t c summary opinion united_states tax_court yuanqiang zhang petitioner v commissioner of internal revenue respondent docket no 2117-02s filed date yuanqiang zhang pro_se milan k patel for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issue for decision is whether petitioner is entitled to deduct as trade_or_business_expenses various costs he incurred in connection with a master of business administration m b a degree program some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in new york new york on the date the petition was filed in this case petitioner has earned a bachelor’s degree in engineering a bachelor’s degree in economics and a master’s degree in social science and international trade from date through date petitioner was with the beijing china office of andersen consulting working as a consultant in the strategic services group in this position he helped foreign companies develop joint_venture strategies and financial structures for operations in china he advised foreign companies on chinese tax policies and he helped companies develop marketing strategies for sales in china in fall petitioner commenced studies as a full-time_student in the m b a degree program at the massachusetts institute of technology sloan school of management mit during the year in issue petitioner continued as a full-time_student in this program during the summer of that year he was employed for weeks by latona associates a private equity firm where he worked on acquisition strategies and performed valuations of companies petitioner received academic credit for this employment the courses which petitioner completed as part of the m b a program covered areas including economics management finance accounting technology and computer networks marketing telecommunications ecommerce investments investment banking and mergers and acquisitions while enrolled in the m b a program petitioner received an offer from the andersen consulting office in new york for employment as a manager in the strategy competency group at andersen a manager is two titles above that of petitioner’s former position as a consultant petitioner declined this offer accepting instead a position as an associate with the investment banking division of morgan stanley this latter position was offered to petitioner in contingent upon petitioner’s completion of the m b a degree program at mit petitioner received a signing bonus during the year from morgan stanley after completing his degree in date petitioner began working at morgan stanley the following august when petitioner began working at morgan stanley he assisted clients with acquiring secured financing petitioner has remained employed at morgan stanley as an investment banker petitioner filed an individual federal_income_tax return for taxable_year using a form 1040nr u s nonresident_alien income_tax return on this return petitioner claimed a miscellaneous itemized_deduction of dollar_figure the expenses for which this deduction was claimed were as follows before application of the sec_67 limitation on miscellaneous_itemized_deductions m b a tuition dollar_figure books and school supplies big_number computer depreciation job search expenses summer job expenses travel to school big_number in the statutory_notice_of_deficiency the sole adjustment was respondent’s disallowance of this deduction petitioner concedes dollar_figure of the m b a tuition and dollar_figure of the computer depreciation and he concedes the entire amounts of the job search summer job and travel_expenses the amounts remaining at issue all relate to expenses petitioner allegedly incurred in connection with the m b a program in general_expenses which are ordinary and necessary in carrying_on_a_trade_or_business are deductible in the year in which they are paid sec_162 such expenses may include educational expenses paid in carrying on the trade_or_business of being an employee sec_1_162-5 income_tax regs to be deductible such expenses must be for education which maintains or improves skills required by the taxpayer in his employment or meets the express requirements of the taxpayer’s employer or of applicable law or regulations imposed as a condition to the retention by the taxpayer of an established employment relationship status or rate or compensation sec_1_162-5 income_tax regs however expenses which fall into either of these categories are nevertheless not deductible if the education is required in order to meet the minimum educational requirements for qualification in the taxpayer’s employment or qualifies the taxpayer for a new trade_or_business sec_1_162-5 income_tax regs the first category of deductible expenses is for education which maintains or improves skills required by the taxpayer in his employment sec_1_162-5 income_tax regs the regulations state that this category of expenses includes refresher courses or courses dealing with current developments as well as academic or vocational courses sec_1_162-5 income_tax regs we find that the m b a program did not serve to maintain or improve skills required in petitioner’s employment within the meaning of the regulations the courses which petitioner completed as part of the m b a program were varied and encompassed a large number of business fields the courses covered areas including economics management finance accounting technology and computer networks marketing telecommunications ecommerce investments investment banking and mergers and acquisitions from the record before us we conclude that the m b a program in this case served to improve petitioner’s general understanding and competency coughlin v commissioner tcmemo_1969_80 rather than to improve specific skills required in petitioner’s employment see eg menas v commissioner tcmemo_1969_114 courses in an m b a program were not directly related to the skills used by an internal_revenue_service agent coughlin v commissioner supra courses required for a bachelor’s degree in business administration provided only an increase in general understanding and competency and did not have a direct relation to the taxpayer’s employment as a method and controls analyst for an insurance_company while the m b a program did focus on business administration it was nonetheless a generalized field of study which provided an education in a number of areas not necessarily applicable to petitioner’s employment prior to or after the year in issue our finding is reinforced by the fact that petitioner was not employed on a permanent or indefinite basis while he completed the m b a program prior to the program petitioner was a consultant for companies doing business in or interested in doing business in china during the program petitioner was employed only in a temporary position in which he earned academic credit following the program petitioner became an investment banker whose focus was on various secured financing strategies while there is certainly a degree of overlap between the positions he held before and after the m b a program when petitioner left his position in beijing he did not express an intent to return to that position after he earned the m b a nor did he know where he would be employed following the completion of the program the connection between the m b a program and petitioner’s potential employment following the program was too tenuous at that time for the education to be considered as having maintained or improved skills required in that employment see generally schneider v commissioner tcmemo_1983_753 taxpayer not carrying_on_a_trade_or_business within the meaning of sec_162 where he resigned his commission from the army in order to pursue an m b a and another degree with no intention of returning to the army because the education petitioner obtained in the m b a program did not serve to maintain or improve skills required in petitioner’s employment petitioner is not entitled to a deduction pursuant to the first category of deductible expenses under sec_1_162-5 income_tax regs the second category of deductible