internal_revenue_service number release date index number ------------------------- -------------------------------------------------------- ----------------------------------------- ---------------------------- ------------------------------------------------ in re ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------ telephone number --------------------- refer reply to cc corp bo1 plr-118747-08 date date foreign parent ------------------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------- f sec_1 ------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------- f sec_2 ------------------------------------------------------------------- ------------------------------------------------- us parent ------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- sub ------------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ lifeco ---------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------------- us parent ----------------------------------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------- sub ------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------- plr-118747-08 lifeco ------------------------------------------------------- ------------------------------------------------------------------------------------------ ---------------------------------------------------------- lifeco ------------------------------------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------------- country x year year year ---------- ----- -- ------- ------- f sec_3 ----------------------------------------------- --------------------------------------------------------------------------------- dear ------------------- this letter replies to your letter dated date requesting rulings concerning certain federal_income_tax consequences of a proposed transaction the following information is provided in that letter and letters dated date date and october and summary of facts foreign parent is a country x corporation that is the parent of a worldwide group of insurance and financial service corporations f sec_1 is a country x corporation that is wholly owned by foreign parent although f sec_1 formerly operated in the united_states through a branch it terminated that branch and no longer conducts any business in the united_states other than through subsidiaries f sec_2 a country x corporation is wholly owned by f sec_1 us parent is a domestic limited_liability_company that operates as a holding_company and has elected under sec_301_7701-3 of the income_tax regulations to be treated as a corporation for federal_income_tax purposes us parent is wholly owned by f sec_2 us parent and its subsidiaries file a consolidated_return the us parent group that includes both life_insurance_companies life companies and corporations other than life_insurance_companies nonlife companies under sec_1504 of the internal plr-118747-08 revenue code and sec_1_1502-47 sub a domestic holding_company is wholly owned by us parent and a member of the us parent group lifeco is a domestic life_insurance_company that is wholly owned by sub and is a member of the us parent group us parent is a domestic limited_liability_company that has elected to be treated under sec_301_7701-3 as a corporation for federal_income_tax purposes us parent is wholly owned by foreign parent and its affiliates us parent and its subsidiaries file a consolidated_return the us parent group that includes both life companies and nonlife companies sub a domestic holding_company is wholly owned by us parent and a member of the us parent group foreign parent acquired all of the stock of sub in year and contributed the stock of sub to us parent later in year lifeco is a domestic life_insurance_company that is wholly owned by sub lifeco is a domestic life_insurance_company that is wholly owned by lifeco both lifeco and lifeco are members of the us parent group during year and year lifeco sold or distributed all the stock of f sec_3 a country x corporation to sub as a result of these transactions gains recognized by lifeco were deferred pursuant to sec_1_1502-13 the intercompany items and the corresponding items arising from those transactions collectively the lifeco dit would be taken into account absent an applicable exception pursuant to sec_1 d upon sub or lifeco ceasing to be a member of the us parent group or the stock of f sec_3 leaving the us parent group proposed transaction foreign parent now has two separate chains of united_states subsidiaries resulting in inefficiencies and added expenses to resolve this problem foreign parent proposes to combine the us parent and us parent consolidated groups into one consolidated_group in plr dated date this office issued a private_letter_ruling regarding a proposed series of transactions in which us parent would merge into us parent and subsidiaries of the two us parents would be combined for various reasons those transactions were not consummated the parties have revised the earlier proposed transaction as described below steps i and ii below will precede the combination of the us parent and us parent groups no rulings are requested with respect to either step i or ii i in order to manage regulatory and other potential business issues following the proposed reorganization lifeco may reinsure with a domestic insurance_company plr-118747-08 affiliate risks associated with certain lifeco insurance contracts in that case lifeco may provide additional capital to that affiliate through a capital_contribution in order to increase that entity’s surplus ii foreign parent will contribute all of its ownership interests in us parent to f sec_1 and f sec_1 will then contribute all of those ownership interests to f sec_2 after these contributions f sec_2 will directly own ownership interests of both us parent and u s parent foreign parent then plans to have the us parent group combine with the us parent group through the following transactions which will occur on the same date and at approximately the same time but in the order set out below the proposed restructuring iii us parent will merge with and into us parent in a statutory merger with us parent surviving the us parent merger in the us parent merger f sec_2 will receive additional equity interests in us parent equal to the value of its equity interests in us parent iv sub will merge with and into sub in a statutory merger with sub surviving in order to permit foreign parent and its affiliates to maintain the proper tax basis under country x tax law foreign parent will cause sub to issue one new share of stock to us parent v lifeco and lifeco will merge simultaneously with lifeco in statutory mergers with lifeco surviving the lifeco transaction in order to permit foreign parent and its affiliates to maintain the proper tax basis under country x tax law foreign parent will cause lifeco to issue one new share of stock to sub after the proposed restructuring us parent will continue as the common parent of a consolidated_group including sub and lifeco see representations d and e below representations the taxpayer has submitted the following representations in connection with the proposed transaction a us parent and us parent are each treated as a corporation for united_states federal_income_tax purposes b the us parent merger will constitute a reorganization within the meaning of sec_368 the statutory mergers of sub into sub and lifeco and lifeco into plr-118747-08 lifeco will each constitute a reorganization under sec_368 accordingly each will constitute a transaction to which sec_381 applies c us parent sub and lifeco are each an eligible_corporation within the meaning of sec_1_1502-47 with respect to the us parent group and us parent sub lifeco and lifeco are each an eligible_corporation within the meaning of sec_1_1502-47 with respect to the us parent group d the us parent merger and related transactions will constitute a reverse_acquisition within the meaning of sec_1_1502-75 e after the proposed restructuring us parent will continue as the common parent of the new consolidated_group f after the proposed restructuring each of us parent sub and lifeco will meet the requirements provided in subparagraphs a b and c of sec_1 d i with regard to the new consolidated_group and subject_to the receipt of rulings and below will meet the requirements of subparagraph d of sec_1_1502-47 g lifeco and lifeco have entered into all of their insurance agreements including reinsurance treaties in the ordinary course of business h to the extent that a reinsurance agreement was entered into by lifeco or lifeco with a person owned or controlled directly or indirectly by the same interests within the meaning of sec_482 as lifeco or lifeco as the case may be the terms of such agreements satisfied the arms-length standard of sec_482 i the transfer of the assets and liabilities of lifeco and lifeco to lifeco as part of the lifeco transaction will constitute a special acquisition of lifeco within the meaning of sec_1_1502-47 rulings based solely on the information submitted and the representations set forth above we rule as follows following the proposed restructuring the surviving group as determined under sec_1_1502-75 with us parent as the common parent will be treated as the terminating group under sec_1_1502-13 and us parent and the successors to sub lifeco and lifeco will be treated as includible members of the new consolidated_group immediately after the