internal_revenue_service number release date index number 468a ------------------------- --------------------------------------- -------------------------------------------- ---------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number -------------------- refer reply to cc psi b06 plr-136387-06 date july legend legend taxpayer plant parent director --------------------------------------------------------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------- -------------------------------- ---------------------------------------------------------------------------------- ----------------------------- -------------------------------------------------- --------------------------------------------------------------------------------- location commission a commission b ---------------------------------------------------------------------------------------------------------- commission c commission d commission e ------------------------------------------------------- ------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ---------------------- ------------------------------------------ --------------------------------------------------------------- method fund order dear ---------------- this letter responds to your request dated date for a schedule of deduction amounts and a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t of the temporary income_tax regulations you also provided additional information by letters dated date date date and date taxpayer was previously granted schedules of ruling amounts most recently on date information was submitted pursuant to sec_1_468a-3t e plr-136387-06 taxpayer represents the facts and information relating to its request for a schedule of deduction amounts and request for a schedule of ruling amounts as follows taxpayer a subsidiary of parent is included in a consolidated_return filed by parent taxpayer is the sole owner of the plant taxpayer is also the operator of the plant the plant is situated at location plant’s amended operating license is scheduled to expire on -------------------------- the estimated base cost for decommissioning the plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a which covers -------------- percent of taxpayer’s total electric sales commission b which covers percent commission c which covers ----------percent commission d which covers ------------ percent and commission e which covers ----------percent for a total of ------percent these percentages may vary slightly from year to year there is currently an accounting proceeding pending before commission e that would result in an increase in the amount of decommissioning costs to be included in taxpayer’s cost of service there are no other actions pending before any other commission that may result in an increase or decrease in the amount of decommissioning costs to be included in taxpayer’s cost of service commission a in order recently reviewed and adjusted the amount of nuclear decommissioning costs of the plant based upon the assumptions used in the order it is estimated that fund assets will earn an after-tax rate of return of -----percent the total cost of decommissioning plant is estimated to be dollar_figure------------------in ------- dollars this base cost of decommissioning plant is escalated at a -------percent yearly rate resulting in a total future cost to taxpayer of decommissioning plant of dollar_figure---------------- under ratemaking assumptions used during the first proceeding before commission a the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to for commission a the estimated_useful_life of the plant is --- years -------------- and the estimated period for which the fund is to be in effect is --- years -------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law for commission a was ------ --------percent in the orders submitted for the prior schedule of ruling amounts commission a adjusted the ending date of the estimated_useful_life of the plant to coincide with the expiration of the plant’s previous operating license in ------- the estimated_useful_life of the plant was not adjusted by commission a before date plr-136387-06 sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the plr-136387-06 payment is made on account of such taxable_year and is made within ½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a plr-136387-06 deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year plr-136387-06 sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2006 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary found the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute to plr-136387-06 commission a b and d jurisdiction --------percent of the amounts necessary to fully decommission its share of the plant and to commission c and e jurisdiction ---------- percent sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act thus taxpayer is able to contribute to commission a b and d jurisdiction the --- --------percent of the amounts necessary to decommission its ownership share of plant and to commission c and e jurisdiction --------percent this amount is the present_value of the pre-2006 non-qualifying percentage of the estimated future cost of decommissioning the plant that was previously disallowed total cost of decommissioning the plant is dollar_figure------------------in ------- dollars and the total amount taxpayer is able to contribute as the pre-1984 amount that was denied under the law prior to the act is dollar_figure------------------in ------- dollars taxpayer in ------- has contributed to fund for each commission jurisdiction the assets in the total amount of dollar_figure----------------- to the extent that non-cash property was contributed to the fund the amount of the assets was determined by taxpayer using the adjusted_basis of that property taxpayer proposes to claim the amount of dollar_figure---------- -------------------contributed in -------- as a deduction on a straight_line basis utilizing a monthly convention over the period beginning with the month the first contribution occurs through the month of the original license termination_date ------------------- sec_1_468a-9t b provides that for a taxable_year ending on or after date and before date a taxpayer may use any reasonable method consistent with the principles and provisions of sec_468a to determine the schedule of ruling amounts or the schedule of deduction amounts we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder we find that taxpayer’s proposal to deduct the amount transferred on a straight_line basis utilizing a monthly convention over the period beginning with the month the first contribution occurs through the month of the original license termination_date is based on a reasonable method consistent with the principles and provisions of sec_468a for which the special transfer occurred after date and before date however to the extent that non-cash property was contributed to the fund and the amount of the assets was determined by taxpayer using the adjusted_basis of that property rather than the required lesser_of the fair_market_value or adjusted_basis the amount of the allowable deduction is not based on a reasonable method consistent with the principles and provisions of sec_468a based solely upon these representations of the facts we conclude that the taxpayer is permitted to make a special transfer of dollar_figure----------------- however under sec_1_468a-8t a a taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-225 qualifying percentage taxpayer represents that it made a special transfer of dollar_figure------------------in ---- ------- and subject_to the caveats contained herein regarding the determination of the deductible amount of transferred property may deduct the amount contributed for the --- ---------------------tax years as set forth below plr-136387-06 year ------------- ------------- schedule of deduction amounts deduction amount ------------------------- --------------------------- we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the transfer is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer if the taxpayer made a special transfer of property the fair_market_value of which was less than the basis at the time of transfer and calculated the deduction on the basis rather than the fair_market_value taxpayer must file an amended_return to reflect the lesser amount transferred further if the taxpayer made a special transfer of property the fair_market_value of which was less than the basis at the time of transfer and calculated the amount of the special transfer using the basis of the property rather than the lower fair_market_value taxpayer may under certain circumstances be entitled to an additional special transfer under the provisions of sec_1_468a-8t a in addition because taxpayer has elected to make a special transfer of less than the dollar_figure------------------permitted taxpayer is entitled to make an additional special transfer of the difference between the amount permitted to be transferred and the amount transferred to make an additional special transfer taxpayer must request an additional schedule of deductions such request must take the prior schedule of deductions into account in calculating the permissible amount of the special transfer furthermore regarding taxpayer’s request for a revised schedule of ruling amounts we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3t a and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission and will result in a projected fund balance at the end of the funding_period plr-136387-06 equal to or less than the amount of decommissioning costs allocable to the fund pursuant to sec_1_468a-3t a taxpayer has demonstrated that by following the assumptions approved by the commissions the proposed schedule of ruling amounts is consistent with the principles of sec_468a and the regulations thereunder and that such schedule is based on reasonable assumptions the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code approved schedule of ruling amounts year commission a commission b commission c commission d commission e total ------ --------- --------- ---- ------- ------ ----------------- ---- ----------------- ---- ------- ------- ---------------- -- ---------------- -- ---------------- -------- ---------------- -- ---------------- ----------- ---------------- ---------------- ------ ---------------- ----- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the plr-136387-06 taxpayer we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