expenses is for education which meets the express requirements of the individual’s employer or of applicable law or regulations sec_1_162-5 income_tax regs the regulations provide that within this category of expenses only the minimum education necessary to the retention by the individual of his established employment relationship status or rate of compensation may be considered as undertaken to meet the express requirements of the taxpayer’s employer sec_1_162-5 income_tax regs as discussed above during the year in issue petitioner had left his former employment and had not yet started his new employment thus because petitioner did not have an established employment relationship status or rate of compensation during that year petitioner is not entitled to a deduction pursuant to the second category of deductible expenses under sec_1_162-5 income_tax regs because petitioner’s education expenses do not fall into either category of deductible expenses under the regulations petitioner is not entitled to the deductions claimed for the m b a program we need not address whether the expenses fall into either of the categories of nondeductible expenses under sec_1_162-5 income_tax regs reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------ --------------------- --------------- ------------------------- - department of the treasury washington dc person to contact ------------------------------------ ------------- telephone number --------------------- refer reply to cc ita - plr-122103-03 date date legend a -------------------------------------------------- x ------------------------------------------------------------ y ----------------------------------------------------------- z ------------------------------------------------------ date ---------------------- date ------------------ date --------------------------- dear ------------------ this is in reply to your request for a private_letter_ruling to allow the taxpayer a to use an alternative method of basis recovery under sec_15a_453-1 of the temporary income_tax regulations to report contingent payments because the normal basis recovery rule method will substantially and inappropriately defer recovery_of basis facts x is an s_corporation with shareholders on date all of the stock of x was sold on an installment basis to y a wholly owned subsidiary of z the x shareholders and y made elections under sec_338 of the internal_revenue_code to have the stock sale treated as a deemed sale of all of the assets properties rights and business of x subject_to certain liabilities to y followed by the liquidation of x the sales agreement calls for payments of fixed amounts a payment consisting of cash and z stock at closing and two cash payments at later dates followed by four contingent payments the contingent payments will be calculated based on a plr-122103-03 percentage of the positive pre-tax income of z for the period date through date the contingent payments are payable annually the sales agreement set no maximum limit on the amount of the contingent payments law and analysis sec_453 provides that income from an installment_sale shall be taken into account under the installment_method sec_453 defines the term installment_sale to mean a disposition of property if at least one payment is to be received after the end of the taxable_year in which the disposition occurs the term installment_method is defined in sec_453 as a method under which the income recognized for any taxable_year from a disposition is that proportion of the payments received in that year that the gross_profit realized or to be realized when the payment is completed bears to the total_contract_price sec_15a_453-1 defines a contingent_payment_sale as a sale_or_other_disposition of property in which the aggregate selling_price cannot be determined by the close of the taxable_year in which such sale_or_other_disposition occurs unless a taxpayer makes an election under sec_15a_453-1 contingent_payment_sales are to be reported on the installment_method sec_15a_453-1 provides generally that when a stated maximum selling_price cannot be determined as of the close of the taxable_year in which a sale_or_other_disposition occurs but the maximum period over which payments may be received under the contingent sale price agreement is fixed the taxpayer's basis inclusive of selling_expenses shall be allocated to the taxable years in which payments may be received under the agreement in equal annual increments sec_15a_453-1 provides that the normal basis recovery rules set forth in sec_15a_453-1 may with respect to a particular contingent_payment_sale substantially and inappropriately defer recovery_of the taxpayer's basis sec_15a_453-1 provides that the taxpayer may use an alternative method of basis recovery if the taxpayer is able to demonstrate prior to the due_date of the return including extensions for the taxable_year in which the first payment is received that application of the normal basis recovery rule will substantially and inappropriately defer recovery_of basis the taxpayer must receive a ruling from the internal_revenue_service before using an alternative method of basis recovery and must have filed the request for a ruling prior to the due_date for the return including extensions to demonstrate that application of the normal basis recovery rule will substantially and inappropriately defer recovery_of basis the taxpayer must show a that the alternative method is a reasonable method of ratably recovering basis and b that under that plr-122103-03 method it is reasonable to conclude that over time the taxpayer likely will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule in demonstrating that application of the normal basis recovery rule would substantially and inappropriately defer recovery_of the taxpayer's basis the taxpayer in appropriate circumstances may rely upon contemporaneous or immediate past relevant sales profit or other factual data that are subject_to verification the taxpayer ordinarily is not permitted to rely upon projections of future productivity receipts profits or the like however in special circumstances a reasonable projection may be acceptable based upon a specific event that has already occurred under the alternative method of basis recovery proposed by a the amount of basis allocated to an installment_payment would bear the same ratio to a's total basis in the property sold that the installment_payment bears to the estimated amount of the aggregate payments_to_be_received by a during the term of the installment_obligation the estimate of the aggregate payments_to_be_received during the term of the installment_obligation was determined on the basis of historical data and earnings trends based on the information provided and the representations made it is reasonable to conclude that a’s use of the proposed alternative method of basis recovery will result in basis recovery at a rate twice as fast as the rate at which basis would be recovered under the normal basis recovery rules the proposed alternative method of basis recovery represents a reasonable method of basis recovery accordingly a’s use of the proposed alternative method of basis recovery is approved caveats a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 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 s requesting it sec_6110 provides that it may not be used or cited as precedent plr-122103-03 in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer and the second authorized representative indicated on the power_of_attorney sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax and accounting enclosures