proposed restructuring accordingly the lifeco dit will continue to be deferred following the proposed restructuring plr-118747-08 for purposes of applying sec_1_1502-47 and c to lifeco following the lifeco transaction the amount of the insurance reserves and premiums of lifeco attributable to the special acquisitions by lifeco of the assets and liabilities of lifeco and lifeco will be determined by reference to the insurance reserves and premiums attributable to the insurance agreements including any reinsurance treaties that have been entered into by lifeco and lifeco at the time of the lifeco transaction that are in effect at the time of the lifeco transaction and that continue in effect during the relevant measurement_period or that continue to be in effect at the relevant measurement date in the event that any insurance agreement including any reinsurance treaty to which lifeco or lifeco is a party is assumed by lifeco in the lifeco transaction and in the ordinary course of lifeco 1’s business is later amended or modified by lifeco to permit the reinsurance of additional insurance contracts issued by the relevant ceding company the amount of insurance reserves and premiums attributable to these additional insurance contracts will not be considered to relate to a special acquisition by lifeco within the meaning of sec_1_1502-47 for purposes of applying sec_1_1502-47 to to lifeco following the lifeco transaction the amount of assets of lifeco attributable to the special acquisitions by lifeco of the assets and liabilities of lifeco and lifeco will be determined by reference to all of the assets held by lifeco and lifeco at the time of the lifeco transaction transferred to lifeco in that transaction and held by lifeco during the relevant measurement_period or on the relevant measurement date provided that where i lifeco acquires an asset following the lifeco transaction other than in the ordinary course of its business and ii that asset acquisition is attributable to or is otherwise related to a disposition of an asset previously held by lifeco or lifeco at the time of the lifeco transaction the newly acquired asset will be considered an asset previously held by lifeco or lifeco as the case may be to the extent of the relinquished asset’s value at the time of disposal of that asset for purposes of applying sec_1_1502-47 to lifeco following the lifeco transaction the term premiums used in connection with any insurance agreement including any reinsurance treaty to which lifeco is or any predecessor was a party will mean a the gross_amount_of_premiums_and_other_consideration as defined in sec_803 including any negative modco reserve adjustment less b the sum of i any return_premiums including any experience refund positive modco reserve adjustment and other policyholder_dividend or reimbursement of any policyholder_dividend in each case attributable to any indemnity_reinsurance agreement and ii any consideration payable pursuant to any indemnity_reinsurance agreement for purposes of applying sec_1_1502-47 to lifeco following the lifeco transaction the term last taxable_year of the base_period means the taxable plr-118747-08 year immediately preceding the group’s taxable_year for which the consolidated_return and the determination of eligibility for lifeco is made for purposes of sec_1_1502-47 the term_insurance reserves means total_reserves as defined in sec_816 for purposes of sec_1_1502-47 determinations of disproportionate asset acquisitions are made by taking into account only those factors that are attributable to special acquisitions occurring during the relevant base_period caveats we express no opinion concerning the federal tax consequences of the proposed transactions under any other provision of the code or regulations or concerning any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular we express no opinion as to a whether any transactions described above are reorganizations within the meaning of sec_368 and b the consequences of the us parent merger for purposes of computing the branch_profits_tax liability of f sec_2 or any other entity under sec_884 this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this ruling letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction covered by this letter is completed alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to your authorized representative sincerely yours ______________________________ michael j wilder senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury index numbers number release date in re washington dc person to contact telephone number refer reply to cc intl plr-112522-99 date date legend taxpayer country y dear this replies to a letter dated date requesting that taxpayer be granted an extension of time under sec_301_9100-3 to submit a ruling_request provided by sec_877 and notice_97_19 1997_1_cb_394 as modified by notice_98_34 i r b the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by taxpayer this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process in taxpayer left the united_states to live in country y taxpayer relinquished her green card on date and thus terminated her status as a u s resident notice_97_19 provides that an individual subject_to sec_877 who expatriated after date but on or before date and who wishes to submit a ruling_request as to whether such expatriation had for one of its principal purposes the avoidance of u s taxes must do so by date however because taxpayer was not residing in the united_states at the time that notice_97_19 was issued on date she was unaware of the need to file and thus has not yet filed a timely expatriation ruling_request taxpayer relinquished her green card on date which was after date and before date thus taxpayer is requesting relief to submit a ruling_request after the due_date set by notice_97_19 taxpayer is requesting cc intl plr-112522-99 relief before the service has discovered her failure to make an expatriation ruling_request at the present time taxpayer’s returns for the taxable years that would have been affected by the expatriation ruling_request are not under examination by the service and they are not being considered by an appeals_office or by a federal court sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the standards set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections when the deadline for making the election is other than a due_date prescribed by statute sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation notice_97_19 fixes the time for an individual to submit a ruling_request for a determination as to whether such expatriation had for one of its principal purposes the avoidance of u s taxes therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to submit a ruling_request provided by notice_97_19 as modified by notice_98_34 no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented specifically no opinion is expressed as to the tax consequences under sec_877 of the code a copy of this ruling letter should be associated with the ruling_request to be filed pursuant to notice_97_19 as modified by notice_98_34 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent cc intl plr-112522-99 pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to taxpayer sincerely allen goldstein reviewer office of the associate chief_counsel international


internal_revenue_service number release date index number -------------------------------------- ------------------------------------------------------ ------------------------------------------ -------------------------------- ----------------------------------- ------------------------------------------------ -------------------------- ----------------- ---------------------------- -------------------------------- department of the treasury washington dc person to contact --------------------- id no -------------- telephone number --------------------- refer reply to cc tege eb qp2 plr-113084-03 date date legend city c ------------------------- ------------------------------------ state s ------------------------- employee sick leave plan ----------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- retiree sick leave plan -------------------------------------------- vacation_leave plan ----------------------------------------------------------------------- health care plan ---------------------------------- dear --------------- this responds to your letter of date and subsequent correspondence on behalf of city c located in state s requesting a ruling concerning the application of sec_451 and sec_457 of the internal_revenue_code the acode to city c s sick leave plan retiree sick leave plan vacation plan and compensatory time plan the aplans which city c has established for its eligible employees in addition city c has adopted the health care plan established by state s for certain units of city c’s employees city c and state s are represented to be eligible governmental employers described in sec_457 of the code city c has established sick and vacation_leave and compensatory time programs providing its employees with paid time off for sick and vacation days within limits these programs allow employees to accumulate unused sick and vacation_leave from year to year the amendments that city c proposes to make to its plans will not increase the number of sick vacation or compensatory days that its employees may earn each year employee sick leave plan under