter_ruling dated date as revised and supplemented by letters of date date date date date date and date submitted on your behalf by your authorized representative in support of your request your authorized representative has submitted the following facts and representations grantor was born on date and died on date he had not reached the required_beginning_date for distributions from iras and qualified_plans at the time of his death grantor maintained ira x with custodian a grantor designated his five children beneficiaries e f g h and as designated death beneficiaries of ira x in the ira x adoption_agreement form executed on date each child having an equal interest in ira x on date beneficiary e the oldest named ira beneficiary disclaimed any interest payable to him under ira x the disclaimer was delivered to the ira custodian on the same day beneficiary e did not receive any distribution or benefit from ira x on date beneficiaries f g h and the beneficiaries created sub-accounts within ira x each sub-account is for the exclusive benefit of only one of the beneficiaries and it may only be used for that beneficiary each sub-account was identified as the grantor decd ira fbo child’s name as bene with a page separate_account number each beneficiary has the right to direct investment as well as withdraw funds with regard to his or her account each of the sub-accounts has been administered as a separate_account retroactive to the date of grantor’s death including allocating investment gains and losses and contributions and forfeitures on a pro_rata basis in a reasonable and consistent manner between such portion and any other_benefits in addition the required_distribution for each beneficiary was made exclusively from the sub-account of the beneficiary for whom the distribution was made at all times subsequent to grantor's death ira x has been maintained in the name of grantor after the disclaimer of beneficiary e beneficiary f became the oldest beneficiary designated by grantor under ira x the beneficiaries began to receive distributions from ira x on or before date for the years and the beneficiaries calculated the required minimum distributions based upon the life expectancy of beneficiary f for the current_year and future years the beneficiaries propose to calculate required minimum distributions based upon each sub-account holder's respective life expectancy to allow for management according to each beneficiary’s investment objectives it is also proposed to make a trustee to trustee transfer of each of ira x's sub-accounts to a new custodian and new ira which will continue to be in the name of grantor based on the above you request the following letter rulings that distributions to beneficiary f will qualify for the exception to the five-year rule under sec_401 of the code that the disclaimer executed by beneficiary e was a qualified_disclaimer within the meaning of sec_2518 of the code that grantor’s beneficiary designation naming his children in equal discernable shares created separate_accounts as that term is defined under sec_1_401_a_9_-1 q a h-2a therefore beneficiary f may use her own life expectancy in calculating required minimum distributions from such beneficiary's respective account pursuant to sec_1_401_a_9_-1 q a h- b that the creation of an equai sub-account for beneficiary f did not affect the tax deferred status of funds and will not be treated as a taxable_distribution that the trustee to trustee transfer of the existing ira sub-account maintained for the benefit of beneficiary f to a new custodian while maintaining title in the name of grantor will not constitute a payment or distribution of taxable funds to beneficiary f sec_408 of the code defines an individual_retirement_account as a_trust which meets the requirements of sec_408 through a sec_408 of the code states that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the ira trust is maintained sec_401 of the code sets forth the general rules applicable to required minimum distributions from qualified_plans sec_401 a a ii of the code provides that a_trust shall not constitute a qualified_trust under this subsection unless the plan provides that the entire_interest of each employee will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the lives of such employee and a designated_beneficiary or page over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary under sec_401 a b ii if an employee dies before distribution has begun in accordance with sec_401 the entire_interest of the employee must be distributed within five years after the death of the employee sec_401 a b iii provides an exception to the five-year rule if any portion of an employee's interest is payable to a designated_beneficiary over the life of such designated_beneficiary or over a period not extending beyond the life expectancy of such beneficiary and such distributions begin not later than one year after the date of the employee's death sec_1_401_a_9_-1 of the proposed income_tax regulations proposed_regulations q a-c-3 provides that the exception provided in sec_401 of the code will be satisfied if the distributions to a non-spouse beneficiary begin on or before december of the calendar_year immediately following the year in which the employee dies q a-d-2 of sec_1_401_a_9_-1 of the proposed_regulations provides in pertinent part that a designated_beneficiary need not be specified by name in the plan or by the employee to the plan in order to be a designated_beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan as of the employee's required_beginning_date or as of the date of the employee's death in the case of distributions governed by sec_401 and iv and at all subsequent times thus for example a beneficiary may be designated by an affirmative election by an employee as long as the plan permits in this case benefits were payable to beneficiary f as a designated_beneficiary at the date of grantor's death and she began to receive distributions from ira x on or before date accordingly with respect to the first ruling_request it is concluded that distributions to beneficiary f will qualify for the exception to the five-year rule under sec_401 of the code request two involves the application of the following state and federal provisions state law ind code ann provides a person to whom an interest devolves by whatever means may disclaim the interest in whole or in part as provided in this chapter a person's personal representative guardian or conservator may disclaim on behalf of the person under ind code ann a a disclaimer of an interest that has devolved by means other than laws of intestacy a testamentary instrument a life_insurance_policy an annuity or as an interest in a joint_tenancy including an interest that has devolved under a nontestamentary instrument is effective only if the requirements of are accomplished not later than nine months after the creation of the interest if a present_interest is disclaimed page under ind code ann b unless provision has been made for another devolution an interest disclaimed under devolves as if the disclaimed interest had never been created in the disclaimant if the disclaimant is a fiduciary or the disclaimant had died immediately before the creation of the interest in all other cases a disclaimer under this section relates back for all purposes that relate to the interest disclaimed to the time immediately before the creation of the interest under ind code ann the creation of the interest occurs on the date on which the person creating the interest no longer has a power to determine by any means the recipient of the interest or of its benefits under ind code ann a a disclaimer under is only effective if delivered in person or mailed by first class united_states mail to the holder of the legal_title to the property to which the interest relates federal_law sec_2518 provides that if a person makes a qualified_disclaimer of an interest in property the estate gift and generation-skipping_transfer_tax provisions will apply to that interest as if it had never been transferred to such person under sec_2518 the term qualified_disclaimer means an irrevocable and unqualified refusal by a person to accept an interest in property provided the disclaimer is in writing the disclaimer is received by the transferor of the interest his legal_representative or the holder of legal_title to the property not later than the date which is months after the later of the date on which the transfer creating the interest is made or the date on which the person refusing the interest attains age the person disclaiming the interest has not accepted the interest or any of its benefits and as a result of the disclaimer the interest passes without any direction by the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer under sec_25_2518-1 if a qualified_disclaimer is made the property is treated for federal gift estate and generation-skipping_transfer_tax purposes as passing directly from the transferor not from the disclaimant to the person entitled to receive the property as a result of the disclaimer thus the disclaimant is not treated as making a gift under sec_25_2518-2 the written disclaimer must be delivered no later than the date which is months after the date on which the transfer creating the interest in the disclaimant is made sec_25_2518-2 provides that the month period for making the disclaimer is generally determined with reference to the transfer creating the interest in the disclaimant with respect to transfers made by a decedent at death or transfers that become irrevocable at death the transfer creating the interest occurs at the date of death in the instant case under ind code ann b as a result of beneficiary e’s disclaimer his interest in the ira x passes as if he had died immediately before grantor’s page date of death agreement discussed above as a result of beneficiary e’s disclaimer beneficiary e's interest in the ira passed in equal shares to the other designated beneficiaries in view of the terms of the beneficiary designation on the ira adoption it is represented that beneficiary e did not accept any benefits from ira x before executing and delivering the disclaimer and that the written disclaimer was delivered to the appropriate party within months of grantor’s date of death accordingly based on the facts submitted and representations made we conclude that beneficiary e's disclaimer executed on date was a qualified_disclaimer under sec_2518 in accordance with sec_2518 and sec_25_2518-1 the disclaimed interest in ira x is treated for federal gift estate and generation-skipping_transfer_tax purposes as passing directly from grantor to beneficiaries f g h and i with respect to ruling_request three it is represented that the beneficiaries of ira x were timely designated and we have concluded that distributions timely commenced it is also represented that beneficiary f is the oldest beneficiary and that beneficiaries calculated the required minimum distributions for and based on the life expectancy of beneficiary f in this regard sec_1_401_a_9_-1 of the proposed_regulations q a-e-5 a provides generally that if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for determining the designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period thus distributions to the beneficiaries based on the life expectancy of beneficiary f the oldest beneficiary and the one with the shortest life expectancy equal or exceed the required minimum distributions q a-h-2 b of proposed_regulations sec_1_401_a_9_-1 provides with respect to distributions under sec_401 of the code that if as of an employee's death the beneficiaries of a separate_account in an individual_account differ from the beneficiaries of other separate_accounts in the individual_account of the employee such separate_account need not be aggregated with other separate_accounts in order to determine whether the distributions from such separate_account satisfy sec_401 instead the rules in sec_401 may separately apply to such separate_account thus if the employee designated a different beneficiary for each separate_account each separate_account may be distributed over the life or life expectancy of the designated_beneficiary for that separate_account q a-2 b of the revised proposed_regulations sec_1_401_a_9_-8 provides with respect to distributions under sec_401 of the code that if as of the end of the year following the year containing the employee's date of death the beneficiaries with respect to a separate_account under the plan differ from the beneficiaries with respect to the other separate_accounts of the employee under the plan such separate_account under the plan need not be aggregated with other separate_accounts under the plan in order to determine whether the distributions from such separate_account under the plan satisfy sec_401 instead the rules in sec_401 may separately apply to such separate_account under the plan in this regard q a-h-2 b of proposed_regulations sec_1_401_a_9_-1 and q a-2 b of revised proposed_regulations sec_1_401_a_9_-8 provide that if the beneficiaries of a separate_account under the plan differ from the beneficiaries of other separate_accounts under the plan the rules of sec_401 may separately apply to such separate_account under the plan with respect to request three it is concluded that grantor's beneficiary designation naming his children in equal discernable shares created separate_accounts as this term is defined under section page a -1 q a h-2a and therefore beneficiary f may use her own life expectancy in calculating required minimum distributions for such beneficiary's respective account pursuant to sec_1_401_a_9_-1 q a h-2 b with respect to request four sec_408 of the code provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan including an ira shall be included in gross_income by the payee or distributee in the manner provided under sec_72 in this regard the mere segregation into sub-accounts of the interests of multiple beneficiaries of an ira by the trustee or custodian does not affect the status of the ra under sec_408 of the code nor does the mere segregation of an ira into sub-accounts result in taxable_distributions as that term is used in sec_408 accordingly it is concluded that the creation of an equal sub-account for beneficiary f did not affect the tax deferred status of funds in ira x and the creation of such equal sub-account will not be treated as a taxable_distribution with respect to request five revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ira trustee does not result in such funds being treated as paid or distributed to the participant and such transfer does not constitute a rollover furthermore the revenue_ruling states that its conclusion will apply whether the transfer is initiated by the bank trustee or the ira holder in this case beneficiary f is a beneficiary of grantor's ira x beneficiary f intends to directly transfer by means of trustee to trustee transfer her portion of ira x to a new ira set up and maintained in the name of grantor it is assumed beneficiary f will be the beneficiary of the transferee ira the service believes that beneficiary f's proposed course of action complies with the language of revrul_78_406 thus beneficiary f may transfer her share of ira x to a new ira set up and maintained in the name of grantor furthermore since beneficiary f has been timely designated as a beneficiary of grantor's ira x beneficiary f will be treated as the designated_beneficiary of the transferee ira finally revrul_78_406 does not require that the full amount standing in an ira be transferred to one and only one ira thus beneficiary f may transfer the portion of ira x to which she is entitled without regard to whether the portions of ira x of beneficiaries g h and remain in ira x or are transferred to new iras accordingly with respect to request five it is concluded that the trustee to trustee transfer of the existing ira x sub-account maintained for the benefit of beneficiary f to a new custodian while maintaining title in the name of grantor will not constitute a payment or distribution of taxable funds to beneficiary f the above rulings are contingent upon the continuation of ira x as one described under sec_408 of the code it also assumes that the transferee ira will also meet the requirements of sec_408 this ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office page the author of this letter is who may be reached at es oo ax frages v sloan manag efiployee plans techni tax exempt and government oup entities division enclosures deleted copy form_437