internal_revenue_service number release date index number ---------------------------- -------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b07 plr-112343-13 date date legend x y area airport city state n ----------------------------- ------------------------- --------------------- --------------- --------------------------------------------------------------- ----------- -------------- ---------- dear --------------------- this is in response to your authorized representative’s letter dated date requesting rulings under sec_4261 of the internal_revenue_code code according to the facts submitted x is a limited_liability_company wholly owned by y x’s business includes helicopter flights to and from offshore oil rigs located in the area all of the flights specifically relate to the exploration development or removal of oil or gas and involve transporting individuals equipment or supplies to the offshore locations x provides an on-demand charter service with no fixed schedule the final destinations and scheduled takeoff times are solely at the discretion of the customers the flights depart from and return to x’s base of operations base which is on privately-leased space within the airport located in city state airport is a facility that is plr-112343-13 eligible for assistance under the airport and airway development act of the act x cannot apply for federal funds under the act and airport cannot use federal funds to improve x’s base under the terms of the lease agreement between x and airport x’s base is not accessible to the public x is responsible for all maintenance of its base any improvements x makes to its base are for the benefit of x rather than the airport moreover under the terms of the lease x retains title to any improvements as well as the right to remove such improvements when the lease terminates in addition x does not use any of airport’s runways or taxis for its flights airport and x are within federal aviation administration faa class d airspace which requires tower approval for take offs and landings in most cases x’s helicopter flights use visual flight rules vfr which do not require use of the faa’s navigation signals x represents that its helicopter flights use vfr in over of all flights hours x’s helicopters are equipped with instrument flight rules ifr equipment the faa requires aircraft to use ifr in certain circumstances such as when it unsafe to fly using the visual flight rules vfr or when the aircraft is in faa class a airspace flights that use ifr are guided by the faa navigation system x uses ifr in less than of all flight hours typically during inclement weather x obtains weather information from the automated weather observing system awos generally the faa operates and maintains the awos x requests a ruling that its vfr flights meet the exemption described in sec_4261 and are therefore exempt from the taxes imposed by sec_4261 and b sec_4261 imposes a tax on the amount_paid for taxable_transportation of any person sec_4261 imposes a dollar_figure tax for each domestic_segment of taxable_transportation sec_4261 provides that no tax is imposed under sec_4261 or b on air transportation by helicopter for the purpose of transporting individuals equipment or supplies in the exploration for or the development or removal of hard minerals oil or gas the flush language of sec_4261 provides that the exemption in sec_4261 only applies if the helicopter does not take off from or land at a facility eligible for assistance under the airport and airway development act of or otherwise use services provided pursuant to or b or subchapter_i of chapter of title of the united_states_code during such use in the case of helicopter transportation plr-112343-13 described in sec_4261 sec_4261 is applied by treating each segment as a distinct flight usc allows the secretary of transportation to carry out under chapter of title demonstration projects that the secretary considers necessary for research_and_development activities under chapter usc b allows the secretary of transportation to provide grants to continue the explosive detection k-9 team training program to detect explosives at airports and on aircraft subchapter_i of chapter of title usc et seq contains provisions for airport improvement congress enacted the exemption under sec_4261 as part of the tax equity and fiscal responsibility act of as originally enacted sec_4261 applied to certain timber and hard mineral resource operations the joint_committee on taxation explained that the reason for providing that exemption was that in light of the user_fee concept of air passenger ticket taxes certain helicopters used in timber and hard mineral resource operations that do not use federally-financed airport or airway system facilities should be exempt from the tax see jcs-38-82 pincite the deficit_reduction_act_of_1984 pub l expanded the exemption in sec_4261 to include oil_and_gas operations the senate_finance_committee noted in the legislative_history of the deficit_reduction_act_of_1984 that the exemption does not apply to helicopters that depart from or arrive at heliports or airports that receive funds from the faa airport development assistance programs or helicopters that follow faa air navigation signals in their flight patterns s prt vol i date pincite see also jcs pincite sec_4261 provides an exemption for certain helicopters and other aircraft that provide emergency medical services prior to the small_business job protection act of pub l which amended sec_4261 sec_4261 included restrictions identical to those in sec_4261 more specifically like the sec_4261 exemption the sec_4261 exemption only applied if the helicopter did not use services provided pursuant to or b or subchapter_i of chapter of title of the united_states_code the legislative_history of sec_4261 states that the mere use by these emergency medical helicopters of weather service information supplied by the faa to all aircraft or the fact that such helicopters notify airports or air navigation stations of their location while in the air will not disqualify the qualified helicopters from the exemption h_r rep no pincite conf_rep plr-112343-13 x’s flights are for the purpose of transporting individuals equipment or supplies in the exploration for or the development or removal of oil or gas therefore the flights satisfy the requirements of sec_4261 we must next consider whether x’s flights satisfy the requirements of the flush language of sec_4261 the first part of the flush language limits the exemption in sec_4261 to helicopters that do not take off or land at a facility eligible for assistance under the airport and airway development act of in the present case x’s flights depart from and return to x’s base which is located on privately-leased space within airport any improvements to x’s base would be solely for the benefit of x’s commercial activities consequently x’s base is not a facility eligible for assistance under the airport and airway development act of although airport is such a facility airport may not use federal funds to improve x’s base therefore x’s flights satisfy the first part of the flush language we must also consider whether x’s flights satisfy the second part of the flush language of sec_4261 which provides that the exemption does not apply to helicopters that use services provided pursuant to usc or b or subchapter_i of chapter of title of the united_states_code airport does not provide maintenance or services to x’s base x’s base is private and as such cannot benefit from federal funds including those described in or b or subchapter_i of chapter of title the only assistance that x routinely receives is that it obtains weather information from awos which the faa operates and maintains although the legislative_history to sec_4261 does not