t cc no united_states tax_court flahertys arden bowl inc petitioner v commissioner of internal revenue respondent docket no filed september f owns more than percent of the stock of p f is a beneficiary of two retirement plans held by t under the terms of the plans f is authorized to direct the investments of the assets in his accounts in the plans f is a fiduciary under sec_4975 i r c and under that section p is a disqualified_person sec_404 of the employee_retirement_income_security_act_of_1974 erisa publaw_93_406 88_stat_829 provides that if a plan beneficiary exercises control_over the plan’s assets in his account the beneficiary is not a fiduciary held erisa sec_404 does not modify the definition of a fiduciary under sec_4975 i r c and p is liable for the tax imposed by that section nick hay for petitioner james s stanis for respondent opinion dawson judge this case was assigned to special_trial_judge carleton d powell pursuant to rule sec_180 sec_181 and sec_183 all rule references are to the tax_court rules_of_practice and procedure the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge powell special_trial_judge respondent determined deficiencies in petitioner’s and federal excise_taxes under sec_4975' of dollar_figure and dollar_figure respectively respondent also determined additions to tax under sec_6651 for and of dollar_figure and dollar_figure respectively the issues are whether petitioner is a disqualified_person under sec_4975 and if so whether petitioner is liable for the sec_6651 additions to tax at the time the petition was filed petitioner’s principal_place_of_business was located in arden hills minnesota unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue background the facts may be summarized as follows flahertys arden bowl inc petitioner is a corporation organized under the laws of minnesota patrick f flaherty mr flaherty own sec_57 percent of the common_stock of petitioner and is the secretary of petitioner mr flaherty is an attorney licensed to practice law in the state of minnesota beginning in mr flaherty’s employer moss barnett p a maintained a qualified profit sharing plan moss barnett p a also maintained a qualified_pension plan both plans were trusts as defined in sec_401 and were exempt from tax under sec_501 mr flaherty participated in both plans u s bank national association is the successor trustee of both plans both plans were defined contribution plans and provided segregated account balances for each participant both plans permitted the participant to direct up to percent of the account assets during the period date through date mr flaherty directed the trustee of his profit sharing plan first national bank of minneapolis was the original trustee of both plans in the trust department of first national bank of minneapolis merged with first trust company of st paul first trust company of st paul became first trust national association which is now known as u s bank national association q4e- account to lend dollar_figure to petitioner mr flaherty also directed the trustee of his pension_plan account to lend petitioner an additional dollar_figure mr flaherty as an officer of petitioner executed notes payable to the plans in exchange for the loans the loans were payable upon demand and provided for interest at a market rate plu sec_1 percent petitioner timely paid interest on the loans while the loans were outstanding each plan listed the notes as assets on its books_and_records the principal of both loans was repaid on date before his direction to the plans mr flaherty contacted marvin braun mr braun at u s bank national association and discussed the loans mr braun is a lawyer and has provided services for qualified_retirement_plans since mr flaherty asked whether under the plan agreements he could direct that the loans be made and whether sec_4975 would apply to petitioner mr braun advised him that the loans could be made and that sec_4975 would not apply mr braun was aware of the relationship between mr flaherty and petitioner in directing that the loans be made mr flaherty relied on mr braun’s advice petitioner did not file a form_5330 excise_tax return for either of the years in issue respondent determined that petitioner was a disqualified_person within the meaning of sec_4975 that the loans were prohibited_transactions under sec_4975 b and that excise_taxes were due under sec_4975 respondent also determined that petitioner failed to file forms to report its liability for the excise_taxes and that petitioner was liable for the additions to tax under sec_6651 discussion i liability under sec_4975 a the statutes sec_4975 was added to the internal_revenue_code by title il of the employee_retirement_income_security_act_of_1974 erisa publaw_93_406 sec 88_stat_829 erisa was enacted to protect the interests of participants in employee benefit plans and their beneficiaries by regquiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto by establishing standards of conduct responsibility and obligation for fiduciaries of employee benefit plans and by providing for appropriate remedies sanctions and ready access to the federal courts erisa sec_2 u s c sec_1001 the statutory framework of erisa contains four separate titles we deal with titles i and ii title i of erisa contains the labor provisions codified as amended in u s c secs the labor provisions were designed to give the department of labor broad remedial powers over employee benefit plans title ii of erisa contains the tax provisions including sec_4975 the tax provisions contained in the internal -- - revenue code provide the statutory framework for the tax laws governing employee benefit plans and generally are administered by the department of the treasury see 89_tc_1137 n there are many areas where the labor provisions coincide with or overlap the tax provisions while much of the statutory terminology is similar there are instances in which the statutes are different at issue in this case is one of those inconsistencies sec_4975 provides sec_4975 initial taxes on disqualified_person ---- there is hereby imposed a tax on each prohibited_transaction the rate_of_tax shall be egqual to percent of the amount_involved with respect to the prohibited_transaction for each year or part thereof in the taxable_period the tax imposed by this subsection shall be paid_by any disqualified_person who participates in the prohibited_transaction other than a fiduciary acting only as such the definition of a prohibited_transaction includes any direct or indirect lending of money or other extension of credit between a plan and a disgqualified person sec_4975 b for our purposes sec_4975 is similar to erisa sec_406 sec_29 u s c section a b except that the term disqualified_person is changed to a party in interest a disqualified_person and a party in interest are defined as inter alia a fiduciary sec_4975 a erisa sec_3 a u s c sec_1002 a sec_4975 g and erisa sec_3 g u s c g further provide that a - corporation in which a fiduciary own sec_50 percent or more of the stock is also a disqualified_person or party in interest sec_4975 provides for purposes of this section the term fiduciary means any person who-- a exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets erisa sec_3 a u s c sec_1002 a contains virtually the same language if this were the end of the statutory framework petitioner would clearly be a disqualified_person and liable for the excise_tax imposed by sec_4975 mr flaherty is a fiduciary because he directs the management of the plans’ assets more than percent of petitioner’s stock is owned by mr flaherty and the plans lent money to petitioner the labor provisions of erisa however provide an exception to the definition of fiduciary in the case of a pension_plan which provides for individual accounts and permits a participant or beneficiary to exercise control_over the assets in his account if a participant or beneficiary exercises control_over the assets in his account as determined under regulations of the secretary -- a such participant or beneficiary shall not be deemed to be a fiduciary by reason of such exercise and b no person who is otherwise a fiduciary shall be liable under this part for any loss or by reason of any breach which results from such participant's or beneficiary's exercise of control erisa sec a04 c u s c sec c the plans permitted mr flaherty to exercise control_over the assets in the accounts and petitioner maintains that since mr flaherty is not a fiduciary under the provisions of erisa sec_404 sec_29 u s c section he is not a fiduciary under sec_4975 on the other hand respondent argues that mr flaherty is a fiduciary for purposes of sec_4975 even though he may not be a fiduciary under erisa sec_404 we therefore must decide whether erisa sec_404 is incorporated into sec_4975 b principles of statutory construction and the legislative_history the starting point for the interpretation of a statute is the language itself see 447_us_102 if the language of the statute is plain the function of the court is to enforce the statute according to its terms see 489_us_235 all parts of a statute must be