internal_revenue_service number release date index number ----------------------- ------------- ------------------------- ----------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b01 plr-146889-10 date date legend distributing shareholder sub sub sub sub sub ------------------------- ------------------------------- ----------------------- ------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------- ------------------------------- ----------------------- -------------------------------------------- ------------------------------- ----------------------- ---------------------------------------------- ------------------------------- ----------------------- ------------------------------------ ------------------------------- ----------------------- ------------------------------------------------------ ------------------------------- ----------------------- --- plr-146889-10 --------------------------------------------- sub sub sub sub llc llc llc llc llc llc llc ------------------------------- ----------------------- --- ---------------------- ------------------------------- ----------------------- --- -------------------------- ------------------------------- ----------------------- --- ------------------------------------------ ----------------------------- ----------------------- --- ---------------------------------- ----------------------------------------------- ----------------------- --- ----------------------------------- ----------------------------------------------- ----------------------- --- ------------------------- ----------------------------------------------- ------------- --- ---------------------------------------- ----------------------------------------------- ----------------------- --- ------------------------------ ----------------------------------------------- ----------------------- --- --------------------------------------- ----------------------------------------------- ----------------------- --- -------------------------------------- ----------------------------------------------- ----------------------- --- plr-146889-10 llc llc llc llc llc llc date date business a business b business c state a country a country b transitional services agreement ---------------------------------- ----------------------------------------------- ----------------------- --- ---------------------- ----------------------------------------------- ----------------------- --- ----------------------- ----------------------------------------------- ----------------------- --- ---------------------- ----------------------------------------------- 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--- --- sub disposition a b c d dear -------------- this letter responds to your letter dated date the ruling_request submitted on behalf of distributing its affiliates and shareholder requesting rulings on certain federal_income_tax consequences of a series of proposed transactions additional information was submitted in letters dated date and date the information submitted for consideration is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation and or the controlled corporations see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or plr-146889-10 indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled corporations see sec_355 and sec_1_355-7 summary of facts shareholder is a country a exempted limited_partnership treated as a partnership for federal_income_tax purposes shareholder owns all of the outstanding_stock of distributing distributing is the common parent of an affiliated_group_of_corporations that files a consolidated u s federal_income_tax return the distributing group distributing wholly owns sub sub wholly owns sub sub wholly owns llc llc and sub llc wholly owns sub sub wholly owns sub llc llc and llc llc wholly owns llc and llc llc wholly owns sub sub wholly owns llc llc wholly owns llc llc wholly owns llc and sub llc wholly owns llc sub wholly owns sub each of distributing sub sub sub sub sub sub and sub was organized as a corporation under state a law and are members of the distributing group each of llc llc llc llc llc llc llc llc llc llc and llc is disregarded as an entity separate and apart from its owner for federal_income_tax purposes under sec_301_7701-3 of the procedure and administrative regulations a disregarded_entity sub was organized as a corporation under country b law distributing also wholly owns llc a disregarded_entity llc owns an a percent interest in the capital and profits of llc the llc interests a partnership for federal_income_tax purposes distributing is engaged in business a business b business a together with business b the distributing business and business c the controlled business directly and indirectly through members of distributing's separate_affiliated_group as defined in sec_355 the distributing sag the distributing sag has conducted business b and business c throughout the five-year period ending on the date of the distribution business a has been conducted by persons unrelated to either shareholder distributing or any member of the distributing sag for more than five years prior to date and has been conducted directly by llc since date financial information submitted by distributing indicates that each of the distributing business and the controlled business has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years at the time of the proposed transactions sub is expected to have outstanding intercorporate indebtedness owed to sub in the amount of approximately dollar_figureb the sub debt and sub is expected to have outstanding intercorporate indebtedness owed to sub and disregarded entities of sub in the amount of approximately dollar_figurec the sub debt plr-146889-10 proposed transaction for what has been represented as valid business purposes the following transactions have been partially consummated and proposed the proposed transaction i ii iii iv v vi on date shareholder contributed through llc dollar_figured in cash to llc in exchange for the llc interests on date shareholder contributed the llc interests to distributing by contributing all of the membership interests in llc the llc interests contribution sub will liquidate into sub by converting under state law into a limited_liability_company sub llc that is a disregarded_entity the sub liquidation as a result of the sub liquidation the sub debt will be distributed to sub and extinguished for legal purposes and federal_income_tax purposes immediately following the sub liquidation sub will liquidate into sub by converting under state law into a limited_liability_company sub llc that is a disregarded_entity the sub liquidation as a result of the sub liquidation the sub debt will be distributed to sub and extinguished for legal purposes and federal_income_tax purposes immediately following the sub liquidation sub will liquidate into distributing by converting under state law into a limited_liability_company sub llc that is a disregarded_entity the sub liquidation and together with the sub liquidation and the sub liquidation comprise the liquidations immediately following the sub liquidation sub llc will distribute to sub llc all of the membership interests in llc sub llc will thereafter distribute to sub llc all of the membership interests in llc sub llc will thereafter distribute to distributing all of the membership interests in llc vii distributing will form controlled and contribute to controlled its interest in sub llc the contribution in exchange for all the stock of controlled controlled will indirectly assume certain liabilities of business c viii distributing will distribute all of the stock of controlled to shareholder the distribution following the distribution controlled will be engaged in the controlled business directly and indirectly through members of controlled’s separate_affiliated_group as defined in sec_355 the controlled sag and distributing will be engaged in the distributing business directly and indirectly through the distributing sag also plr-146889-10 following the distribution certain employees of the controlled sag will render transitional services to the distributing sag pursuant to a written transitional services agreement the following representations have been made with respect to the sub liquidation representations a b c d e f g h sub on the date of adoption of the plan of the sub liquidation the sub liquidation plan date and at all times thereafter until the sub liquidation is completed will own percent of the single outstanding class of the sub stock no shares of sub have been redeemed during the three years preceding the sub liquidation plan date the distribution by sub to sub that will be treated as occurring pursuant to the sub liquidation will take place on a single day effective as of the effective date of the sub liquidation sub will cease to be an entity that is separate from sub for federal_income_tax purposes sub as a corporation will not retain any assets following the sub liquidation sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years prior to the sub liquidation plan date no assets of sub have been or will be disposed of by either sub or sub except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to the sub liquidation plan date other than the transfer of the sub llc interests to controlled in the contribution the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 i prior to the sub liquidation plan date no assets of sub will have been distributed in_kind transferred or sold to sub except for i transactions plr-146889-10 occurring in the normal course of business and ii transactions occurring more than three years prior to the sub liquidation plan date sub will report all earned_income represented by assets that will be deemed distributed to sub such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the assets of sub will exceed its liabilities both at the sub liquidation plan date and immediately prior to the time the sub liquidation occurs there is no intercorporate debt existing between sub and sub other than the sub debt and none has been canceled forgiven or discounted except for transactions that occurred more than three years prior to the sub liquidation plan date the adjusted_issue_price of the sub debt is equal to sub 3's basis in the sub debt sub is not an organization that is exempt from federal_income_tax under sec_501 or another provision of the code all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the sub liquidation have been fully disclosed j k l m n o the following representations have been made with respect to the sub liquidation p q r s t sub on the date of adoption of the plan of the sub liquidation the sub liquidation plan date and at all times thereafter until the sub liquidation is completed will own percent of the two outstanding classes of sub stock no shares of sub have been redeemed during the three years preceding the sub liquidation plan date the distribution by sub to sub that will be treated as occurring pursuant to the sub liquidation will take place on a single day effective as of the effective date of the sub liquidation sub will cease to be an entity that is separate from sub for federal_income_tax purposes sub as a corporation will not retain any assets following the sub liquidation plr-146889-10 u v w x y z sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years prior to the sub liquidation plan date no assets of sub have been or will be disposed of by either sub or sub except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to the sub liquidation plan date other than the transfer of the sub llc interests to controlled in the contribution the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 prior to the sub liquidation plan date no assets of sub will have been distributed in_kind transferred or sold to sub except for i transactions occurring in the normal course of business and ii transactions occurring more than three years prior to the sub liquidation plan date sub will report all earned_income represented by assets that will be deemed distributed to sub such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the assets of sub will exceed its liabilities both at the sub liquidation plan date and immediately prior to the time the sub liquidation occurs aa there is no intercorporate debt existing between sub and sub other than the sub debt and none has been canceled forgiven or discounted except for transactions that occurred more than three years prior to the sub liquidation plan date bb the adjusted_issue_price of the sub debt is equal to sub 2's basis in the sub debt cc sub is not an organization that is exempt from federal_income_tax under sec_501 or another provision of the code dd all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the sub liquidation have been fully disclosed plr-146889-10 the following representations have been made with respect to the sub liquidation ee distributing on the date of adoption of the plan of the sub liquidation the sub liquidation plan date and at all times thereafter until the sub liquidation is completed will own percent of the single outstanding class of the sub stock ff gg no shares of sub have been redeemed during the three years preceding the sub liquidation plan date the distribution by sub to distributing that will be treated as occurring pursuant to the sub liquidation will take place on a single day hh effective as of the effective date of the sub liquidation sub will cease to be an entity that is separate from distributing for federal_income_tax purposes ii jj kk ll sub as a corporation will not retain any assets following the sub liquidation sub will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years prior to the sub liquidation plan date except for the sub disposition no assets of sub have been or will be disposed of by either sub or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to the sub liquidation plan date other than the transfer of the sub llc interests to controlled in the contribution the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 mm prior to the sub liquidation plan date no assets of sub will have been distributed in_kind transferred or sold to distributing except for i transactions occurring in the normal course of business ii transactions occurring more than three years prior to the sub liquidation plan date and iii the sub disposition plr-146889-10 nn sub will report all earned_income represented by assets that will be deemed distributed to distributing such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc oo the fair_market_value of the assets of sub will exceed its liabilities both at the sub liquidation plan date and immediately prior to the time the sub liquidation occurs pp there is no intercorporate debt existing between distributing and sub and none has been canceled forgiven or discounted except for transactions that occurred more than three years prior to the sub liquidation plan date qq distributing is not an organization that is exempt from federal_income_tax under sec_501 or another provision of the code rr all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the sub liquidation have been fully disclosed the following representations have been made with respect to the contribution and the distribution ss tt indebtedness if any owed by controlled to distributing after the distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing will be received by shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing uu the five years of financial information submitted on behalf of the distributing business is representative of its present operation and with regard to such business there have been no substantial operational changes since the date of the last financial statement submitted vv the five years of financial information submitted on behalf of the controlled business is representative of its present operation and with regard to such business there have been no substantial operational changes since the date of the last financial statement submitted ww other than services under the transitional services agreement following the distribution the distributing sag and the controlled sag will each continue the active_conduct of its businesses independently and with its separate employees xx the distribution is being carried out for the following corporate business purposes to allow the distributing business to issue equity in support of its anticipated growth plans on meaningfully more favorable terms whether as plr-146889-10 consideration issued to investors or to certain prospective sellers of target assets with less dilution to existing equity holders than would be possible if i the distributing business were held by a controlled_corporation or ii distributing were to issue its own equity while conducting both the distributing business and the controlled business and to meaningfully enhance the ability of the distributing business and the controlled business to attract and retain qualified management the distribution is motivated in whole or substantial part by one or more of these corporate business purposes yy zz the distribution is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of distributing stock entitled to vote or fifty percent or more of the total value of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution aaa for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of controlled stock entitled to vote or fifty percent or more of the total value of all classes of controlled stock that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or attributable to distributions on distributing stock that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution bbb the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly equity representing a fifty percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation ccc the total adjusted bases of the assets deemed transferred to controlled in the contribution will equal or exceed the sum of i the total liabilities assumed as determined under sec_357 by controlled and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization plr-146889-10 ddd the liabilities assumed as determined under sec_357 by controlled in the contribution and the liabilities to which the assets deemed transferred to controlled in the contribution are subject were incurred in the ordinary course of business and are associated with the assets being transferred eee the total fair_market_value of the assets deemed transferred to controlled by distributing in the contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange fff no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution other than certain obligations arising from the lease agreements between distributing and its affiliates on the one hand and controlled and its affiliates on the other hand relating to the business b assets used in the controlled business transitional services agreement and other agreements entered into between distributing and controlled in the ordinary course of business ggg immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d hhh with the possible exception of certain payments that will be made in connection with the separation agreement and ancillary agreements thereto including the transitional services agreement payments made in connection with any continuing transactions between distributing and controlled following the distribution will be for fair_market_value based on terms and conditions comparable to those that would be arrived at by the parties bargaining at arm’s length iii jjj no two parties to the proposed transaction are investment companies as defined in sec_368 and iv there was no regulatory non-tax legal or economic compulsion or requirement that the llc interests contribution be made as a condition of the distribution the fact that the value of distributing will decrease as a result of the distribution was not a consideration in the decision to contribute property to plr-146889-10 distributing the distribution is not contingent on there being contributed to distributing assets having a specified or a roughly specified value kkk immediately after the distribution neither distributing nor controlled will be a disqualified_investment_corporation as defined in sec_355 lll shareholder’s acquisition of the llc interests was not conditioned upon the distribution and related transactions mmm distributing has not been a united_states_real_property_holding_corporation as defined in sec_897 at any time during the five-year period ending on the date of the distribution nnn controlled was not and will not be a united_states_real_property_holding_corporation as defined in sec_897 either i at any time during the five-year period ending on the date of the distribution or ii immediately following the distribution ooo neither business b or business c nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part ppp at the time of the distribution no member of the distributing affiliated_group as defined in sec_1504 will have an excess_loss_account in the stock of controlled or any controlled subsidiary rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the sub liquidation the sub liquidation will be treated as a complete_liquidation under sec_332 sec_332 and sec_1_332-2 no gain_or_loss will be recognized by sub or sub as a result of the sub liquidation sec_332 sec_336 sec_337 and sec_337 sub 2's basis in each asset deemed received from sub in the sub liquidation will be the same as the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 sub 2's holding_period in each asset deemed received from sub in the sub liquidation will include the period during which that asset was held by sub sec_1223 plr-146889-10 sub will succeed to and take into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 sub will not realize income under sec_61 or sec_1_301-1 with respect to the extinguishment of the sub debt in the sub liquidation revrul_74_54 1974_1_cb_76 based solely on the information submitted and the representations set forth above we rule as follows regarding the sub liquidation the sub liquidation will be treated as a complete_liquidation under sec_332 sec_332 and sec_1_332-2 no gain_or_loss will be recognized by sub or sub as a result of the sub liquidation sec_332 sec_336 sec_337 and sec_337 sub 1's basis in each asset deemed received from sub in the sub liquidation will be the same as the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 sub 1's holding_period in each asset deemed received from sub in the sub liquidation will include the period during which that asset was held by sub sec_1223 sub will succeed to and take into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 sub will not realize income under sec_61 or sec_1_301-1 with respect to the extinguishment of the sub debt in the sub liquidation revrul_74_54 1974_1_cb_76 based solely on the information submitted and the representations set forth above we rule as follows regarding the sub liquidation the sub liquidation will be treated as a complete_liquidation under sec_332 sec_332 and sec_1_332-2 no gain_or_loss will be recognized by distributing or sub as a result of the sub liquidation sec_332 sec_336 sec_337 and sec_337 distributing's basis in each asset deemed received from sub in the sub liquidation will be the same as the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 plr-146889-10 distributing's holding_period in each asset deemed received from sub in the sub liquidation will include the period during which that asset was held by sub sec_1223 distributing will succeed to and take into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 and sec_1_381_a_-1 based solely on the information submitted and the representations set forth above we rule as follows regarding the contribution and the distribution the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled will each be a party to the reorganization under sec_368 distributing will not recognize any gain_or_loss on the contribution sec_357 and sec_361 controlled will not recognize any gain_or_loss upon its receipt of all of the outstanding ownership interests of sub llc from distributing in the contribution sec_1032 the basis of the assets deemed received by controlled in the contribution will equal the basis of such assets in the hands of distributing immediately prior to their deemed transfer to controlled sec_362 the holding_period of each asset deemed received by controlled in the contribution will include the holding_period of such asset in the hands of distributing sec_1223 no income gain_or_loss will be recognized or realized and deferred by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of shareholder on the distribution sec_355 the holding_period of the shares of controlled common_stock received by shareholder in the distribution will include the holding_period of the shares of distributing common_stock with respect to which such shares of controlled common_stock were received sec_1223 the aggregate basis of the shares of distributing stock and the controlled stock held by shareholder immediately after the distribution will equal the aggregate basis of the shares of distributing stock held by shareholder immediately before the distribution allocated in proportion to the fair_market_value of the distributing plr-146889-10 stock and the controlled stock in accordance with sec_1_358-2 sec_358 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 caveats except as expressly provided herein no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is used principally as a device for the distribution of earnings_and_profits of distributing and controlled or both see sec_355 and sec_1_355-2 or iii whether the distribution is part of a plan or series of related transactions under sec_355 specifically no opinion is expressed concerning the treatment of step i of the proposed transaction described above procedural statements the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see dollar_figure of revproc_2011_1 2010_1_irb_1 however when the criteria in dollar_figure of revproc_2011_1 2010_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances a copy of this ruling letter must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy plr-146889-10 this requirement by attaching a statement to their return that provides the date and control number of this ruling letter under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely mark j weiss reviewing attorney branch office of associate chief_counsel corporate


significant index no 2vuu750027 department of the treasury internal_revenue_service washington d c government entities division sep re dear this letter constitutes notice that your request for a waiver of the minimum_funding_standard for the plan for the plan_year ending december subject_to the following conditions has been granted beginning with the required quarterly contribution due on october for the plan_year ending december required quarterly contributions due on october april timely manner and the company makes the january and january october july ina the company makes sufficient contributions to meet the minimum_funding_standard for the plan for the plan years ending december december respectively without applying for a waiver of the minimum_funding_standard and september by september and your authorized representative agreed to these conditions in a letter dated date if any one of the conditions is not met the waiver for the plan_year ending december is retroactively null and void this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this conditional waiver has been granted is equal to the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of december 20u75002i the company operated historically as a textile business in acquired the former sponsor the former sponsor was in the business of wholesale distribution of buttons and craft articles as part of the acquisition the company assumed sponsorship of the plan from the former sponsor the company the current business hardship was brought on by continued competition with inexpensive foreign textile imports from asia as a result of this competition the company suffered major losses during the period from company’s textile business was forced to be discontinued the company’s only remaining operating business is the button and craft business that was acquired from the former sponsor and the through rising pension costs related to the plan have exacerbated the company's financial hardship the minimum_funding_standard for the and dollar_figure dollar_figure company respectively in this increase in pension costs has created cash-flow problems for the the minimum_funding_standard jumped to plan years was and the company has taken a number of steps to strengthen its financial position the textile business has ceased operations the post-retirement medical plan has been terminated matching_contributions to the company’ sec_401 plan have been discontinued the number of employees has been reduced and cash payment of preferred dividends was stopped in the company believes that its prospects for profitable operations are good now that these steps have been taken however if the waiver is not granted the company represents that it will not have sufficient cash flows or credit availability from its commercial lender to operate its business and will need to seek bankruptcy protection it is obvious from the financial information provided by the company that it has experienced a substantial business hardship nevertheless the company's financial situation seems to have turned around since it discontinued its unprofitable textile business furthermore the company made the required quarterly contributions for the plan_year ending december contribution of dollar_figure towards the minimum_funding_standard for the same plan_year these facts indicate that the company’s hardship is temporary however because the plan is only on a current_liability basis and the prospects for the company's recovery are uncertain the request for a waiver of the minimum_funding_standard for the plan for the plan_year ending december conditions described above and will make an additional significant has been granted subject_to the your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by the plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by the plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ending december the date of this letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b we have sent a copv of this letter to the authorized representative pursuant to a power_of_attorney on file in this office and to your if you require further assistance in this matter please contact _ sincerely np fo doe m rrater donna m prestia manager actuarial group


t c memo united_states tax_court louis a pietro and virginia r pietro petitioners v commissioner of internal revenue respondent docket no filed date glen a stankee for petitioners sergio garcia-pages for respondent memorandum opinion foley judge this matter is before the court on petitioners’ motion for recovery_of reasonable_litigation_costs pursuant to sec_7430 and rule unless otherwise indicated all section references are to the internal revenue - - code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure background on their federal_income_tax returns petitioners did not report income relating to through from controlled_foreign_corporations that operated concessionaires aboard cruise ships cfc issue did not report income relating to from marne investments limited marne issue and deducted a loss relating to loss issue by notice dated date respondent determined deficiencies and additions to tax relating to these issues petitioners resided in coral gables florida when they filed the petition on date before trial the parties settled the case petitioners conceded that there was a dollar_figure deficiency relating to respondent conceded all other issues petitioners thereafter filed the motion for dollar_figure of litigation costs discussion we may award litigation costs to petitioners if they meet the statutory requirements see sec_7430 b c b c after concessions the remaining issues are whether respondent’s positions relating to the marne and loss issues were substantially justified and whether certain fees and other costs are reasonable it substantial justification we may award costs to petitioners where respondent’s position was not substantially justified ie did not have a reasonable basis in law and fact see 487_us_552 the justification for each of respondent’s positions must be independently determined foothill ranch co partnership v commissioner 1t1 c respondent concedes that his position on the cfc issue was not substantially justified respondent contends that his position on the marne issue was substantially justified but he offers no law or fact supporting his position in addition respondent failed to contend that his position on the loss issue was substantially justified and offers no law or fact supporting his position thus respondent has not established that his positions were substantially justified see 108_tc_430 stating that respondent must establish that his position was substantially justified as to petitions filed after date q4e- ii reasonableness of fees and costs a attorney’s fees petitioners seek reimbursement for attorney’s fees at hourly rates of dollar_figure and dollar_figure relating to and respectively respondent contends these rates are unreasonable sec_7430 b imposes a statutory rate for attorney’s fees ie dollar_figure and dollar_figure per hour relating to and respectively see revproc_96_59 1996_2_cb_392 revproc_97_57 1997_2_cb_584 petitioners may receive fees in excess of the statutory rate if the court determines that a special factor such as the limited availability of qualified attorneys for such proceeding justifies a higher rate sec_7430 b the court has explained in order for the limited availability of qualified attorneys to constitute a special factor warranting departure from the statutory cap there must be a limited availability of attorneys who possess distinctive knowledge or a specialized skill needful to the particular litigation in question 109_tc_227 citing pierce v underwood supra pincite cf 100_tc_457 stating that there was no special factor where the case did not require a distinctive knowledge or specialized skill within the general field of taxation affd in part - - revd in part and remanded on another ground 43_f3d_172 5th cir the parties have stipulated that there were a few other attorneys in south florida who had the expertise to deal with the issues raised in the notice_of_deficiency and who charged hourly rates comparable to or higher than those charged by petitioners’ counsel in essence respondent admits that there was limited availability of qualified attorneys that petitioners’ attorney possessed a specialized skill needful for the litigation in question and that the services could not be obtained at a lower rate we also note that respondent has represented to the court that the cfc issue is complex and a case of first impression and that petitioners’ attorney possessed recognized expertise in united_states international_taxation accordingly petitioners are entitled to the higher rates paid the parties stipulated that fees for hours in relate to legal work which did not require specialized knowledge therefore no special factor justifies the higher rate for those fees b paralegal fees and other costs petitioners seek reimbursement for the fees of two paralegals at hourly rates of dollar_figure and dollar_figure respondent contends -- - that dollar_figure per hour 1ie about half the attorney rate would be reasonable we agree see eg powers v commissioner supra pincite awarding paralegal fees at about half the attorney rate accordingly petitioners are entitled to a rate of dollar_figure per hour e for hours petitioners incurred dollar_figure of reimbursable litigation costs relating to photocopies postage tax_court filing fee faxes and telephone calls an unsubstantiated dollar_figure expense and an dollar_figure federal express expense shall not be reimbursed see 93_tc_256 declining to reimburse federal express expense absent proof of necessity affd in part and revd in part on another ground 936_f2d_736 2d cir we award petitioners dollar_figure any other contention made by the parties is irrelevant moot or meritless to reflect the foregoing an appropriate order and decision will be entered


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-144502-07 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status ------------------------------ in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be a covered employer under the railroad retirement act and the railroad unemployment insurance act on ------------------ ------------------------------------------ ------------------------------------- ---------------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ------------------------------ceased to be an employer under the railroad_retirement_tax_act on ------------------ the date of its sale and transfer to ---------------------------------- please take the appropriate action regarding this business cc _____________________________ janine cook


internal_revenue_service number release date index number ------------------------------------ ------------------------------------- -------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc fip b04 plr-133991-13 date date legend taxpayer state n dear ---------------------- ------------------------------------- ---------------------------- -------------- this is in response to the letter submitted by your authorized representatives requesting a ruling that certain contracts are insurance contracts and that taxpayer’s wholly-owned subsidiary_corporation qualifies as an insurance_company for federal_income_tax purposes facts taxpayer is a partnership organized under the laws of state n and is taxable as a partnership for federal_income_tax purposes taxpayer is engaged in the business of selling equipment to commercial customers taxpayer represents as follows taxpayer is forming a wholly-owned subsidiary_corporation newco in connection with taxpayer’s sales of this equipment newco will develop and market an extended warranty contract program through the program newco will offer to taxpayer’s customers extended warranty contracts extended warranties on parts that are in the equipment the extended warranties are not included in the sales_price of the equipment taxpayer’s customers will have the option of buying an extended warranty for a specified price newco will perform premium fee and claims processing services in conjunction with the extended warranties as well as support services to assist in plr-133991-13 marketing the extended warranties taxpayer will collect the premiums of the extended warranties sold to its customers as agent for newco and newco will be the sole obligor under the extended warranties the extended warranties will provide a customer with protection against economic loss for the replacement or repair related to specified parts not covered by the manufacturer’s warranty for a specified duration the parts covered under the extended warranties will not be manufactured by taxpayer newco or any other affiliate of taxpayer and neither taxpayer nor any of taxpayer’s affiliates will have control_over the manufacturing process the extended warranties will not cover any preventative or routine maintenance will not cover incidental or consequential damages such as property damage and will not cover freight or labor more than half of newco’s business is the issuing of the extended warranties requested ruling sec_1 the extended warranties constitute insurance for federal_income_tax purposes newco will qualify as an insurance_company within the meaning of sec_831 of the internal_revenue_code law and analysis sec_831 provides that taxes computed as provided in sec_11 are imposed for each taxable_year on the taxable_income of each insurance_company other than a life_insurance_company sec_831 provides that for purposes of sec_831 the term_insurance company has the meaning given to such term by sec_816 under sec_816 the term_insurance company means any company more than half the business of which during the taxable_year is issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies newco’s qualification as an insurance_company for federal_income_tax purposes therefore depends on whether its primary and predominant activity constitutes issuing of insurance contracts neither the code nor the regulations define the terms insurance or insurance_contract for federal_income_tax purposes the standard for evaluating whether an arrangement constitutes insurance for federal tax purposes has evolved over the years and is at best a nonexclusive facts and circumstances analysis 972_f2d_858 7th cir the most frequently cited opinion on the definition of insurance is 312_us_531 in which the court describes insurance as an arrangement involving risk-shifting and risk-distributing of an insurance risk determined at the time the transaction was executed cases analyzing captive insurance arrangements have described the plr-133991-13 concept of insurance for federal_income_tax purposes as containing three elements involvement of an insurance risk shifting and distributing of that risk and insurance in its commonly accepted sense see eg 979_f2d_162 9th cir aff’g 96_tc_18 the test however is not a rigid three-prong test the risk transferred must be a risk of economic loss 572_f2d_1190 7th cir the risk must contemplate the fortuitous occurrence of a stated contingency 183_f2d_288 2d cir and must not be merely an investment or business risk legierse u s pincite revrul_2007_47 2007_2_cb_127 revrul_89_96 1989_2_cb_114 in addition the arrangement must constitute insurance in the commonly accepted sense risk shifting occurs if a person facing the possibility of an economic loss transfers some or all of the financial consequences of the potential loss to the insurer such that a loss by the insured does not affect the insured because the loss is offset by a payment from the insurer distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as premiums and set_aside for the payment of such a claim by assuming numerous relatively small independent risks that occur randomly over time the insurer smooths out losses to match more closely its receipt of premiums 811_f2d_1297 9th cir courts have recognized that risk_distribution necessarily entails a pooling of premiums so that a potential insured is not in significant part paying for its own risks 881_f2d_247 6th cir see also 988_f2d_1135 risk_distribution involves spreading the risk of loss among policyholders 797_f2d_920 10th cir r isk distributing means that the party assuming the risk distributes his potential liability in part among others thus purported insurance arrangements that involve an issuer who contracts with only one policyholder do not qualify as insurance contracts for federal_income_tax purposes revrul_2005_40 the commonly accepted sense of insurance derives from all of the facts surrounding each case with emphasis on comparing the implementation of the arrangement with that of known insurance court opinions identify several nonexclusive factors bearing on this such as the treatment of an arrangement under the applicable state law 96_tc_18 the adequacy of the insurer’s capitalization and utilization of premiums priced at arm’s length the 96_tc_45 aff’d 979_f2d_1341 9th cir separately maintained funds to pay claims ocean drilling exploration co v united_states cl_ct aff’d per curiam 988_f2d_1135 fed cir and the language of the plr-133991-13 operative agreements and the method of resolving claims 40_fedclaims_42 in order to determine the nature of an arrangement for federal_income_tax purposes it is necessary to consider all the facts and circumstances in a particular case including not only the terms of the arrangement but also the entire course of conduct of the parties thus an arrangement that purports to be an insurance_contract but that lacks the requisite insurance risk or fortuity may instead be characterized as a deposit arrangement a loan a contribution_to_capital to the extent of net value if any an option or indemnity contract or otherwise based on the substance of the arrangement between the parties the proper characterization of the arrangement may determine whether the issuer qualifies as an insurance_company and whether amounts paid under the arrangement may be deductible under the extended warranties newco assumes the risk of economic loss from the customers for the cost of repairs of specified equipment customers have the option not to purchase an extended warranty customers can also choose to purchase an extended warranty contract from a different company the amounts paid_by the customers to purchase an extended warranty are pooled the effect is to shift to newco the risk of loss from the purchasers of the extended warranties and distribute this risk among the customers participating in the program the risk of loss which is shifted to newco is an insurance risk and the coverage provided to the purchasers is in accord with the commonly accepted sense of insurance ruling sec_1 the extended warranties constitute insurance contracts for federal_income_tax purposes newco qualifies as an insurance_company for federal_income_tax purposes provided its business activity is consistent with taxpayer’s representation that more than half of newco’s business is the issuing of the extended warranties except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-133991-13 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely john e glover senior counsel branch financial institutions products


internal_revenue_service number release date ---------------------------------- ------------------------ --------------- -------------------------- in re ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no -------------- telephone number ---------------------- refer reply to cc psi b04 plr-106882-14 date may ------------------------------ legend donor -------------------------------------------------------------- trust -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ firm date date date date x y z -------------------------------- ------------------------ -------------------------- -------------------------- ------------------ ------------ ------------ ------------ dear ---------------- this letter responds to your authorized representative’s date letter requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to transfers to a_trust the facts and representations submitted are summarized as follows on date donor created an irrevocable_trust trust for the benefit of her descendants trust has gst potential on date donor transferred dollar_figurex to trust on date donor transferred dollar_figurey to trust and on date donor transferred dollar_figurez to trust there have been no distributions of principal or income to any skip persons donor engaged firm a certified public accounting firm to prepare the gift_tax returns reporting the gifts however in preparing the returns firm failed to allocate donor’s gst_exemption to the gifts plr-106882-14 donor requests an extension of time under sec_2642 sec_301_9100-1 and sec_301_9100-3 in which to allocate his gst_exemption to the gifts sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect at the time of the transfer provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2642 provides that for purposes of chapter the inclusion_ratio with respect to any property transferred in a gst is generally defined as the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfer of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_26_2632-1 of the generation-skipping_transfer_tax regulations plr-106882-14 provides that an allocation of gst_exemption to property transferred during the transferor's lifetime is made on form_709 notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied donor is granted an extension of time of days from the date of this letter to allocate her available gst_exemption to the date date and date transfers to trust the allocations will be effective as of the dates of the transfers and the values of the transfers as determined for federal gift_tax purposes will be used in determining the amount of donor’s gst_exemption to be allocated to the transfers plr-106882-14 the allocations should be made on form sec_709 united_states gift and generation-skipping_transfer_tax returns for the years in which the transfers were made and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each form_709 a copy is enclosed for this purpose except as expressly provided herein we express no opinion on the federal tax consequences of the transactions under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service director exempt_organizations release number release date date november department of the treasury p o box - room cincinnati ohio employer_identification_number person to contact - id contact telephone numbers phone fax uil dollar_figure legend organization facility name organization state i dollar amount dollar amount dollar amount dollar amount a l o i m i a f o t e l e l i dear by letter dated december set-aside in the amount of meets the requirements of sec_4942 constitutes a qualifying_distribution under sec_4942 t for the tax_year ended december b i and accordingly you requested a determination that a facts you were created for the purpose of the advancement support and maintenance of collectively as d and hold endowment funds of approximately s erom which has been used for the maintenance and repair of the property a camp for c in h you have legal_title to property known the income for many years f has managed the operations of d and it has been the official camp site for c in h involve the use of this property most of the activities of c in your area your trustees have approved a project to improve a road that you own and is used in the operations of d your project consists of rebuilding approximately lineal feet of road installing sewer lines and extending a water line to your facility you this road serves as the only entrance to d will install gravel adjust drainage along the road repave and landscape the water service is especially needed for fire protection for the larger buildings the sewer service will help insure the protection of the lake environment you have already completed the engineering work and obtained two estimates of the cost to complete the remainder of the project you have requested an approved set_aside of disbursed in the following years and amounts t which you estimate will be e d e l q i total- t the entire project will be completed no later than date law b other than any contribution to sec_4942 of the code defines qualifying_distribution as amount_paid to accomplish one or more purposes described in sec_170 by the foundation or one or more disqualified persons or foundation which is not an operating_foundation except as otherwise provided out one or more purposes described in sec_170 b ii b any amount_paid to acquire an asset used directly in carrying an organization controlled a private a any a of the code provides that sec_4942 beginning on or after january project within one or more purposes of sec_170 b may be treated as sec_4942 b a qualifying_distribution if the amount meets the requirements of an amount set_aside for a specific for all taxable years b i of the code provides that an amount set_aside for sec_4942 a specific project may be treated as time of the set-aside the foundation establishes to the satisfaction of the secretary the amount set_aside will be paid for the specific project within five years and the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds a qualifying_distribution if the suitability test at the sec_53_4942_a_-3 amount set_aside within the meaning of paragraph b iii defines as a qualifying_distribution any of sec_3 in which such amounts are set_aside of the code may be treated as qualifying distributions for the but not in the tax_year in sec_53_4942_a_-3 of the foundation and similar excise_tax regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 c b tax_year s which actually paid and paragraph b are satisfied if the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 or the foundation satisfies the cash distribution test if the requirements of sec_4942 are satisfied the requirements of paragraph b is set_aside and ii i or sec_53_4942_a_-3 of the regulations provides that the suitability test for a set-aside is met if the foundation establishes the specific project is one in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments the regulation cites as an example of suitable project a plan to erect a building to house the exempt activity of the private_foundation such as a museum a sec_53 a -3 b provides that a private_foundation must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside analysis you have sought timely approval of your set-aside of income in accordance with sec_53_4942_a_-3 i of the regulations your proposed set-aside will be used to as required by sec_4942 a b accomplish purposes described in sec_170 b for the improvement of d the official camp of c in h a road owned by you and utilized in the operation of of the code and sec_53 a - of the code namely you have credibly represented that the amount of the set-aside for this specific project will be paid out within months from the set-aside as required by sec_4942 gq b b of the code and sec_53 a - of the regulations your project can better be accomplished by a set-aside of income rather than by the immediate payment of funds because your project will take more than one year to complete and the project cost constitutes more than your annual distributable income the cost of the project also constitutes a large portion of the assets so that prefunding the project would have a deleterious effect on your endowment in addition the set-aside will allow you to complete the project of improving the road and retain control_over the funds so the funds are solely used to improve the road reg a -3 b cites as an example of erect a building to house direct charitable activities of the foundation in a similar fashion your set_aside will be used to improve a road owned by you and used by c therefore you are like the foundation in sec_53 a -3 b museum of the regulations which sets aside funds to build a a suitable project a plan to your project is one in which relatively long-term grants or expenditures must be made and requires expenditures greater than your normal distributable_amount in construction projects of this kind it customary and necessary to pay contractors when services are performed for these reasons the project is better accomplished by a set_aside than through current_distribution of funds is your project therefore satisfies the suitability test as set forth in sec_4942 regulations b i of the code and sec_53_4942_a_-3 of the ruling based on the foregoing the set-aside of t for the taxable_year ending meets the requirements of sec_4942 b i and accordingly constitutes a qualifying_distribution under sec_4942 we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that any set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount in the books_and_records of pledge or obligation to be paid at amount of the set-aside must be taken into account in determining the foundation’s minimum_investment_return see sec_53 a - c of the regulations and any income attributable to a set-aside must be taken into account in computing adjusted_net_income see sec_53 a -2 d of the regulations a future date or dates further the a private_foundation as a this ruling is based on the understanding there will be no material changes in the facts upon which it on your tax status should be reported to the internal_revenue_service this ruling does not address the applicability of any section of code or regulations to the facts submitted other than with respect to the sections described any changes that may have a bearing is based this ruling letter is directed only to the organizations that requested them sec_6110 cited as precedent of the code provides that they may not be used or please keep a copy of this ruling letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions about this ruling please contact the persons whose name and telephone number are shown above in the heading of this letter sincerely yours robert choi director exempt_organizations rulings and agreements