mention awos the legislative_history to sec_4261 addresses this issue that legislative_history suggests that the mere use of weather service information supplied by the faa to all aircraft does not disqualify otherwise qualified helicopters from the exemption thus x’s use of weather information from awos does not preclude x’s flights from qualifying for the exemption under sec_4261 further the legislative_history of sec_4261 provides that the exemption does not apply to helicopters that follow faa air navigation signals in their flight patterns approximately of x’s flights use vfr such flights do not follow faa air navigation signals sec_4261 treats each segment of a flight described in sec_4261 as a distinct flight therefore x’s flights that do not use faa navigational signals may be treated as separate and distinct from x’s flights that do use faa navigational signals based on the facts submitted and representations made we conclude that x’s helicopter flights for the purpose of transporting individuals equipment or supplies in the exploration for or the development or removal of oil or gas that do not use faa navigation signals in other words x’s flights that use vfr qualify for the exemption under sec_4261 therefore those flights are exempt from the tax imposed by plr-112343-13 sec_4261 and b we further conclude that x’s flights that use faa navigation signals in other words x’s flights that use ifr do not qualify for the exemption under sec_4261 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely stephanie bland senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court leo and shawn m stephens petitioners v commissioner of internal revenue respondent docket no 9171-06s filed date reggie l wegner for petitioners milan h kim and david conrad for respondent foley judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the years in issue and this opinion shall not be treated as precedent for any other case the issue for decision is whether pursuant to sec_162 petitioners are entitled to deduct expenses related to employee benefit programs background petitioner leo stephens and his wife shawn stephens operated a custom harvesting business stephens family llc that consisted of cutting hauling and selling grain the harvesting business through a joint_venture with mrs stephens’s mother clair schrock mr stephens also operated a farm on which they grew various crops and raised to head of cattle in date mr stephens enrolled in a health plan through blue cross blue shield of kansas mr stephens was the named policyholder and his family ie his spouse and his four children was covered under the plan mr stephens paid the plan premiums out of a joint bank account he owned with mrs stephens in date mr stephens through agriplan bizplan adopted an employer-provided accident_and_health_plan for employees the plan provided for full reimbursement for health insurance costs to eligible employees and their families in addition eligible employees qualified for reimbursement of up to dollar_figure for out- of-pocket medical_expenses to be reimbursed eligible employees were required to submit a transmittal form to agriplan bizplan indicating the amount the employee paid for health insurance and out-of-pocket medical_expenses during the year agriplan bizplan would then process the transmittal form and issue a statement to the employer stating the amount the employer should reimburse the eligible_employee on date mrs stephens entered into an employment agreement with mr stephens mrs stephens agreed to do bookkeeping for the businesses run errands prepare meals for the staff answer phones and do general field work and customary duties the employment agreement specified that mrs stephens would be paid dollar_figure annually and be an eligible enrollee under the agriplan bizplan in mrs stephens worked big_number hours for the harvesting business and the farm and was issued a form_w-2 wage and tax statement form_w-2 thereafter she submitted an employee benefit expense transmittal form to agriplan bizplan claiming that in she had paid dollar_figure for medical_expenses of this total dollar_figure was attributable to the health insurance premiums relating to the blue cross blue shield plan and dollar_figure was attributable to out-of-pocket medical_expenses these expenses were paid out of petitioners’ joint bank account and petitioners were not reimbursed on the schedule f profit or loss from farming accompanying their return petitioners deducted dollar_figure for employee_benefits programs in mrs stephens worked big_number hours for the harvesting business and the farm and was issued a form_w-2 thereafter mrs stephens submitted an employee benefit expense transmittal form to agriplan bizplan claiming that in she had paid dollar_figure for medical_expenses of this total dollar_figure was attributable to the health insurance premiums relating to the blue cross blue shield plan and dollar_figure was attributable to out- of-pocket medical_expenses these expenses were paid out of petitioners’ joint bank account and petitioners were not reimbursed on the schedule f accompanying their return petitioners claimed an dollar_figure deduction relating to employee_benefits programs on date respondent issued petitioners a notice_of_deficiency and determined deficiencies relating to and respondent determined that petitioners were not entitled to deduct percent of their medical_expenses on schedule f as ordinary and necessary business_expenses respondent did however allow petitioners a deduction pursuant to sec_162 for percent of the dollar_figure health insurance premium payments relating to and percent of the dollar_figure health insurance premium payments relating to on date petitioners while residing in colby kansas filed their petition with the court discussion sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business ordinary and necessary business_expenses include the reimbursement of employee_benefit_plan expenses paid_or_incurred by employees sec_162 sec_1_162-10 income_tax regs petitioners contend that their health insurance and out-of-pocket medical_care expenses are fully deductible pursuant to sec_162 petitioners however are allowed to deduct only percent of the amount_paid for health insurance in and percent of the amount_paid for health insurance in sec_162 and b accordingly we sustain respondent’s determinations that petitioners’ health insurance expenses are subject_to sec_162 in addition pursuant to sec_162 petitioners’ out-of-pocket medical_care expenses are not ordinary and necessary business_expenses and therefore are not deductible contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court tarsha latrice mcclain petitioner v commissioner of internal revenue respondent docket no 14299-06s filed date tarsha latrice mcclain pro_se lynette mayfield for respondent wells judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case 1all subsequent 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 respondent determined deficiencies in federal income taxes of dollar_figure and dollar_figure for petitioner’s and taxable years respectively the issues we must decide are whether petitioner is entitled to two dependency_exemption deductions for two unrelated minor children for taxable years and whether petitioner is entitled to head_of_household filing_status for taxable years and whether petitioner is entitled to the earned_income_credit as an individual with two unrelated children for taxable years and and whether petitioner is entitled to the additional_child_tax_credit for two unrelated minor children for taxable_year at the time of filing the petition petitioner resided in background arizona for taxable_year petitioner timely filed a form_1040 u s individual_income_tax_return respondent issued a notice_of_deficiency with regard to petitioner’s taxable_year in which respondent disallowed two dependency_exemption deductions head_of_household filing_status and an earned_income_credit on the basis of two qualifying children for taxable_year petitioner timely filed a form_1040 respondent issued a notice_of_deficiency with regard to petitioner’s taxable_year in which respondent disallowed two dependency_exemption deductions head_of_household filing_status an earned_income_credit on the basis of two qualifying children and an additional_child_tax_credit on the basis of two qualifying children bj born date and cj born date are minor children of penny freeman ms freeman petitioner is not related to bj or cj bj and cj were not at any time placed with petitioner by a court or authorized_placement_agency during the years in issue bj and cj lived with ms freeman at all times at the beginning of petitioner lived with ms freeman and ms freeman’s children bj and cj in memphis tennessee during part of petitioner provided health insurance for inter alia bj and cj through her employer on date bj and cj withdrew from memphis city schools in order to move to arizona with ms freeman petitioner did not move with ms freeman and her children but instead remained in memphis on date petitioner moved to a residential hotel in tempe arizona with ms freeman and her children on date petitioner