the employee sick leave plan which is generally applicable to all of city c’s employees an employee may use sick leave only when necessary because of the employee’s illness or for other appropriate reasons city c’s employees generally earn days of sick leave a year and may carry over unused sick leave from one year to the next without limitation city c proposes to implement the revised employee sick leave plan to permit any eligible_employee to receive a cash payment for unused sick leave before separation_from_service under the revised plan each eligible_employee who has an unused sick leave balance of not less than or day sec_1 on december of each year will be eligible to make an election before december of that year the election_year to receive a cash payment following the end of the next year the accrual year for all or a portion of the sick leave days that the employee will earn during the accrual year the employee must make this election by december for it to be valid an eligible_employee who fails to make an election under the employee sick leave plan on or before december of an election_year will be deemed to have elected to continue accruing sick leave and will not receive a cash payment before separation_from_service with respect to sick leave that the employee earns during the accrual year the election will be valid only for sick leave to be earned during the accrual year and will not apply to sick leave earned during any prior or subsequent year once made the election will be irrevocable within a specified number of days after the end of the accrual year an eligible_employee who is employed by city c on the last day of the accrual year will be paid a percentage of the employee’s daily salary in effect on december of the accrual year multiplied by the number of days of sick leave for which a cash payment is to be made the percentage will be determined based on the number of days of sick leave the employee has accrued an employee who makes a timely election and separates from service with city c before the end of the accrual year will not be paid cash for sick leave that the employee earned during the accrual year unless such employee qualifies for payment under the retiree sick leave plan described below retiree sick leave plan pursuant to the retiree sick leave plan when an employee retires from city c if the employee has an unused sick leave balance of not less than sixty days the non-bargaining unit employees need at to have least days of accumulated sick leave to make this election whereas collectively bargained employees need to have at least days to make this election employee is not a participant in the health care plan described below and the employee either is disabled or meets one or more specified age and service requirements set out in the retiree sick leave plan city c will pay the retiring employee of the employee’s daily salary as of the retirement date multiplied by the number of unused days of sick leave city c will make the foregoing payment to the beneficiary of an employee who dies while employed by city c if the deceased employee had more than sixty days of unused sick leave and was not a participant in the health care plan at the time of death employees who work in units eligible for the retiree sick leave plan are not eligible to participate in the health care plan vacation_leave plan city c also proposes to revise its vacation_leave plan with respect to certain units of its employees as described below a city c employee is entitled to use vacation_leave after obtaining supervisory approval the number of days of vacation_leave a city c employee receives ranges from twelve to twenty-six days per year depending on his her seniority with city c and the bargaining unit agreement or regulations applicable to his her unit of employees generally employees may carry over unused paid vacation time from one year to the next subject_to a specified maximum number of hours certain collective bargaining cb units of c’s employees have bargained for a cb agreement provision entitling such units’ members to elect to receive a cash payment for generally up to forty hours of vacation time that will accrue in the following accrual year city c proposes to implement the revised vacation plans to allow cb unit employees to make an election during the election_year to receive payment after the end of the accrual year for the number of vacation hours that were designated by the employee in the election but not for more than the number of hours earned by the employee during the accrual year for the election to be valid with respect to the accrual year the eligible_employee must make it by december of the election_year immediately preceding the accrual year once made the election is irrevocable compensatory time plan city c also proposes to revise its compensatory time plan with respect to certain units of its employees as described below employees who work hours in addition to their regularly scheduled hours per week can earn compensatory time employees who have earned compensatory time may take paid leave equal to their accrued compensatory time after obtaining supervisory approval employees may accumulate up to a specified number of hours of compensatory time certain cb units of employees have bargained for a cb agreement provision that in specified circumstances requires them to receive a cash payment for a portion of their accumulated unused compensatory time in each case pursuant to the cb agreement the payment is made automatically after the employee has earned a specified number of hours of compensatory time health care plan in addition city c has adopted the health care plan established and operated by state s to provide certain retired employees of state s and its political subdivisions such as city c reimbursement for their post-retirement health expenses as defined in sec_213 of the code for employees who are near retirement and who are members of certain cb or other designated units of city c’s employees participating in the health care plan city c is crediting on a mandatory basis of their accrued sick leave benefits at retirement the percent of their accrued vacation pay at retirement set by the collective bargaining agreement or regulations applicable to the retiring employee’s unit and possibly a percentage of annual salary adjustment set by the collective bargaining agreement or regulations applicable to the retiring employee’s unit to the retiring employees’ accounts in the health care plan employees who are participants in the health care plan have no right to receive a cash payment for sick leave at retirement or termination of employment including death law and analysis sec_106 of the code generally provides that an employee’s gross_income does not include employer-provided coverage under an accident_or_health_plan sec_451 of the code and sec_1_451-1 of the income_tax regulations provide that an item_of_gross_income is includible in gross_income in the taxable_year in which it is actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 income is constructively received in the taxable_year during which it is credited to a taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the doctrine_of constructive receipt revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 in revrul_75_539 1975_2_cb_45 a retiring employee could receive a cash payment for accumulated sick leave or elect to have an equivalent amount applied to the cost of accident_and_health_insurance citing sec_451 the ruling concluded that the value of the unused sick leave time was includible in gross_income whether the retiree received such amount in cash or elected to have such amount applied to pay premiums for insurance under the revised employee sick leave and vacation plans the employee will be permitted to make an election before the year in which an employee earns the right to take a period of paid leave an employee who makes the election will receive a cash payment after the end of such year in lieu of carrying over a specified amount of leave to the next year or in the case of vacation_leave forfeiting the amount of such leave that exceeds a specified limit sec_457 of the code provides rules regarding the taxation of deferred_compensation plans of eligible employers for this purpose the term aeligible employer is defined in sec_457 as a state political_subdivision of a state and any agency_or_instrumentality of a state or political_subdivision of a state city c and state s are eligible employers within the meaning of sec_457 sec_457 of the code and the regulations thereunder define the term eligible_deferred_compensation_plan those provisions contain the various requirements for an eligible_plan including rules for participation deferral of compensation and payment of benefits pursuant to sec_457 an eligible_plan must provide that the maximum amount that may be deferred under an eligible_plan shall not exceed the lesser_of the applicable_dollar_amount dollar_figure in or percent of the participant's includible_compensation under sec_457 a bona_fide sick or vacation or compensatory leave plan is treated as not providing for the deferral of compensation_for purposes of sec_457 this ruling is based on the facts and circumstances presented for our consideration among the factors considered are that the number of future sick leave days that an eligible active employee could elect to cash_out