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-104218-03 date date number release date index number x y z company x year year dear this letter responds to a letter dated date and subsequent correspondence submitted by you as the authorized representative of y requesting a ruling on the federal_income_tax consequences of the termination of a_trust the information submitted states that x is a nonprofit organization organized under the laws of state which is exempt from federal_income_tax under sec_501 as a business league in year x created y a taxable trust in order to provide certain insurance benefits to the members of x company was a mutual_insurance_company which provided insurance products for the members of x through y in year company completed its demutualization as a result y received x shares of company stock as demutualization proceeds x proposes to terminate y and transfer all of y’s surplus assets including the company stock after the payment of all obligations to z a charitable foundation described in sec_501 plr-104218-03 article ix sec_1 of the y trust instrument provides that under certain circumstances upon the termination of y the trustees of y may transfer all or part of a surplus in y to a foundation qualified under sec_501 to be established for certain listed purposes revrul_83_75 1983_1_cb_114 holds that the distribution by a_trust of appreciated securities in satisfaction of its obligation to pay a fixed annuity to a charitable_organization results in a taxable gain to the trust revrul_83_75 cites sec_1_661_a_-2 of the income_tax regulations and 114_f2d_217 2d cir in determining the proper treatment of an in-kind distribution_of_property sec_1_661_a_-2 provides that if property is paid credited or required to be distributed in_kind by a_trust or estate no gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of the distribution unless the distribution is in satisfaction of a right to receive a distribution in a specific dollar amount or in specific property other than that distributed in kenan v commissioner the trustees of a_trust were directed to pay a beneficiary dollar_figure million when the beneficiary reached age the trustee paid the beneficiary partly in cash and partly in appreciated securities the court held that the beneficiary had a general claim against the trust corpus and the satisfaction of this general claim for an ascertainable value by a transfer of specific assets was an exchange that caused the trust to realize gain based solely on the facts and representations submitted we conclude that the distribution of y’s surplus assets including the company stock to z is not a distribution in satisfaction of a right to receive a distribution in a specific dollar amount or in specific property other than that distributed nor is it a distribution in satisfaction of a general claim for an ascertainable value and therefore no gain_or_loss will be realized by y as a result of such distribution except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the transactions described above in particular we express no opinion as to whether y is subject_to the provisions of subchapter_l of chapter dealing with insurance_companies this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-104218-03 pursuant to a power_of_attorney on file with this office copies of this letter are being forwarded to y and to y’s other authorized representative sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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 ----------------- ---------------------- telephone number refer reply to cc psi plr-120243-06 date date legend taxpayer ----------------------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------------------------- ---------------------------------------------------------- project a ---------------------------------------------- ------------------------------------------------------------------ corp b ------------------------ ---------------------------------------------------------------- -------------------------------------------------------------------- ---------------------------------------------------------- partnership c ------------------------------------------------- ------------------------------------------------------------------ --------------------------------------------------------------- --------------------------------------------- -------------------------------------------------------------------- ---------------------------------------------------------- county d ------------------------------------ office e ------------------------------------------------ ---------------------------------------------------------------- ---------------------------------------------------------- plr-120243-06 office f -------------------------------------------------------------- -------------------------------------------------------- ---------------------------------------------- --------------------------------------------------------------------- corporation g ----------------------------- program h ------------------------------------------ agency i ----------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- a ----------------- b ---------------------------------------- c --- d ------------------------ e ------------------------------- f -------- g ------------------- h ------------- i --------------- j ------------------- k ---------------- l ------------ m ------------ this letter responds to your letter dated date and subsequent plr-120243-06 dear ------------ correspondence submitted on behalf of taxpayer requesting a ruling regarding the 10-year holding_period requirement under sec_42 of the internal_revenue_code the relevant facts as represented in these submissions are set forth below facts taxpayer a limited_liability corporation was formed to acquire rehabilitate construct and operate residential rental properties for low-income persons the taxpayer has two members corp b an organization exempt from tax under sec_501 is the managing member and holds an a percent membership interest in taxpayer and partnership c is the investor member holding a b percent membership interest in taxpayer the internal_revenue_service examination area that will have audit jurisdiction over taxpayer is office e and the examination area that will have audit jurisdiction over corp b is office f project a is a c unit housing development such units to be rented to households whose incomes do not exceed percent of area median income for county d project a was acquired by corporation g pursuant to a conveyance by deed on d corporation g held project a from d to e county d acquired legal_title to project a on e from corporation g and simultaneously transferred legal_title to corp b on e county d operates program h which helps ensure that an adequate supply of low-income_housing is made available to residents once a program h application from a developer is accepted county d issues bonds in the amount necessary to acquire the property county d purchases properties and records a forty year low-income_housing restriction on the property and simultaneously transfers the property to a program h applicant for f taxpayer acquired legal_title to project a on g through a bargain and sale deed conveyance from corp b for the consideration allocated to project a of h consisting of l in the form of a purchase money promissory note and m in cash in order to assist taxpayer’s efforts to develop and operate project a as a low-income residential_rental_property county d through its agency h issued i of industrial development revenue bonds for rehabilitation of project a and other projects as a condition of obtaining bond financing taxpayer transferred legal_title to agency i on g for the consideration of f taxpayer represents however that it remains the tax owner of project a on j agency i will re-convey title back to taxpayer and taxpayer will be contractually obligated to make installment payments that equal the amount of debt service for the rehabilitation costs of the project which is k plr-120243-06 taxpayer further represents that for purposes of sec_42 sec_38 provides for a general business against tax that includes the the tax-exempt obligations have been issued project a has met the requirements for allocation of a housing_credit_dollar_amount under the qualified_allocation_plan applicable to the area