read together and each part should be given its full effect see 38_tc_462 affd per curiam 324_f2d_957 5th cir when identical words are used in different parts of the same act they are intended to have the same meaning see 508_us_152 on the --- - other hand where language is included in one section of a statute but omitted in another section of the same statute it is generally presumed that the disparate inclusion and exclusion was done intentionally and purposely 980_f2d_506 8th cir see also 2b singer sutherland statutory construction sec_51 pincite 5th ed where a statute with reference to one subject contains a given provision the omission of such provision from a similar statute concerning a related subject is significant to show that a different intention existed erisa sec_404 pertains to fiduciary duties under erisa sec_404 a fiduciary shall discharge his duties with the care of a prudent man and diversify the investments it is against this background that we must read erisa sec_404 which provides that the participant who exercises control of the assets is not deemed to be a fiduciary and therefore is not subject_to erisa sec_404 and any other fiduciary is not liable under this part for any loss which results from the participant’s exercise of control of the assets t his part refers to part fiduciary responsibility subchapter_i subtitle b regulatory provisions encompassing erisa sec_401 through u s c sec_1101 through and includes provisions for fiduciary_liability contained in erisa sec_409 sec_29 u s c section it would appear that in a participant-directed plan erisa sec_404 c exculpates from part potential liability a participant exercising control_over the account assets and any person who would otherwise be considered a fiduciary is relieved from the liability under part of erisa for any loss resulting from the participant’s exercise of control in the context of this case erisa sec_404 serves to insulate the participant mr flaherty and the u s bank national association from the potential liability arising from any violation of the prudent_man_standard of care contained in erisa sec_404 sec_29 u s c section a see h conf rept pincite 1974_3_cb_415 to the contrary sec_4975 contains the definition of a fiduciary for purposes of this section there is no exception in the language of sec_4975 similar to that of erisa sec_404 for the sec_4975 liability of a disqualified_person applying the rules of statutory construction discussed supra p we therefore assume that congress intended a different result with respect to the sec_4975 liability petitioner contends however that the legislative_history indicates a clear intent of congress not only that the definitions of part of erisa and of the internal_revenue_code should be as similar as possible but also that they should operate together petitioner relies on various statements from the report of the conference committee see h conf rept supra pincite c b pincite to the maximum extent possible the prohibited_transaction rules are identical in the labor and tax provisions so they will apply in the same manner to the same transaction id pincite c b pincite the conferees intend that the labor and tax provisions are to be interpreted in the same way and both are to apply to income and assets the different wordings are used merely because of different usages in the labor and tax laws we agree with petitioner that the legislative_history indicates a general intent of congress that the language of the provisions be read together the legislative_history does not however preclude the existence of separate definitions or separate scopes in the two provisions as we noted in 96_tc_644 affd f 2d 7th cir the basis for the liability of a disqualified_person for the excise_tax under sec_4975 is not the same as the basis for liability of a fiduciary under sec_406 erisa see eg h rept conf pincite- 1974_3_cb_415 a fiduciary is liable under sec_406 erisa if he or she knowingly caused the plan to engage in a transaction which is described in sec_406 erisa under sec_4975 and b a disqualified_person is liable for the excise_tax if he or she participates in the transaction participation in sec_4975 occurs any time a disqualified_person is involved in a transaction in a capacity other than as a fiduciary acting only as such furthermore the conference_report indicates that congress intended that the definition of party-in-interest in the labor provisions not coincide in every respect with the definition of a disqualified_person in the tax provisions it states under the tax provisions the same general categories of persons are disqualified persons with some differences although fiduciaries are disqualified persons under the tax provisions they are to be subject_to the excise_tax only if they act in a prohibited_transaction in a capacity other than that of a fiduciary also only highly-compensated employees are to be treated as disqualified persons not all employees of an employer etc h conf rept supra pincite c b pincite under the labor provisions the potential liability runs directly to the fiduciary for breaches of his or her duties under sec_4975 however the liability runs not toa fiduciary as such but to disqualified persons and applies whether or not a fiduciary breached his duties under erisa sec_404 see 999_f2d_308 8th cir affg tcmemo_1992_171 88_tc_1474 we do not find therefore that the legislative_history alters our conclusion that the exception contained in erisa sec_404 is not incorporated into the sec_4975 definition of a fiduciary c regulations as pointed out above congress intended a bifurcated enforcement of erisa president carter issued reorganization plan no of the plan c f_r 92_stat_3790 the plan allocates the responsibility of administering the provisions of erisa between the secretary_of_the_treasury and the secretary of labor sec_102 of the plan gives the secretary of labor authority with respect to regulations rulings opinions and exemptions under sec_4975 except for sub sec_4975 b c e and e of the code to the extent necessary for the continued enforcement of sub sec_4975 and b x and exemptions with respect to transactions that are exempted by sub sec_404 of erisa from the provisions of part of subtitle b of title i of erisa sec_102 of the plan also provides that the secretary_of_the_treasury shall still have responsibility to audit qualified_retirement_plans and to enforce the sec_4975 excise_tax as provided in sec_105 of the plan sec_105 of the plan binds the secretary of treasury to the regulations rulings opinions and exemptions issued by the secretary of labor in october of the department of labor issued final regulations that provide prohibited_transactions the relief provided by sec_404 of the act and this section applies only to the provisions of part of title i of the act therefore nothing in this section relieves a disqualified_person from the taxes imposed by sec_4975 and b of the internal_revenue_code with respect to the transactions prohibited by sec_4975 of the code c f_r sec 404c-1 d the regulations are effective with respect to transactions occurring on or after the first day of the second plan_year beginning on or after date id sec 404c- g both parties agree that the loans at issue were repaid before the effective date of the regulations and the regulations do not apply to the transactions in this case nonetheless it should be noted that the result attained by the regulations coincides with our reasoning furthermore this provision of the regulations has its genesis in proposed_regulations issued in and in the department of labor issued proposed_regulations regarding participant--directed plans see fed reg date the preamble to the proposed_regulations provided in part prohibited_transactions finally the proposed regulation makes it clear that the relief provided by sec_404 extends only to the provisions of part of title i of erisa relating to fiduciary responsibility therefore even if a prohibited_transaction is a direct and necessary consequence of a participant's exercise of control nothing in sec_404 of erisa would relieve a disqualified_person described in sec_4975 of the code including a fiduciary from liability for the taxes imposed by sec_4975 a and b of the code with respect to such prohibited_transaction id pincite3 in the department of labor issued new proposed_regulations regarding participant-directed plans see id at - - the proposed_regulations took the same position with respect to erisa sec_404 the proposed_regulations noted that there is no provision in the internal_revenue_code corresponding to sec_404 id pincite4 proposed_regulations are not authoritative on the other hand proposed_regulations can be useful as guidelines where they closely follow the legislative_history of the act 113_tc_440 petitioner contends that since the department of labor failed to issue final regulations until the exception to the definition of a fiduciary provided by erisa sec_404 sec_29 u s c section c should apply throughout erisa including the tax provisions because the department of labor failed to issue final regulations on this point until petitioner contends