in the next year is not large in relation to the large number of sick leave days that the employee is required to have and maintain in his or her sick leave bank that those city c employees eligible to elect to cash_out a limited portion of their annual leave to be accrued in the next calendar_year are in departments providing homeland security-type services to city c subject_to possible emergency leave cancellation that the total number of annual and sick leave days offered by city c to its employees is not excessive in comparison to the number of paid time off days offered by other governmental employers that the programs are broad-based generally being offered either to virtually all city c employees or to all employees in certain units or departments and that the plans described in this letter are not constructed in such a way as to provide a compelling reason for the employees to convert the leave time to another use based on these factors we conclude that in this case the primary purpose of city c s program for the crediting and use of sick vacation and compensatory time under its leave plans including the proposed revised plans is to provide employees with paid time off from work when appropriate because of sickness vacation or for other personal reasons thus the sick vacation and compensatory time leave programs are part of a bona_fide sick vacation or compensatory leave plan within the meaning of sec_457 accordingly the rules of sec_457 do not apply to these leave plans of city c based on the facts and representations submitted and provided that all elections under the revised sick leave and vacation plans are i irrevocable and ii made before the end of the calendar_year preceding the calendar_year in which the electing employee earns the right to take the paid leave that is the subject of the election we rule as follows under the doctrine_of constructive receipt and sec_451 the right of a city c employee to make an election either to continue accruing sick leave or to cash_out all or part of the sick leave that will be earned in the next year under the employee sick leave plan does not result in taxable_income for the employee under the cash_receipts_and_disbursements_method of accounting under the doctrine_of constructive receipt and sec_451 a city c employee’s election under the employee sick leave plan to cash_out all or part of the employee’s sick leave that will be earned in the next year does not result in taxable_income to the employee under the cash_receipts_and_disbursements_method of accounting until the year in which the amounts are actually paid or otherwise made available under the doctrine_of constructive receipt and sec_451 the right of a city c employee to make an election either to continue accruing vacation_leave or to cash_out all or part of the vacation_leave that will be earned in the next year under the vacation plan does not result in taxable_income to the employee under the cash_receipts_and_disbursements_method of accounting under the doctrine_of constructive receipt and sec_451 a city c employee’s election under the vacation plan to cash_out all or part of the employee’s vacation_leave credit that will be earned in the next year does not result in taxable_income to the employee under the cash_receipts_and_disbursements_method of accounting until the year in which the amounts are actually paid or otherwise made available under the doctrine_of constructive receipt and sec_451 a city c employee’s right to receive cash for accumulated compensatory time in excess of a specified number of hours does not result in taxable_income to the employee under the cash_receipts_and_disbursements_method of accounting until the year in which the amounts are actually paid or otherwise made available the vacation plan the employee sick leave plan the retiree sick leave plan and the compensatory pay plan are bona-fide vacation_leave sick leave and compensatory time leave plans described in sec_457 and are therefore not subject_to sec_457 or sec_457 except as specifically ruled on above no opinion is expressed or implied concerning the federal tax consequences of the above transactions under any other provision of the code such as sec_106 relating to the income_tax treatment of employer reimbursements of medical_care expenses if any of the leave plans described above is not implemented as proposed or if any of these plans is further modified this ruling may not necessarily remain applicable this ruling is directed only to city c and applies only to the latest version of the revised plans submitted to the internal_revenue_service sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2004_1 2004_1_irb_1 however when the criteria in section dollar_figure of revproc_2004_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office copies of this letter are being sent as requested sincerely robert d patchell branch chief qualified_plan sec_2 office of division counsel tax exempt government entities enclosure cc copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number --------------------- ------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ---------------- telephone number -------------------- refer reply to cc psi b04 plr-141741-13 date march legend settlor trust trust trust trust child child child child date date year foundation independent_trustee dear --------------------- ------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ------------------------- ------------------------ ------------------------------ --------------------- ----------------------- -------------------------- ------ --------------------------------------------- ------------------------------------- this letter responds to your authorized representative’s letter dated date and prior correspondence requesting gift estate and generation-skipping_transfer gst tax rulings with respect to the proposed modifications of four trusts the facts and representations submitted are summarized as follows plr-141741-13 on date settlor created and funded three irrevocable trusts trust trust and trust to benefit three of her children child child and child currently child is the primary beneficiary of trust child is the primary beneficiary of trust and child is the primary beneficiary of trust on date settlor created and funded another irrevocable_trust trust currently child is the primary beneficiary of trust date sec_1 and are prior to date the initial co-trustees of the trusts were settlor’s brother individual trustee and a bank independent_trustee the trusts named settlor’s sisters as successor individual trustees each trust is identical except for beneficiaries each trust provides that during the life of a child child child child or child the trustees may distribute so much of the net_income and principal to a child as the trustees in their discretion deem necessary or advisable in addition the trustees at any time may pay so much of the principal to a child and his or her issue as the trustees in their discretion deem necessary or advisable provided that the purpose for which payment is to be made justifies in the sole discretion of the trustees a reduction in the principal of the trust estate upon the death of a child the trustees in their discretion may pay so much of the net_income in equal shares per stirpes to the then living issue of the child for his or her health happiness maintenance education welfare or comfort each trust will terminate on the first to occur of i years after the death of the last survivor of the child and those of his siblings who were living when the trust was created or ii the death of the last survivor of the child and his or her issue on the termination of the trust the accumulated income and principal will be distributed to the issue of the child per stirpes if none of the child’s issue is then living the trust principal and accumulated income is to be distributed to the other issue or trusts for the other issue of the settlor if all of settlor’s issue are deceased the undistributed_income and principal will be distributed to foundation each trust also provides that in no event shall any of the trust estate vest in the settlor the settlor’s parents or any individual trustee named in their individual capacity each trust originally required that all investment decisions be made jointly by the independent_trustee and the individual trustee in year each trust was modified to i provide for successor individual trustees ii give the individual trustee the sole power to make investment decisions investment trustee iii give the primary beneficiary or if he or she is deceased a majority of the issue of the primary beneficiary the power to replace the independent_trustee iv provide that the successor independent_trustee cannot be related or subordinate to the settlor or the beneficiaries within the meaning of sec_672 of the internal_revenue_code and v provide that neither a child child’s issue or spouse may serve as trustee of the trust created for their benefit the settlor and current trustees propose to add an individual trustee for the purpose of making distribution decisions distribution trustee each trust would be plr-141741-13 modified to allow either the distribution trustee or the independent_trustee to make the distribution decisions the distribution trustee cannot be related or if related can not be closer in relation than cousin to the primary beneficiary within the meaning of sec_672 if the distribution trustee resigns or is replaced the successor distribution trustee cannot be related or if related cannot be closer in relation than cousin to the current beneficiary within the meaning of sec_672 a cousin cannot serve as a distribution trustee for a_trust if the beneficiary is serving as the distribution trustee for the cousin’s trust the investment trustee is to be vested with authority to make investment decisions the primary beneficiary or if deceased a majority of the issue of the primary beneficiary may replace any trustee no child the issue or spouse of such child may ever serve as his own trustee or co-trustee of the trust created for his or her benefit you have requested the following rulings the proposed modifications to trust trust trust and trust will not cause the interest of any beneficiary of trust trust trust or trust to be includible in such beneficiary’s gross_estate under sec_2033 sec_2036 sec_2037 or sec_2038 of the internal_revenue_code the proposed modifications to trust trust trust and trust will not cause settlor to be treated as having having exercised or released a general_power_of_appointment for purposes of sec_2041 and sec_2514 the proposed modifications to trust trust trust and trust will not cause the beneficiary of his or her respective trust including any beneficiary serving as co-trustee to be treated as having having exercised or released a general_power_of_appointment for purposes of sec_2041 and sec_2514 the proposed changes to trust trust trust and trust will not cause the trusts to lose their exempt status for purposes of the gst tax law and analysis ruling sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or plr-141741-13 for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after date made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property but in the case of a transfer made before date only if such reversionary_interest arose by the express terms of the instrument of transfer and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the decedent’s gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent’s death in this case the proposed modifications to trust trust trust and trust as described above are administrative in nature and do not cause the beneficiary’s interest in his or her trust assets to be includible in the beneficiary’s gross_estate for purposes of sec_2033 further the proposed modifications do not constitute a transfer within the meaning of sec_2036 through accordingly based on the facts submitted and representations made we conclude that the proposed modifications to trust trust trust and trust will not cause the interest of any beneficiary of his or her trust to be includible in such beneficiary’s gross_estate under sec_2033 sec_2036 sec_2037 or sec_2038 ruling sec_2 and sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a plr-141741-13 transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that a general_power_of_appointment is a power that is exercisable in favor of the individual possessing the power the possessor his estate his creditors or the creditors of his estate however a power to consume invade or appropriate property for the benefit of the possessor that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_25_2514-1 of the gift_tax regulations provides in part that a donee may have a power_of_appointment if he has the power remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and a has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself a is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests plr-141741-13 therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment in revrul_95_58 1995_2_cb_191 the service ruled that a decedent grantor’s reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee’s discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent’s gross_estate under sec_2036 or sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor’s spouse if living with the grantor or any one of the following the grantor’s father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in this case after the proposed modifications the primary beneficiary or if deceased a majority of the issue of the primary beneficiary will have the power to remove and replace the distribution trustee and the independent_trustee or their successors only with a trustee who is not related or if related not closer than a cousin to the beneficiaries within the meaning of sec_672 these powers are the equivalent to the power referenced in revrul_95_58 where a replacement trustee may not be related or subordinate to the powerholder within the meaning of sec_672 settlor did not and does not as a result of the modifications have a power to remove or replace a trustee of the four trusts accordingly based on the facts submitted and the representations made we conclude that the proposed modifications to trust trust trust and trust will not cause settlor to be treated as having having exercised or released a general_power_of_appointment for purposes of sec_2041 and sec_2514 we further conclude that the proposed modifications to trust trust trust and trust will not cause the beneficiary of trust trust trust or trust including any beneficiary serving as co-trustee to be treated as having having exercised or released a general_power_of_appointment for purposes of sec_2041 and sec_2514 ruling sec_2601 imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest in property held in a_trust unless a immediately after such termination a non-skip_person has an plr-141741-13 interest in such property or b at no time after such termination may a distribution including distributions on termination be made from such trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax of an interest in property to a skip_person under a of the tax_reform_act_of_1986 act and sec_26_2601-1 the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 of the gst tax regulation provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust plr-141741-13 sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in sec_26_2601-1 example considers the following situation in grantor established an irrevocable_trust for the benefit of grantor’s issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case the proposed modifications to trust trust trust and trust as described above are administrative in nature under sec_26_2601-1 and will not be considered to shift a beneficial_interest to a lower generation in the trust see example of sec_26 b i e the changes will not result in a shift in any beneficial_interest to a lower generation nor do the changes extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and the representations made we conclude that the proposed modifications to trust trust trust and trust will not cause trust trust trust or trust to lose its exempt status from gst tax in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-141741-13 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely ________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court antonio t croteau petitioner v commissioner of internal revenue respondent docket no filed date antonio t croteau pro_se joan s dennett for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency of dollar_figure in and an accuracy-related_penalty of dollar_figure on petitioner's federal_income_tax for the issues for decision are are certain payments that petitioner antonio t croteau mr croteau made during to or on behalf of jeanne anne marie croteau ms croteau deductible for that year as alimony or separate_maintenance payments under sec_215 we hold that they are not is petitioner liable for for the accuracy-related_penalty under sec_6662 we hold that he is findings_of_fact some of the facts have been stipulated and are so found petitioner resided in whitefish montana at the time the petition was filed petitioner married ms croteau in date they separated in date on date petitioner and ms croteau executed a marital settlement agreement agreement which petitioner had prepared in preparing the agreement petitioner used as a model a marital settlement agreement that had been entered into by his son and the former wife of his son on date mr croteau filed a petition in the superior court of california county of ventura for dissolution of his marriage to ms croteau petition for dissolution of marriage the petition for dissolution of marriage was a preprinted form on which mr croteau provided certain information requested by the form that preprinted form stated inter alia unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure petitioner requests confirmation as separate assets and obliga- tions the items listed mr croteau did not list any such items in the petition for dissolution of marriage the agreement was attached to and filed with the petition for dissolution of marriage the agreement provided in pertinent part as follows i antonio theodore croteau husband and i jeanne anne marie croteau wife agree as follows i generally we are now husband and wife c we now intend by this agreement to make a final and complete settlement of all our rights and obligations concerning division of property and spous- al support iii support payments to spouse in consideration of the other terms of this agreement and whereas both spouses are fully self-supporting both parties waive all right or claim which they may now have to receive support or maintenance from the other no court shall have jurisdiction to award spousal support at any time regardless of any circumstances that may arise division of community_property and debts the iv parties warrant and declare under penalty of perjury that the assets and liabilities divided in this agree- ment constitute all their community and quasi-community assets and liabilities in the event that the division is unequal the parties knowingly and intelligently waive an equal distribution of the community_property a husband is awarded and assigned the following assets as his share of the community_property b wife is awarded and assigned the following assets as her share of the community_property chevrolet pick up license no 3z23039 country camper motorhome license no 2eae391 suzuki samurai license no 1sdj835 u-save trailer license no 1ah6844 log cabin on highway at mcgregor lake montana household possessions including jewelry collection husband shall forthwith remove his name from registration and registration shall be solely in wife's name c debts husband antonio theodore croteau agrees to deliver the aforementioned vehicles free and clear of any liens he also shall make payments on the mcgregor lake cabin until it is fully paid for husband agrees to maintain insurance on the aforementioned vehicles until janu- ary 1st v equalization payment in the interest of fairness and in consideration of the manner in which the property was divided husband shall pay to wife the following sums as a division of the community_property husband agrees to pay dollar_figure per month begin- ning on april 1st and ending april lst he also shall pay wife dollar_figure for moving_expenses also due april 1st husband also agrees to pay health insurance for wife and any auto repairs or maintenance on the aforemen- tioned vehicles or other necessities from january 1st through date not to exceed dollar_figure total vi reservation of jurisdiction the parties agree that the court shall have jurisdic- tion to make whatever orders may be necessary or desir- able to carry out this agreement and to divide equally between the parties any community assets or liabilities omitted from division under this agreement vii advice of counsel the parties recognize that the termination of the marriage division of marital property and payment agreement will be determined by this instrument we recognize that we each have a right to seek advice from independent counsel of our own choosing and that we knowingly and with due regard for the importance of same have elected to proceed with this agreement ix presentation to court this agreement shall be presented to the court in any divorce proceeding between the parties it shall be incorporated in the judgement therein the parties shall be ordered to comply with all its provisions and all warranties and remedies provided in this agreement shall be preserved x disclosures each party has made a full and honest disclosure to the other of all current finances and assets and each enters into this agreement in reliance thereon each warrants to the other and declares under penalty of perjury that the assets and liabilities divided in this agreement constitute all of their community assets and liabilities xi binding effect this agreement and each provision thereof is ex- pressly made binding upon heirs assigns executors administrators representatives and successors in interest of each party during petitioner made payments by check to or on behalf of ms croteau that totaled dollar_figure of that total amount dollar_figure was paid pursuant to that portion of the agree- ment entitled division of community_property and debts and approximately dollar_figure was paid pursuant to that portion of the agreement entitled equalization payment petitioner filed a u s individual_income_tax_return re- turn for in which he claimed a deduction for alimony in the amount of dollar_figure in the notice_of_deficiency notice issued to petitioner with respect to his taxable_year respondent determined that petitioner is not entitled to the alimony deduction that he claimed in his return and that he is liable for the accuracy-related_penalty under sec_6662 opinion petitioner has the burden of proving error in respondent's determinations rule a 290_us_111 claimed alimony deduction sec_215 allows an individual to deduct alimony or separate_maintenance payments made by such individual during his or her taxable_year sec_215 defines the term alimony_or_separate_maintenance_payment to mean any alimony_or_separate_maintenance_payment as defined in sec_71 that i sec_2 respondent's disallowance of the alimony deduction claimed by petitioner in his return resulted in an increase in peti- tioner's adjusted_gross_income consequently respondent also made adjustments in the notice totaling dollar_figure to the itemized_deductions that petitioner claimed in his return includible in the gross_income of the recipient under sec_71 neither sec_215 nor sec_71 applies if the spouses file a joint_return sec_71 sec_71 defines the term alimony or separate main- tenance payment to mean any cash payment if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of sepa- rate maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse petitioner contends that during he made payments totaling dollar_figure to or on behalf of ms croteau which consti- tute alimony or separate_maintenance payments as defined in sec_215 all but dollar_figure of the total payments claimed by petitioner were made by checks that are part of the record in this case petitioner contends that he made the remaining dollar_figure payment in cash except for his uncorroborated self-serving although petitioner claimed a total alimony deduction of dollar_figure in his return he conceded at trial that he is not entitled to dollar_figure of that amount testimony on which we are unwilling to rely there is no evidence in the record to support petitioner's claim as to that dollar_figure payment consequently in the event that the court were to decide that petitioner is entitled to deduct under sec_215 all or a portion of the payments that he made to or on behalf of ms croteau during the maximum amount of such a deduction would be dollar_figure we shall now address whether petitioner has established that his liability to make the payments at issue terminated upon the death of ms croteau because resolution of that question will be dispositive of the issue presented under sec_215 the agreement is silent as to whether petitioner was liable to make the payments at issue after the death of ms croteau conse- quently we must look to the effect of state law on that ques- tion see 102_f3d_842 6th cir affg tcmemo_1995_183 81_tc_614 affd without published opinion 829_f2d_39 6th cir cal civ code sec b west repealed by cal stat sec_3 effective date provides b effect of death or remarriage except as otherwise agreed by the parties in writing the obliga- tion of any party under any order or judgment for the support and maintenance of the other party shall termi- nate upon the death of either party or the remarriage of the other party if the payments at issue were for the support and maintenance of ms croteau within the meaning of cal civ code sec b they would terminate at the death of ms croteau cal civ code sec b and would comply with the definitional requirement for alimony or separate_maintenance payments that is set forth in sec_71 if the payments at issue were for the division of community_property they would not terminate at the death of ms croteau cf lipka v lipka p 2d cal cal civ code sec b and would not comply with that definitional requirement we find the terms of the agreement to be unequivocal in providing that petitioner and ms croteau waived all right or claim that they may have had to receive support or maintenance from the other4 and that all payments which petitioner was to make to or on behalf of ms croteau were for the division of their community_property on the instant record we find that the agreement stated in pertinent part support payments to spouse in consideration of the other terms of this agreement and whereas both spouses are fully self-supporting both parties waive all right or claim which they may now have to receive support or maintenance from the other no court shall have jurisdiction to award spousal support at any time regardless of any circumstances that may arise indeed petitioner conceded at trial that the payments at issue were made either under the portion of the agreement enti- tled division of community_property and debts or the portion of the agreement entitled equalization payment the portion of the agreement entitled division of community_property and debts provided in pertinent part continued the payments at issue were not for the support and maintenance of ms croteau within the meaning of cal civ code sec b but were for the division of the community_property of petitioner and ms croteau petitioner attempts to disavow the agreement he claims that he and ms croteau intended that the payments at issue were to be for the support of ms croteau and that they did not intend that such payments were to be for the division of their community_property on the record before us we shall not allow petitioner to disavow the agreement into which he and ms croteau entered continued the parties warrant and declare under penalty of perjury that the assets and liabilities divided in this agreement constitute all their community and quasi-community assets and liabilities in the event that the division is un- equal the parties knowingly and intelligently waive an equal distribution of the community_property the portion of the agreement entitled equalization payment stated in the interest of fairness and in consideration of the manner in which the property was divided husband shall pay to wife the following sums as a division of the community_property husband agrees to pay dollar_figure per month begin- ning on april 1st and ending on april 1st he also shall pay wife dollar_figure for moving_expenses also due april 1st husband also agrees to pay health insur- ance for wife and any auto repairs or maintenance on the aforementioned vehicles or other necessities from january 1st through date not to exceed dollar_figure total under california law the agreement is a contract which is governed by the same principles applicable to contracts gener- ally see in re marriage of hasso cal rptr cal continued see 565_f2d_1388 9th cir remanding tcmemo_1973_223 433_f2d_757 9th cir affg tcmemo_1969_87 102_tc_406 based on our examination of the entire record before us we find a that petitioner has failed to persuade us that the payments at issue were for the support and maintenance of ms croteau within the meaning of cal civ code sec b and b that consequently cal civ code sec b which requires the obligation of a party under an order or judgment for the support and maintenance of the other party to terminate upon the death of either party does not apply to those payments and that petitioner has failed to establish that the payments at issue satisfy the definitional requirement for alimony or sepa- rate maintenance payments that is set forth in sec_71 accordingly petitioner has failed to show that continued app 1st under california contract law extrinsic evi- dence concerning the facts and circumstances surrounding the execution of a property settlement agreement is not admissible to vary or alter that agreement if the terms of the contract are susceptible of only one reasonable interpretation see cal civ proc code sec west in re marriage of iberti cal rptr 2d cal app 2d see also cal civ code sec west we conclude that the terms of the agreement are susceptible to only one reasonable interpreta- tion consequently we shall disregard the extrinsic evidence offered by petitioner concerning the alleged terms of the agree- ment which conflict with the actual terms of the agreement those payments are alimony or separate_maintenance payments within the meaning of sec_215 therefore respondent's determination disallowing the alimony deduction claimed by petitioner for is sustained sec_6662 sec_6662 imposes an addition_to_tax equal to percent of the underpayment_of_tax attributable to inter alia negligence or disregard of rules or regulations under sec_6662 for purposes of sec_6662 the term negli- gence includes any failure to make a reasonable attempt to comply with the internal_revenue_code and disregard includes any careless reckless or intentional disregard sec_6662 negligence has also been defined as a lack of due care or failure to do what a reasonable person would do under the circumstances 963_f2d_907 6th cir affg tcmemo_1991_179 91_tc_686 affd 893_f2d_656 4th cir the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to such portion sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends upon the pertinent facts and circum- stances including the taxpayer's efforts to assess his or her proper tax_liability and the knowledge and experience of the taxpayer sec_1_6664-4 income_tax regs petitioner makes no argument concerning respondent's deter- mination under sec_6662 except for his claim which we have rejected that he and ms croteau did not intend that the terms of the agreement control the payments at issue based on our examination of the entire record before us we find that petitioner has failed to show that he acted with reasonable_cause and in good_faith or that he otherwise exercised due care or made a reasonable attempt to comply with the internal_revenue_code when he claimed the alimony deduction at issue accord- ingly we sustain respondent's determination imposing the accuracy-related_penalty under sec_6662 for to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court edward a and audrey primozic et al petitioners v commissioner of internal revenue respondent docket nos filed date karin r dunlap for petitioners gregory s matson and wendy l wojewodski for respondent memorandum findings_of_fact and opinion gerber judge these consolidated cases involve income_tax deficiencies determined by respondent for petitioners’ taxable_year respondent determined a dollar_figure deficiency for ' cases of the following petitioners are consolidated herewith thomas j and edith m primozic docket no and kenneth i primozic docket no petitioners edward m and audrey primozic docket no a dollar_figure deficiency for petitioners thomas j and edith m primozic docket no and a dollar_figure deficiency for petitioner kenneth i primozic docket no these cases were consolidated for trial briefing and opinion pursuant to rule a the sole issue for our consideration is whether payments petitioners received from their former employer are excludable from income as damages received on account of personal_injury_or_sickness under sec_104 findings_of_fact at the time their respective petitions were filed petitioners edward a primozic edward and audrey primozic husband and wife resided in gaithersburg maryland petitioners thomas j primozic thomas and edith m primozic husband and wife resided in downer’s grove illinois and petitioner kenneth i primozic kenneth resided in orland park illinois audrey and edith primozic are petitioners in this case solely because they joined in filing federal_income_tax returns with their unless otherwise indicated all section references are to the internal_revenue_code in effect for the year under consideration and all rule references are to this court’s rules_of_practice and procedure the stipulation of facts and the attached exhibits are incorporated herein by this reference husbands subsequent references to petitioners refer only to edward thomas and kenneth petitioners were all longtime employees of international business machines corp ibm edward and kenneth were asked by ibm executives to establish and run the customer business development cbd department in the cbd department was intended to be an ibm in-house consulting group although edward was working for ibm in bethesda maryland and kenneth was working for ibm in the chicago illinois area they worked together on the cbd project edward and kenneth wrote a book entitled strategic choices which discussed the business management techniques that they were using in the cbd department thomas though not a part of the cbd department helped edward and kenneth in the writing of strategic choices edward and kenneth owned the rights to any royalties from strategic choices ibm did not pay petitioners additional compensation_for using the management techniques discussed in the book and it did not receive royalties from the book in the course of their work with the cbd department edward and kenneth became acquainted with high-level management of the national association of counties naco a national association representing over big_number counties in the united_states naco was requesting bids from consulting firms to work with them ona nationwide reinvention of local_government projects for all of their member counties the cbd department of ibm prepared a bid that stressed the strategic choices management technigues ibm won the bid for the naco contract naco announced the naco-ibm partnership at its national convention in date on date ibm announced to its employees that it planned to reduce the number of employees in ibm u s marketing and services co because of staffing dynamics and ibm’s need to become more competitive and efficient on or about date edward and kenneth were informed that their jobs as part of the cbd department had been designated surplus chosen for permanent layoff as a result of this decision edward and kenneth were unable to work on the naco contract thomas was not part of the cbd department and his employment was unaffected by the decision to surplus the cbd department beginning around date edward and kenneth attempted to reverse ibm’s decision to surplus the cbd department thomas did not participate in the attempt edward and kenneth disagreed with the decision to surplus their department arguing that it was a poor business decision that would be detrimental to ibm this effort was unsuccessful petitioners have never filed any legal action against ibm as part of ibm’s employment reduction efforts employees could request to participate in the ibm u s marketing services co transition plan mstp the mstp provided a lump-sum payment and ibm-funded health benefits that were more generous than the benefits received under ibm’s regular severance program ibm informed its employees that it would withhold appropriate federal state and local_taxes from mstp lump-sum payments on date edward kenneth and thomas all agreed to participate in the mstp program in order to join the mstp the participants were required to sign a general release and covenant not to sue releasing ibm from all liabilities that might exist in contract in tort or any other type of claim resulting from the employees' termination the payments petitioners received were all calculated according to the mstp formula an amount egual to week’s pay for every months of ibm service either fully or partially completed as of the date of separation edward kenneth and thomas received mstp payments of dollar_figure dollar_figure and dollar_figure respectively petitioners established their own consulting business strategic choices ltd following their departure from ibm on their income_tax returns petitioners excluded from income the entire amounts of the mstp payments received in disclosure statements filed with their returns petitioners asserted that the authority to exclude the payments from income was sec_104 opinion the only issue for our consideration is whether the payments petitioners received for participating in the mstp program are excludable from their income for sec_61 includes in gross_income all income from whatever source derived however sec_104 provides that the amount of damages received whether by suit or agreement on account of personal injuries or sickness is not included in gross_income the damages referred to are based upon tort or tort type rights see sec_1 104-l1 c income_tax regs petitioners argue that ibm’s decision to surplus the cbd department which prevented edward and kenneth from working on the naco contract injured their business reputations therefore petitioners conclude that the settlement proceeds were excludable as damages for personal injuries in order for petitioners’ sec_104 claim to prevail they must show that ibm made the mstp payments in order to settle petitioners’ claims for personal injuries it is the payor’s intent in making the payments rather than whether or not the taxpayer actually suffered a personal injury that is determinative for purposes of sec_104 see 98_tc_1 to the extent we do not address any of petitioners’ other arguments we find them to be without merit petitioners have failed to explain how thomas who was not even a part of the cbd department was injured by ibm’s decision to surplus the department 87_tc_1294 affd 848_f2d_81 6th cir respondent argues that ibm did not make the payments at issue to petitioners as part of a settlement agreement on account of personal injuries in addition respondent argues that petitioners have not proven what part if any of the proceeds was for personal injuries and that the settlement was in effect a severance payment excludability under sec_104 is to some extent dependent on the origin of the claim asserted see 89_tc_632 affd 866_f2d_709 4th cir threlkeld v commissioner supra damage to an individual’s business reputation can be a personal injury for purposes of sec_104 see threlkeld v commissioner supra pincite5 the determination of the nature of a claim is factual see 111_tc_305 stocks v commissioner supra pincite where damages are received pursuant to a settlement agreement as here the nature of the claim that was the basis for settlement controls whether such damages are excludable under sec_104 see 504_us_229 we have looked to the written terms of settlement agreements to determine the origin and allocation of settlement proceeds see 88_tc_834 affd without published opinion 845_f2d_1013 3d cir the release in this case is essentially the same as that in lubart v commissioner tcmemo_1997_343 affd 154_f3d_539 5th cir and in sodoma v commissioner tcmemo_1996_275 by its terms petitioners released ibm from liability for both contract and tort claims the release however does not specifically indicate that the lump-sum payments received by petitioners were paid to settle potential personal injury claims against ibm where the settlement agreement lacks specific language stating what the settlement amount was paid to settle then the most important factor is generally the intent of the payor respondent argues that petitioners’ failure to lodge any formal or legal claim against ibm before and at the time of signing the release established that there was no bona_fide dispute between petitioners and ibm that could provide the basis for settlement to prevail under sec_104 taxpayers are not required to assert a legal claim before the settlement or release however the absence of any knowledge of the claim by the employer-payor would negatively affect a taxpayer attempting to show the requisite intent underlying the payment see lubart v commissioner supra here kdward and kenneth notified ibm executives of the initiation of their attempt to reverse the decision to surplus the cbd department in the letter to the ibm executives petitioners stressed the importance of the cbd department but did not indicate that their business reputations had been injured or that they intended to assert a tort type claim against ibm petitioners have attempted to show that their business reputations were injured by ibm’s actions however there is no evidence other than petitioners’ own testimony which is not persuasive that ibm made the mstp payments to settle petitioners’ personal injury claims we also note that the release form appears to be a standard document used by ibm for all of its employees who participate in the mstp program moreover the fact that the payments were based on time of service and rate of pay is more indicative of severance_pay rather than a payment for personal injury see sodoma _v commissioner supra severance_pay is taxable_income in sum we find that the payments received by petitioners are not excludable from income to reflect the foregoing decisions will be entered for respondent


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa jghartford scaf-142125-13 uilc date january to associate area_counsel salt lake city small_business self-employed attn mark howard from bridget tombul senior technician reviewer procedure administration subject your request for advice dated date issue you asked us whether the service_center should process an amended form_1120s after the period of limitation on assessment against the s_corporation or the period of limitation for filing a claim_for_refund by the s_corporation had expired if the amended_return reported no change to the tax reported conclusion procedure administration is not opining as this is a business decision to be made by the service on a case-by-case basis facts the taxpayer is an s_corporation that filed its return form_1120s with the service campus after the ased and rseds had expired under sec_6501 and sec_6511 respectively the s_corporation filed an amended_return reporting no change in tax the only apparent reason that the amended_return was filed was to adjust certain flow- through items that would affect the individual shareholder’s return the amended form_1120s was submitted by an individual shareholder to support a timely filed claim_for_refund by the individual as a result of the reduction in flow-through income or increase in flow-through tax_credits scaf-142125-13 you informed us that the service disallowed the form 1040x filed by the shareholder due to the fact that the amended form_1120s was not filed within the ased or rsed we do not know whether the service has sent the shareholder a formal notice of claim disallowance but the 6-month period since the shareholder filed the form 1040x has passed accordingly the shareholder could now file a refund_suit in district_court or the court of claims see sec_6532 discussion your date memo correctly identifies that the periods of limitation for filing an individual and s_corporation return are separate under 506_us_523 under bufferd the period for limitation under sec_6501 and by implication sec_6511 on the individual shareholder of an s_corporation is not controlled by when the s_corporation files its form_1120s but rather by when the shareholder files his her form_1040 the sole issue as we see it is whether the service should allow or deny the shareholder’s claim_for_refund it is the taxpayer’s burden to prove that he is entitled to an item of credit or deduction see generally 290_us_111 292_us_435 the service upon examination of the individual’s claim_for_refund is free to examine whether the underlying flow-through items are correctly reported claimed by the taxpayer if the entity has not filed a return that matches up with the amounts claimed by the taxpayer the service clearly may disallow the claim based on a lack of substantiation but note that should the individual shareholder file a refund_suit the fact that the service does or does not process the late-filed amended form_1120s may prove to be wholly irrelevant to the taxpayer plaintiff being able to substantiate that he is entitled to a refund and prove his claim in court we are aware of no authority which requires the service to process or prohibits the service from processing an amended_return of an s_corporation after the expiration of the corporation’s ased or rsed if that amended_return makes no change to the taxpayer’s tax_liability the service simply must make the business decision on a case- by-case basis as to whether to process the amended form_1120s in this case the irs should consider the fact that the late-filed amended form_1120s will impact the shareholder’s claim_for_refund on a timely filed form 1040x which may provide some justification for processing the late 1120s but again the irs is not legally required to process the late 1120s if you have any questions regarding this advice please contact jamie hartford at -------- --------------