in which project a is located as required by sec_42 the governmental_unit issuing the bonds has determined the credit dollar amount necessary for the financial feasibility of project a and its viability as a qualified_low-income_housing_project throughout the credit_period as required by sec_42 and the state housing_credit_agency has assigned a building_identification_number b i n to the building as is customarily done when an allocation of credit is made by the state housing_credit_agency law and analysis amount of the current_year_business_credit sec_38 provides that the amount of the current_year_business_credit includes the low-income_housing_credit determined under sec_42 sec_42 provides that for purposes of sec_38 the amount of the low- income housing_credit determined under sec_42 for any taxable_year in a 10-year credit_period shall be an amount equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction of the eligible_basis of such building sec_42 provides that the qualified_basis of any qualified_basis of any sec_42 and b provides that the eligible_basis of an existing_building will be zero unless the building meets the following requirements i the building is acquired by purchase as defined in sec_179 ii there is a period of at least years between the date of the building’s acquisition by the taxpayer and the later of i the date the building was last placed_in_service or ii the date of the building’s most recent nonqualified_substantial_improvement as defined in sec_42 and iii the building was not previously placed_in_service by the taxpayer or by any person who was a related_person with respect to the taxpayer as of the time the building was previously placed_in_service further existing buildings are eligible for a credit only if a credit is allowable by reason of substantial rehabilitation of the building under sec_42 in determining when a building was last placed_in_service for purposes of satisfying the requirement in sec_42 sec_42 provides that certain placements in service are not taken into account plr-120243-06 sec_42 provides that for purposes of determining under sec_42 when a building was last placed_in_service there shall not be taken into account any placement in service in connection with the acquisition of the building in a transaction by any governmental_unit or qualified_nonprofit_organization as defined in sec_42 if the requirements of sec_42 are met with respect to placement in service by such unit or organization and all the income from such property is exempt from federal income_taxation sec_42 defines the term qualified_nonprofit_organization as an organization described in sec_501 or and is exempt from tax under sec_501 such organization is determined by the state housing_credit_agency not to be affiliated with or controlled by a for-profit organization and one of the exempt purposes of such organization includes the fostering of low-income_housing sec_42 and b provides in general that the requirements of sec_42 do not apply if a taxpayer acquires an existing_building or interest therein for which a credit was allowed to any prior owner under sec_42 and the taxpayer acquires the building or interest therein before the end of the building’s compliance_period in general a transfer of the property results in a new placed_in_service_date if on the date of the transfer the property is ready and available for its intended purpose see h_r conf_rep no 99th cong 2d sess ii-91 vol c b however if sec_42 applies to a transfer of the property the fact that the transfer results in a new placed_in_service_date does not jeopardize the purchaser’s eligibility to claim the low-income_housing_credit because the requirements of sec_42 do not apply specifically revrul_91_38 1991_2_cb_3 q a-4 provides that in the case of buildings placed_in_service after and financed with tax-exempt_bonds issued after if a credit allocation is not necessary because the building meets the requirements of sec_42 the credit will be considered allowed to the prior owner for purposes of sec_42 when the following conditions are met the tax-exempt obligations have been issued the building has met the requirements for allocation of a housing_credit_dollar_amount under the qualified_allocation_plan applicable to the area in which the project is located as required by sec_42 the governmental_unit issuing the bonds has determined the credit dollar amount necessary for the financial feasibility of the project and its viability as a qualified_low-income_housing_project throughout the credit_period as required by sec_42 and the state housing_credit_agency has assigned a building_identification_number b i n to the building as is customarily done when an allocation of credit is made by the state housing_credit_agency in the instant case based solely on the facts submitted and the representations made we conclude that that the transfers on e meet the requirements of sec_42 and thus do not constitute placed-in-service events for purposes of plr-120243-06 sec_42 further we conclude that taxpayer meets the requirements of sec_42 in regard to the events on g and thus the requirements of sec_42 do not apply accordingly when corp b conveyed project a to taxpayer on g more than years had elapsed since project a had last been placed_in_service on d we expressly provide no ruling on whether taxpayer’s cost of acquisition and rehabilitation of project a will otherwise qualify for the low-income_housing_credit under sec_42 no opinion is expressed or implied regarding the application of any other provisions of the code regulations or other legal requirements this ruling is directed only to the taxpayer which requested it sec_6110 provides that it may not be used or cited as precedent sincerely paul f handleman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy


department of the treasury internal_revenue_service te_ge eo examinations fulton street room brooklyn ny 501-dollar_figure date tax_exempt_and_government_entities_division release number release date legend org - organization name xx - date address - address taxpayer_identification_number person to contact identification_number contact telephone number org address certified mail dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated january 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s as a result of our examination for the tax_year ended december 20xx it was determined that your organization has been inactive since 20xx and that there have been no operations or regular financial activities conducted or planned as such you failed to meet the operational requirements for continued exemption under sec_501 contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing director eo examinations enclosure publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations research blvd ste ms aunw austin tx department of the treasury date date org address certified mail - return receipt requested dear taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeais office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if we issue a determination_letter to you based on technical_advice no further you may also request that we refer this matter for technical_advice as explained in publication administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we will process your case based ‘on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final letter rev catalog number 34809f revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f schedule no or exhibit form 886a rev date name of taxpayer explanation of items tax identification_number year period ended december 20xx org ein legend org - organization name xx - date ein - ein state - state issue sec_1 whether revocation of the organization’s tax-exempt status under sec_501 is necessary because of inactivity facts org _ hereinafter referred to as the organization received recognition of exemption from the irs as an organization described in internal_revenue_code irc sec_501 in january 20xx according to the organizations articles of incorporation the corporation is organized exclusively for the purpose of providing services and programs designed to assist children and families specifically identified as ‘foster children’ and ‘foster families’ primarily during the transitional stages of foster care placement and while transitioning toward independent self-sufficiency in the community specific programs and services will relate to the provision of necessities such as clothing and personal hygiene products educational and recreational supplies and activities as well as the establishment of scholarships employment readiness training and job placement programs during the examination of the form_990 for the years ending december 20xx and 20xx it was determined that the organization stopped all activities in the 20xx year according to a letter received on june 20xx the organization decided to dissolve in 20xx do to the lack of participation of officers the organization had no assets and the banking fees depleted the organization’s account see attachment a during the examination the organization filed a final form_990 for the year ending december 20xx to indicate that the organization had terminated and had zero income and zero expenses in the 20xx year we have not received a certified copy of the articles of dissolution to show that the organization has filed with the state of state the state state’s department of state division of corporations entity information database indicates that the organization is still active see attachment b law sec_501 of the internal_revenue_code irc exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not form 886-a department of the treasury - internal_revenue_service page -1- 886a form rev date name of taxpayer org schedule no or exhibit explanation of items tax identification_number year period ended ein december 20xx participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office sec_1_501_c_3_-1 provides that in order to be exempt as an organizaiion described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than insubstantial part of its activities is not in furtherance of an exempt_purpose revrul_61_170 1961_2_cb_112 ruled that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt the taxpayer has stated that the organization has had no operational activities since 20xx taxpayer’s position government’s position as a result of our examination of your activities and financial records for the year ending december 20xx it was determined that your organization has been inactive for several years and that there have been no operations or financial activities conducted as such org __ fails to meet the operational requirements for continued exemption under sec_5 c the operational_test sec_1_501_c_3_-1 is specifically related to an organization’s activities even if an organization passes the organizational_test by having adequate language regarding their charitable activities the organization must also meet the operational_test to qualify for exemption under sec_501 we are proposing revocation of the organization’s exempt status because the organization decided to dissolve in 20xx due to the lack of participation of officers and the organization has not filed the articles of dissolution with the state that the organization was incorporated in if you provide a certified copy of the articles of dissolution to show that the organization has filed with the state of state within 30-day we will follow through with a termination of the organization form 886-a department of the treasury - internal_revenue_service page -2- 886a form rev date name of taxpayer org schedule no or exhibit explanation of items tax identification_number year period ended ein december 20xx conclusion we are proposing revocation of the of the determination of the exempt status under sec_501 ofthe org __ with a revocation date effective j anuary 20xx if you agree to the proposed revocation please sign form_6018 and mail back to the person listed in the attached letter with in days of receipt of this letter if you do not agree to the proposed revocation please refer to the letter and attached publications for the appeals process or contact the person listed in the letter we will not be pursing delinquent form_1120 returns for the tax period ending december 20xx because the amount of income for the year was de_minimis form 886-a department of the treasury - internal_revenue_service page -3-


internal_revenue_service number release date index number ---------------------- --------------------------------------------------------------- ----------------------------- ----------------------------------------------------- ------------------- ---------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------ telephone number -------------------- refer reply to cc intl b04 plr-137550-08 date date do ---ty ------- do ---ty ------- legend foreign corp ----------------------------------------------------------------------- ------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- foreign corp ----------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------- foreign corp ----------------------------------------------------------------------- ----------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- --------------------------------------------------- ---------------------------------------------------------- foreign corp ----------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------- us partnership ----------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------- ----------------------------------------------------------------------- plr-137550-08 subcorp us ltd partnership us real_property foreign_partnership dear --------------- ------------------------------------------- ----------------------------------------------- -------------------------------------------- --------------------------- 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 of the code provides that it may not be used or cited as precedent background facts the taxpayers are four foreign_corporations foreign corp and hereinafter referred to collectively as taxpayers taxpayers raise funds from non-us investors to invest in real_estate and real estate-related investments located in the united_states us partnership a domestic_partnership was created at the same time that the foreign_corporations were created to raise funds from us investors to invest in the same real_estate and real estate-related investments these foreign_corporations and the domestic_partnership will be collectively referred to herein as feeder funds as funds were periodically raised by one or more of the feeder funds a new domestic_corporation was created and those funds were contributed to this new domestic_corporation each of these newly created domestic corporations subcorps constituted a united_states real_property_holding_company within the meaning of sec_897 the subcorps used the contributed funds to purchase assets that constituted united_states real_property interests within the meaning of sec_897 the feeder funds currently own --- subcorps and each subcorp generally owns a single commercial real_property one of these --- subcorps is subcorp subcorp owns --- of the outstanding interests in us ltd partnership the remaining --- of the outstanding interests in us ltd partnership are owned by third parties us ltd partnership owns all of the interests in us real_property unless otherwise specified all section references are to the internal_revenue_code_of_1986 the code and all treas reg references are the treasury regulations promulgated thereunder plr-137550-08 proposed transaction a step taxpayers propose to form a new foreign_partnership and to contribute all of their equity interests in the --- subcorps including subcorp transferred property to the foreign_partnership in a transaction qualifying under sec_721 each of taxpayers represent that for purposes of sec_897 the interest in foreign_partnership that taxpayers receive in exchange for the