that respondent is not in a position to argue that separate definitions of a fiduciary apply for the two titles however the absence of final regulations does not render the provisions of sec_4975 inoperative cf 82_tc_819 ii additions to tax under sec_6651 a the parties agree that if petitioner is liable for the excise_taxes under sec_4975 excise_tax returns should have been filed sec_6651 imposes an addition_to_tax for -- - failing to file a timely income_tax return unless such failure_to_file is due to reasonable_cause and not due to willful neglect the addition_to_tax i sec_5 percent of the amount required to be reported on the return for each month or fraction thereof during which such failure_to_file continues not to exceed percent in the aggregate see sec_6651 469_us_241 there is and we do not understand respondent to argue otherwise no evidence indicating that petitioner’s failure_to_file was the result of willful neglect thus the question is whether petitioner has demonstrated reasonable_cause for the failure the failure_to_file flows directly from mr braun’s advice that petitioner incurred no liability from the loan transactions petitioner argues that its reliance on that advice constituted reasonable_cause we have held in various situations that reliance on expert advice constitutes reasonable_cause see eg 99_tc_379 see also united_states v boyle supra pincite- mr braun is a lawyer with extensive experience in the area of retirement plans he was fully aware of all of the relevant facts he researched the issue and advised petitioner that he believed the loans would not violate any of the provisions of erisa or cause any_tax liability under sec_4975 the erisa provisions involved are highly complex and the fact that his conclusion was erroneous does not mean that petitioner’s reliance was not reasonable consequently we conclude that petitioner has established reasonable_cause for not filing the returns and therefore the additions to tax under sec_6651 are inappropriate decision will be entered for respondent with respect to the deficiencies and for petitioner with respect to the additions to tax under sec_6651


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b name v number w dollars amount x dollars amount y dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates you will operate a grant making program your purpose is to provide funding for activities at b that benefit gay and lesbian students faculty staff and alumni the purpose of your program is to provide funding for e covering research and travel_expenses for undergraduates graduate students and faculty at b in support of research classwork projects or thesis preparation e summer fellowships to b undergraduates to support travel research and living_expenses while working at public service organizations travel_expenses for b affiliates to present their research at conferences e you anticipate annually awarding approximately v grants to eligible recipients eligible recipients are limited to faculty staff or students of b or persons speaking at b events organized by faculty staff or students you may also award more or less depending on the number of applications received that meet your eligibility standards and the amount of funds available the amounts of the grants will vary depending on the purpose of the grant for example grants for undergraduate research expenses and covering travel other expenses or small honoraria for speakers on scholarly scientific or cultural topics will be in the range of w dollars grants for graduate or faculty research expenses will be in the range of x dollars and grants for summer fellowships will be up to y dollars you will promote your grant program on your website applicants are encouraged to discuss their plans with you prior to submitting applications which are submitted by e- mail the application should provide the following information inthe subject line there should be a brief title for the funding request e e name address telephone and email address of group or individual applying and e e contact person detailed description of activities to be funded a budget the amount of funding requested and the amount of funding from other resources and a statement of how the proposed activities advance your purposes the names of qualified reviewers such as thesis advisors faculty sponsors or other knowledgeable people dates funds are needed e e towhom the check should be made out and the address to which it should be sent applications are reviewed by your board_of directors the review process may include requests for more information or for supporting recommendations from independent sources consideration is given to conformance with the purposes of the grant making program recommendations of advisors and efficient uses of funds you do not discriminate in the disbursement of grants based on the applicant's race creed color national or ethnic origin gender or sexual orientation or any other characteristics unrelated to the fulfillment of the purpose of the grant each grant recipient will be required to submit final narrative and financial reports shortly after a grant’s conclusion that detail the recipient's accomplishments with respect to the grant and account for the funds received you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds letter catalog number 58222y held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request e this determination applies only to you it may not be cited as precedent letter catalog number 58222y e e e e you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records lf you have any questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58222y


t ax e x e m p t an d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal rev enue se rvice washington d c contact person identification_number telephone number employer identification no release number release date date date uil code legend l m n o p r s t u v w dear this letter is in response to your request seeking rulings that the liquidation of three limited_partnerships and the pro_rata distribution of their respective assets to their respective partners will not constitute an act of self-dealing under sec_4941 of the internal_revenue_code or a taxable_expenditure under sec_4945 facts you are an organization described in sec_501 of the code and a private_foundation within the meaning of sec_509 currently your board_of directors consists of persons three of whom are l m and a related_person you own interests in three limited_partnerships n o and p as described below n n is a limited_partnership that owns land on which an apartment building is situated the property is subject_to a mortgage pursuant to a ground lease n leases this land to o you r s t and u are the limited partners in n and v is the general_partner r is controlled by l and s is controlled by m you represent that both t u and v are unrelated to you and to either l or m and that neither t u nor v is a disqualified_person with respect to you under sec_4946 of the code you represent that because l and m are two of your directors they are disqualified persons under sec_4946 of the code with respect to you you also represent that r because it is controlled by l and s because it is controlled by m are disqualified persons with respect to you in addition you represent that because r and s together own less than a percent profits interest in n n is not a disqualified_person with respect to you o o is a limited_partnership that owns the apartment building situated on the land owned by n the property is subject_to a mortgage o leases this land from n pursuant to a ground lease you are the limited_partner in o and n is the general_partner you represent that because n is not a disqualified_person with respect to you o is not a disqualified_person with respect to you p p is a limited_partnership that owns an apartment complex you r and s are the limited partners and w is the general_partner you represent that p is a disqualified_person with respect to you you contemplate that the following transactions will occur n will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the land subject_to the ground lease currently owned by n will be owned pro_rata by n’s partners as tenants-in-common o will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the apartment building and the ground lease currently owned by o will be owned pro_rata by o’s partners as tenants-in-common p will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the apartment complex currently owned by p will be owned pro_rata by p’s partners as tenants-in-common rulings requested the liquidation of n and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 the liquidation of o and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 the liquidation of p and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 notwithstanding the ownership interests of l and m in o and p the payment by each partnership of its proportionate share of the cost of obtaining the rulings set forth in this ruling_request will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 law and operated exclusively for religious charitable scientific literary or educational and other specific purposes sec_170 of the code describes organizations that are organized sec_501 of the code describes organizations that are organized and operated exclusively for charitable educational and other purposes and that no part of its net_earnings inure to the benefit of any private_shareholder_or_individual sec_509 of the code provides that an organization described in sec_501 is a private_foundation unless it meets certain exceptions sec_4941 of the code imposes excise_taxes on each act of self-dealing between a disqualified_person and a private_foundation the tax is paid_by the self- dealer and by the foundation manger who participated in the transaction sec_4941 of the code defines the term self-dealing as including certain direct or indirect transactions including a sale_or_exchange or leasing of property between a private_foundation and a disqualified_person the payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person and the transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4941 of the code and sec_53_4941_d_-3 of the regulations provide that any transaction between a private_foundation and a corporation that is a disqualified_person with respect to the private_foundation pursuant to any liquidation merger redemption recapitalization or other corporate adjustment organization or reorganization is not an act of self-dealing if all of the securities of the same class as that held by the foundation are subject_to the same terms and such terms provide for the receipt by the foundation of no less than fair_market_value sec_53_4941_d_-1 of the foundation and similar excise_taxes regulations provides that the term self-dealing means any direct or indirect transaction described in sec_53_4941_d_-2 which are a the sale_or_exchange of property b leases c loans d the furnishing of goods services or facilities e payment of compensation f the transfer or use of the income or assets of a private_foundation and g the payment to a government_official sec_53_4941_d_-1 of the regulations provides that a transaction between a private_foundation and an organization that is not controlled by the foundation and of which disqualified persons do not own more than percent of the profits interest is not treated as an indirect act of self-dealing between the foundation and these disqualified persons solely because of the ownership_interest of these persons in the organization sec_53_4941_d_-1 of the regulations provides that an organization is controlled by a private_foundation if the foundation or one or more of its foundation managers acting only in that capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing sec_4945 of the code imposes an excise_tax on each taxable_expenditure made by a private_foundation the tax is paid_by the foundation and by the foundation_manager who agreed to making the expenditure sec_53_4945-6 of the regulations states that under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations provides that certain types of expenditures ordinarily will not be treated as taxable_expenditures under sec_4945 of the code sec_53_4945-6 refers to expenditures to acquire investments entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170 of the code and sec_53_4945-6 of the regulations refers to reasonable expenses with respect to these investments sec_4946 of the code defines the term disqualified_person with respect to a private_foundation as including a person who is a foundation_manager of the foundation and a partnership in which the foundation managers of the private_foundation own more than percent of the profits interest in the partnership sec_4946 of the code defines the term foundation_manager with respect to a private_foundation as including any officer director or trustee of the foundation analysis ruling n is a limited_partnership in which you own a limited_partnership_interest you represent that because l and m are two of your directors they are disqualified persons under sec_4946 of the code with respect to you however because the two entities l and m control r and s together own less than a percent profits interest in n n is not a disqualified_person with respect to you you contemplate that n will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the land currently owned by n will be owned pro_rata by n’s partners as tenants-in-common sec_4941 sec_4941 of the code imposes excise_taxes on each act of self-dealing between a disqualified_person and a private_foundation sec_4946 provides that a partnership is a disqualified_person if directors or trustees of the private_foundation own more than percent of the profits interest in the partnership although l and m are two of your directors because the two entities they control together own less than a percent profits interest in n these entities are not disqualified persons with respect to you therefore the liquidation of n and the distribution of all of its assets subject_to its liabilities to its partners will not result in a direct transfer of assets between a private_foundation and disqualified persons with respect to the foundation and thus will not constitute a direct act of self-dealing under sec_4941 sec_53_4941_d_-1 of the regulations provides that a transaction between a private_foundation and an organization such as a partnership that is not controlled by the foundation and of which other disqualified persons do not own more than percent profits interest is not treated as an indirect act of self-dealing between the foundation and such disqualified persons solely because of the ownership interests of such persons in the organization sec_53_4941_d_-1 of the regulations provides that an organization is controlled by a private_foundation if the foundation or one or more of its foundation managers acting only in that capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing currently l m and a related_person constitute only three of the members of your board_of directors therefore as a minority of your board these persons acting in that capacity lack the power or authority to require you to take or to refrain from taking any_action as a result under sec_53_4941_d_-1 of the regulations you are not treated as controlling n thus your ownership in n is not aggregated with the ownership of r and s consequently under sec_53 d - b the liquidation of n and the distribution of all of its assets subject_to its liabilities to its partners will not result in an indirect transfer of assets between a private_foundation and disqualified persons with respect to the foundation and thus will not constitute an indirect act of self-dealing under sec_4941 of the code sec_4945 sec_4945 of the code imposes an excise_tax on each taxable_expenditure made by a private_foundation under sec_4946 a foundation_manager with respect to a private_foundation includes an officer director or trustee of the foundation sec_53_4945-6 of the regulations states that under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations provides that certain types of expenditures ordinarily will not be treated as taxable_expenditures under sec_4945 of the code sec_53_4945-6 refers to expenditures to acquire investments entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170 of the code your assets include a limited_partnership_interest in n n owns certain real_property the proposed restructuring transactions will consist of the liquidation and distribution to you of n’s assets which you will own as a tenant-in-common with the other n partners consequently any expenditures you incur in connection with the acquisition of n’s assets under sec_53_4945-6 of the regulations will not constitute taxable_expenditures under sec_4945 of the code ruling o is a limited_partnership in which you are the limited_partner and n is the general_partner you represent that because n is not a disqualified_person with respect to you o is not a disqualified_person with respect to you you contemplate that o will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the apartment building and the ground lease currently owned by o will be owned pro_rata by o’s partners as tenants-in-common sec_4941 sec_4941 of the code imposes excise_taxes on each act of self-dealing between a disqualified_person and a private_foundation therefore based on this representation the liquidation of o and the distribution of all of its assets subject_to its liabilities to its partners will not result in a direct transfer of assets between a private_foundation and disqualified persons with respect to the foundation and thus will not result in a direct transfer of assets between a private_foundation and disqualified persons with respect to the foundation and thus will not constitute a direct act of self-dealing under sec_4941 of the code sec_4945 sec_4945 of the code imposes an excise_tax on each taxable_expenditure made by a private_foundation under sec_4946 a foundation_manager with respect to a private_foundation includes an officer director or trustee of the foundation sec_53_4945-6 of the regulations states that under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations provides that certain types of expenditures ordinarily will not be treated as taxable_expenditures under sec_4945 of the code sec_53_4945-6 refers to expenditures to acquire investments entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170 of the code your assets include a limited_partnership_interest in o o owns certain real_property the proposed restructuring transactions will consist of the liquidation and distribution to you of o’s assets which you will own as a tenant-in-common with the other o partner consequently any expenditures you incur in connection with the acquisition of o’s assets under sec_53_4945-6 of the regulations will not constitute taxable_expenditures under sec_4945 of the code p is a limited_partnership in which you r and s are the limited partners and w ruling is the general_partner you represent that p is a disqualified_person with respect to you you contemplate that p will liquidate and distribute all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests as a result the apartment complex currently owned by p will be owned pro_rata by p’s partners as tenants-in-common between a disqualified_person and a private_foundation however sec_4941 and sec_53_4941_d_-3 of the regulations provide that various types of restructuring transactions between a private_foundation and a corporation are not acts of self-dealing although p is a partnership the restructuring transactions that will occur between you and p are similar to the restructuring transactions described in sec_4941 of the code that occurred between a private_foundation and a corporation therefore the proposed restructuring transactions involving you and p will not constitute acts of self-dealing under sec_4941 sec_4941 of the code imposes excise_taxes on each act of self-dealing sec_4941 sec_4945 sec_4945 of the code imposes an excise_tax on each taxable_expenditure made by a private_foundation under sec_4946 a foundation_manager with respect to a private_foundation includes an officer director or trustee of the foundation sec_53_4945-6 of the regulations states that under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations provides that certain types of expenditures ordinarily will not be treated as taxable_expenditures under sec_4945 of the code sec_53_4945-6 refers to expenditures to acquire investments entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170 of the code your assets include a limited_partnership_interest in p p owns certain real_property the proposed restructuring transactions will consist of the liquidation and distribution to you of p’s assets which you will own as a tenant-in-common with the other p partners consequently any expenditures you incur in connection with the acquisition of p’s assets under sec_53_4945-6 of the regulations will not constitute taxable_expenditures under sec_4945 of the code ruling sec_4941 of the code imposes excise_taxes on each act of self-dealing between a disqualified_person and a private_foundation sec_4945 of the code imposes an excise_tax on each taxable_expenditure made by a private_foundation the tax is paid_by the foundation and by the foundation_manager who agreed to the making of the expenditure under sec_4946 a foundation_manager with respect to a private_foundation includes an officer director or trustee of the foundation sec_53_4945-6 of the regulations states that under sec_4945 of the code the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations provides that certain types of expenditures ordinarily will not be treated as taxable_expenditures under sec_4945 of the code sec_53_4945-6 refers to expenditures to acquire investments entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170 of the code and sec_53_4945-6 of the regulations refers to reasonable expenses with respect to these investments sec_4941 payment by n and o for their proportionate share of the costs of obtaining a letter_ruling from the internal_revenue_service to ensure that the proposed restructuring transactions as a result of which you will own as a tenant-in-common n’s o’s and p’s assets will not constitute an act of self-dealing under sec_4941 of the code because neither n nor o is a disqualified_person with respect to you in the case of p ruling no concluded that the proposed restructuring transaction involving p will not constitute an act of self-dealing under sec_4941 of the code similarly any reasonable expenditures you incur in connection with this restructuring transaction including obtaining a letter_ruling from the internal_revenue_service concerning the tax consequences relating to this proposed restructuring transaction will not constitute an act of self-dealing under sec_4941 sec_4945 because n o and p constitute your investments it is reasonable for you to seek a letter_ruling from the internal_revenue_service to ensure that the proposed restructuring transactions as a result of which you will own as a tenant-in-common n’s o’s and p’s assets will not result in adverse tax consequences to you and to your directors accordingly your payment of the cost of obtaining a letter_ruling constitutes reasonable expenses with respect to your investments within the meaning of sec_53_4945-6 of the regulations ruling sec_1 the liquidation of n and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 the liquidation of o and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 the liquidation of p and the distribution of all of its assets subject_to its liabilities to its partners in proportion to their respective ownership interests will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 notwithstanding the ownership interests of l and m in o and p the payment by each partnership of its proportionate share of the cost of obtaining the rulings set forth in this ruling_request will not constitute an act of self-dealing under sec_4941 of the code or a taxable_expenditure under sec_4945 this ruling is based on the understanding there will be no material changes in this ruling is directed only to the organization that requested it section this ruling does not address the applicability of any section of the code or the facts upon which it is based regulations to the facts submitted other than with respect to the sections described k of the code provides it may not be used or cited by others as precedent this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions about this ruling please contact the person whose in accordance with the power_of_attorney currently on file with the internal name and telephone number are shown in the heading of this letter revenue service we are sending a copy of this letter to your authorized representative enclosure notice steven b grodnitzky manager exempt_organizations technical group sincerely


department of the treasury internal_revenue_service p o box irs cincinnati oh number release date uil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy of this letter to your representative as indicated in your power_of_attorney letter rev catalog number sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 other than c redacted letter final adverse determination under sec_501 other than c - no protest letter rev catalog number 47635z department of the treasury internal_revenue_service irs p o box cincinnati oh legend x state y date z company dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t quality for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you incorporated in the state of x on y your articles of incorporation state that you are organized exclusively for the development of independent_contractor z agents and to promote a common business_interest you intend to schedule multiple events and activities across the state of x where your members will receive education training and networking opportunities you will also hold an annual banquet where members will be recognized for their achievements article of your bylaws states members shall consist of those persons approved by the board_of directors who e e e are agents licensed to sell insurance and other financial products offered by z in the state of x pay all appropriate assessments made by the board_of directors and are approved by the board_of directors article of the bylaws indicates your board_of directors by a two-thirds vote may suspend expel or terminate the membership of any person for any reason including the membership of a member whose relationship with z is terminated for malfeasance disciplinary action or other violation of z’s rules a member shall have no right to transfer or assign such member’s membership without prior approval of the board there are no classes of membership and all members are entitled to vote no individuals are required to join you will have six members on your board_of directors each director must be a past or present licensed z agent or a past or present employee of z your financial support is from membership dues these funds will be used for your member events and annual banquet law sec_501 of the internal_revenue_code_of_1986 provides exemption from federal_income_tax for business_leagues not organized for profit and no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 states that a business league is an association of persons having some common business interests the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit the regulations further state that the activities of a business league should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual members for exemption purposes a line_of_business is a trade or occupation entry into which is not restricted by a patent trademark or similar device which would allow private parties to restrict the right to engage in the business a segment of a line_of_business is not considered a line_of_business under sec_501 for the code revrul_58_294 1958_1_cb_244 holds that an association of licensed dealers in a certain type of patented product did not qualify as a business league the association in this ruling owned the controlling_interest in the corporation that held the basic patent of the product it engaged mainly in furthering the business interests of its member dealers and it did not benefit businesses that manufactured competing products of the same type covered by the patent revrul_67_77 1967_1_cb_138 ruled that an association of dealers selling a particular make of automobile that engaged in financing general advertising campaigns to promote the sale of that particular make was not exempt because it was performing particular services for its members rather than promoting a line_of_business ie the automotive industry as a whole in this ruling membership in the organization was restricted to dealers who held franchises for the sale of the automobiles designated in the area in revrul_68_182 1968_1_cb_263 the service’s position was stated that organizations promoting a single brand or product within a line_of_business do not qualify for exemption under sec_501 of the code revrul_83_164 1983_2_cb_95 describes an organization whose members represented diversified businesses that owned rented or leased computers produced by a single computer manufacturer that did not qualify for exemption from federal_income_tax as a business league under sec_501 of the code in 440_us_472 ct_d 1979_1_cb_198 the court held that an organization of muffler dealers franchised by midas international corporation did not qualify for exemption from federal_income_tax as a business league under sec_501 of the code letter rev catalog number 47628k the organization's purpose was too narrow to satisfy the line_of_business test of sec_1_501_c_6_-1 of the regulations application of law you are not a business league as described in sec_501 because you are not organized to improve business conditions of one or more lines of business instead you provide training and networking opportunities to members who are required to be agents of z which is one specific brand you are not described in sec_1_501_c_6_-1 because your activities are directed toward the benefit of members who are agents of z a specific insurance_company rather than to the improvement of business conditions of one or more lines of business you are similar to the organizations described in revenue rulings and because your activities further the business interests of your members who must be z agents you plan to provide activities across the state of x where your members will receive education training and networking opportunities meant to make them successful as z agents your activities do not benefit the entire insurance industry or improve the business conditions of the insurance industry as a whole you are like the organizations described in revenue rulings and because your activities are exclusively conducted for agents of z you were established for members who must be agents of z to network and provide educational events because you are only improving business conditions in a segment of a line of a business you are precluded from exemption under sec_501 you are similar to the organization described in national muffler dealers association because your activities serve members who must be agents of z a particular company you only conduct activities toward agents of z which does not represent one or more line of businesses therefore you are precluded from exemption under sec_501 conclusion you do not meet sec_501 because your activities are directed toward a segment of a line of a business because your members are limited to z agents your activities are not directed to the improvement of business conditions of one or more lines of business rather they are providing particular services for your individual members accordingly we conclude that you are not exempt under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents letter rev catalog number 47628k e e the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven't provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh letter rev catalog number 47628k you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47628k


internal_revenue_service p o box cincinnati oh release number release date date department of the treasury person to contact - id contact telephone numbers employer_identification_number uil dear this letter is in response to your request to be recognized as an organization described in sec_4945 of the internal_revenue_code the internal_revenue_service has recognized you as an organization exempt from federal_income_tax under sec_501 of the code because you are an organization described in sec_501 in addition you are not a private_foundation because you are described in sec_509 and sec_170 of the code based upon the information supplied and assuming your operations will be as stated in your request we've determined that you are an organization described in sec_4945 of the code grants made to you by private_foundations will not be treated as taxable_expenditures under sec_4945 or sec_4945 of the code as long as you are described in sec_4945 we've sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions regarding this matter please contact the person whose name and telephone number are shown in the heading of this letter sincerely director exempt_organizations letter catalog number 58221n


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-118399-99 date october re legend settlor trust agreement child child child date spouse of child spouse of child state dear this is in response to a letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer_tax gstt consequences and income_tax consequences of a division of trust assets as described below facts the facts submitted and representations made are as follows before date settlor executed trust agreement creating an irrevocable_trust trust for the benefit of his children child child and child since its inception the principal assets of trust have been shares of voting_stock in one or more closely-held corporations which pay little or no dividend income settlor died on date no property was added to trust by any transferor after date under paragraph article i of trust agreement the net_income of trust is to be paid at least quarterly in equal shares to child child and child if a child dies before trust terminates the child’s one-third share of income will be paid as the child appoints by will among the child’s surviving_spouse and the child’s lineal_descendants and their spouses or surviving spouses an appointee must be living on the payment_date to receive a distribution any part of a deceased child’s share of income that the child fails to appoint or any part remaining when all appointees are deceased will be paid per stirpes to that child’s lineal_descendants living on a payment_date or if none per stirpes to settlor’s lineal_descendants living on a payment_date plr-118399-99 under paragraph article i trust will terminate upon the first to occur of the following a the execution of a written_agreement at any time after settlor’s death of all then acting trustees who would not receive any part of the trust principal at the termination to terminate trust in whole or in part b the death of settlor’s last living lineal descendant c the twenty-first anniversary of the death of the last survivor among specified individuals under paragraph article i when trust terminates in whole or in part the terminated part will be distributed in equal shares to child child and child if a child is not then living the child’s one-third share will be distributed as the child appoints by will among those then living of the child’s surviving_spouse and the child’s lineal_descendants and their spouses or surviving spouses any part of a deceased child’s share that the child fails to appoint will be distributed per stirpes to that child’s then living lineal_descendants or if none per stirpes to settlor’s then living lineal_descendants or if none to settlor’s then living brothers or if none to the then living lineal_descendants of settlor’s brothers under paragraph of article ii trust must have at least two individual trustees unless there is a corporate trustee there may be no more than seven individual trustees and one corporate trustee serving at once an individual trustee may appoint his or her successor otherwise successor or additional trustees must be appointed by the unanimous action of the trustees or under specified circumstances by a majority in interest of the adult income beneficiaries child child child the spouse of child and the spouse of child are named as co-trustees and are currently serving paragraph e of article ii provides that the trustees’ powers will include the following divisions or distributions to make divisions or distributions in cash or in_kind and to allocate undivided interests in property and dissimilar property to different shares if necessary to value property to be divided or distributed it shall be valued at its current fair_market_value the trustees propose to partition trust equally into three trusts subtrusts so that there will be one subtrust for the benefit of each of child child and child and that child’s spouse and lineal_descendants the terms governing each partitioned subtrust will be identical to the terms under trust agreement except that each child and that child’s spouse and lineal_descendants will be the sole beneficiary of a subtrust the partition is authorized under section dollar_figure of state’s revised code the trustees will commence a proceeding in state court for an order directing the partition pursuant to the statute under the terms of the proposed court order to divide trust into plr-118399-99 subtrusts the assets of trust will be allocated in three equal shares to each subtrust the three subtrusts will each receive a pro_rata share of each asset of trust under the terms of the proposed court order after the partition the net_income of each subtrust will be paid at least quarterly to the child for whom the subtrust is held if the child dies before the subtrust terminates the net_income of the subtrust will be paid as the child appoints among the child’s surviving_spouse and the child’s lineal_descendants and their spouses or surviving spouses an appointee must be living on the payment_date to receive a distribution any part of the income the child fails to appoint or any part remaining when all appointees are deceased will be paid per stirpes to the child’s lineal_descendants living on a payment_date or if none per stirpes to settlor’s lineal_descendants living on a payment_date each subtrust will terminate upon the first to occur of the following a the execution of a written_agreement at any time after settlor’s death of all then acting independent trustees to terminate the subtrust in whole or in part b the death of settlor’s last living lineal descendant c the twenty-first anniversary of the death of the last survivor among specified individuals the same individuals specified under the term of trust if one subtrust terminates in whole or in part under a written_agreement of the independent trustees then each of the other subtrusts must terminate to the extent of the same fraction or percentage of such subtrust’s assets held on the effective date of such partial_termination paragraph a iii of article i will limit the persons or entities who can be independent trustees as follows t he only persons and or entities who shall be treated as independent trustees shall be any person or entity who would not then be treated under sec_672 of the internal_revenue_code_of_1986 as amended from time to time as a_related_or_subordinate_party with respect to any person who then is eligible to receive any part of the trust principal of any trust then held under this agreement upon termination at such time when a subtrust terminates in whole or in part the terminated part will be distributed to the child with respect to whom the subtrust has been established if that child is not then living the subtrust assets will be distributed as the child appoints among those then living of the child's surviving_spouse and the child's lineal_descendants and their spouses or surviving spouses any part of the subtrust assets the child fails to appoint will be distributed per stirpes to that child's then living lineal_descendants or if none per stirpes to settlor's then living lineal_descendants or if none to settlor's then living brothers or if none to the then living lineal_descendants of settlor's brothers the co-trustees of each subtrust will be child child child the spouse of child and the spouse of child plr-118399-99 the trustees have requested the following rulings the proposed partition of trust will not cause trust to lose its exempt status for generation-skipping_transfer_tax purposes under a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations nor will the proposed division into subtrusts subject either trust or the resulting subtrusts to generation-skipping_transfer_tax gstt under the provisions of paragraph a article i of the original trust agreement and of trust agreement as modified under the proposed court order any current beneficiary who is a trustee of any trust under trust agreement will not be treated as having possessed or as possessing a general_power_of_appointment under sec_2041 or sec_2514 the partition of trust into three subtrusts and the pro_rata allocation of trust assets among the subtrusts will not be a transfer by child child or child that will be subject_to gift_tax under sec_2501 after the partition of trust each subtrust will be treated as a separate taxpayer under sec_643 the partition of trust into three subtrusts and the pro_rata allocation of trust assets among the subtrusts will not result in the realization by trust of any income under sec_61 and does not result in the realization of any gain_or_loss under sec_1001 after the partition of trust into three subtrusts the assets of the three subtrusts will have the same basis and same holding periods as the assets had in trust ruling law sec_2601 imposes a tax on each generation-skipping_transfer made by a transfer to a skip_person under a of the tax_reform_act_of_1986 the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26 b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post- plr-118399-99 date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or the value of the entire portion of the trust subject_to the power that was released exercised or subject_to a lapse is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides a special rule for certain powers of appointment this section provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if -- such power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise such power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years in general any modification or reformation of a_trust that was irrevocable on date that changes the quality value or timing of any beneficial_interest under the trust will cause the trust to lose exempt status for gstt purposes under sec_2652 for generation-skipping_transfer_tax purposes the term transferor means a in the case of any property subject_to estate_tax the decedent and b in the case of any property subject_to gift_tax the donor an individual will be treated as transferring any property with respect to which such individual is the transferor analysis trust was irrevocable prior to date you represent that there have been no constructive or actual additions to trust since date the trustees will allocate the assets of trust in equal shares to the three subtrusts the three subtrusts will each receive a pro_rata share of each asset of trust the dispositive provisions under the proposed court order that will govern the subtrusts are identical to those under trust agreement in particular the income of each subtrust will be paid as provided in trust agreement each subtrust will terminate at the same time as provided in trust agreement and will be distributed under the same terms as provided in trust agreement each subtrust can be terminated by agreement of the independent trustees however the only persons or entities who can be an independent_trustee are persons or entities who would not be related or subordinate within the meaning of sec_672 to any person then eligible to receive any part of the principal of any trust then held under trust agreement as modified under the court order if a subtrust terminated at that time plr-118399-99 thus a child for whom a subtrust is held cannot as trustee participate in a decision to terminate any subtrust in whole or in part accordingly based on the facts submitted and the representations made we conclude that the proposed partition of trust will not be considered a modification that affects the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under trust agreement accordingly the proposed partition of trust will not cause trust to lose its exempt status for generation-skipping_transfer_tax purposes under a of the tax_reform_act_of_1986 and sec_26 b i of the generation-skipping_transfer_tax regulations nor will the proposed division into subtrusts subject either trust or the resulting subtrusts to generation- skipping transfer_tax gstt ruling under sec_2041 the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date sec_2041 defines general_power_of_appointment as a power which is exercisable in favor of the decedent his estate his creditors or creditors of his estate however under sec_2042 a power to consume invade or appropriate property for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is not a general_power_of_appointment under sec_2514 the exercise or release of a general_power_of_appointment created after date is deemed the transfer of property by the individual possessing such power under sec_2514 general_power_of_appointment is generally defined for gift_tax purposes as the term is defined for estate_tax purposes under sec_2041 in this case the testamentary powers of appointment granted to child child and child under trust agreement and under trust agreement as modified by the proposed court order are exercisable only in favor of the child's surviving_spouse the child's issue and their spouses thus under sec_2041 and sec_2514 each child's power_of_appointment is not a general_power_of_appointment under paragraph a article i of trust agreement trust can be terminated in whole or in part upon the execution of a written_agreement at any time after settlor's death of all trustees who would not receive any part of the trust principal at the termination under this provision any current beneficiary who is a trustee of trust would be precluded from participating in a decision to terminate trust and from thereby causing a distribution of principal to him or herself under the terms of paragraph a of article i as modified by the proposed court order only independent trustees will be able to participate in a decision to terminate plr-118399-99 a subtrust in whole or in part by execution of a written_agreement at any time after settlor’s death an agreement of the independent trustees to terminate one subtrust will cause a proportionate termination of the other subtrusts the only persons or entities who will qualify as independent trustees are those who would not then be related or subordinate within the meaning of sec_672 to any person then eligible to receive any part of the trust principal of any trust upon termination of that trust thus any current beneficiary who is a trustee of a subtrust would be precluded from participating in a decision to terminate any subtrust and from thereby causing a distribution of principal to him or herself accordingly based on the facts submitted and representations made we rule that under the provisions of paragraph a article i of the original trust agreement and of trust agreement as modified under the proposed court order any current beneficiary who is a trustee of any trust under trust agreement will not be treated as having possessed or as possessing a general_power_of_appointment under sec_2041 or sec_2514 ruling sec_2501 of the code provides for a gift_tax on the transfer of property by gift sec_2511 of the code provides that the gift_tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible in this case as discussed above the interest of each beneficiary will remain the same after the proposed partition accordingly based on the facts submitted and the representations made we conclude that the partition of trust into three subtrusts and the pro_rata allocation of trust assets among the subtrusts will not be a transfer by child child or child that will be subject_to gift_tax under sec_2501 ruling sec_643 provides that under regulations to be prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of federal_income_tax although each subtrust will have the same grantor the subtrusts will have different primary beneficiaries therefore based upon the facts submitted and representations made we conclude that each of the subtrusts will be treated as a separate trust under sec_643 for federal_income_tax purposes ruling sec_61 of the code provides that gross_income includes gains derived from dealings in property plr-118399-99 sec_1001 of the code provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 in revrul_69_486 1969_2_cb_159 distinguished by revrul_83_61 1983_1_cb_78 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not convey authority to the trustee to a make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement between the trustee and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 and sec_1002 of the code the present case is distinguishable from revrul_69_486 because the assets of trust will be allocated pro_rata among the three subtrusts accordingly the proposed transaction will not be treated as a pro_rata distribution followed by an exchange of assets among the beneficiaries of the three original trusts 499_us_554 concerns the issue of when a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 of the code in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 of the regulations reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes materially different for purposes of sec_1001 the court stated that properties are different in the sense that is material so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal plr-118399-99 entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite it is consistent with the supreme court’s opinion in cottage savings to find that the interests of the beneficiaries of the three subtrusts will not differ materially from their interests in trust the proposed transaction will not change the interests of the beneficiaries instead the beneficiaries will be entitled to the same benefits after the proposed transaction as before the proposed transaction is similar to the kinds of transactions discussed in revrul_56_437 since trust is to be partitioned but all other provisions of trust will remain unchanged other than changes described above which are necessary to ensure that the beneficiaries of trust will be entitled to the same benefits under the three subtrusts thus the proposed transaction will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries therefore the partition of trust into three subtrusts and the pro_rata allocation of each existing asset among the three subtrusts will not result in the realization by trust of any income under sec_61 of the code and does not result in the realization of any gain_or_loss under sec_1001 of the code ruling sec_1015 provides that if a property is acquired by a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer sec_1_1015-2 provides that in the case of property acquired by transfer in trust other than by a transfer in trust by a gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased by the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made in addition the principles in sec_1_1015-2 concerning the uniform basis are applicable in determining the basis_of_property where more than one person acquires an interest in property by transfer in trust sec_1_1015-2 provides that property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 because sec_1001 will not apply to the proposed partition of trust the basis of the assets in the subtrusts will be the same as the basis of the assets currently held in trust sec_1223 of the code 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 purposes of determining gain_or_loss from a sale_or_exchange the plr-118399-99 same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person accordingly based on the facts submitted and the representations made we conclude that after the partition of trust into three subtrusts the basis and holding periods of the assets held in the three subtrusts will be the same as the basis and holding periods of the assets when held in trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent george l masnik chief branch office of associate chief_counsel passthroughs and special industries sincerely yours enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------------------------------- ------------------------------- ----------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-108442-10 date date x --------------------------------------------------------------------------------------------------- ----------------------- country ------------ date ------------------- date ----------------- year ------- dear -------------------- this letter responds to a request dated date submitted on behalf of x by its authorized representative requesting an extension of time under sec_301 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes the information submitted states that x was formed under the laws of country on date x represents that x is a foreign_entity eligible to be classified as a disregarded_entity for federal tax purposes in year x inadvertently filed an incomplete form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 plr-108442-10 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the due_date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 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 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 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owner of x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective date to the extent appropriate these returns must include but are not limited to forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-108442-10 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by ___________________________________ charlotte chyr senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc