department of the treasury z i u ore internal_revenue_service washington d c commissioner tax exempt and ee soe aug uniform issue list te p' ra’ legend taxpayer a roth_ira x amount m date date date financial_institution n bank_s_corporation c note c dear this is in response to a letter dated date and as supplemented by a letter dated date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page taxpayer a maintained a roth individual_retirement_account ira roth_ira x held in trust by financial_institution n taxpayer a age asserts that he authorized a wire transfer of amount m from roth_ira x to bank s as escrow agent for an investment in a note of corporation c note c which was intended to be held as an investment in roth_ira x due to an error committed by the transfer agent of financial_institution n the amount was instead treated as a distribution from roth_ira x taxpayer a asserts that his failure to accomplish a rollover of amount m within the 60-day period prescribed by sec_408 of the code was due to the error by the transfer agent of financial_institution n taxpayer a further represents that amount m has not been used for any other purpose taxpayer a represents that on date he authorized a wire transfer of amount m from roth_ira x held in trust at financial_institution n to purchase a qualified_investment in note c as an asset of roth_ira x taxpayer a provided instructions in the wire transfer authorization that taxpayer a intended that the new investment in note c should be held as an asset of roth_ira x however upon receipt of the date wire transfer of amount m corporation c did not register the amount m investment in note c in the name of roth_ira x but instead sent note c to the clearing agent of financial_institution n which did not register note c correctly financial_institution n has submitted a letter dated date which admits that taxpayer a’s instructions were not followed and which states that the investment in note c has been re-titled in the name of roth_ira x and has not been used for any other purpose taxpayer a did not learn of the financial_institution n error until after the 60-day rollover period had expired based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount m sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers page sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 d sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code sec_408a of the code provides that no rollover_contribution may be made to a roth_ira unless it is a qualified_rollover_contribution sec_408a provides in pertinent part that the term qualified rollover - contribution means a rollover_contribution to a roth_ira from another such account or from an individual_retirement_plan but only if such rollover_contribution meets the requirements of sec_408 revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution liege inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a rollover of amount m within the day period prescribed by sec_408 of the code was due to an error by the transfer agent of financial_institution n in not following the instructions of taxpayer a regarding proper titling of the notes therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the inadvertent distribution of amount m from roth_ira x provided all other requirements of code sec_408 except the 60-day requirement were met retitling of the notes by financial_institution n will be considered a rollover_contribution within the meaning of code sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 a copy of this letter_ruling is sent to your authorized representative pursuant to the provisions of a power_of_attorney on file in this office page if you have any questions please contact’ phone at fax at - ' by sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


internal_revenue_service number release date index number ------------------------------------------------------ ------------------------------------------------------------ ---------------- ---------------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ------------------------------------------ refer reply to cc fip b04 plr-120698-13 date date holding_company state a parent state b company state c subsidiary state d passive investment activities ---------------------------------------------------------------------- ------------- ----------------------------------------------- ------------- --------------------------------------------------------------------- ------------- ----------------------------------------------------------------- ------------- -------------------------------------------------------------------------------- --------------------------------- dear ----------------- this ruling is in response to your authorized representatives’ submission dated date requesting a ruling under sec_806 of the internal_revenue_code facts holding_company is a state a --------- insurance holding_company through its direct and indirect subsidiaries holding_company is engaged in a wide variety of insurance financial services and other investment-related businesses holding_company is the parent company of parent a state b stock holding_company parent owns all of the stock of company a state c company company is a life_insurance_company company and its affiliates’ business operations consist of life_insurance products annuities mutual funds pension and institutional products subsidiary is a state d corporation that parent acquired after receiving regulatory approval holding_company directed parent to contribute the stock of subsidiary to plr-120698-13 company this restructuring was done for non-tax business reasons primarily related to disruptions in the credit markets and the negative impact on company’s ability to borrow and meet regulatory capital requirements following the impact of the worldwide financial crisis company owns all of the stock of subsidiary subsidiary invests in passive investment activities and also performs consulting activities with respect to similar passive investment activities holding_company files a life-nonlife consolidated federal_income_tax return with its eligible members on a calendar_year basis pursuant to an election under sec_1504 both company and subsidiary are eligible members included in holding company’s life-nonlife consolidated_return holding_company group has treated company as part of the life_insurance subgroup holding_company group has treated subsidiary as part of the nonlife subgroup proposed transaction holding_company proposes that subsidiary segregate the consulting activities in a separate company owned by holding_company or one of its non-life subsidiaries holding_company will continue to treat the consulting activity as part of the non-life subgroup after segregation subsidiary will make an election in accordance with sec_301_7701-3 on form_8832 to be disregarded as a separate_entity check- the-box election following the check-the-box election company for federal_income_tax purposes will hold the assets relating to the passive investment activities and will continue such investment activities to support life_insurance and annuity_contracts issued by company ruling requested subsidiary’s passive investment activities are properly treated as an insurance_business following subsidiary’s check-the-box election and therefore subsidiary’s income and expenses should be included in computing tentative_licti and not limited by sec_806 or sec_1503 law sec_801 imposes a tax for each taxable_year on the life_insurance_company_taxable_income licti of every life_insurance_company in computing licti any loss from a noninsurance_business is limited under the principles of sec_1503 sec_806 sec_806 defines noninsurance_business as any activity which is not an insurance_business sec_806 further provides that any activity which is not an insurance_business is treated as an insurance_business if it is of the type traditionally carried on by life_insurance_companies for investment purposes but only if the carrying on of such activity other than in the case of real_estate does not constitute the active_conduct_of_a_trade_or_business plr-120698-13 the legislative_history to sec_806 provides the following for these purposes noninsurance_business means any business which is not an insurance_business generally insurance_business refers to the business activity of issuing insurance and annuity_contracts and the reinsuring of risks underwritten by insurance_companies together with investment activities and administrative services that are required to support or are substantially related to contracts issued or reinsured by the taxpayer thus for example if a life_insurance_company ran a manufacturing business directly rather than owning stock in the company any income_or_deduction items attributable to the manufacturing business would not be taken into account in computing tentative_licti the concept of noninsurance_business is further modified by a provision that any business that is not insurance_business but is of a type traditionally carried on by life_insurance_companies for investment purposes is to be treated as insurance_business this modification recognizes that insurance_companies have traditionally engaged in certain types of income-producing activities as investments whether directly or through partnership interests that could be viewed as noninsurance_business activities examples would be the ownership and rental of real_estate and the development and sale of real_estate h_r rep no 98th cong 2nd sess to the extent a life_insurance_company has losses from a noninsurance_business sec_803 and sec_1503 limit the use of nonlife losses against life income to the lesser_of percent of the nonlife losses or percent of the life income and also limit the carryover of unused losses to percent analysis under sec_806 a noninsurance_business is any activity which is not an insurance_business thus the initial question is whether the activity qualifies as an insurance_business the legislative_history provides that insurance_business includes issuing insurance and annuity_contracts reinsuring risks underwritten by insurance_companies as well as investment activities and administrative services that are required to support or are substantially related to contracts issued or reinsured by the taxpayer h_r rep no 98th cong 2nd sess pt pp if the activity is not an insurance_business it is treated as an insurance_business if it is of the type traditionally carried on by life_insurance_companies for investment purposes and the carrying on of such activity other than in the case of real_estate does not constitute the active_conduct_of_a_trade_or_business sec_806 if the activity meets this two-prong test it is treated as an insurance_business following subsidiary’s check-the-box election the assets relating to the passive investment activities will be held by company company will hold the passive plr-120698-13 investment_assets to support life_insurance and annuity_contracts issued by company moreover it is an activity of the type traditionally carried on by life_insurance_companies for investment purposes and the carrying on of such activity does not constitute the active_conduct_of_a_trade_or_business accordingly the passive investment activities will not be considered a noninsurance_business under sec_806 conclusion based on the representations and facts presented by the taxpayer subsidiary’s passive investment activities are properly treated as an insurance_business following subsidiary’s check-the-box election and therefore subsidiary’s income and expenses should be included in computing tentative_licti and not limited by sec_806 or sec_1503 caveats 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 ruling letter this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the authorization on file with this office copies of this letter are being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely sheryl b flum chief branch office of the associate chief_counsel financial institutions products cc


internal_revenue_service number info release date conex-163407 cc ita b5 uil the honorable wally herger u s house of representatives washington dc dear mr herger i am responding to your letter dated date in which you raise several questions about the treatment of cash awards received by plaintiffs taxpayers in a settlement of an inverse condemnation proceeding under the name -------------------------------------- your letter raises the following questions whether the portion of the award designated as prejudgment_interest should be treated as ordinary_income by the taxpayers and not as part of the amount_realized from the inverse condemnation of property whether attorneys’ fees paid_or_incurred by the taxpayers are deductible expenses or are nondeductible capital expenditures under what circumstances may the taxpayers take a casualty_loss deduction for destroyed property what efforts the irs has made to inform the taxpayers of their potential tax_liability in this matter and whether the receipt of forms 1099-miscellaneous that report the amount of the cash awards will result in the selection of the taxpayers’ tax returns for audit i interest you indicate that the settlement reached by the parties in the ---------- litigation included a payment to the taxpayers of prejudgment_interest you ask whether the interest constitutes ordinary_income to the taxpayers california law allows prejudgment_interest in inverse condemnation actions see cal civ proc code west people v gardella square cal rptr cal ct app generally interest awarded in a condemnation suit is compensation_for the delay in payment and is not part of the damages awarded for the converted property 317_us_399 a taxpayer generally must include the interest portion of a condemnation_award in gross_income as ordinary_income see sec_61 of the code and sec_1_61-7 of the income_tax regulations therefore the prejudgment_interest portion of the settlement is taxable as ordinary_income to the taxpayers and is not part of the property recovery ii attorneys’ fees you ask whether the attorneys’ fees paid_or_incurred by the taxpayers are deductible expenses or instead are nondeductible capital expenditures the tax treatment of attorneys’ fees is determined by analyzing the origin of the claim with respect to which the attorneys’ fees were incurred where the claim originates in a capital_transaction such as the acquisition disposition or recovery_of a capital_asset the attorneys’ fees are capital expenditures 397_us_580 397_us_572 on the other hand claims that originate in a suit to collect ordinary_income may give rise to deductible attorneys’ fees in many cases a lawsuit seeks to recover both capital and ordinary items and some allocation of attorneys’ fees between the capital and ordinary claims is necessary the ---------- litigation has its origin in the recovery_of a capital_asset although the taxpayers also received prejudgment_interest that is taxed as ordinary_income prejudgment_interest is awarded automatically under california law to successful plaintiffs in inverse condemnation proceedings that is no separate proceeding is required to obtain prejudgment_interest also there is no indication in your correspondence that attorney time was spent on the determination of prejudgment_interest in the absence of a separate prejudgment_interest proceeding or a specific allocation of attorney time it is reasonable to assume that all attorneys’ fees are allocable to the capital recovery and therefore are nondeductible capital expenditures iii casualty_loss deduction under sec_165 of the internal_revenue_code a taxpayer may take a casualty_loss deduction for any loss sustained during the taxable_year not_compensated_for_by_insurance_or_otherwise losses due to flooding are generally deductible casualty losses see revrul_76_134 1976_1_cb_54 and revrul_63_232 1963_2_cb_97 the code treats business and personal casualty losses differently if an individual incurs casualty losses in a trade_or_business or in a transaction entered into for profit the casualty losses may be deducted without limitation see sec_165 of the code however deductions for a personal_casualty_loss are subject_to the limitations in sec_165 of the code because casualty_loss issues depend heavily on a taxpayer’s particular facts it is difficult to generalize on this subject taxpayers may find answers to their specific casualty_loss questions in publication casualties disasters and thefts copy enclosed iv outreach efforts finally you note that tax preparers in ----------------- have made several outreach efforts and you ask about irs outreach efforts -------------- a ---------------- territory manager participated in two town hall meetings sponsored by the california society of enrolled agents in date mr -------- is available to participate in future outreach efforts at your request you may reach him at ------- -------------or by email at bob meyer irs gov v form_1099 concerns you also ask whether receipt of forms 1099-miscellaneous by the taxpayers will result in the irs’s computers erroneously identifying the taxpayers as not having reported their taxes correctly as discussed by telephone with your staff we will reply to this question by separate letter i hope this response is helpful if you need further information please contact --- --------------------------------------------------------------- -------------------------- sincerely donald l korb chief_counsel enclosure


department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-107901 date oct iggg internal_revenue_service index no legend decedent spouse trust trustee date w u d u this is in which you requested rulings under sec_2056 of the internal revenue in response to your submission of date code according to your submission decedent died testate on date under the terms of decedent's will after providing for certain bequests of personalty to spouse the residue of the estate passed to trust a revocable_trust established by decedent during his lifetime article i1i of trust provides that if spouse survives decedent's death by a period of four months then spouse is to receive dollar_figure and any real_property residence or interest which may be a_trust asset on the date of decedent's death addition spouse is to receive all of decedent's household furniture furnishings and works_of_art receive any and all automobiles items of personal adornment and personal effects spouse is also to in article ii states that all of the rest residue and remainder of the trust estate are to be divided by trustee into two separate trusts designated wife's bypass_trust and wife's terminable_interest trust wife's terminable_interest trust is intended to qualify for a marital_deduction under sec_2056 qualified_terminable_interest_property as the wife's bypass_trust is to be funded with assets having a value equal to the lesser_of either -2- ii the dollar i the value of the entire trust estate or equivalent of the allowable unified_credit for federal estate_and_gift_taxes under the internal_revenue_code as of the year of decedent's death less the value of any assets passing to anyone other than spouse which are or would be includible in decedent's taxable_estate for federal estate_tax purposes assets if any to be placed in wife's bypass_trust trustee shall establish wife's bypass_trust so that it contains a share including undivided interests in assets not physically divisible of each and every asset of the trust estate which is the amount determined under immediately above and the denominator of which is the value of all assets in the trust estate upon determining the dollar value of the ii or wife's terminable_interest trust is to be funded with the remaining assets of the trust estate not passing to wife's bypass_trust under the terms of the will and trust spouses received outright cash in the amount of dollar_figure a condominium valued at dollar_figure and household furniture furnishings works_of_art automobiles and personal effects valued at dollar_figure in addition to these specific and general bequests decedent held assets in joint_tenancy with spouse valued at dollar_figure which passed to spouse by operation of law a life_insurance_policy on decedent's life in the amount of dollar_figure spouse also received the proceeds of however in determining this percentage trustee on schedule m of form_706 filed by the estate the executor properly made an election under sec_2056 with respect to the entire value of wife's terminable_interest trust determined that based on the formula contained in article ii of the trust residue passed to wife's terminable_interest trust incorrectly included in the value of the residue available for funding the residuary trusts the life_insurance_proceeds the joint property and personalty spouse either under the terms of trust by operation of law or as a designated_beneficiary and were not part of the residuary_trust estate to the extent the value of these assets were included in the gross_estate a deduction under sec_2056 is allowed these assets passed outright to trustee you have requested the following rulings the estate made a valid election under sec_2056 to treat of the value of the wife's terminable_interest trust as qualified_terminable_interest_property qtip under sec_2056 the life_insurance_proceeds joint property and personalty did not pass to the wife's terminable_interest trust and are not subject_to the qtip_election an estate_tax_marital_deduction is allowable for the value of the property passing to the wife's terminable_interest trust as determined under the provisions of article ii of trust sec_2056 provides that the value of a decedent's taxable_estate shall be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if an event or contingency or on the failure of an event or contingency to occur the interest passing to the surviving_spouse will terminate or fail on the lapse of time on the occurrence of sec_2056 provides an exception to the terminable_interest_rule in the case of qualified_terminable_interest_property sec_2056 a provides that qualified_terminable_interest_property shall be treated as passing to the surviving_spouse and no part of such property shall be treated as passing to any person other than the surviving_spouse thus the value of such property is deductible from the value of the gross_estate under sec_2056 sec_2056 b i defines the term qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and dollar_figure to which an election under b b v applies sec_2056 b ii and the regulations thereunder provide that the surviving_spouse will be considered to have a qualifying_income_interest_for_life if the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals anda surviving_spouse has a power to appoint any part of the property to any person other than the surviving_spouse during the surviving spouse's lifetime no person including the sec_2056 b v provides that an election under -4- sec_2056 with respect to any property is to be made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable section b -7 b i of the estate_tax regulations provides that the election referred to in sec_2056 b b v made on the return of tax imposed by sec_2001 sec_20_2056_b_-7 i the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date for purposes of is under sec_2044 any property in which the decedent possessed a qualifying_income_interest_for_life and for which a deduction was allowed under sec_2056 is includible in the decedent's gross_estate issue sec_1 and the election to deduct qualified_terminable_interest_property under sec_2056 is valid if it is made on the return of tax imposed by sec_2001 that is the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date in the instant case trustee elected on schedule m to treat of the wife's terminable_interest trust as qualified_terminable_interest_property under sec_2056 election was made within the time prescribed by sec_2056 the applicable regulations calculated the amount passing to the trust under the terms of trust instrument this incorrect calculation does not affect the validity of the election or the amount properly passing to trust under the terms of the governing instrument accordingly based on the facts presented and representations made including the value of the assets as reported on the form_706 we rule as follows although trustee incorrectly further the and the estate made a valid election under sec_2056 to treat of the value of the wife's terminable_interest trust as qualified_terminable_interest_property under sec_2056 the life_insurance_proceeds joint property and personality did not pass to the wifets terminable_interest trust and are not subject_to the qtip_election an estate_tax_marital_deduction is allowable under sec_2056 for the value of the property passing to the wife's terminable_interest trust as determined under the provisions of article ii of trust in addition a marital_deduction is -5e- estate allowable under sec_2056 for the value of the assets passing_to_spouse outright under the terms of trust by operation of law or as a designated_beneficiary to the extent included in the gross except as specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions of the code or under any other provisions of the code this ruling is directed only to the taxpayer who requested sec_6110 provides that it may not be used or cited it as precedent sincerely assistant chief_counsel passthroughs and special industries cor nef v a geofge maswik chief branch enclosure copy for sec_6110 purposes