a uniform issue list no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep ame cet laits legend company a plan x dear this letter is in response to a request for a ruling letter submitted on your behalf by your authorized representative on date as modified by a letter dated date concerning the application of sec_401 of the internal_revenue_code code upon the spin-off of an employee_stock_ownership_plan esop from a profit sharing plan owning employer_securities and also concerning the allocation of shares of company a's common_stock upon the creation of the esop company a was formed in and became a holding_company for several subsidiary corporations in company a maintains plan x for the benefit of its employees and the employees of its subsidiaries plan x is a profit sharing plan that meets the qualification requirements of code sec_401 plan x is the result of a merger in of several profit sharing plans prior plans that were originally maintained by some of the corporations which became subsidiaries of company a some of the prior plans held employer stock no stock was acquired by the prior plans after the 1960’s when these plans were merged the resulting plan x owned stock in all of company a’s subsidiaries and currently owns stock in six of the nine subsidiaries the stock comprises approximately half of the total plan x assets five separate_accounts are maintained for participants in plan x four accounts are not participant-directed three of those four accounts are invested in plan x’s general fund which includes the stock in the subsidiaries while the fourth is invested in stock of company a the fifth account offers investment funds for participant self-direction page company a is proposing a corporate restructuring in which these six subsidiaries would each become a wholly-owned subsidiary of company a plan x would exchange its stock in each subsidiary for shares of stock in company a with an equal value company a will elect s_corporation status prior to the reorganization your authorized representative has represented that the exchange of shares between plan x and company a will qualify as a tax-free reorganization under code sec_368 as part of the restructuring company a will establish an esop as described in code sec_4975 which will receive the company a stock owned by plan x in a transfer from plan x the esop will provide for an allocated company stock account for each participant to which shares of common_stock of company a transferred to the esop will be allocated immediately_after_the_transfer the remainder of plan x assets will remain in plan x the total of each participant’s accounts in the esop and in plan x immediately after the spin-off will equal such account in plan x immediately before the spin-off schedule as plan x and will preserve the plan x distribution options the esop will have the same vesting your authorized representative has requested rulings to the effect of the following on your behalf for purposes of code sec_401 company a’s stock will be treated as having been acquired on or before date the ten-year period of participation required to be a qualified_participant under code sec_401 will begin upon the spin-off from plan x to the esop and years of participation in plan x will not be taken into account for this purpose the allocation of shares of company a’s common_stock to the allocated company stock accounts under the esop will not be considered annual_additions within the meaning of code sec_415 shares of company a’s common_stock allocated to the allocated company stock accounts under the esop will not violate code sec_4975 will satisfy sec_1_401-1 of the income_tax regulations and will be considered allocated shares for purposes of determining if the esop meets the requirements of code sec_409 a qualified_election_period within the meaning of code sec_401 will begin no earlier than the effective date of the employee_stock_ownership_plan and the basis of company a’s common_stock determined in accordance with sec_1 a - b ii of the regulations will not be affected by the transfer from plan x to the esop with respect to your first second and fifth requested rulings code sec_401 provides in general that in the case of a_trust which is part of an esop within the meaning of sec_4975 or a plan which meets the requirements of sec_409 such trust shall not page constitute a qualified_trust under sec_401 unless such plan meets the requirements of a b and c code sec_401 generally provides that each qualified_participant must be given the opportunity to elect within days after the close of each plan_year in the qualified_election_period as defined in sec_401 to direct the plan as to the investment of certain designated percentages of the participant’s account balance that for purposes of this subparagraph the term qualified_participant means any employee who has completed at least years of participation under the plan and has attained age sec_401 states in relevant part that for purposes of this subparagraph the term qualified_election_period means the 6-plan-year period beginning with the later of i the first plan_year in which the individual first became a qualified_participant or id the first plan_year beginning after date sec_401 states h_r rep no cong session which was followed by the conference_report states that for purposes of the 10-year rule participation in a predecessor_plan is taken into account pursuant to section a of public law code sec_401 is effective for stock acquired after date notice_88_56 1988_1_cb_540 q a-1 states that employer_securities acquired by or q a-1 further notes contributed to an esop or a tax_credit esop after date are subject_to the diversification of investments requirement of code sec_401 that employer_securities acquired by or contributed to an esop on or before date are not subject_to the diversification requirements with certain exceptions for de_minimis - amounts of employer_securities securities acquired by an esop or tax_credit esop after date are treated as acquired by or contributed to the esop or tax_credit esop on or before date in one of these circumstances cash or other assets derived from the disposition of employer_securities pursuant to a corporate_reorganization or acquisition attempt whether or not successful which are used to purchase other employer_securities will be treated as acquired by or contributed to the esop on or before date if certain requirements concerning the period of time until reinvestment are met q a-3 describes several circumstances in which employer in the present case the esop will be established after date the esop will receive employer_securities which were acquired by other plans prior to date but those plans were not employee_stock_ownership_plans as described in code sec_4975 the reorganization in the present case does not satisfy the requirements of q a-3 because the employer_securities were not held by an esop on or before date therefore in accordance with notice_88_56 q a-1 and q a-3 we conclude with respect to your first requested ruling that company a’s stock will not be treated as having been acquired on or before date and thus will be subject_to the diversification requirements of code sec_401 page with respect to your second requested ruling years of participation in a predecessor_plan are considered in determining whether a participant in the esop meets the requirements of code sec_401 required to be a qualified_participant under code sec_401 will begin upon the date that an employee became a participant in plan x or a prior plan and years of participation in plan x or a prior plan will be taken into account for this purpose therefore we conclude that the ten-year period of participation with respect to your fifth requested ruling in accordance with subparagraphs a and b of code sec_401 a qualified_election_period in an esop with respect to a qualified_participant cannot commence earlier than the qualified participant’s date of participation in that esop therefore we conclude that a qualified_election_period within the meaning of code sec_401 will begin no earlier than the effective date of the employee_stock_ownership_plan with respect to your third requested ruling code sec_415 states that contributions and other additions with respect to a participant exceed the limitation of this subsection if when expressed as an annual_addition within the meaning of paragraph to the participant’s account such annual_addition is greater than the lesser_of dollar_figure or percent of the participant’s_compensation code sec_415 provides that for purposes of paragraph the term annual_addition means the sum for any year of employer contributions employee contributions and forfeitures with certain modifications not relevant to the present case sec_1 b of the income_tax regulations states that the term ‘annual additions includes employer contributions which are made under the plan furthermore the commissioner may in an appropriate case considering all of the facts and circumstances treat transactions between the plan and the employer or certain allocations to participants’ accounts as giving rise to annual_additions sec_1 b iv of the regulations provides that the transfer of funds from one qualified_plan to another will not be considered an annual_addition for the limitation_year in which the transfer occurs in the present case company a stock owned by plan x will be transferred directly to an esop since the transfer is from one qualified_plan to another we conclude with respect to your third requested ruling that the allocation of shares of company a’s common_stock to the allocated company stock accounts under the esop will not be considered annual_additions within the meaning of code sec_415 with respect to your fourth requested ruling section of revproc_2001_4 lr b states that the employee_plans technical office issues letter rulings involving the code sections specified therein which do not include code sec_401 section of revproc_2001_4 states that the employee_plans technical office issues letter rulings involving with respect to employee_stock_ownership_plans and tax_credit employee_stock_ownership_plans sec_409 sec_409 and sec_4975 section further states that page other subsections of sec_409 and sec_4975 involve qualification issues within the jurisdiction of employee_plans determinations section dollar_figure states that the employee_plans technical office ordinarily will not issue letter rulings on matters involving a plan's qualified status under sec_401 through and sec_4975 these matters are generally handled by the employee_plans determinations program as provided currently in revproc_2002_6 lr b and in other revenue procedures listed in section therefore in accordance with sections and dollar_figure of revproc_2001_ we are unable to respond to your fourth requested ruling with respect to your sixth requested ruling code sec_402 provides in pertinent part that with respect to a lump sum distribution the taxable_amount is the amount of the distribution which exceeds the net_unrealized_appreciation attributable to that part of the distribution consisting of employer_securities sec_1_402_a_-1 of the income_tax regulations provides that the amount of net_unrealized_appreciation in employer_securities which are distributed by a_trust is the excess of the market_value of such securities at the time of distribution over the trust’s cost or other basis for such securities sec_1_402_a_-1 of the regulations provides that the cost or other basis of a distributed employer_security shall be computed in accordance with whichever of the four rules set forth therein is applicable revrul_67_213 1967_2_cb_149 involves the transfer of funds directly from the trust forming part of a qualified_pension plan to the trust forming part of a qualified_stock bonus plan the revenue_ruling provides in part that if a participant’s interest in a qualified_plan is transferred from the trust forming part of that plan to the trust forming part of another qualified_plan without being made available to the participant no taxable_income will be recognized by reason of such transfer in revrul_80_138 the transfer of employer_securities from a qualified_plan maintained by a parent to a qualified_plan maintained by a subsidiary did not change the basis in the securities for purposes of computing net_unrealized_appreciation because the transfer in which no amounts were distributed or made available to the subsidiary’s employees was not a taxable_event in the present case the transfer of shares from plan x to the esop is similar to the transfer of employer_securities in revrul_80_138 because no amounts are being distributed to participants since there is no taxable_event the basis in the securities transferred remains unchanged therefore with respect to your sixth requested ruling we conclude that the basis of company a’s common_stock determined in accordance with sec_1_402_a_-1 of the regulations will not be affected by the transfer from plan x to the esop this ruling is based on the assumption that plan x and the esop are qualified under code sec_401 at all times relevant to the transaction described herein and that the esop is an page esop as described in sec_4975 proposed transfer of assets from plan x to the esop will meet the requirements of sec_414 this ruling is also based on the assumption that the this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office if you have any questions please contact sincerely yours doone vb din frances v sloan manager employee_plans technical branch tax_exempt_and_government_entities_division enclosures notice deleted copy of ruling letter cc


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi plr-128631-02 date date legend buyer seller1 seller2 seller3 seller4 seller5 seller6 seller7 seller8 plant state committee a b c d e f g h i j plr-128631-02 k l m dear this letter responds to your request dated date and subsequent correspondence on behalf of buyer taxpayer that we rule on certain tax consequences of the sale of plant and related assets and liabilities from the sellers to buyer specifically taxpayer has requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to the sellers’ qualified nuclear decommissioning funds and buyer’s qualified nuclear decommissioning funds as well as rulings regarding the proper realization and recognition of gain and loss on the sale of plant and related assets and liabilities the sellers and buyer in a jointly-filed ruling_request have represented the following facts and information relating to the ruling_request the sellers except seller1 and seller2 which are exempt wholesale generators are utilities regulated by various state public_utility commissions and the federal energy regulatory commission ferc as a result of deregulation and under the encouragement of the state public_utility commissions and ferc the sellers are in the process of withdrawing from the electric power generation business except seller1 and seller2 and intend to sell plant and related assets to buyer each seller except seller5 owns as tenant-in-common a fee simple ownership_interest in plant and certain facilities and assets associated with the plant seller5 owns a portion of interest in fee simple and operates the rest of its interest under the terms of a lease seller1 and seller2 are members of the same consolidated_group seller3 and seller4 are members of a different consolidated_group seller1 seller2 seller3 seller4 seller5 seller6 seller7 and seller8 own respectively a b c d e f g and h percent of plant for a total of i percent the remaining ownership_interest in plant is owned by j other entities who are not a part of this ruling letter each of the sellers except seller1 and seller6 maintains qualified nuclear decommissioning funds for plant pursuant to sec_468a and the regulations thereunder all of the qualified nuclear decommissioning funds are trusts under the laws of state in addition each of the sellers maintains nonqualified nuclear decommissioning funds for plant which are trusts under the laws of state and which are considered grantor trusts under sections of the internal_revenue_code all of the qualified and nonqualified nuclear decommissioning funds are held by the sellers solely for the purpose of decommissioning plant plr-128631-02 according to the terms of the purchase and sale agreement for plant between the sellers and buyer dated k the sellers will sell assign convey transfer and deliver to buyer the sellers’ ownership shares of the assets held for use in the operation of plant including the assets comprising both the qualified and nonqualified nuclear decommissioning trust funds maintained by the sellers along with all income_interest and earnings accrued thereon together with all related tax_accounting decommissioning studies and cost estimates and all other books_and_records related thereto buyer will assume certain liabilities associated with plant including decommissioning liabilities certain environmental liabilities and encumbrances of acquired assets buyer will pay l as cash consideration for plant subject_to certain adjustments at closing and will pay sellers m for nuclear fuel attributable to plant the sellers will transfer the assets in each of the qualified nuclear decommissioning funds to a corresponding decommissioning fund that buyer will establish for plant and which buyer intends to qualify as a qualified nuclear decommissioning fund pursuant to sec_468a additionally the sellers will transfer the assets in each of the nonqualified nuclear decommissioning funds to a corresponding nonqualified decommissioning fund that buyer will establish for plant the buyer will hold both the qualified and nonqualified nuclear decommissioning funds solely for the purpose of decommissioning plant the funds will be under the general supervision of committee ferc and the nuclear regulatory commission nrc nrc approval is required to remove the nuclear decommissioning funds from the trusts buyer will not make additional contributions to the qualified nuclear decommissioning funds unless permitted by future legislative changes to sec_468a any funds that exceed the amount necessary to satisfy all decommissioning liabilities will be distributed to buyer or customers in accordance with the purchase and sale agreement moreover the sellers will contribute an additional_amount if needed to buyer’s nonqualified nuclear decommissioning fund so that the total amount in the qualified and nonqualified nuclear decommissioning funds will equal the amount required to be on deposit to fully decommission plant based on the calculation methodology and assumptions formulated by committee requested ruling the sellers’ qualified nuclear decommissioning funds will not be disqualified on the date of closing when the assets in the funds are transferred to buyer’s qualified nuclear decommissioning fund sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year plr-128631-02 sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides that the rate_of_tax on the income of a qualified nuclear decommissioning fund is percent sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a plr-128631-02 under the specific facts herein the service will exercise its discretion to treat this sale under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion is specifically based on the continued general supervision of the qualified nuclear decommissioning fund by committee ferc and the nrc this exercise of discretion however applies to the provisions of sec_1 except those outlined in sec_1_468a-6 with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus under sec_1_468a-6 the sellers’ qualified nuclear decommissioning funds will not be disqualified upon the sale when the assets are transferred to buyer’s corresponding qualified nuclear decommissioning fund and that fund will be treated as a qualified nuclear decommissioning fund of buyer requested ruling the sellers’ qualified nuclear decommissioning funds will not recognize gain_or_loss upon the transfer of their assets on the date of closing to buyer’s qualified nuclear decommissioning fund requested ruling the sellers will not recognize income attributable to the assets in the qualified nuclear decommissioning funds upon the transfer of the assets on the date of closing to buyer’s qualified nuclear decommissioning fund sec_1_468a-6 provides that neither a transferor nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified nuclear decommissioning fund to a transferee’s qualified nuclear decommissioning fund thus neither the sellers nor the sellers’ qualified nuclear decommissioning funds will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of the sellers’ qualified nuclear decommissioning funds assets to buyer’s qualified nuclear decommissioning funds requested ruling each seller’s gain_or_loss on the sale of plant and its associated assets other than the qualified nuclear decommissioning funds will be the difference between such seller’s basis in such assets and its amount_realized sec_1001 provides that a taxpayer’s gain from the sale of property is the excess of the amount_realized over the taxpayer’s adjusted_basis provided in sec_1011 for determining gain and that the taxpayer’s loss from the sale of property is the excess of the taxpayer’s adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1 a provides that in the case of an applicable_asset_acquisition the seller and the purchaser each must allocate the consideration paid or received in the transaction plr-128631-02 under the residual_method as described in sec_1_338-6 and sec_1_338-7 in order to determine respectively the amount_realized from and the basis in each of the transferred assets sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis in the transferred assets is determined wholly by reference to the consideration paid for such assets sec_1_1060-1 defines a purchaser’s consideration as the amount in the aggregate of its cost of purchasing the assets in the applicable_asset_acquisition that is properly taken into account in basis sec_1060 provides no independent basis for determining a taxpayer’s cost of acquired assets cost is determined solely under generally applicable tax_accounting principles sec_1_1060-1 defines a seller’s consideration as the amount in the aggregate realized from selling the assets in the applicable_asset_acquisition under sec_1001 sec_1060 also provides no independent basis for determining the amount a taxpayer realizes on the sale of assets or the time such amount may be taken into account the amount_realized and the time such amount is taken into account are determined solely under generally applicable tax_accounting principles see sec_1001 the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan associations and other depository institutions class ii generally consisting of actively_traded personal_property like u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets class vi all sec_197 intangibles as defined in that section except goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not it qualifies as a sec_197 intangible sec_1_338-6 consideration is first reduced by the amount of class_i_assets transferred by the seller the remaining consideration is then allocated to the class_ii_assets pro_rata to the extent of their fair_market_value then to the class_iii_assets pro_rata to the extent of their fair_market_value then to the class_iv_assets pro_rata to the extent of their fair_market_value then to the class_v_assets pro_rata to the extent of their fair_market_value then to the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated to the class_vii_assets sec_1_338-6 and and c plr-128631-02 the following examples illustrate the operation of sec_1060 from a seller's and a buyer's perspective respectively on date1 an applicable_asset_acquisition is made the consideration consists of dollar_figure cash and an assumed liability of dollar_figure that under applicable tax_accounting principles is taken into account at the time of the applicable_asset_acquisition the assets sold consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure and a basis in the hands of the seller of dollar_figure class_iii_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and a basis of dollar_figure class_v_assets with fair_market_value of dollar_figure and a basis of dollar_figure and class_vi_assets with a fair_market_value of dollar_figure and a basis of dollar_figure the consideration first will be reduced by dollar_figure the amount of class_i_assets the remaining consideration will be allocated as follows dollar_figure to class_ii_assets pro_rata according to fair_market_value resulting in a dollar_figure gain dollar_figure to the class_iii_assets pro_rata according to fair_market_value resulting in no gain_or_loss dollar_figure to the class_iv_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain dollar_figure to the class_v_assets pro_rata according to the fair_market_value resulting in no gain_or_loss dollar_figure to the class_vi_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain and the remaining dollar_figure to the class_vii_assets pro_rata according to the fair_market_value resulting in a dollar_figure gain the character of the amounts of gain_or_loss recognized by the seller as well as any applicable holding periods is determined by the nature of the underlying assets sec_1_338-6 sec_1_1060-1 and sec_1_1060-1 on date1 an applicable_asset_acquisition is made the consideration consists of dollar_figure cash and an assumed liability for which economic_performance has not occurred the assets acquired consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure class_iii_assets with a fair_market_value of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and class_v_assets with a fair_market_value of dollar_figure there are no class vi or vii assets on date1 the purchaser has provided dollar_figure of consideration that may be allocated as basis it first will be reduced by dollar_figure the amount of class_i_assets the remaining dollar_figure will be allocated to class_ii_assets pro_rata according to fair_market_value nothing is allocated to class iii or below on date2 economic_performance occurs with respect to the liability to the extent of dollar_figure at that time the purchaser has an additional dollar_figure of basis that may be taken into account of that amount dollar_figure is allocated to class_ii_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date and the remaining dollar_figure is allocated to the class_iii_assets pro_rata according to fair_market_value - as determined on the acquisition_date on date3 economic_performance occurs to the extent of an additional dollar_figure which is then taken into account as basis of that amount dollar_figure will be allocated plr-128631-02 to the class_iii_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date dollar_figure will be allocated to the class_iv_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date dollar_figure will be allocated to the class_v_assets which will then have been allocated their full dollar_figure fair_market_value - as determined on the acquisition_date and the remaining dollar_figure will be allocated to the class vii as goodwill the last amount is allocated to goodwill even though goodwill was not identified as a separate asset having value on date1 if on date3 instead of an addition to purchaser’s consideration there is a dollar_figure decrease in consideration the consideration previously allocated to the class_iii_assets dollar_figure would be reduced to zero and the consideration previously allocated to the class_ii_assets would be reduced by the remaining dollar_figure pro_rata according to fair_market_value if under general tax principles there is a subsequent adjustment to the consideration that amount is allocated in a manner that produces the same allocation that would have been made at the time of the acquisition had such amount been paid_or_incurred on the acquisition_date sec_1_338-7 sec_1_1060-1 and sec_1 c the federal tax treatment of the qualified nuclear decommissioning funds is determined exclusively under sec_468a and the regulations thereunder with respect however to the plant including equipment and operating_assets and the assets of the nonqualified nuclear decommissioning funds these assets comprise a trade_or_business in the sellers’ hands and the basis buyer takes in these assets will be determined wholly by reference to buyer’s consideration thus the sellers transfer of plant including equipment and operating_assets and assets of the nonqualified nuclear decommissioning funds to buyer in exchange for cash and the assumption of the decommissioning liability except to the extent funded by the qualified nuclear decommissioning funds is an applicable_asset_acquisition as defined in sec_1060 as such its federal tax treatment is determined under sec_1060 and the regulations thereunder accordingly sellers must allocate the consideration in the applicable assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically sellers will first reduce the consideration received by the amount of class_i_assets it transfers in the transaction including any class_i_assets held in the nonqualified nuclear decommissioning funds to the extent seller’s consideration exceeds the class_i_assets it transfers such excess will be allocated to the class_ii_assets then to the class_iii_assets then to the class_iv_assets then to the class_v_assets then to the class_vi_assets and finally to the class_vii_assets such consideration is allocated to each class of assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value the character and other attributes of the amounts of gain and loss are determined by that of the underlying plr-128631-02 assets accordingly on the sale of plant and each seller’s interests in the assets in the nuclear decommissioning trust funds other than the assets in the qualified nuclear decommissioning funds each seller’s gain_or_loss on each transferred asset is the difference between the basis of the asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the corresponding regulations requested ruling each seller’s amount_realized on the sale of plant and its associated assets will include the cash consideration received from buyer and the amount of its liabilities assumed by buyer including its liability to decommission plant but reduced by the amount of such liability to be funded by such seller’s qualified nuclear decommissioning funds sec_1001 provides that a seller’s amount_realized from the sale of property is the sum of any money received plus the fair_market_value of the property other than money received sec_1_1001-2 of the regulations provides that a seller’s amount_realized from the sale of property includes the amount of liabilities from which the seller is discharged as a result of the sale this may include debt and non-debt liabilities see 84_tc_1319 assumption of lessee’s repair liability was part of amount_realized on sale of leasehold as set forth with respect to requested ruling the decommissioning liability from which sellers will be relieved is fixed and determinable as owners and operators of a nuclear plant sellers are required_by_law to provide for eventual decommissioning see cfr sec_50 the amount in the decommissioning funds represents the present_value of that liability as established by decommissioning cost studies and confirmed by regulatory approval and the terms of the sellers’ transaction under which the decommissioning funds will be transferred to buyer in connection with buyer’s assumption of the liability cf 370_us_65 amount_realized as result of relief from liability presumed equal to value of property given up in arm’s-length exchange accordingly each seller's amount_realized on the sale of plant and the assets in the decommissioning trust funds includes the cash received from buyer and the assumed_liabilities to the extent these liabilities are taken into account for federal_income_tax purposes the liabilities taken into account would include the amount of the decommissioning liability assumed by buyer not including the portion of the liability to decommission plant attributable to the qualified nuclear decommissioning fund on the date of closing plr-128631-02 requested ruling buyer’s qualified nuclear decommissioning fund established to hold the assets transferred from the sellers’ qualified nuclear decommissioning funds will be treated as a qualified nuclear decommissioning fund under sec_468a sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides in pertinent part that the assets in a qualified nuclear decommissioning fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year plr-128631-02 sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a as indicated with respect to requested ruling above the service will exercise its discretion to treat the sale under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion applies to the provisions of sec_1 including the requirement under sec_1_468a-6 that the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant except those outlined in sec_1 468a- e with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus so long as buyer establishes only one qualified nuclear decommissioning fund buyer’s qualified nuclear decommissioning fund established to hold the assets transferred from the sellers’ qualified nuclear decommissioning funds will be treated as a qualified nuclear decommissioning fund of buyer when buyer obtains a qualifying interest upon the transfer of plant to buyer requested ruling neither buyer nor buyer’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from the sellers’ qualified nuclear decommissioning funds to buyer’s qualified nuclear decommissioning fund and after the date of closing buyer’s qualified nuclear decommissioning fund will retain the same basis in the assets received as the sellers’ qualified nuclear decommissioning funds had prior to the date of closing sec_1_468a-6 provides that neither a transferee nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified_fund to a transferee’s qualified_fund additionally sec_1_468a-6 provides that transfers of assets of a qualified_fund to which sec_1_468a-6 applies do not affect basis thus buyer will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from the sellers’ qualified nuclear decommissioning funds to buyer’s qualified nuclear decommissioning fund also buyer’s qualified nuclear decommissioning fund will have a basis in the assets that is the same as the basis of those assets in the qualified nuclear decommissioning funds of the sellers immediately prior to the transfer plr-128631-02 requested ruling each seller will be entitled to a deduction equal to the amount of its liability to decommission plant expressly assumed by buyer and included in the seller’s income in the year the liability is assumed reduced by the amount of the liability to be funded by such seller’s qualified nuclear decommissioning funds sec_1_446-1 of the income_tax regulations provides that under an accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability sec_461 makes clear that generally the all_events_test is not treated as having been met any earlier than the taxable_year in which economic_performance has occurred with respect to the liability see also sec_1_461-4 sec_461 provides that in the case of a liability that requires the taxpayer to provide services economic_performance occurs as the taxpayer provides the services sec_1_461-4 provides that economic_performance occurs with respect to such service liabilities as the taxpayer incurs costs in connection with the satisfaction of the liability sec_1_461-4 provides an exception to the general economic_performance rule for services where the taxpayer sells a trade_or_business where the purchaser expressly assumes a liability arising out of the taxpayer’s trade_or_business that the taxpayer but for the economic_performance requirement would have been entitled to incur as of the date of the sale economic_performance with respect to the liability occurs as the amount of the liability is properly included in the amount_realized on the sale by the taxpayer the first prong of the all_events_test requires that the fact of the liability be established at the time of the deduction this prong of the test is satisfied in this case here the sellers have the obligation to decommission the plant the fact of the obligation arose many years ago at the time the sellers obtained their license to operate the plant see c f_r sections dollar_figure and requiring the operator of a nuclear power plant to decommission it moreover congress recognized the existence of the decommissioning liability when in it enacted sec_461 and sec_468a noting that g enerally under federal and state laws utilities that operate nuclear power plants are obligated to decommission the plants at the end of their useful lives h_r conf_rep no see also s prt no vol 98th cong 2d sess the second prong of the all_events_test requires the amount of the liability to be determined with reasonable accuracy sec_1_461-1 this prong is also plr-128631-02 satisfied in this case the amount of the sellers’ decommissioning liability has been determined by experts in the nuclear decommissioning industry their calculations have been reviewed and accepted by both the ferc or the state public_utility having jurisdiction in this case the committee and the nrc which is charged with ensuring that sufficient funds are available to decommission the plant in addition there is also support in the code for finding that the amount of the decommissioning liability is reasonably determinable at the time of sale sec_468a generally permits a current deduction for a ruling_amount based on estimated future decommissioning liabilities to the extent decommissioning costs are sufficiently determinable to entitle the utility to a deduction under sec_468a it is reasonable to conclude that the cost must also be sufficiently determinable to satisfy the second prong of the all_events_test given that the first two prongs of the all_events_test are satisfied economic_performance with respect to the decommissioning liability occurs as of the date of the sale to the extent the liability is included in each sellers’ amount_realized at that time each seller will be entitled to a deduction for the amount of its decommissioning liability associated with the plant expressly assumed by the buyers and included in that sellers’ amount_realized requested ruling the buyer will not recognize any gain or otherwise take any income into account by reason of the purchase of plant and its associated assets including without limitation the transfer of the assets of the sellers’ nonqualified nuclear decommissioning funds to buyer’s corresponding nonqualified nuclear decommissioning fund except to the extent that the aggregate amount of cash and other class_i_assets received from all sellers exceeds the aggregate amount of consideration provided by buyer to all sellers with respect to the acquisition of plant including its equipment and operating_assets and the nonqualified nuclear decommissioning funds’ assets buyer will not recognize income except to the extent the class_i_assets as defined in sec_1 b it receives exceed its total cost determined under sec_1012 which will be the sum of its cash consideration and the fair_market_value of any other consideration it provides to the sellers that is under applicable tax principles taken into account on the date of the applicable_asset_acquisition if buyer is thus required to take an amount into account as income then when under general principles of tax law buyer is permitted to take additional consideration into account eg when it satisfies the economic_performance requirement with respect to the decommissioning liability assumed buyer will be entitled to deduct currently and will not be required to capitalize such amount 344_us_6 additionally on the date of closing buyer’s basis in the assets acquired must be determined by allocating its cost ie the consideration provided by buyer on the acquisition_date which includes the cash but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions plr-128631-02 of sec_1060 and the regulations thereunder specifically buyer will first reduce its consideration by the amount of the class_i_assets it receives in the transaction including any class_i_assets held in the nqfs to the extent the class_i_assets received exceed the consideration buyer provides buyer will recognize income to the extent buyer’s consideration exceeds the class_i_assets it receives such excess will be allocated in accordance with the provisions of sec_1060 and the regulations thereunder as described above when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable_asset_acquisition eg when and to the extent the nonqualified nuclear decommissioning funds pay or incur decommissioning expenses such amounts will be taken into account as increases to buyer’s consideration and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date sec_1_338-6 sec_1_338-7 sec_1_1060-1 and sec_1_1060-1 this letter_ruling is directed only to taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in accordance with the powers of attorney the original of this letter is being sent to taxpayer’s authorized representative also in accordance with the powers of attorney a copy is being sent to taxpayer as well as taxpayer’s other authorized representative we are also sending a copy of this letter to the appropriate industry director lmsb sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


t c memo united_states tax_court lance r and elaine c lefleur petitioners v commissioner of internal revenue respondent docket no filed date h filed a lawsuit against his former employer alleging breach of contract fraud and the tort of outrageous conduct among other things h received a lump sum of dollar_figure million to settle the suit and he incurred dollar_figure in legal fees and costs in connection therewith the agreement expressly allocated dollar_figure of the dollar_figure million sum to compensatory_damages for h's tort claims on account of personal injuries including mental pain and suffering the agreement allocated dollar_figure of that sum to one of h's contract claims none of the proceeds were allocated to punitive_damages ps included the dollar_figure of the settlement proceeds allocated to the contract claim in their gross_income on schedule c attached to their federal_income_tax return for ps relied on sec_104 i r c to exclude the remaining dollar_figure allocated to the personal injury claims from their gross_income ps also allocated the entire amount of attorney's_fees and costs to the contract claim and deducted those fees and costs as a schedule c expense pursuant to sec_162 i r c as r's primary position in the notice_of_deficiency r determined that ps' gross_income includes the total amount of settlement proceeds r determined that dollar_figure was attributable to salary and wages and an additional dollar_figure was characterized as business gross_receipts consistent with that allocation r determined that dollar_figure of the legal fees and costs could be deducted as a schedule c expense and the remaining dollar_figure was a miscellaneous itemized_deduction pursuant to sec_67 i r c r also set forth an adjustment position which allocated dollar_figure million to salary and wages and nothing to business gross_receipts in accordance therewith r determined that all legal fees and costs must be taken as miscellaneous_itemized_deductions pursuant to sec_67 sec_1 held none of the proceeds are excludable from ps' gross_income under sec_104 i r c because they were not received on account of a personal injury held further ps attorney's_fees and costs are deductible as a miscellaneous itemized_deduction to which the provisions of sec_67 and sec_68 i r c are applicable alan e rothfeder jo karen parr and carla r cole for petitioners john f driscoll and shuford a tucker jr for respondent memorandum findings_of_fact and opinion körner judge respondent determined a deficiency in the federal_income_tax of petitioners lance r and elaine c lefleur for the tax_year ended date in the amount of dollar_figure petitioner elaine c lefleur is a party to this proceeding solely because she filed a joint_return with her husband and the term petitioner will be used henceforth to refer to lance r lefleur unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure after concessions the issues remaining for decision are as follows whether dollar_figure of the dollar_figure million lump sum paid to petitioner in in settlement of a suit against his former employer is excludable from petitioners' gross_income under sec_104 as damages received on account of personal injuries we hold that it is not whether petitioners may deduct legal fees and costs incurred in bringing the suit as schedule c expenses to the extent that such fees are allocable to taxable_income we hold that they may not some of the facts are stipulated and are found accordingly the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in montgomery alabama at the time they filed their petition in this case findings_of_fact in petitioner was hired as vice president for blount energy resource corp berc a wholly owned subsidiary of blount inc blount in late blount decided to develop an information package for the purpose of exploring the potential sale of berc in date the management of blount and berc decided to reduce operating_expenses at berc in anticipation of the possible sale of the subsidiary as part of the expense reduction plan berc's montgomery-based staff was cut by approximately percent approximately employees of berc's montgomery office were either discharged or reassigned to other business entities owned by blount as an incentive to many of berc's remaining employees including petitioner and in order to induce them to continue their employment with berc pending the sale blount offered certain bonuses and severance benefits in so doing blount sought to preserve berc's value as a functioning business while looking for a buyer blount's use of incentive packages in such a manner is a common business practice the benefits were outlined in a letter from r william van sant van sant then president and chief operating officer of blount to petitioner dated date the april letter the april letter provided a lump-sum bonus equal to months' salary among other things in the event that berc was sold due to petitioner's request blount by letter dated date the april letter offered petitioner an additional arrangement whereby among other things petitioner would receive a cash payment that was tied to the sales_price obtained for berc on date petitioner accepted the offer on date a meeting was held between van sant and petitioner in which they discussed the possible separation and sale of berc's domestic and foreign assets the october meeting after the october meeting petitioner grew doubtful of blount's intent to abide by the arrangement set forth in the april letter petitioner's concern led him to contact an attorney john bolton bolton on date a meeting was held to discuss the terms of the april letter the november meeting at the conclusion of the november meeting van sant fired petitioner blount ultimately sold all of the assets of berc in three separate sales all of which had closed prior to the end of blount sold berc for dollar_figure-39 million net of transaction costs blount failed to make any payments to petitioner under either the april or april letters petitioner's action against blount berc and van sant on date petitioner instituted suit against blount berc and van sant referred to collectively herein as the defendants in the circuit_court of montgomery county alabama the complaint set forth five causes of action the first and second counts alleged that blount and berc had breached their contract with petitioner arising out of the april and april letters the third and fourth counts alleged that the defendants fraudulently induced petitioner to enter into the agreement set forth in the april letter fraud in the inducement and fraudulently represented to petitioner that they would pay him an incentive commission based upon the sales_price of berc among other_benefits promissory fraud the fifth count alleged that the defendants intended to inflict emotional distress upon petitioner the tort of outrageous conduct petitioner sought compensatory_damages interest and costs for the breach of contract counts petitioner sought compensatory and punitive_damages for the fraud counts as well as for the tort claim of outrageous conduct bolton agreed to represent petitioner in the suit after evaluation of petitioner's various claims against the defendants bolton determined that petitioner's best cause of action was for breach of contract arising out of the april letter on date the defendants filed a notice of removal to the united_states district_court for the middle district of alabama northern division based upon the premise that all of the claims asserted by petitioner were preempted and controlled by the employee_retirement_income_security_act_of_1974 publaw_93_406 88_stat_829 on date blount publicly disclosed the unexpected resignation of van sant as its president upon van sant's resignation oscar j reak reak a former president of blount returned from retirement to serve as interim president of the company the settlement negotiations and agreement on date reak met with petitioner to discuss the possibility of a settlement the november meeting reak had no interest in partially settling the litigation with petitioner and was interested only in a settlement that resolved all outstanding issues after the november meeting reak tendered a written settlement offer to petitioner dated date the november offer petitioner did not accept the november offer jim alexander alexander defendant's counsel was first advised of petitioner's response to the november offer by a telephone call from bolton the next day date thanksgiving day on thanksgiving day extensive discussions took place between bolton and alexander by the end of the day alexander and bolton reached an agreement in principle for a basis of settlement of the lawsuit the agreement in principle and alexander reported to his clients that the matter had been resolved on saturday date alexander faxed a draft settlement agreement to bolton on date alexander met with l daniel morris morris blount's vice president of legal services and communicated with bolton in an effort to finalize a written settlement agreement morris and alexander considered the adversarial nature of the relationship between petitioner and the defendants reduced prior to the execution of this document since an agreement in principle had already been attained at this time petitioner expressed concerns about the tax implications that any settlement of the case would have on him alan rothfeder another of petitioner's attorneys advised petitioner with regard to the allocation of the settlement proceeds and petitioner and his attorneys discussed the settlement allocation issues with defendants blount's sole tax concern regarding the settlement of the case was that nothing be done to compromise blount's ability to deduct any settlement payment in that regard morris alexander and reak received assurances from blount's comptroller that the proposed settlement would be deductible by blount alexander bolton and morris all actively participated in negotiating the final wording of a formal settlement agreement letter petitioner accepted blount's settlement offer on date the settlement agreement the settlement agreement states in pertinent part as follows dear lance this letter will document the agreement which we have reached through our attorneys on date emphasis added we agree as follows in exchange for the dismissal of the lawsuit blount will pay to lefleur the sum of one million dollars dollar_figure this dollar_figure sum will be payable within five days after the dismissal of that lawsuit blount agrees to pay lefleur such sum for the following claims asserted by the plaintiff a the sum of dollar_figure for the amounts claimed by lefleur under the date letter b the sum of dollar_figure for the commissions due lefleur under the date letter plus any future payments due lefleur under said date letter c the sum of dollar_figure for lefleur's tort claims on account of personal injuries and compensatory_damages including mental pain and suffering d the sum of dollar_figure for punitive_damages petitioners filed their form_1040 u s individual_income_tax_return on date petitioners excluded from gross_income dollar_figure of the dollar_figure million lump-sum settlement and reported on form_8275 disclosure statement attached to their return that this amount was exempt_income under sec_104 petitioners included in gross_income the dollar_figure allocated to the contract claim on schedule c attached to their return petitioner's occupation was listed as commission salesman on schedule c on line of schedule c petitioners deducted dollar_figure the entire amount of litigation fees and costs incurred in bringing and settling the suit against the defendants on date respondent issued a statutory_notice_of_deficiency setting forth alternative positions as relevant here respondent determined in the primary position that dollar_figure of the dollar_figure million lump-sum settlement was attributable to salary and wages respondent thereby increased petitioners' taxable_income by that amount respondent also determined that petitioners received dollar_figure of the dollar_figure million as business gross_receipts rather than dollar_figure as petitioners had reported on their return petitioners' taxable_income was thereby increased by an additional dollar_figure consistent with that allocation respondent disallowed dollar_figure of the dollar_figure of legal fees and costs claimed on schedule c and increased petitioners' adjusted_gross_income agi by that amount respondent then augmented petitioners' miscellaneous_itemized_deductions by dollar_figure subject_to the 2-percent agi limitation of sec_67 pursuant to sec_68 respondent reduced the amount of itemized_deductions otherwise allowable to petitioners since their agi was more than dollar_figure for as an alternative position respondent stated if it is ultimately determined that the dollar_figure shown as corrected business gross_receipts is not in fact business gross_receipts then it is determined that wages should be increased in the amount of dollar_figure in lieu of the dollar_figure accordingly taxable_income from salaries and wages is increased in the amount of dollar_figure and business gross_receipts are decreased in the amount of dollar_figure in connection with that alternative position respondent further stated should the allocation between business gross_receipts and wages set forth in the primary position change and or the allocation between taxable and nontaxable settlement proceeds change then legal fee allocations set forth in the primary position shall also change legal fees allocable to nontaxable settlement proceeds shall not be allowed and any allocations between wages and business gross_receipts shall result in proportionate allocations between business_expenses and miscellaneous_itemized_deductions opinion we must decide whether the express allocation of proceeds contained in the settlement agreement controls the tax effect of such proceeds to petitioners we must also decide whether legal fees and costs incurred by petitioners in connection with the suit are schedule c deductible expenses or miscellaneous_itemized_deductions to the extent that the fees are allocable to settlement proceeds that are includable in income as a preliminary matter we must address petitioners' contention that respondent failed to comply with sec_7522 and that this alleged failure justifies a shift of the burden_of_proof to respondent in this case pursuant to rule a i burden_of_proof petitioners contend that the notice_of_deficiency fails to satisfy the minimum standards required under sec_7522 and therefore the court should under rule a shift the burden_of_proof in this action to respondent in support of their argument petitioners assert that respondent's reasons for the proposed changes to petitioners' taxable_income are not set forth with sufficient specificity in the notice_of_deficiency inasmuch as only a general explanation is offered respondent on the other hand maintains that the notice_of_deficiency provides an adequate explanation of adjustments and thus a shift of the burden_of_proof is not warranted we agree with respondent the general_rule of law is clear that upon the issuance of a timely notice_of_deficiency by respondent the burden of proving the determinations in such notice to be erroneous is on the taxpayer rule a states that the burden_of_proof shall be on the petitioner except as otherwise provided by statute or determined by the court as relevant here sec_7522 provides that any notice shall describe the basis for and identify the amounts if any of the tax due sec_7522 specifies that these provisions shall apply to among others any notice described in section see ludwig v commissioner tcmemo_1994_518 sec_6212 pertains to notices of deficiency as here upon examination the notice_of_deficiency issued to petitioners specifically provides the primary position determined by respondent details an alternative position and calculates a deficiency of dollar_figure for petitioners based upon the primary position based on the foregoing discussion we hold that respondent has met the requirements of sec_7522 we therefore decline petitioners' invitation to shift the burden_of_proof in this case to respondent ii excludability of settlement proceeds under sec_104 except as otherwise provided gross_income includes income from all sources sec_61 in this regard statutory exclusions from income must be narrowly construed commissioner v schleier 515_us_232 115_sct_2159 under sec_104 gross_income does not include the amount of any damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness sec_1_104-1 income_tax regs provides that the term 'damages received whether by suit or agreement ' means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution thus an amount may be excluded from gross_income only when it was received both through prosecution or settlement of an action based upon tort or tort type rights and on account of personal injuries or sickness sec_104 o'gilvie v united_states u s ___ 117_sct_452 commissioner v schleier u s at __ s ct pincite 106_tc_441 sec_1_104-1 income_tax regs petitioners contend that dollar_figure is excludable from gross_income under sec_104 because the settlement agreement expressly allocated that amount to the tort claim for personal injuries in support of their position petitioners cite 76_tc_116 affd without published opinion 676_f2d_682 1st cir in which we stated that the most important fact in determining the purpose of the payment is express language in the agreement stating that the payment was made on account of personal injuries petitioners further maintain that the settlement agreement should be respected by this court because it was entered into in good_faith between adverse parties at arm's length on the other hand respondent contends that no part of the settlement proceeds qualifies for exclusion as damages received on account of personal injuries under sec_104 on that basis respondent maintains that the entire amount of the settlement proceeds or dollar_figure million is includable in petitioners' gross_income respondent posits that the express allocation of the proceeds in the settlement agreement should be disregarded since the agreement was not entered into by the parties in an adversarial context at arm's length and in good_faith for the reasons set forth below we agree with respondent we have had numerous opportunities to address the issue of the proper allocation of the proceeds of a settlement agreement in the context of sec_104 see eg 102_tc_116 affd in part revd in part and remanded 70_f3d_34 5th cir 100_tc_93 affd 33_f3d_625 6th cir 98_tc_1 88_tc_834 affd without published opinion 845_f2d_1013 3d cir 87_tc_1294 affd 848_f2d_81 6th cir 87_tc_236 affd 835_f2d_67 3d cir 79_tc_680 affd without published opinion 749_f2d_37 9th cir glynn v commissioner supra 58_tc_32 where amounts are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement rather than the validity of the claim controls whether such amounts are excludable under sec_104 504_us_229 robinson v commissioner supra pincite ascertaining the nature of the claim is a factual determination that is generally made by reference to the settlement agreement in light of the facts and circumstances surrounding it 349_f2d_610 10th cir affg tcmemo_1964_33 seay v commissioner supra pincite in this regard we ask in lieu of what was the settlement amount_paid 105_tc_396 a key factor in that determination is the intent of the payor or the payor's dominant reason in making the payment robinson v commissioner supra pincite britell v commissioner tcmemo_1995_264 see 290_f2d_283 2d cir affg tcmemo_1960_21 metzger v commissioner supra pincite where the settlement agreement expressly allocates the settlement proceeds between tortlike personal injury damages and other damages the allocation is generally binding for tax purposes and the tortlike personal injury damages are excludable under sec_104 bagley v commissioner supra pincite robinson v commissioner supra pincite threlkeld v commissioner supra pincite7 fono v commissioner supra pincite however an express allocation set forth in the settlement is not necessarily determinative of the nature of the claim if the agreement is not entered into by the parties in an adversarial context at arm's length and in good_faith or if other factors indicate that the payment was intended by the parties to be for a different purpose bagley v commissioner supra pincite threlkeld v commissioner supra pincite7 where the express allocation is not to be respected other factors which include the payor's intent and the background of the litigation rise to the fore in determining the nature of the claim see knuckles v commissioner supra pincite 59_tc_634 a the settlement agreement was not entered into by the parties in an adversarial context at arm's length this court has considered previously the circumstances under which we will and will not disregard specific allocations made in a written settlement agreement see eg bagley v commissioner supra 102_tc_465 vacated and remanded per curiam without published opinion 84_f3d_433 5th cir robinson v commissioner supra fono v commissioner supra mcshane v commissioner tcmemo_1987_ petitioners aver that the situation herein is almost identical to that in mckay v commissioner supra and is distinguishable from both robinson v commissioner supra and bagley v commissioner supra upon which respondent relies robinson v commissioner supra involved an action initiated by the taxpayers in state court against a texas bank for failure to release its lien on the taxpayers' property after the jury returned a verdict in the taxpayers' favor for approximately dollar_figure million including dollar_figure million for lost profits dollar_figure million for mental anguish and dollar_figure million in punitive_damages the parties settled in the final judgment reflecting the settlement which was drafted by the parties and signed by the trial judge percent of the settlement proceeds were allocated to mental anguish and percent were allocated to lost profits we held that the allocation in the final judgment did not control the tax effects of the settlement proceeds to the recipients because it was uncontested nonadversarial and entirely tax motivated and did not accurately reflect the realities of the parties' settlement id pincite in bagley v commissioner supra pincite we concluded that the express allocation of dollar_figure million as damages for personal injuries provided for in the settlement agreement was not controlling and we determined that dollar_figure of that sum was to be allocated as punitive_damages the payor's primary concern was to pay as little as possible to dispose_of all claims of the taxpayer moreover we noted that it was clearly in the interest of both parties not to allocate an amount to punitive_damages despite the fact that the record showed that both parties had considered the strong possibility of petitioner's recovering punitive_damages both parties worked on the terms of the settlement document and the taxpayer had consulted a tax attorney concerning the allocation of the settlement proceeds in contrast with robinson v commissioner supra and bagley v commissioner supra in mckay v commissioner supra we found that the settlement was made by hostile parties who continued to be adverse with respect to the allocations to be made therein we noted that the allocation of the settlement proceeds between the wrongful discharge tort claim and the breach of contract claim was based on counsels' estimates of probability of success on the merits recognition of the jury verdict and mutual assessment of the total and relative values of the claims mckay v commissioner supra pincite in mckay v commissioner supra while the taxpayer wanted the settlement award to be as high an amount as possible to compensate him for his losses he also desired that the other party be punished for its behavior however the settlement agreement stated affirmatively that no amount was paid to the taxpayer to satisfy damages under rico or to satisfy punitive_damages claims the taxpayer was never given free reign to structure the settlement allocation see also fono v commissioner t c pincite express allocation made in an earlier settlement agreement between quaker oats co quaker and taxpayers was upheld as one entered into at arm's length and in good_faith the taxpayers sought an allocation of a portion of the agreed payment to personal injury-- damages for emotional distress --but quaker emphatically rejected that request mcshane v commissioner supra express language in settlement agreement was respected where evidence in the record established that the inclusion of the language in the settlement agreements was the result of bona_fide arm's-length negotiations and the tax consequences of the settlement were never considered in the negotiations but instead the settlement amounts were arrived at solely from a consideration by each party of the risks it would be subjected to by continuing the appeal while not identical we think that the facts of the instant case are similar to those of 102_tc_116 and 105_tc_396 and are distinguishable from those of mckay v commissioner supra mcshane v commissioner supra and 79_tc_680 while the underlying litigation was certainly adversarial by the time the settlement agreement was executed on december the parties were no longer adversaries see robinson v commissioner supra pincite an agreement in principle had already been reached on thanksgiving day and was expressly referred to in the settlement agreement the record reflects that blount was not concerned with the amount of the settlement proceeds that was allocated to tortlike personal injury damages vis-a-vis other damages as a result petitioner in effect was able to unilaterally allocate the proceeds the defendant's only concerns were that all of petitioner's claims be settled and that nothing be done to compromise the deductibility of the settlement to blount while not controlling the deductibility of the payor's payment is a factor to be considered in determining whether the parties have adverse interests in regard to their allocations see mckay v commissioner t c pincite indeed we agree with respondent that to the extent that such an allocation resulted in a larger net recovery to petitioner and had no corresponding negative impact on blount such allocation was equally favorable to blount in that it aided its ability to resolve the lawsuit for the smallest settlement payment amount possible moreover as in robinson v commissioner supra pincite and bagley v commissioner supra pincite but unlike mckay v commissioner supra pincite the allocation did not accurately reflect the realities of petitioner's underlying claims as discussed above neither party had any interest in ensuring that the allocation language accurately represented the risks of the various claims the attorneys for both sides felt that petitioner's contract and fraud claims were the strongest and his tort claim of outrageous conduct among the weakest blount especially feared a runaway jury on punitive_damages in the event that the case were remanded to state court since alabama juries were known for their large punitive_damages awards despite the foregoing the settlement agreement allocated percent of the lump-sum proceeds to personal injury claims only percent to the contract claim arising out of the april letter and nothing whatsoever to the fraud claims and punitive_damages claims thus in contrast to mckay v commissioner supra the settlement agreement was not based on counsels' estimates of the probability of success on the merits had the case gone to trial see mcshane v commissioner tcmemo_1987_151 moreover we note that unlike mcshane v commissioner supra the tax effects of the allocation were considered by petitioner during the negotiations on date contrary to petitioners' request we shall not blindly accept the parties' allocation of settlement proceeds where as here the allocation is patently inconsistent with the realities of the underlying claims as determined by the attorneys for both parties see robinson v commissioner supra pincite cf fono v commissioner supra pincite we are not convinced that a weighing of the 'economic realities'--ie the merits of petitioners' claims --is the standard to be applied where a taxpayer challenges the allocation in his own agreement emphasis added to do so would effectively eviscerate the requirements of sec_104 and would allow taxpayers to exclude settlement proceeds from income at will in those instances where the payor is unconcerned with how the allocation is made b the facts and circumstances in the instant case reveal that the settlement was not on account of personal injury claims having decided to look behind the express allocation made in the settlement agreement we turn now to examine other factors including the payor's intent and the details surrounding the litigation to characterize the nature of the claim robinson v commissioner supra pincite threlkeld v commissioner t c pincite petitioners' attempt to characterize dollar_figure of the dollar_figure million payment as having been made on account of personal injuries is belied by the record see glynn v commissioner t c pincite other than petitioner's self-serving testimony and the conclusory testimony of his psychotherapist which we do not find persuasive there is no evidence before the court that the defendants' actions caused petitioner to suffer emotional distress petitioner was fired discreetly and suffered no undue amount of attention moreover petitioner could not point to the interference of the defendants as the source of his difficulty in finding a new job finally petitioner testified that he had been seeing a psychotherapist for several years prior to his firing as a result of the deterioration of his marriage and problems with his children compare noel v commissioner tcmemo_1997_113 the evidence before the court is that payor's actions caused petitioner to suffer emotional distress with knuckles v commissioner tcmemo_1964_33 the doctor did not make a determination that taxpayer's emotional condition was attributable to an act on the part of the payor in light of the facts and circumstances we conclude that petitioner suffered no injury to his health that could be attributed to the actions of the defendants and we are not persuaded that such injury was the basis of any payment to him by blount see knuckles v commissioner f 2d pincite rather while the settlement agreement ostensibly sought to settle all of petitioner's claims blount's dominant reasons for payment were to avoid a large punitive_damages award as well as to avoid losing on the contract claim arising out of the april letter at trial settlement proceeds recovered under either of these claims are not excludable from income under sec_104 accordingly we sustain respondent's determination in the notice_of_deficiency with respect to the inclusion of an additional dollar_figure of the lump sum as gross_income iii deductibility of legal fees and costs as we have often stated deductions are a matter of legislative grace and petitioners bear the burden of proving that they are entitled to any deductions claimed rule a 503_us_79 both parties agree that petitioner's legal fees and costs are deductible if at all under sec_162 as expenses paid_or_incurred in the course of petitioner's trade_or_business however the deductibility of petitioner's legal expenses must also be tested against sec_265 sec_265 provides in pertinent part as follows a general_rule --no deduction shall be allowed for-- expenses --any amount otherwise allowable as a deduction which is allocable to one or more classes of income wholly exempt from taxes imposed by this subtitle since we held above that none of the settlement proceeds are excludable from income under sec_104 sec_265 does not apply to disallow any portion of the otherwise deductible expenses our inquiry however does not end here we must next consider whether petitioners' deduction must be itemized rather than taken on schedule c sec_62 which defines agi lists the deductions from gross_income which are allowed for the purpose of computing agi above-the-line deductions sec_62 states the general_rule that trade_or_business deductions are allowed for such purpose only if such trade_or_business does not consist of the performance of services by the taxpayer as an employee consequently for employed individuals sec_162 trade and business deductions are ordinarily itemized_deductions sec_161 and sec_162 see alexander v commissioner tcmemo_1995_51 affd 72_f3d_938 1st cir work-related expenses_incurred by an independent_contractor on the other hand are deductible above_the_line under sec_62 petitioners contend that the legal fees and costs were incurred in petitioner's capacity as an independent_contractor rather than as an employee petitioners state that respondent has adduced no evidence to dispute petitioner's independent_contractor status therefore petitioners assert that the deductions are not itemized_deductions but above-the- line schedule c deductions respondent on the other hand avers that petitioners have presented no evidence entitling them to deduct the expenses on schedule c we agree with respondent the code does not define the term employee whether the employer-employee relationship exists is a factual question weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir among the relevant factors in determining the nature of an employment relationship are the following the degree of control exercised by the principal over the details of the work which party invests in the facilities used in the work the taxpayer's opportunity for profit or loss the permanency of the relationship between the parties the principal's right of discharge whether the work performed is an integral part of the principal's business what relationship the parties believe they are creating and the provision of benefits typical of those provided to employees nlrb v united ins co of am 390_us_254 weber v commissioner supra pincite 89_tc_225 affd 862_f2d_751 9th cir no single factor is determinative rather all the incidents of the relationship must be weighed and assessed nlrb v united ins co of am supra pincite weber v commissioner supra pincite the documentary_evidence and testimony in the record indicate that at all times berc treated petitioner as an employee and that petitioner regarded himself as such nevertheless petitioners maintain that petitioner did not incur these expenses in the course of his trade_or_business as an employee of berc because he would not have been entitled to the commissions associated with the sale as part of his regular salary while this may be true petitioners do not explain how this transposes petitioner's employee status into that of an independent_contractor the arrangement set forth in the april letter was meant as an addition to petitioner's regular salary in order to entice petitioner to continue his employment with berc pending its sale we find that petitioners have failed to meet their burden of proving that petitioner was anything other than an employee of berc rule a consequently no amount of petitioner's recovery is allocable to business gross_receipts on that basis we hold that petitioners must itemize their related deduction for legal fees and costs on schedule a rather than deduct their expenses on schedule c sec_67 imposes a 2-percent floor on the miscellaneous_itemized_deductions of individuals for all taxable years beginning after date miscellaneous_itemized_deductions are defined in sec_67 as those itemized_deductions that are not specifically enumerated in sec_67 as sec_162 itemized_deductions are not included in sec_67 they are limited by the 2-percent floor sec_1 1t a i temporary income_tax regs fed reg date accordingly we further hold that petitioners' deduction for legal fees and costs is circumscribed by the percent floor under sec_67 in addition since petitioners' agi was over dollar_figure for the taxable_year ended date the amount of miscellaneous_itemized_deductions that they may claim is subject_to the provisions of sec_68 we have considered all other arguments made by the parties and found them to be either irrelevant or without merit to reflect the foregoing and issues previously resolved decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date chief_counsel office of number info release date conex-108584-04 cc ita b02 uil --------------------------------------------- ------------------------------ ------------------------------ ---------------------------- ---------------------------- dear ---------------------- this letter responds to your inquiry dated date on behalf of your constituent ------------------------ who asked for guidance on the proper tax treatment of losses_incurred by investors in ------------------------------ unfortunately the materials you enclosed did not provide us with a full understanding of the facts surrounding your inquiry therefore the discussion below is based exclusively on information we received from your office based on an unsigned and undated letter to --------------- it appears that individual investors sustained losses on notes and debentures they purchased from ------------------ ------------------- according to an article titled families may face -------------------------------- ---------------------------------------------------------------------------------------------------------------tax bill that appeared in the --------------------------edition of ---------------------------- -------------- ------------ shut down in early ------- in that same article ------------------------------------------- -----------------------------------------------------------------------------------------------------and its parent ---------------------------------- filed for bankruptcy in the ---------------------because they were unable to repay dollar_figure------------------due to more than --------investors the letter to ----------------referred to civil lawsuits for damages against the officers directors accountants and lawyers according to the article interest accrued on investors’ accounts from -----------------------through --------------------- the last day that ----------- ------- ------------ was open for business the article raises the question of whether the investors must report this interest as income on their ------- tax returns below is a description and analysis of the types of deductible losses under sec_165 of the internal_revenue_code the code that investors may possibly have incurred on their purchase of notes and debentures from ------------------------- and a brief discussion of the interest_income issue the law allows a deduction for any loss not compensated by insurance or otherwise sec_1_165-1 of the income_tax regulations explains that to be allowable as a deduction under sec_165 of the code a loss must be evidenced by closed and completed transactions fixed by identifiable events and actually sustained during the taxable_year except for a special rule relating to disaster losses that is not relevant here in the case of individuals a deduction under sec_165 is limited to losses_incurred in a trade_or_business losses_incurred in any transaction entered into for profit though not connected with a trade_or_business losses of property not connected with a trade_or_business or a transaction entered into for profit if such losses arise from fire storm shipwreck or other_casualty or from theft investors’ ability to deduct their losses as casualty theft losses whether a loss constitutes a theft_loss under sec_165 is determined by examining the law of the state where the alleged theft occurred 232_f2d_107 5th cir 90_tc_1248 revrul_77_17 1977_1_cb_44 to qualify as a theft_loss under sec_165 the taxpayer must prove that the loss resulted from a taking of property that is illegal under the law of the state where it occurred and that the taking was done with criminal intent revrul_72_112 1972_1_cb_60 an actual conviction for theft under state law is not required to obtain a theft_loss deduction under sec_165 63_tc_736 aff’d without published opinion 523_f2d_1053 5th cir a loss arising from a theft is treated under sec_165 as sustained during the taxable_year in which the taxpayer discovers the loss if in the year the taxpayer discovers the theft_loss he or she makes a claim for reimbursement for which a reasonable_prospect_of_recovery exists the portion of the loss for which reimbursement may be received is not treated as sustained until the tax_year in which it can be ascertained with reasonable certainty whether the taxpayer will receive such reimbursement see sec_1_165-1 sec_1_165-8 of the treasury regulations whether a reasonable_prospect_of_recovery for a reimbursement claim exists is determined by examining all the facts and circumstances see sec_1_165-1 for taxpayers who invested in -------------------------to deduct their alleged losses as theft losses they must demonstrate that a theft has occurred under ---------------------law and ascertain with reasonable certainty that they will not receive reimbursement of their losses from the bankruptcy proceedings or any lawsuits that may be pending against the officers directors accountants and lawyers of --------------------------------or -------------- ---------------------------------- or some other source investors’ ability to deduct their losses as worthless securities losses if any security which is a capital_asset becomes worthless during the taxable_year the taxpayer can deduct the loss as a capital_loss from the sale_or_exchange on the last day of the taxable_year of a capital_asset a security can include a bond debenture note or certificate or other evidence_of_indebtedness issued by a corporation with interest_coupons or in_registered_form sec_165 and of the code a taxpayer cannot take a worthless securities deduction unless he or she can show that the security is completely worthless in the year claimed a taxpayer cannot claim a deduction for partial worthlessness sec_1_165-5 the mere shrinkage in value of a security does not entitle a taxpayer to a worthless securities deduction if on the date of the claimed loss the security has any recognizable value see favia v commissioner tcmemo_2002_154 citing sec_1_165-4 whether a security is worthless depends on whether the corporation’s stock has either liquidating or potential value 38_bta_1270 aff’d 112_f2d_320 7th cir liquidating value of a stock may be determined by examining the company’s asset value by comparing total assets and total liabilities id pincite potential value is determined by examining whether the facts and circumstances indicate reasonable hope and expectation that the company's foreseeable future operations will create liquidating value id pincite- austin v commissioner 71_tc_956 acq 1979_2_cb_1 a loss is evidenced by closed and completed transactions and fixed by identifiable events treas reg ' b identifiable events that serve to negate or severely limit the existence of potential value include liquidation of the corporation cessation of business bankruptcy or the appointment of a receiver to take over the company's assets and business 50_tc_369 aff d 424_f2d_1 6th cir cert_denied 400_us_869 however none of these events alone is determinative we must examine all of the facts and circumstances of each taxpayer’s case before deciding whether the security is completely worthless at the end of the taxable_year 326_us_287 reh g 326_us_811 as noted above no loss is allowed if a claim for reimbursement exists at the time of the loss for which a reasonable_prospect_of_recovery exists sec_1_165-1 based on the facts provided the notes and debentures that -------------------------sold may fall within the definition of security under sec_165 it is not clear from the facts provided whether -------------------------issued the notes and debentures with interest_coupons or in_registered_form sec_165 of the code whether a loss due to worthlessness is actually sustained during the taxable_year is a highly factual determination the ceasing of business operations and the beginning of bankruptcy proceedings by -------------------------are factors we would consider in determining whether the notes and debentures became completely worthless in tax_year ------- however the following factors may prevent such a determination any ongoing bankruptcy proceedings and or any pending lawsuits against the officers directors accountants and attorneys of --------------------------------or ---------------------------- ---- both of which could result in distributions to the investors for all or part of their investments investors’ ability to deduct losses in insolvent financial institutions certain taxpayers who experience a loss on their deposits in a qualified_financial_institution due to its bankruptcy or insolvency can elect to treat the loss as a casualty_loss incurred during the taxable_year or subject_to certain limitations they can treat them as an ordinary_loss incurred in a transaction entered into for profit sec_165 and and l of the code a qualified_financial_institution includes any bank as defined in sec_581 of the code any institution described in sec_591 of the code any credit_union where deposits or accounts are insured under federal or state law or are protected or guaranteed under state law or any similar institution chartered and supervised under federal or state law sec_165 of the code we cannot determine whether the investors may use this provision as we do not have sufficient information to ascertain whether -------------------------is a qualified_financial_institution within the meaning of sec_165 of the code investors’ interest_income may be taxable in ------- interest_income is included within the meaning of gross_income generally income is taxable to a cash_method taxpayer in the year in which he or she actually or constructively receives it sec_1_451-1 income is constructively received in the taxable_year in which it is credited to the taxpayer’s account set apart for the taxpayer made available so that the taxpayer may draw upon it at any time or could have drawn upon it during the taxable_year if notice of intention to withdraw had been given sec_1_451-2 however interest credited on a frozen_deposit in a qualified_financial_institution during the calendar_year is included in gross_income only to the extent of the net amount the taxpayer withdraws during the calendar_year and the amount of the deposit which is available for withdrawal as of the close of the taxable_year sec_451 of the code a frozen_deposit is defined as a deposit that cannot be withdrawn due to the bankruptcy or insolvency of a qualified_financial_institution sec_451 of the code if -------------------------did credit the interest that accrued from ------------------------------------ ----------------------------------------------------------------------------------------------through ------------- ---------to its investors’ accounts the investors would appear to be in constructive receipt of the income and would thus be taxed on the interest in tax_year we do not have sufficient facts to determine whether the taxpayers’ deposits qualify as frozen deposits within sec_451 of the code i hope this information is helpful if you have further questions please call me or -------- ----------------------at --------------------- sincerely __________________________ robert m brown associate chief_counsel income_tax and accounting