and ms freeman jointly rented a home in phoenix arizona for dollar_figure per month including trash removal 2the court refers to minor children by their initials rule a discussion dependency_exemption deductions in order to be entitled to dependency_exemption deductions petitioner must prove that she meets the provisions of sec_151 and sec_152 because sec_151 and sec_152 were amended the law is different for and we discuss each taxable_year in turn taxable_year for sec_151 provides that an exemption is allowed for each person who is a dependent of a taxpayer if the following requirements are met a the individual for whom an exemption is claimed is a u s citizen who is a dependent as defined in sec_152 which includes a son daughter stepson stepdaughter sibling parent or other ancestor stepparent niece nephew aunt uncle certain relatives-in-law or an individual other than the taxpayer’s spouse who for the taxable_year of the taxpayer has as his principal_place_of_abode the home of the taxpayer and is a member of the taxpayer’s household 3petitioner has not raised sec_7491 and therefore it does not apply consequently petitioner bears the burden_of_proof see rule a 4the working families tax relief act of publaw_108_311 sec 118_stat_1176 amended sec_151 effective for tax years beginning after date the working families tax relief act of sec 118_stat_1169 amended sec_152 effective for tax years beginning after date b over one-half of the individual’s support for the taxable_year is received from the taxpayer and c the individual’s gross_income is less than the exemption_amount or the individual is the taxpayer’s child who is younger than age or is a student younger than age sec_151 sec_152 sec_152 requires that to be entitled to a dependency_exemption deduction for a person not related to the taxpayer the taxpayer must show that the individual for whom the dependency_exemption deduction is sought has lived with them as part of their household for the entire taxable_year petitioner has failed to show that bj and cj resided with her as part of her household for the entire year the memphis city school records show that on date bj and cj withdrew from school in order to move they moved to arizona with their mother while petitioner remained in memphis petitioner joined ms freeman and the children in arizona during date accordingly the two children in issue did not live with petitioner as part of her household for the entire year petitioner must also show that she provided over one-half of the support for the children during see sec_152 to be entitled to a deduction for a dependency_exemption a taxpayer must establish the total support costs expended on behalf of the claimed dependent from all sources for that year and must demonstrate that they provided over one-half of that amount daya v commissioner tcmemo_2000_360 sec_1 a i income_tax regs petitioner has failed to establish and take into account the full amount of income from all sources into her household for and the expenditure from those sources and thus is unable to establish whether or not any amounts of support provided by her during constituted more than one-half of the support for the claimed dependents petitioner has not accounted for the earnings_of ms freeman if any and the amount of any government benefits that ms freeman may have received on the basis of the meager record in the instant case petitioner has failed to meet her burden_of_proof with regard to the dependency_exemptions for taxable_year for sec_151 provides for dependency_exemptions for dependents as defined in sec_152 sec_152 defines a dependent as either a qualifying_child or a qualifying_relative a qualifying_child is one who does not provide over one-half of his support sec_152 sec_152 establishes four tests for a qualifying_child the relationship_test the principal_place_of_abode test the age_test and the support_test the age_test is not an issue the relationship_test set forth in sec_152 requires that a qualifying_child be a child of the taxpayer a brother or sister of the taxpayer a stepbrother or stepsister of the taxpayer or a descendant of any of these petitioner did not offer any evidence that the children in issue are related to her indeed the parties stipulated that bj and cj are not related to petitioner bj and cj are the children of ms freeman with whom petitioner lived for part of and all of additionally sec_152 disallows a deduction for a dependency_exemption with regard to an individual who may be a qualifying_child of another taxpayer for the taxable_year petitioner has not established that bj and cj were not the qualifying children of ms freeman during all of accordingly they cannot be individuals for whom a dependency_exemption is allowable to petitioner as an unrelated taxpayer on the basis of the record we hold petitioner is not entitled to the two dependency_exemption deductions she claimed for taxable_year head_of_household filing_status taxable_year as relevant here to be entitled to file as a head_of_household a taxpayer must be unmarried and not a surviving_spouse at the close of the tax_year and must maintain as his home a household which constitutes for more than one-half of the year the principal_place_of_abode as a member of his household of a person for whom the taxpayer is entitled to a deduction for a dependency_exemption pursuant to sec_151 sec_2 a taxpayer is considered as maintaining a household only if over half of the cost of maintaining the household during the taxable_year is furnished by the taxpayer sec_2 56_tc_512 petitioner has failed to offer evidence that bj and cj were members of her household for the entire taxable_year petitioner has not shown that she is entitled to the two dependency_exemption deductions for consequently petitioner is not entitled to head_of_household status for taxable_year taxable_year for the definition of head_of_household was amended to require that to be entitled to file as head_of_household an individual must maintain a home which constitutes for more than one-half of the taxable_year the principal_place_of_abode of an unmarried qualifying_child as defined in sec_152 or the principal_place_of_abode for the entire year of any other person who is a dependent of the taxpayer for whom the taxpayer is entitled to a deduction under sec_151 sec_2 the evidence shows that bj and cj are not related to petitioner accordingly they fail the relationship_test see sec_152 furthermore petitioner cannot meet the requirements of sec_152 which disallows a dependency_exemption unless the taxpayer establishes that the proposed dependent is not the qualifying_child of another taxpayer as discussed above bj and cj may be qualifying children of their mother ms freeman with whom they lived for the entire year moreover petitioner failed to prove that she provided more than one-half of the cost of maintaining a household for bj and cj for taxable_year as required by sec_2 petitioner is therefore not entitled to file as a head_of_household for earned_income_credit on each of her and returns petitioner claimed an earned_income_credit based on bj and cj as qualifying children sec_32 provides that for purposes of qualifying for the earned_income_credit an eligible_individual is an individual who has a qualifying_child for the taxable_year a qualifying_child is defined as an individual’s child stepchild sibling step-sibling a descendant of any of these or an eligible_foster_child placed with the individual by an 5respondent concedes that without a qualifying_child petitioner is entitled to an earned_income_credit of dollar_figure for taxable_year only pursuant to sec_32 authorized agency whom the individual cares for as the individual’s own child who is under the age of and who has the same principal_place_of_abode as the individual for more than one-half of the taxable_year sec_32 petitioner is not related to bj or cj and has produced no evidence that they were placed with her by an authorized_placement_agency bj and cj therefore are not qualifying children for purposes of the earned_income_credit for the taxable years in issue additional_child_tax_credit petitioner claimed an additional_child_tax_credit on the basis of bj and cj as qualifying children for taxable_year subject_to limitations on the basis of adjusted_gross_income a taxpayer is allowed for the year a child_tax_credit with regard to each qualifying_child of the taxpayer sec_24 a portion of the child_tax_credit may be refundable as additional_child_tax_credit if the taxpayer has an unused child_tax_credit sec_24 for taxable_year a qualifying_child is defined as one that meets the requirements of a qualifying_child for purposes of the dependency_exemption pursuant to sec_152 who has not attained age sec_24 bj and cj do not meet the 6no additional_child_tax_credit was disallowed by respondent for taxable_year relationship_test of sec_24 and sec_152 and petitioner has not demonstrated that she is entitled to dependency_exemption deductions for bj and cj accordingly we hold that petitioner is therefore not entitled to an additional_child_tax_credit for taxable_year on the basis of bj and cj as qualifying children we have