transferred property is immediately after the sec_721 contribution a united_states_real_property_interest to the extent attributable to united_states real_property interests of foreign_partnership each of taxpayers represent that for purposes of sec_704 foreign_partnership will adopt the remedial allocation method under sec_1_704-3 each of taxpayers also represent that if foreign_partnership were incorporated it would not be an investment_company within the meaning of sec_351 and sec_1 c ii b step shortly after taxpayers’ contribution of the transferred property to foreign_partnership us ltd partnership will dispose_of all its assets including united_states real_property in a fully taxable transaction described in sec_1001 us ltd partnership will use the proceeds of the sale to settle any outstanding liabilities and then distribute its remaining assets to its partners including subcorp in a complete_liquidation subcorp will use the proceeds received in the liquidation to settle any outstanding liabilities and then distribute its remaining assets to its shareholders which include foreign_partnership and us partnership in a complete_liquidation pursuant to sec_331 law and analysis sec_721 provides that no gain_or_loss shall be recognized to a partnership or any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 provides that sec_721 shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment_company within the meaning of sec_351 if the partnership was incorporated sec_897 provides that gain_or_loss of a nonresident_alien_individual or a foreign_corporation from the disposition of a united_states_real_property_interest shall be taken into account as if the taxpayer were engaged_in_a_trade_or_business_within_the_united_states during the taxable_year and as if such gain_or_loss were effectively connected with such trade_or_business the term united_states_real_property_interest usrpi includes an interest_in_real_property including an interest in a mine well or other us partnership will not contribute its equity interests in the ---- subcorps to the foreign_partnership but rather will retain its interests in such subcorps plr-137550-08 natural_deposit located in the united_states or the virgin islands and any interest other than an interest solely as a creditor in any domestic_corporation unless the taxpayer establishes at such time and in such manner as the secretary by regulations prescribes that such corporation was at no time a united_states_real_property_holding_corporation during the 5-year period ending on the date of disposition of such interest sec_897 provides that the term united_states_real_property_holding_corporation usrphc means any corporation if the fair_market_value of its usrpis equals or exceed sec_50 percent of the fair_market_value of the following i its usrpis ii its interests_in_real_property located outside the united_states and iii any other of its assets which are used or held for use in a trade_or_business sec_897 provides that a taxpayer can establish that a corporation was not a usrphc during the 5-year period ending on the date of the disposition of such interest by showing that such corporation i did not hold any usrpis on the date of disposition of such interest and ii all of the usrpis held by such corporation during the 5-year period were disposed of in transaction in which the full amount of gain was recognized sec_897 provides that the amount of any money and the fair_market_value of any property received by a nonresident_alien_individual or a foreign_corporation from the sale_or_exchange of a partnership_interest shall be considered as received from the sale of a usrpi to the extent that such money or property is attributable to usrpis with respect to a transaction coming within a nonrecognition_provision of the code sec_897 states that such nonrecognition_provision will apply to a transaction only in the case of an exchange of a usrpi for an interest the sale of which would be subject_to taxation the term nonrecognition_provision includes any provision under the code for not recognizing gain_or_loss nonrecognition provisions relevant to this section include but are not limited to sec_721 sec_1_897-6t addresses the application of any nonrecognition_provision to a transfer by a foreign_person under sec_897 sec_1_897-6t states that a nonrecognition_provision will apply to a transfer by a foreign_person of a usrpi on which gain is realized only to the extent that the transferred interest is exchanged for a usrpi which immediately following the exchange would be subject_to u s taxation upon its disposition and the transferor complies with the filing_requirements of sec_1_897-5t sec_1_897-5t requires that the taxpayer file a declaration that states that the transferor shall treat any subsequent sale exchange or other_disposition of the usrpi as a disposition that is subject_to u s taxation notwithstanding the provisions of any u s income_tax treaty or intervening change_in_circumstances accordingly to obtain nonrecognition treatment for the transfer taxpayers must meet the requirements set forth in sec_1_897-6t all of the requirements of sec_1_897-6t have been met in this case prior to this transfer taxpayers held usrpis within the meaning of sec_897 that would be subject_to u s taxation taxpayers’ equity interests in subcorps constituted usrpis because the plr-137550-08 subcorps were usrphcs within the meaning of sec_897 taxpayers exchanged these equity interests in subcorps for interests in foreign_partnership which also constituted usrpis pursuant to sec_897 taxpayers’ interests in the subcorps immediately before the transaction and its interests in foreign_partnership immediately after the transaction will be subject_to u s taxation in the same amount because foreign_partnership will be using the remedial allocation method under temp sec_1_704-3 in addition any gain realized by foreign_partnership on the subsequent liquidation of subcorp pursuant to sec_331 will not be gain within the meaning of sec_897 as of the date of the liquidation the interest in subcorp will no longer be considered a usrpi because subcorp will no longer hold any usrpis and will have disposed of all its usrpis in taxable transactions within the five year period prior to the liquidation sec_897 conclusion based solely on the information submitted and on the representations made and provided that for purposes of sec_704 foreign_partnership will adopt the remedial allocation method under temp sec_1_704-3 and also provided that the taxpayers comply with the filing_requirements of temp sec_1 5t d iii we rule that the taxpayers’ transfer of the transferred property in exchange for partnership interests in foreign_partnership shall constitute a nonrecognition exchange pursuant to sec_721 and sec_897 and temp sec_1_897-6t in addition based solely on the information submitted and on the representations made and taking into account taxpayers’ declarations made pursuant to temp sec_1_897-5t in connection with step of the proposed transaction we rule that any gain foreign_partnership realizes in connection with the liquidation of subcorp is not gain realized in connection with the disposition of a usrpi under sec_897 provided that subcorp satisfies the exclusion described in sec_897 except as specifically set forth above we express no opinion concerning the tax consequences of the proposed transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding sec_1445 or other international tax consequences resulting from the proposed transaction plr-137550-08 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 thomas d beem senior technical reviewer branch international cc


internal_revenue_service department of the treasury number release date index no p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-122398-00 date date re legend settlor spouse trust date trust date year date court state dear this is in response to a letter dated date and subsequent correspondence submitted on behalf of the taxpayers in which rulings were requested concerning the federal gift and estate_tax consequences of a court order reforming trust and trust facts the facts submitted and representations made are as follows settlor and his spouse created two irrevocable trusts trust executed on date and trust executed on date under the terms of both trust and trust during settlor’s life the trustee may distribute any amount of income and principal among spouse the then-living issue of settlor and spouse’s parents after settlor’s death the trustee may distribute any amount of income and principal among spouse the then-living issue of settlor and plr-122398-00 spouse and spouse’s parents at spouse’s death the trust assets will be distributed as spouse appoints by will among the issue of spouse and settlor excluding spouse’s estate or creditors any part of the trust assets not so appointed will be retained in trust until the death of the last to die among spouse’s parents and settlor and then continued in trust for the benefit of any then-living children of settlor under the age of while the trust assets are held for such children the trustee has discretion to distribute income and principal among settlor’s children under specified circumstances at the twenty-fifth birthday of settlor’s youngest child the trust will continue for the benefit of settlor’s then-living issue a bank is named as the initial trustee of both trusts article ix of each trust provides for the removal and replacement of the trustee with a corporation qualified to administer trusts by settlor during his lifetime by spouse after his death and after both of their deaths by the income beneficiaries or their personal guardians acting unanimously both spouse and settlor represent that they intended and understood from the attorney who drafted the trusts that none of the assets held by either trust would be includible in the gross estates of either spouse or settlor in a date letter to settlor and spouse the scrivener stated that trust was created so that you can make gifts to it to remove property from your estate for federal estate_tax purposes this trust could for example be the owner of any insurance policies on either settlor’s or spouse’s life trust owns one life_insurance_policy on settlor’s life and trust owns five life_insurance policies on settlor’s life the scrivener died soon after drafting trust in year settlor’s estate planner and one of his life_insurance agents examined the provisions of the trusts each of them discovered the following provisions which they believed could cause the trust assets to be includible in the gross_estate of settlor or of spouse sec_1 of article i of trust names settlor among the beneficiaries to whom the trustee may make discretionary distributions of income and principal during settlor’s life and states that such distributions shall be limited to those distributions necessary in the trustee’s sole and absolute discretion to support the settlor’s present standard of living sec_2 of article ii of trust and sec_2 of article ii of trust provide spouse with a testamentary power to appoint the assets held in each trust among the issue of settlor and spouse and further state provided however that this power_of_appointment may not be exercised for appointment to or for the benefit of her estate or her creditors section of article vii of trust provides plr-122398-00 the trustee is directed to pay any and all charitable pledges made by settlor and or settlor’s wife and not paid or paid in full by settlor and or settlor’s wife during his or her lifetime and to pay any and all charitable_bequests made by settlor and or settlor’s wife in his or her will which bequests are not paid_by settlor’s estate and or settlor’s wife’s estate notwithstanding that such charitable pledges or bequests might not be enforceable against the settlor and or settlor’s wife or against settlor’s estate and or settlor’s wife’s estate section of article vii of trust and section of article vii of trust provide the trustee may in its sole and absolute discretion pay any and all federal or state estate or inheritance taxes or administration costs incurred because of or arising as a result of settlor’s death and or settlor’s wife’s death from the assets or income that are a part of the trust hereinabove defined the trustee may also in its sole and absolute discretion pay any and or all last debts or debts existing at the time of the death of the settlor and or settlor’s wife whether or not matured if the payment of such debts shall be of advantage to the trust estate or to any of the beneficiaries hereunder on date spouse as beneficiary of trust and trust filed petitions with court requesting reformations of both trusts the petitions state that the trusts were established for the purpose of owning life_insurance policies on settlor’s life and that settlor intended that these policies would not be includible in the gross estates of settlor or spouse for federal estate_tax purposes further the petitions allege that settlor recently learned that specific provisions in each trust agreement might cause inclusion of the value of the policies or of the death_benefits in the gross estates of settlor or spouse and that had he understood the estate_tax consequences of these provisions settlor would not have signed the trust agreements the petition regarding trust requests that the trust be reformed as follows all mention of settlor should be omitted from sec_1 of article i which provides for a class of beneficiaries to whom income and principal may be paid during settlor’s life sec_2 of article ii should be reformed to state provided however that this power_of_appointment may not be exercised for appointment to or for the benefit of herself her estate her creditors or the creditors of her estate plr-122398-00 section and section of article vii should be deleted in their entireties the petition regarding trust requests that the trust be reformed as follows sec_2 of article ii should be reformed to state provided however that this power_of_appointment may not be exercised for appointment to or for the benefit of herself her estate her creditors or the creditors of her estate section of article vii should be deleted in its entirety the following rulings have been requested neither settlor nor spouse will make a taxable gift_for federal gift_tax purposes as a result of the reformations of trust and trust the reformations of trust and trust will not cause any part of the value of any property of trust or trust to be included in the gross_estate of settlor or of spouse for federal estate_tax purposes law and analysis sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration is deemed a gift sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states under sec_2031 the decedent’s gross_estate includes the value of all property to the extent provided for in sec_2033 through sec_2033 states that the value of a decedent’s gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death in 387_us_456 the court considered whether a state trial court's characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court's plr-122398-00 determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court generally if due to a mistake in drafting the instrument does not contain the terms of the trust that the settlor and the trustee intended the settlor or other interested_party may maintain a suit in equity to have the instrument reformed so that it will contain the terms that were actually agreed upon bogert bogert the law of trusts and trustees sec_991 revised 2d ed the law in state recognizes that instruments may be reformed if the written_agreement does not express the intent of the parties colbo v buyer n e 2d ind based on the facts submitted and the representations made we believe that the reformations of trust and trust are consistent with applicable state law as it would be applied by the highest court of state therefore based on the facts submitted and the representations made we conclude that neither settlor nor spouse will make a taxable gift_for federal gift_tax purposes as a result of the reformations of trust and trust and that the reformations of trust and trust will not cause any part of the value of any property of trust or trust to be included in the gross_estate of settlor or spouse for federal estate_tax purposes except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel passthroughs and special industries by james f hogan assistant to the chief branch enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------------------------ ---------------------------------- -------------------------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- telephone number --------------------- refer reply to cc tege eb ec plr-151237-06 date april legend corporation business line a business line b business line c business line d company e company f q r s t date g date h date j ---------------------------------- --------------- --------------- ----------------------- ----------------------------- ---------------------------- ---------------------------- -------- -------- -------------- ----- ------------------ ---------------- --------------------- --------------------------- plr-151237-06 date k dear ----------------- this letter responds to your request dated date for a ruling under sec_83 and sec_1032 of the internal_revenue_code the facts represented by corporation are as follows corporation is the common parent of a worldwide group comprised of more than q domestic and foreign affiliates corporation is engaged in four lines of business business line a business line b business line c and business line d corporation anticipates effecting a sec_355 spin-off transaction on date g that will result in corporation being separated into three public companies corporation company e and company f company e will be the ultimate parent_corporation of the subsidiaries that conduct business line a and company f will be the ultimate parent_corporation of the subsidiaries that conduct business line b shares of company e and company f will be distributed to shareholders of corporation in the spin off business lines c and d will be retained by corporation after the spin off the aggregate value of corporation company e and company f will be approximately equal to the value of corporation before the spin off some of the employees of corporation and its subsidiaries will continue to work for corporation or its subsidiaries and some will work for company e or company f or their respective subsidiaries pursuant to a stock incentive plan corresponding restricted_stock awards under the plan and grant letters corporation made annual broad-based grants of restricted_stock to certain of its employees and certain employees of its subsidiaries on date h and date j as of date k the total number of united_states employees holding shares of restricted_stock was r the total number of shares of restricted_stock held by united_states employees was s grants of restricted_stock to employees under the restricted_stock awards ranged from t to 1000t shares per employee with an average grant of approximately 6t the restricted_stock distributed pursuant to the restricted_stock awards generally is subject_to three-year cliff_vesting however immediate vesting occurs upon a participant’s normal retirement death disability or a change in control the restricted_stock vests pro_rata with respect to the portion of the three-year term that the participant has completed upon his or her retirement or termination of employment as a result of divestiture or outsourcing a participant’s termination of employment other than as a result of the above-listed exceptions before the third anniversary of the applicable grant plr-151237-06 date causes restricted_stock that is not vested as of such termination of employment to be forfeited in connection with the spin off the employees of corporation company e and company f will continue to own any shares of restricted_stock in pre-spin-off corporation that they held before the spin off and will receive shares of restricted_stock in company e and company f following the spin off the vesting requirements with respect to restricted_stock in all three public companies will be as follows the restricted_stock of the company for which the employee works after the spin off employer stock will vest three years after the original grant_date and one-half of the shares of restricted_stock in the two companies for which the employee does not work non-employer stock will vest on the spin-off date and the other half will vest six months after the spin-off date thus one-half of the non-employer stock received by the employees will be subject_to a six-month service requirement and the employees’ employer stock will remain subject_to the original three-year service requirement employees of company e and company f will receive newly-issued shares of employer stock subject_to the same three-year service requirement that applies to such employees’ shares of pre-spin-off restricted_stock the service requirement applicable to one-half of the shares of pre-spin-off restricted_stock and one-half of the shares of restricted_stock of the spun-off company for which they do not work in each case non- employer stock will be reduced to six months corporation represents that none of the employees affected by the ruling_request have made a sec_83 election with respect to the restricted_stock of corporation company e or company f corporation further represents that none of the employees affected by the ruling_request are outside directors of corporation or its subsidiaries and that none of the employees affected by the request are controlling shareholders within the meaning of revproc_2007_3 2007_1_irb_108 sec_83 provides that if in_connection_with_the_performance_of_services property is transferred to any person other than the person for whom such services are performed the excess of the fair_market_value of such property determined without regard to any restriction other than a restriction that by its terms will never lapse at the first time the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever occurs earlier over the amount if any paid for such property shall be included in the gross_income of the person who performed such services in the first taxable_year in which the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever is applicable sec_83 provides that if property to which sec_83 applies is exchanged for property subject_to restrictions and conditions substantially_similar to plr-151237-06 those to which the property given in such exchange was subject and if sec_354 sec_355 sec_356 or sec_1036 or so much of sec_1031 as relates to sec_1036 applied to such exchange or if such exchange was pursuant to the exercise of a conversion privilege such exchange shall be disregarded for purposes of sec_83 and the property received shall be treated as property to which subsection a applies based on the facts represented by corporation we rule that the distribution of shares of company e and company f restricted_stock pursuant to the spin-off to the holders of restricted_stock granted by corporation is an exchange of restricted_stock in pre-spin-off corporation for restricted_stock in post-spin- off corporation company e and company f and is disregarded so that the restricted_stock that does not vest on the spin-off date remains subject_to a substantial_risk_of_forfeiture under sec_83 none of corporation company e or company f or the members of the separate_affiliated_group of which corporation company e or company f is the parent at the time of the spin off will recognize gain_or_loss when the restrictions lapse on the employer or non-employer stock except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited 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 william c schmidt senior counsel executive compensation branch office of the division counsel associate chief_counsel tax exempt government entities