considered all of the parties’ arguments and to the extent they are not discussed in this opinion we conclude that they are without merit irrelevant or unnecessary to reach to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------------------------------- ----------------------------------------------------- ---------------------------- -------------------------------- 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 plr-128287-07 date december legend decedent spouse trust a_trust b_trust c bank date date attorney attorney dear ----------------- ---------------------------------------------- --------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------ ------------------------------------- ------------------- ------------------------ ------------------- -------------------------- this is in response to your authorized representative's submission dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations i to sever trust a into two trusts a gst exempt trust and a gst non-exempt trust under sec_26_2654-1 of the generation-skipping_transfer_tax regulations ii to make a reverse qualified_terminable_interest_property qtip_election for the gst exempt trust under sec_2652 of the internal_revenue_code and iii to allocate decedent’s gst_exemption to trust c and the gst exempt trust pursuant to sec_2642 on date decedent died testate survived by spouse pursuant to paragraph a of decedent’s will the rest and residue of decedent’s estate is to be held in trust for the benefit of spouse paragraph c provides that the executor is plr-128287-07 authorized to make any elections provided for in the internal_revenue_code including sec_2056 as amended in order to take advantage of any federal estate_tax_marital_deduction in effect upon decedent’s death bank is the representative of decedent’s estate and the trustee of the trusts created under decedent’s will spouse retained attorney for assistance with various aspects of administration of decedent’s estate and to prepare decedent’s form_706 united_states estate and generation-skipping_transfer_tax return pursuant to decedent’s will three trusts were created from the residue of his estate_trust a and trust b marital trusts intended to be qtip trusts within the meaning of sec_2056 and trust c each trust has gst potential the executor made a reverse_qtip_election under sec_2652 for trust a and allocated all of decedent’s gst_exemption to trust a upon the advice of attorney it is represented attorney misconstrued decedent’s will regarding the gst potential of trust c spouse died on date attorney was engaged by spouse’s estate to prepare and file spouse’s form_706 the errors on decedent’s form_706 were discovered by attorney during the preparation of spouse’s form_706 sec_2601 imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution taxable_termination and direct_skip under sec_2631 for purposes of determining the inclusion_ratio every individual is allowed a gst_exemption amount that may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made is irrevocable sec_2632 provides that an individual's gst_exemption may be allocated at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such return is required to be filed under sec_26_2632-1 an allocation of a decedent's available gst_exemption by the executor of the decedent's_estate is made on form_706 filed on or before the date prescribed for filing the return by sec_6075 including any extensions granted an allocation of gst_exemption with respect to property included in the gross_estate of a decedent is effective as of the date of death sec_2642 provides generally that if property is transferred as a result of the death of the transferor the value of the property for purposes of determining the inclusion_ratio under sec_2642 shall be the value of the property as finally determined for estate_tax purposes plr-128287-07 sec_2642 provides generally 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_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 internal_revenue_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 notice_2001_50 2001_34_irb_189 provides in part that under sec_2642 the time for allocating the gst_exemption to transfers at death is 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 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 has acted reasonably and in good_faith and the grant of 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 upon the facts submitted and the representations made the request for an extension of time to allocate decedent’s gst_exemption to trust c and the gst exempt trust is denied all of decedent’s gst_exemption was affirmatively allocated at his death to trust a sec_2631 provides that allocations of gst_exemption are plr-128287-07 irrevocable once made since your request is denied with respect to allocating decedent’s gst_exemption rulings on requests to sever trust a into two trusts and to make a reverse_qtip_election with respect to one of the severed trusts are not necessary 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 in accordance with the power_of_attorney on file with this office a copy of this the code provides that it may not be used or cited as precedent letter is being sent to your authorized representatives sincerely william p o'shea associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


t c memo united_states tax_court denny’s auto sales inc petitioner v commissioner of internal revenue respondent docket no 11150-0o1 filed date ronald lawson and dennis f lawson officers for petitioner john a freeman and robert d kaiser for respondent memorandum opinion thornton judge respondent issued a notice of final_determination denying petitioner’s request to abate interest for its tax_year petitioner timely filed a petition pursuant - - to sec_6404 and rule the sole issue for decision is whether respondent abused his discretion in denying petitioner’s request for abatement of interest background the parties have stipulated some of the facts which we incorporate in our findings by this reference petitioner is a kentucky corporation when the petition was filed petitioner’s principal_place_of_business was in south shore kentucky on its form_1120 u s_corporation income_tax return petitioner claimed a dollar_figure depreciation deduction with respect to certain used cars that were part of its car-rental program the used cars in calculating this depreciation deduction petitioner assigned the used cars zero salvage_value on date respondent’s revenue_agent first contacted petitioner concerning its federal_income_tax return on date the revenue_agent issued her report proposing that petitioner’s claimed depreciation deduction should be reduced by dollar_figure based on her conclusion that the salvage_value of the used cars wa sec_89 percent of original cost on date respondent granted petitioner’s request for an appeals_conference on or about date petitioner and the appeals officer reached a settlement agreeing unless otherwise stated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure - - that the used cars should be assigned a 20-percent salvage_value the settlement resulted in a deficiency of dollar_figure after application of a net_operating_loss_carryback on date respondent assessed dollar_figure of interest on the deficiency on date petitioner paid the deficiency exclusive of interest on date petitioner filed a form_843 claim_for_refund and request for abatement requesting abatement of dollar_figure of the then-accrued interest by way of explanation petitioner stated on the form the taxpayer believes a reasonable period to resolve the issue should have been one year therefore the taxpayer requests an abatement of the interest in the amount of dollar_figure leaving a balance due of dollar_figure this amount represents a reasonable amount of interest on the balance owed of dollar_figure on date petitioner paid dollar_figure of the interest on date respondent issued a notice of final_determination disallowing petitioner’s request for abatement of interest discussion under sec_6404 the secretary may abate interest on any deficiency or payment of income gift estate and certain excise_taxes to the extent that the deficiency or any error or delay in such payment is attributable to erroneous or dilatory performance of a ministerial_act by an officer_or_employee of the internal_revenue_service irs such an error or delay in performing a ministerial_act is taken into account only if it is in no significant aspect attributable to the taxpayer and only if it occurs after the irs has contacted the taxpayer in writing regarding the deficiency or payment congress did not intend sec_6404 to be used routinely to avoid payment of interest rather it is to be utilized in instances where failure to abate interest would be widely perceived as grossly unfair h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_1 for interest abatement claims made after date the tax_court has jurisdiction to determine whether the commissioner’s failure to abate interest under sec_6404 e was an abuse_of_discretion see sec_6404 112_tc_19 in the petition petitioner contends that respondent took an excessive_amount of time in concluding the audit and argue sec_2 in sec_6404 was amended to permit abatement of interest for unreasonable error or delay resulting from the performance of ministerial or managerial acts taxpayer bill of right sec_2 publaw_104_168 and 110_stat_1457 the amendment applies to tax years beginning after date id at sec_301 110_stat_1457 therefore the amendment is inapplicable to the instant case sec_6404 was redesignated sec_6404 by the victims of terrorism tax relief act of publaw_107_134 d b stat - - that if the irs had not taken such an unreasonable position in the beginning of the audit then the delays on their part would have been drastically reduced the mere passage of time however does not establish that the commissioner has erred or delayed in performing a ministerial_act see 113_tc_145 similarly the actions of respondent’s agents in applying federal tax law to petitioner’s facts and circumstances required the exercise of judgment and discretion and so did not constitute ministerial actions that could provide a basis for abating interest see sec_301_6404-2t b temporary proced admin regs fed reg date at trial petitioner’s certified_public_accountant gary fyffe fyffe testified that on several occasions he requested on petitioner’s behalf a meeting with the revenue agent’s group manager to discuss the revenue agent’s proposed adjustments fyffe testified that basically i was told that it wasn’t going to get the meeting for different reasons but the reason i remember most was for some reason she wasn’t available having failed to obtain a meeting with the group manager petitioner requested and received an appeals_conference fyffe opined that because the salvage_value used by the revenue_agent was flawed petitioner would have probably been a little more -- - successful as far as getting a more reasonable adjustment if the case had been reviewed by a group manager petitioner contends that the group manager’s failure to meet with fyffe to discuss the revenue agent’s proposed adjustments constituted error in performing a ministerial_act in support of this contention petitioner relies on internal_revenue_manual section 6b which states if the taxpayer disagrees with the proposed changes either by letter or in person at the originating office the group manager will ona priority basis and at his her discretion discuss the disputed adjustments with the taxpayer ina further attempt to resolve the issues and obtain the taxpayer’s agreement audit internal_revenue_manual cch sec b pincite emphasis added this provision of the internal_revenue_manual plainly indicates that the group manager’s discussion of disputed adjustments with the taxpayer is discretionary accordingly the nonoccurrence of such a discussion does not establish error in performing a ministerial_act in any event we cannot assume that a meeting with the group manager if it had occurred would have accelerated rather than protracted resolution of petitioner’s tax controversy it is purely conjectural whether the group manager would have resolved the disputed issue any more expeditiously than the appeals officer or any more to petitioner’s satisfaction we cannot assume that even after meeting with the group manager petitioner would not have requested an appeals_conference or - that the final outcome of this more protracted administrative_proceeding would have been any more in petitioner’s favor accordingly there is no basis to conclude that any of the interest on petitioner’s deficiency was attributable to the group manager’s failure to meet with petitioner in sum the record does not show that there was any erroneous or dilatory performance of a ministerial_act by respondent that caused or contributed to the delay in petitioner’s payment of the tax_liability consequently respondent’s denial of petitioner’s reguest to abate interest under sec_6404 was not an abuse_of_discretion decision will be entered for respondent


- department of the treasury internal_revenue_service washington d c ke t c date may - sf contact person danny smith identification_number telephone number to by employer_identification_number coe dear sir or madam this is in response to your letter dated date in which you requested certain rulings with respect to a proposed transfer of all of the assets of b to c b and c are exempt under sec_501 of the internal_revenue_code and are classified as private_foundations under sec_509 b was originally organized and funded by d it has always operated exclusively for charitable purposes exclusively for charitable purposes c was originally organized and funded by e it has always operated d and e recently merged resulting in the creation of f the directors of f want to use one foundation rather than two to assist f in conducting its charitable activities member board_of directors these three individuals also serve on the four member board_of c b and c now share the same officers the officers and directors of b and c believe that the merger of b and c will simplify operations and reduce overhead expenses filing_requirements and fees therefore b and c propose to merge c will be the surviving entity after the merger c will succeed to all of the assets and liabilities of b and will continue the charitable mission of b b has a three b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b has stated that it has not committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides for the voluntary and involuntary termination of private_foundation_status it states in part that except for transfers described in sec_507 an organization's private_foundation_status will be terminated only if the organization notifies the service of its intent to terminate or there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_507 of the code imposes a tax on an organization that terminates its private_foundation_status under sec_507 of the code sec_1_507-3 of the income_tax regulations provides that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code even for any taxable_year in which it makes a transfer of its assets to another private_foundation such transfer shall itself be counted toward satisfaction of such requirements to the extent the amount transferred meets the requirements of sec_4942 of the code however where the transferor has disposed of all of its assets the record-keeping requirements of sec_4942 of the code shall not apply during any period in which it has no assets sec_1_507-1 of the regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 of the code such transferor foundation will not have terminated its foundation status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all of the assets of a private_foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such disposition of assets is made to another private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-1 of the regulations provides that a private_foundation which transfers ail of its assets is not required to file annual information retums required by sec_6033 of the code for its tax years after the tax_year of its transfer when it has no assets or activities sec_1_507-3 of the reguiations provides that in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this subsection the transferor organization shall not be treated as a newly created organization sec_1_507-3 of the regulations provides that a transferee organization in the case of a transfer described in sec_507 of the code shall succeed to the aggregate tax n qr benefit of the transferor organization in an amount equal to the amount of such aggregate tax_benefit of the transferor organization multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer fair_market_value is determined at the time of transfer sec_1_507-3 i of the regulations provides that if a transferor private_foundation transfers assets to a private_foundation which is effectively controlled within the meaning of sec_1_482-1a directly or indirectly by the same person or persons who effectively control the transferor private_foundation the transferee foundation will be treated as if it were the transferor foundation for purposes of sec_4940 through and sec_507 through of the code the transferee is treated as the transferor in the proportion which the fair_market_value of the transferor’s assets that were transferred bears to the fair_market_value of all of the assets of the transferor immediately before the transfer sec_1_507-3 of the regulations provides that unless a private_foundation gives notice under sec_507 of the code a transfer of assets described in sec_507 of the code will not constitute a termination of the transferor’s private_foundation_status sec_1_507-4 of the regulations provides that the tax on termination of private_foundation_status under sec_507 of the code does not apply to a transfer of assets pursuant to sec_507 of the code unless the provisions of a become applicable sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4942 of the code requires a private_foundation to make specified distributions of income for each taxable_year including the year in which it transfers substantial assets to another private_foundation under sec_507 sec_4942 of the code defines a qualifying_distribution as any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code requires that a grantor private_foundation in order to have a qualifying_distribution for its grant to another private_foundation which is not an operating_foundation under sec_4942 of the code must have adequate_records as required by sec_4942 of the code to show that the grantee private_foundation in fact go7 subsequently made qualifying distributions that were equal to the amount of the grant and that were paid out of the grantee’s own corpus within the meaning of sec_4942 of the cade such grantee foundation's qualifying distributions out of corpus must be expended before the close of the grantee’s first tax_year after its tax_year in which it received the grant sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes tax upon a private foundation’s making of any taxable_expenditure under sec_4945 sec_4945 of the code defines the term taxable_expenditure to include any amount_paid or incurred by a private_foundation as a grant to an organization unless a the organization is described in subparagraphs or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 of the code or b the private_foundation exercises expenditure_responsibility with to such grant in accordance with sec_4945 of the code the exercise of expenditure_responsibility requires the foundation that makes the transfer to keep detailed records of the way the payment is spent by the recipient foundation sec_4945 of the code provides that expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary sec_4946 of the code defines the term disqualified_person as a person who is a substantial_contributor to a private_foundation a foundation_manager an owner of more than of a corporation or partnership which is a substantial_contributor to the private_foundation a family_member of persons described above or a corporation partnership trust or estate of which persons described above own more than of the combined voting power sec_53_4945-5 of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 and h and this section apply to transfers of assets described in sec_507 sec_53_4945-6 of the regulations provides that any expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services rendered will ordinarily be taxable_expenditures under sec_4945 unless the foundation can demonstrate that such expenses were paid_or_incurred in the good_faith belief that they were reasonable and that the payment or incurrence of such expenses in such amounts was consistent with ordinary business care and prudence the determination whether an expenditure is unreasonable shall depend upon the facts and circumstances of the particular case sec_53_4945-6 of the regulations provides that a transfer of assets of a private_foundation under sec_507 of the code is not a taxable_expenditure if such transfer is to an organization described in sec_501 other than an organization described in sec_509 or treated as so described under sec_4947 sec_53_4946-1 of the regulations provides that for purposes of sec_4941 the term disqualified_person does not include any organization described in sec_501 other than an organization described in sec_509 based on the above facts the transfer of ail of b’s assets to c will allow c to continue the charitable activities previously conducted by b c will be controlled by the same officers and directors that controlled b therefore the transfer of assets from b to c will not endanger the tax exempt status of either entity under sec_501 under sec_507 of the code in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as newly created organization thus the transfer by b to c will constitute in the aggregate an adjustment organization or reorganization within the meaning of sec_507 accordingly the transfer by b to c will not be treated as a transfer to a newly created organization because b is not terminating its existence and assuming there has been no willful repeated or flagrant act giving rise to liability under chapter no tax will be imposed on b under sec_507 as a result of the transfer of assets from b to c because the individuals who comprise the governing bodies of b and c are almost identical and the officers of b and c are currently the same b and c should be treated as being effectively controlled by the same persons within the meaning of sec_1_507-3 of the regulations because b and c are effectively controlled by the same persons c should be treated as if it were b for purposes of sec_507 through and chapter of the code therefore the rulings requested under sec_4940 sec_4941 sec_4942 and sec_4944 would be provided because these rulings are consistent with the approach in sec_1_507-3 of the regulations which is in effect to disregard the change in form of the organization for purposes of chapter because b is transferring all of its assets to c pursuant to a merger and b and c are controlled by the same persons c will be treated as b the transfer will be treated as not having taken place for expenditure_responsibility purposes under sec_4945 of the code thus the transfer will not be a taxable_expenditure under sec_4945 therefore b need not exercise expenditure_responsibility with regard to the merger subsequent to the merger c will be treated as if it were b therefore c will succeed to b's duties to exercise expenditure_responsibility and b would be relieved of any duty to exercise expenditure_responsibility after the merger as a result of the merger c will be treated as b for purposes of chapter therefore hgos distribution_requirements of sec_4942 for the year of transfer should be regarded as satisfied by both b and c if treating b and c as a single organization the aggregate qualifying distributions for such year by b and c would satisfy its distribution requirement because c is treated as taking over b’s obligations as of the date of merger it follows that as of that date b will no longer have any such obligations because b and c are controlled by the same persons for purposes of chapter of the code and sec_507 through of the code c will be treated subsequent to the transfer of all of b's assets as if it were b in proportion which the fair_market_value of the assets less encumbrances transferred bears to the fair_market_value of b ‘s assets less encumbrances immediately before the transfer thus c can succeed to b’s excess qualifying distributions carryover for purposes of sec_4942 of the code and in proportions determined in accordance with sec_1_507-3 of the regulations consistent with succeeding to b’s tax_attributes under sec_1_507-3 of the regulations c will be treated as if it were b for purposes of chapter including sec_4940 accordingly c would be allowed to report all of the net_income subject_to tax under sec_4940 during the year of merger whether earned by b or c and pay ail of the sec_4940 taxes on such income for that year provided the expenses_incurred by b and c in the transfer of assets to c meet the good_faith standard of sec_53_4945-6 b of the regulations such expenses will not constitute taxable_expenditures under sec_4945 of the code and will be considered qualifying distributions under sec_4942 because c is treated as b for purposes of chapter c will be allowed to pay b's outstanding grants and treat the qualifying distributions just as b could have if it had made the payments because b as an organization described in sec_501 of the code is not a disqualified_person with respect to c the transfer of assets to c will not constitute an act of self- dealing within the meaning of sec_4941 of the code further because c is treated as if it were b the payment by c not as a direct or indirect transfer to or for the benefit of some separate_entity thus any payment of b’s liabilities by c should not be treated as an act of self-dealing of a liability of b will be viewed as a payment of c's own liability and because b and c are exempt under sec_501 and are organized for purposes described in sec_170 and the reason for the transfer is to carry out more efficiently such exempt purposes the transfer would not be a jeopardizing investment under sec_4944 under sec_4940 of the code capital_gains_and_losses are defined as gains and losses from the sale_or_other_disposition of certain property because the asset transfer from b to c will lack consideration no sale_or_other_disposition will have occurred thus there will be no gain and the assets transfer will not give rise to tax under sec_4940 of the code f urther because the transfer of assets to c is disregarded because in turn c is treated as if it were b for purposes of chapter c’s basis in the assets transferred to it pursuant to the merger should be the same as the basis of b ol because b will have no assets after the proposed transfer to c it will not be required to file any information returns under sec_6033 for any taxable_year after the transfer because b will dispose_of all of its assets the recordkeeping requirements of sec_4942 will not apply during any period in which it has no assets therefore b’s recordkeeping under sec_4942 will not apply after the merger since b will have disposed of ail of its assets under sec_507 of the code the value of b's assets after it has transferred all of its assets to c will be zero thus b’s voluntary notice termination of its private_foundation_status pursuant to sec_509 will not result in tax under sec_507 of the code accordingly based on the information furnished we rule as follows the transfer of all of b's assets to c will not adversely affect either b or c’s status as an organization described in sec_501 of the code the transfer of assets will constitute a transfer pursuant to a merger described in sec_507 of the code and therefore c will not be treated as a newly created organization for purposes of sec_507 through the merger will not result in the termination of b's private_foundation_status under sec_507 of the code and will not subject b to the tax imposed by sec_507 b and c are effectively controlled by the same person or persons as the concept of effective_control is used in sec_1 a a formally sec_1_482-1 and sec_1_507-3 i of the regulations c will be treated as if it were b for purposes of chapter and sec_507 through of the code as a result the transfer will not subject b to taxes imposed by sec_4941 through of the code the transfer of assets pursuant to the proposed merger will not be a grant subject_to the expenditure_responsibility provisions of sec_4945 and h therefore b will not have to exercise expenditure_responsibility within the meaning of sec_4945 and h with respect to the transfer of its assets to c pursuant to the merger also b will not have to comply with the expenditure_responsibility_rules subsequent to the merger the transfer of the assets of b to c will not constitute a taxable_expenditure under sec_4945 of the code cwill succeed to b's aggregate tax benefits the provisions of sec_4942 of the code will apply to c in the year the merger occurs as if it were b therefore c will succeed to b's distribution_requirements for that taxable_year and any taxable_year prior to that taxable_year and c will be responsible for reporting ail undistributed_income oi b- determined under sec_4942 for that taxable_year and any taxable_year prior to that taxable_year because c succeeds to b's distribution_requirements b will not be required to meet the distribution_requirements of sec_4942 for the taxable_year in which the merger occurs or any later taxable_year c may for the purposes of determining its distribution_requirements under sec_4942 reduce its distributable_amount by b’s excess qualifying_distribution carryover if any determined as of the end of the taxable_year immediately preceding the taxable_year of the merger the provisions of sec_4940 of the code will apply to c in the taxable_year in which the merger occurs as if it were b therefore b will not be subject_to the excise_tax imposed by sec_4940 for that portion of its taxable_year occurring after the transfer of all of its assets to c pursuant to the merger further b will not be subject_to the excise_tax imposed by sec_4940 for that portion of its taxable_year occurring before the transfer of all of its assets to c pursuant to the merger if c reports b’s net_investment_income from that portion of b's taxable_year and pays any excise_tax imposed by sec_4940 with respect to such investment_income c may pay any excise_tax imposed sec_4940 of the code with respect to b's net_investment_income for the portion of b's taxable_year occurring before the merger as well as reasonable accounting and legal expenses relating to b’s termination without creating liability for any excise_tax imposed under chapter of the code including but not limited to the tax imposed by sec_4945 the payment by c of any excise_tax imposed by sec_4940 with respect to the taxable_year of the merger that otherwise would have to be paid_by b may be taken into account by c under sec_4942 for purposes of determining c's distributable_amount and the payment by c of reasonable accounting and legal expenses related to the termination of b may be treated by c as a qualifying_distribution under sec_4942 c may satisfy any grants approved for future payment by b and each payment of such a grant by c will be classified as a qualifying_distribution under sec_4942 of the code by c and will not be treated as an act of self-dealing under sec_4941 the transfer will not be treated as an act of self-dealing within the meaning of sec_4941 of the code because it will be made for the exempt purposes of c the transfer will not constitute a willful and flagrant act or failure to act that would result in tax under chapter of the code similarly any payment by c to or on b's behalf with respect to any liabilities including any currently unknown liabilities under chapter of the code that are neither paid nor provided for will not constitute acts of self-dealing under sec_4941 the transfer pursuant to the proposed merger will not be treated as an investment jeopardizing the charitable purpose of b or c under sec_4944 of the code the transfer of all of b’s net assets to c pursuant to the merger will not trigger gross_investment_income or capital_gain income within the meaning of sec_4940 of the code and therefore the transfer will not result in imposition of tax under sec_4940 oe b’s basis in its assets will carry over to c for purposes of sec_4940 of the code b will not be required to file the annual return described in sec_6033 of the code for any taxable years subsequent to the year of merger b will not be required to comply with the recordkeeping requirements of sec_4942 of the code subsequent to the merger this ruling_request does not constitute a notice of intent to terminate b's private_foundation_status under sec_507 a voluntary termination of b’s private_foundation_status will occur when b notifies the service of its intent to terminate its private_foundation_status and such voluntary termination will not occur until after the transfer of all of b’s assets to c pursuant to the merger on the date of that voluntary termination because the value of b’s net assets will then equal zero b will not be liable for any termination_tax under sec_507 we are informing the ohio te_ge office of this action please keep a copy of this ruling in your organization’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely tera tol uv ak gerald v sack manager exempt_organizations technical group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc dom psi plr-100018-01 date date legend x sub1 sub2 sub3 sub4 sub5 a d1 plr-100018-01 this responds to your authorized representative’s letter dated date requesting relief under sec_1362 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations facts according to the information submitted x was incorporated on d1 with a as its sole shareholder sub1 sub2 sub3 sub4 and sub5 were incorporated as wholly- owned subsidiaries of x on d1 it was intended that x would elect subchapter_s status and qualified_subchapter_s_subsidiary qsub status for sub1 sub2 sub3 sub4 and sub5 effective d1 however the elections were untimely and the qsub elections were filed as subchapter_s elections law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub sec_1_1361-3 provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing a completed form signed by a person authorized to sign the s corporation’s return the election is made by filing form_8869 unless the election form provides otherwise the election must be submitted to the service_center where the subsidiary filed its most recent tax_return if applicable and if an s plr-100018-01 corporation forms a subsidiary and makes a valid qsub election for the subsidiary the election should be submitted to the service_center where the s_corporation filed its most recent return the qsub election may be made by the s_corporation parent at any time during the taxable_year sec_1_1361-3 pursuant to sec_1 a a qsub election will be effective on the date specified on the election form or on the date the election form is filed if no date is specified the effective date specified on the form cannot be more than two months and days prior to the date of filing and cannot be more than months after the date of filing under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election section provides automatic extensions of time for making certain elections but does not apply to qsub elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely s election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center within sixty days following the date of this letter a completed form_2553 containing an effective date of d1 for the election then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center we also conclude that good cause has been shown and the other requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to elect to treat sub1 sub2 sub3 sub4 and sub5 as qsubs effective d1 x should submit properly completed forms to the relevant service_center 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 plr-100018-01 referenced in this letter specifically no opinion is expressed concerning whether x is an s_corporation or whether sub1 sub2 sub3 sub4 and sub5 are qsubs for federal tax purposes 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 sincerely s paul f kugler paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes