internal_revenue_service number release date index number ---------------------------------------------- --------------------------------- --------------------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-117188-08 date date legend x ----------------------------------------- ----------------------------------- trust ----------------------------------------- ---------------------------------------------- trust ----------------------------------------- ------------------------------------------ llc ----------------------------------------- ----------------------------------------- state --------- a b c d --------------- ---- --------------- ------ date ------- date ------- date ------- plr-117188-08 dear --------------- this responds to your letter dated date submitted on behalf of x trust trust and llc as their authorized representative requesting rulings on several issues arising from agreements entered into among the parties in the alaska native claims settlement act of ancsa u s c et seq settled the alaska natives' claims to land and resources ancsa implements the settlement of native alaskans' aboriginal land claims by providing for the conveyance of certain lands and money to alaska native corporations anc established by qualified alaska natives as compensation the ancsa provided that all united_states citizens with or more of alaska indian eskimo or aleut blood who were living on date were qualified to participate in the settlement the natives who qualified to participate in the settlement were allowed to enroll as stockholders and receive stock in one of the twelve regional corporations and in one local village corporation created under the ancsa to receive assets the ancsa as originally enacted provided that for a period of years after date the stock inchoate rights thereto and any dividends_paid or distributions made with respect thereto may not be sold pledged subjected to a lien or judgment execution assigned in present or future or otherwise alienated this limitation however did not apply to transfers of stock pursuant to a court decree of separation divorce or child_support by a stockholder who is a member of a professional organization association or board which limits the ability of that stockholder to practice his profession because of holding such stock or by intervivos gift to certain family members the ancsa also provides that upon the death of any stockholder ownership of such stock shall be transferred to any person in accordance with his last will and testament or under the applicable laws of intestacy except that during the twenty-year period after date such stock shall carry voting rights only if the holder thereof through inheritance is also an alaska native subsequent amendments to the ancsa generally extend beyond date the alienability restrictions on the settlement_common_stock of an anc unless and until the shareholders of the corporation decide to terminate them usc 1629c if the shareholders vote to terminate the alienation restrictions on the stock all settlement_common_stock is cancelled as a matter of law and is replaced with unrestricted replacement common_stock usc h thereupon the special character of the corporation as an anc created under ancsa ceases and the corporation becomes a regular domestic_corporation subject_to regulation under securities laws to accommodate the desire of certain ancs to transfer a portion of their assets out of the corporate form the ancsa amendments of authorizes the conveyance of certain assets of an anc to a state-chartered settlement_trust settlement_trust plr-117188-08 the general purpose of the settlement_trust is to preserve native heritage and culture and to promote the health education and economic welfare of its beneficiaries the shareholders of the transferor anc and their lawful successors the settlement_trust is to be used to insulate permanently land as well as other assets transferred to it from the business risks undertaken by the anc such settlement trusts may not operate as a business nor may they make a subsequent transfer of land or interests therein except for a reconveyance to the transferor_corporation if such reconveyance is authorized in the trust instrument usc 1629e if the board_of directors of an anc adopts a resolution to establish a settlement_trust the resolution to establish the trust must be submitted to a vote of the corporation's shareholders for approval usc 1629b a and 1629b b the shareholders however are not required to approve the conveyance of any assets by the corporation to the settlement_trust unless all or substantially_all of the assets of the corporation are to be conveyed usc 1629e a b sec_646 of the internal_revenue_code was enacted as part of the economic_growth_and_tax_relief_reconciliation_act_of_2001 sec_646 addresses several aspects concerning the tax treatment of settlement trusts the information submitted states that x is organized as an anc under the provisions of ancsa and alaska state law in date x established trust a settlement_trust to provide long-term pro-rata cash distributions to its shareholders trust is in operation and has been making such distributions for approximately a decade in date x established trust a settlement_trust to provide non pro-rata educational and funeral benefits to its shareholders in date x established llc under state law as a limited_liability_company to facilitate and coordinate the investments of x trust trust and their wholly owned entities interests in llc are divided into units x trust and trust are the current unitholders of llc only x trust and trust or any entity wholly owned by any of them may own units in llc llc now proposes to loan money to x the loan would be in the form of a revolving line of credit for a period lasting approximately one year and would not exceed dollar_figurea the loan could be renewed for additional periods at the discretion of llc x will provide a secured promissory note and a loan agreement the secured promissory note will specify that amounts advanced under the loan will bear interest at the prime rate plus b the loan agreement will require that the repayment of the line of credit will be secured_by a first position security_interest in x’s entire equity_interest in one of its subsidiaries that owns a real_estate development x represents that the value of of the subsidiary’s real_estate is dollar_figurec furthermore llc’s operating_agreement limits the plr-117188-08 total of all loans made from llc to x to no more than d of the aggregate fair_market_value of llc assets net of liabilities and requires that adequate security must be given and adequate interest rate must be paid trust and trust have each made an election under sec_646 x has received three private letter rulings plr plr plr pertaining to trust trust and llc x represents that all the representations set forth in those prior letter rulings remain true and correct a settlement_trust may elect to have the provisions of sec_646 apply to the trust and its beneficiaries sec_646 provides that if a sec_646 election is in effect with respect to any settlement_trust the provisions of sec_646 shall apply in determining the income_tax treatment of the settlement_trust and its beneficiaries with respect to the settlement_trust provided that trust and trust have met all the requirements to be settlement trusts including making the necessary election under sec_646 we conclude that sec_646 governs the income_tax treatment of trust and trust accordingly subpart e of part of subchapter_j of chapter of the code the grantor_trust provisions will not govern the income_tax treatment of trust and trust during any period that trust and trust have sec_646 elections in effect sec_671 provides that if the grantor of a_trust or another person is treated as the owner of any portion of the trust that person's taxable_income and credits shall include the income deductions and credits of the trust attributable to that portion of the trust to the extent that such items would be considered in computing the taxable_income or credits of an individual sec_673 through specify the circumstances under which the grantor or another person will be regarded as the owner of a portion of a_trust based on our examination of the llc operating_agreement the promissory note and the revolving line of credit agreement we conclude that the loans including the line of credit do not cause x or any other person to be treated as the owner of any portion of trust and or trust under sec_673 sec_674 sec_676 sec_677 sec_678 or sec_679 under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances in respect of which the grantor has certain administrative_powers sec_675 provides that a power exercisable by the grantor or a nonadverse_party or both enables the grantor to borrow the corpus or income directly or indirectly without adequate interest or without adequate security except where a trustee other than the grantor is authorized under a general leading power to make loans to any person without regard to interest or security plr-117188-08 sec_1_675-1 of the estate_tax regulations provides that the existence of a power exercisable by the grantor or a non-adverse party or both which enables the grantor to borrow the corpus or income of the trust directly or indirectly without adequate interest or adequate security however this paragraph does not apply where a trustee other that the grantor acting alone is authorized under a general lending power to make loans to any person without regard to interest or security a general lending power in the grantor acting alone as trustee under which he has power to determine interest rates and the adequacy of security is not in itself an indication that the grantor has power to borrow the corpus or income without adequate interest or security x asks for rulings as to whether a loan including the line of credit between llc and x would cause x to be treated as an owner of any portion of trust or trust under sec_675 because x has a power to undertake any loan including the line of credit without providing adequate interest or adequate security and whether the loan including the line of credit will cause x to be treated as the owner of the corpus and income of trust and trust under sec_675 our examination of the terms of llc's loan to x reveals none of the circumstances that cause x to have power_to_borrow_without_adequate_interest_or_security for purposes of sec_675 the trustees of trust and trust are not employees of x as that term is defined in sec_675 merely because they are directors of x see revrul_66_160 1966_1_cb_164 therefore the trustees are not related or subordinate trustees subservient to the grantor for purposes of sec_675 merely because they are also directors of x the circumstances otherwise attendant on the operation of trust and or trust will determine whether the grantor will be treated as the owner of any portion of the trusts under sec_675 or this is a question of fact the determination of which must be made by the director field operations with which the parties file their tax returns accordingly based solely on the facts presented and representations made in this ruling_request and viewed in light of the applicable law and regulations we rule as follows the loans including the line of credit do not affect in any manner the sec_646 elections that both trust and trust have made and that the elections remain valid plr-117188-08 the fact that llc will loan monies to x under the secured promissory note and the loan agreement will not in itself cause x or any other person to be treated as the owner of any portion of trust and or trust under based solely on the information submitted and the representation that the facts and representations in the prior letter rulings remain true and correct we rule that the loans including the line of credit does not affect the rulings given to x and trust in plr x trust and trust in plr or x trust trust and llc in plr and such rulings will remain in full force and effect subject_to the extent of any conditions stated in those letter rulings no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and income_tax regulations other than those expressed in the prior letter rulings or about the tax treatment of any conditions existing at the time or effects resulting from the proposed transaction that are not specifically covered by the above ruling or those rulings set forth in the prior letter rulings a copy of the letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office copies of this letter are being sent to x's authorized representatives sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b6 plr-120766-00 date november taxpayer plant d1 d2 d3 dear this letter responds to your request dated d3 submitted on behalf of taxpayer requesting under sec_301_9100-3 of the procedure and administration regulations an extension of time to file a request for a revised schedule of ruling amounts for plant under sec_1_468a-3 and iv of the income_tax regulations taxpayer was required to file the request for a revised schedule of ruling amounts for plant under sec_1_468a-3 and iv on or before d1 taxpayer did not file the request until d2 taxpayer requested an extension of time to file the request under sec_301_9100-3 on d3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based solely on the facts and the representations made the requirements of sec_301_9100-1 and sec_301_9100-3 have been met consequently taxpayer is granted an extension of time to file the request for a revised schedule of ruling amounts for plant under sec_1_468a-3 and iv until days following the date of this letter taxpayer must comply with all the requirements of sec_1_468a-3 except as specifically ruled upon above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent we are sending a copy of this letter to the district_director in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representatives sincerely yours s paul kugler paul f kugler 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 -------------------------------------------------- ------------------------------------ ------------------------------------- ------------------------- ------------ ----------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- ------------------------ telephone number -------------------- refer reply to cc pa apjp b01 plr-111164-06 date date sec_3406 -- backup withholding backup withholding sec_6041 -- information_at_source fixed or determinable gains profits or income payments specifically included sec_6045 -- returns of broker sec_6045 returns of brokers sec_6049 -- returns regarding payments of interest reportable interest legend taxpayer -------------------------------------------------- fund --------------------------------------------------- x --------------------------------------------- years -------------- year ------ dollar_figurea --------------- dear ---- ------------ this letter responds to the letter dated date submitted on behalf of the fund requesting the following rulings plr-111164-06 settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6041 of the internal_revenue_code except in the case of payments made directly to participants in tax-qualified retirement plans settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6045 settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6049 for purposes of meeting any obligations it may have under sec_3406 as a payor of reportable payments the fund need not solicit taxpayer identification numbers tins from the individuals to whom it will make distributions the fund may obtain the tins from the mutual funds or tax-qualified plans in which such individuals held accounts or from transfer agents performing services for the funds or plans facts based upon the facts and the representations made the fund is a qualified_settlement_fund qsf as described in sec_468b and the regulations thereunder the fund was created in year to resolve an administrative_proceeding brought by the securities_and_exchange_commission commission against x relating to investment advice provided to certain mutual funds the proceeding related to the inadequate or nonexistent disclosure of x’s policy allowing market timing trading of mutual_fund units units and to the oversight monitoring or management of trades of such units trades from at least early in year through late in year in an order instituting proceedings oip the commission alleged that x made various material omissions and misrepresentations regarding market timing of funds and committed certain other wrongful acts relating to trades in the units improper market timing impairs the value of mutual_fund shares by depressing their net asset value improper market timing also generates excess trading volume and thus increases the advisory fees mutual funds must pay to investment advisors such as x thus x’s conduct resulted in damage to the investors and a loss of capital the commission based on the improper conduct described above and the resulting damage to mutual_fund investors sought profit disgorgement and civil penalties after investigation and negotiations x agreed to pay dollar_figurea to settle the commission’s claims pursuant to section a of the sarbanes-oxley_act of u s c the oip authorized a fair fund for the disgorgement and penalty components of the settlement thus permitting both components to be paid to injured investors those investors holding units of the mutual funds during any portion of the time period specified in the oip will be eligible to receive distributions from the fund the plr-111164-06 distributions will be based on the commission’s orders the amount available for distribution is the net settlement pool which includes the sum of dollar_figurea the amount transferred by x into the fund and the amount of net_income earned by the fund investors will be allocated portions of the net settlement pool the commission’s orders provide that investors will first receive their proportionate share of losses suffered by the mutual funds due to market timing and then a proportionate share of advisory fees paid_by the mutual funds that suffered such losses during the period of market timing law and analysis ruling sec_1_468b-2 of the treasury regulations provides that in general distributions by a qsf are subject_to certain information reporting and withholding requirements sec_1_468b-2 provides that a qsf must make a return for or must withhold tax on a distribution to a claimant if one or more transferors would have been required to make a return or withhold tax had that transferor made the distribution directly to the claimant the regulations further provide that for purposes of sec_6041 and sec_6041a if a qsf makes a distribution on behalf of a transferor or a claimant the fund is deemed to make the distribution to the recipient of that payment or distribution in the course of a trade_or_business in such a situation the qsf is also deemed to have made the distribution to the transferor or claimant see sec_1_468b-2 c - d sec_6041 requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the service and to furnish an information statement to the payee sec_1_6041-1 provides that payments are fixed when they are paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_1 a requires a payor to report sec_6041 amounts on form_1099 thus payments that are not fixed or determinable are not subject_to information reporting under sec_6041 amounts a taxpayer receives to restore a loss of capital are not income except to the extent that the payment exceeds the taxpayer’s basis in the injured property that is the subject of the payment 144_f2d_110 1st cir fund payments to investors for losses the mutual funds suffered from market timing appear to constitute compensation_for a loss of capital market timing permitted by x depressed the net asset value of mutual_fund shares compensation from the fund will compensate at least partially for this damage because the fund has no access to the investors’ tax basis in their mutual_fund accounts and has no need or occasion to collect information on tax basis the fund is unable to calculate how much of this compensation_for mutual_fund losses constitutes fixed or determinable plr-111164-06 income accordingly the fund has no information reporting obligations under sec_6041 for such compensation as noted above a portion of the fund payments will compensate investors for improper advisory fees paid_by the mutual funds to x although such payments may constitute gross_income to investors the fund cannot due to limitations on its data collecting authority determine whether the payments will constitute gross_income to investors the payments therefore are not fixed or determinable income within the meaning of the regulations under sec_6041 accordingly subject_to the exception noted below regarding distributions to qualified_retirement_plan participants the fund has no information reporting obligations under sec_6041 the fund states that it may make a certain number of distributions directly to participants in tax-qualified retirement plans sec_72 of the code controls the taxation of such distributions and the distributions must be reported on form 1099-r pursuant to sec_6041 subject_to the dollar_figure reporting threshold set forth in sec_6041 and sec_1_6041-1 ruling sec_1_468b-2 provides that a qsf must make a return for a distribution to a claimant if one or more transferors would have been required to make a return had that transferor made the distribution directly to the claimant sec_6045 provides generally that every person doing business as a broker shall when required by the secretary make a return in accordance with such regulations as the secretary may prescribe sec_6045 defines the term broker to include a dealer a barter_exchange and any other person who for a consideration regularly acts as a middleman with respect to property or services the regulations further define the term broker to mean a person that in the ordinary course of a trade_or_business during the calendar_year stands ready to effect sales to be made by others see sec_1_6045-1 sec_1_6045-1 provides generally that a broker shall make an information_return for each sale effected by the broker in the ordinary course of the broker’s trade_or_business sec_1_6045-1 defines a sale as any disposition of securities commodities regulated_futures_contracts or forward contracts for cash and as including redemptions of stock retirements of indebtedness and entering into short_sales the fund’s payments to investors do not result from a sale as that term is defined above the fund therefore has no information reporting obligations under sec_6045 with respect to these payments ruling sec_6049 provides that every person who makes payments of interest aggregating dollar_figure or more to any other person during any calendar_year or plr-111164-06 receives payments of interest as a nominee and who makes payments aggregating dollar_figure or more during any calendar_year to any other person with respect to the interest so received shall make a return according to the forms or regulations prescribed by the secretary sec_6049 b provides that the term_interest includes interest on any obligation issued in_registered_form or of a type offered to the public other than any obligation with a maturity at issue of a year or less which is held by a corporation pursuant to sec_6049 interest also includes interest on deposits with brokers as defined in sec_6045 the fund distributions in the present case do not relate to deposits with brokers or obligations issued in_registered_form and do not otherwise qualify as interest within the meaning of sec_6049 this is so even though interest earnings have accrued on the funds to be paid to investors from the time x paid such funds to the fund the fund distributions to investors relate to violations of securities law and compensation_for financial harm not to obligations issued in_registered_form or other instruments that generate interest as sec_6049 defines that term accordingly the fund has no information reporting obligations under sec_6049 regarding its distributions to the investors ruling sec_3406 generally provides that in the case of any reportable_payment if a the payee fails to furnish his or her tin to the payor in the manner required b the secretary notifies the payor that the tin furnished by the payee is incorrect c there has been a notified_payee_underreporting of interest and dividends or d there has been a certification failure collectively referred to as payee failures then the payor shall deduct and withhold from such reportable_payment a backup withholding amount totaling of such payment sec_3406 provides that the term reportable_payment means any reportable_interest_or_dividend_payment and any other_reportable_payment sec_3406 provides that the term other_reportable_payment includes any payment of a kind and to a payee required to be shown on a return under sec_6041 or sec_6045 in light of rulings one through three above only direct payments by the fund to participants in tax-qualified plans will be reportable payments subject_to backup withholding under sec_3406 in order to meet its obligations under sec_3406 and to include tins on information returns it must provide for these reportable payments the fund plans to obtain those tins from one of the following sources the plan_administrator the mutual funds in which the participants invested or the transfer agents that provide services to the administrator or mutual funds obtaining the tins in this manner should prove more reliable and less burdensome and costly to the fund than soliciting the tins from the plan participants in light of the plr-111164-06 authority it has been granted by the commission the fund will be able to obtain the tins of plan participants from the plan administrators mutual funds or transfer agents the fund will not be required to solicit tins from the participants for purposes of applying the backup withholding rules of sec_3406 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 furthermore this letter expresses no opinion about information reporting requirements for fund distributions that are not made directly to the injured investors this letter also expresses no opinion about the income_tax consequences to investors of fund distributions this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the 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 carol p nachman enclosure acting senior technician reviewer office of associate chief_counsel procedure and administration administrative provisions and judicial practice sincerely


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 plr-147816-13 date date legend bonds issuer borrower ------------------------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------ ----------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- bondholder ------------------------------ swap counter-party ------------------------------ series b bonds ------------------------------------------------------------------ ------------------------------------------------------------------- ----------------------------------------------------------------- date ----------------------- date ----------------------- date ------------------- plr-147816-13 maturity ------- maturity ------- dear ------------------ this letter is in response to your request for a ruling that the extension of the total return swap trs described herein will be not be an abusive arbitrage device within the meaning of sec_1_148-10 and the trs described herein will not be integrated with the bonds under the authority of the commissioner in sec_1_148-10 facts and representations the bonds were issued on date as fixed rate term bonds maturing in maturity and fixed rate term bonds maturing in maturity the bonds are subject_to scheduled mandatory redemption as provided in the indenture of trust for the bonds and optional redemption on or after date the bonds were priced to the first optional call on or after date the proceeds of the bonds were used pursuant to a financing_lease between the issuer conduit issuer and the borrower conduit borrower to refund as a current refunding certain of the issuer’s prior bonds that had been issued for the benefit of the borrower all proceeds of the bonds were allocated to the current refunding and payment of issuance costs within days there are no gross_proceeds of the bonds available for investment since the bonds do not have a reserve fund and the debt service fund receives revenues only as debt service becomes due there were no transferred proceeds the bonds were purchased on date by the bondholder in an arms’-length private_placement transaction to hold in its own account with no intention to reoffer the bonds although there are no restriction on its doing so on date the borrower and the bondholder also referred to herein as the swap counter-party depending on the context entered into a total return swap trs with respect to each maturity of the bonds the terms of each trs are essentially identical and the term trs herein refers to both agreements the notional_principal_amount of the trs equals the principal_amount of the bonds and amortizes as the bonds amortize under the trs the swap counter-party makes fixed rate payments to the borrower and the borrower makes variable rate payments to the swap counter-party based on the sifma index by comparing the coupon rate on the bonds with the swap counter-party’s fixed payment under the trs the borrower’s net cost of financing is sifma plus basis points the trs terminates on date plr-147816-13 the trs provides price protection with respect to the bonds to both the counter-party and the borrower upon termination of the trs a termination_payment is due between the parties in an amount equal to the difference between the fair_market_value of the bonds on the termination_date and the base price of the bonds as stated in the trs if the value of the bonds is below the base price the trs requires the borrower to pay the difference to the counter-party if the value of the bonds is above the base price the counter-party must pay the difference to the borrower the borrower has the right to terminate the trs upon business days’ notice the counter-party has the right to terminate the trs only upon occurrence of one of the early termination events provided in the trs an early termination of the trs does not impact the legal rights and obligations of the borrower or the bondholder with respect to the bonds the termination_payment under the trs cannot be offset by payments under the bonds the trs does not require the swap counter-party to own the bonds at any point during its effectiveness and the bonds are freely transferable by the bondholder with no effect on the cash flows or termination value of the trs the optional call rights on the bonds are not addressed by the terms of the trs or its proposed extension when the bonds were issued neither the issuer nor the borrower identified a swap on form_8038 or otherwise to integrate as a qualified hedge the trs with the bonds for purposes of sec_1_148-4 the borrower and the swap counter-party now plan to amend the trs to extend its term for an additional years approximately years from issuance of the bonds this amendment will occur several years before the first optional call date for the bonds but will extend the term of the trs beyond that call date the pricing of the trs will also be amended so that the borrower’s net financing cost will be reduced to the sifma index plu sec_80 basis points this new pricing reflects improved market conditions and the improved credit quality of the borrower the modified pricing was negotiated in an arms’ length transaction and reflects fair_market_value pricing the bondholder represents that the issuer will treat as a precautionary matter this amendment and extension of the trs as a potential reissuance of the bonds and will file a new form_8038 without indicating that the hedge has been identified for integration under sec_1_148-4 law sec_103 provides that except as provided in subsection b gross_income does not include interest on any state_or_local_bond subsection b provides in part that subsection a shall not apply to any private_activity_bond which is not a qualified_bond within the meaning of sec_141 plr-147816-13 sec_148 provides that for purposes of sec_103 the term arbitrage_bond means bond issued as part of an issue any portion of the proceeds of which are reasonably expected as the time of issuance of the bond to be used directly or indirectly to acquire higher_yielding_investments or to replace funds which were used directly or indirectly to acquire higher_yielding_investments for purposes of this subsection a bond shall be treated as an arbitrage_bond if the issuer intentionally uses any portion of the proceeds of the issue of which such bond is a part in a manner described in paragraph or sec_1_148-1 provides that issuer generally means the entity that actually issues the issue and unless the context or a provision clearly requires otherwise each conduit borrower of the issue sec_1_148-4 provides that payments made or received by an issuer under a qualified hedge as defined in paragraph h of this section relating to bonds of an issue are taken into account as provided in paragraph h of this section to determine the yield on the issue except as provided in paragraphs h and h ii e of this section the bonds to which a qualified hedge relates are treated as variable yield bonds from the issue_date of the bonds this paragraph h applies solely for purposes of sec_143 sec_148 and sec_149 sec_1_148-4 provides that the contract must be identified by the actual issuer on its books_and_records maintained for the hedged bonds not later than days after the date on which the issuer and the hedge provider enter into the contract the identification must contain sufficient detail to establish that the requirements of this paragraph h and if applicable paragraph h of this section are satisfied in addition the existence of the hedge must be noted on the first form relating to the issue of which the hedged bonds are a part that is filed with the internal_revenue_service on or after the date on which the contract is identified pursuant to this paragraph h viii sec_1_148-10 provides that bonds of an issue are arbitrage_bonds under sec_148 if an abusive arbitrage device under paragraph a of this section is used in connection with the issue this paragraph a is to be applied and interpreted broadly to carry out the purposes of sec_148 as further described in sec_1_148-0 except as otherwise provided in paragraph c of this section any_action that is expressly permitted by sec_148 or sec_1_148-1 through is not an abusive arbitrage device sec_1_148-10 provides that any_action is an abusive arbitrage device if the action has the effect of i enabling the issuer to exploit the difference between tax- exempt and taxable interest rates to obtain a material financial advantage and ii overburdening the tax-exempt_bond market sec_1_148-10 provides that an action may exploit tax-exempt_interest rates under paragraph a of this section as a result of an investment of any portion of the plr-147816-13 gross_proceeds of an issue over any period of time notwithstanding that in the aggregate the gross_proceeds of the issue are not invested in higher_yielding_investments over the term of the issue sec_1_148-10 provides in part that an action overburdens the tax-exempt_bond market under paragraph a ii of this section if it results in issuing more bonds issuing bonds earlier or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the bonds based on all the facts and circumstances whether an action is reasonably necessary to accomplish the governmental purposes of the bonds depends on whether the primary purpose of the transaction is a bona_fide governmental purpose eg an issue of refunding bonds to achieve a debt service restructuring that would be issued independent of any arbitrage benefit sec_1_148-10 provides that if an issuer enters into a transaction for a principal purpose of obtaining a material financial advantage based on the difference between tax-exempt and taxable interest rates in a manner that is inconsistent with the purposes of sec_148 the commissioner may exercise the commissioner’s discretion to depart from the rules of sec_1_148-1 through as necessary to clearly reflect the economic_substance of the transaction for this purpose the commissioner may recompute the rebate amount on an issue treat a hedge as either a qualified hedge or not a qualified hedge or otherwise adjust any item whatsoever bearing upon the investments and expenditures of gross_proceeds of an issue analysis the trs as an abusive arbitrage device the bondholder has represented that the bonds were issued as current refunding bonds and all sale and any investment_proceeds were expended for the refunding purpose within days of issuance the bonds do not have a reserve fund and the debt service fund is funded on or about the date that debt service on the bonds is due there are no replacement_proceeds otherwise created and no transferred proceeds were received the proposed extension of the trs does not affect the gross_proceeds of the bonds and does not alter the aforementioned representations sec_1_148-10 provides that any_action is an abusive arbitrage device if the action has the effect of i enabling the issuer to exploit the difference between tax- exempt and taxable interest rates to obtain a material financial advantage rate exploitation and ii overburdening the tax-exempt_bond market overburdening both rate exploitation and overburdening must be present to result in an abusive arbitrage device plr-147816-13 we conclude that the original structure of the financing plan including the trs and the extension of the trs for the bonds does not enable the borrower to exploit a difference between tax-exempt and taxable interest rates to obtain a material financial advantage the financing structure does not result in any gross_proceeds available for non-purpose investment beyond the first days during which initial time period they qualified for an applicable temporary period the financing structure and the terms of the trs extension do not reflect an intent to exploit tax-exempt versus taxable interest rate differentials for arbitrage purposes since rate exploitation is not present it is unnecessary to determine if overburdening is present integration of the trs with the bonds sec_1_148-10 provides a grant of discretionary authority to the commissioner to implement the anti-abuse_rules if an issuer enters into a transaction for a principal purpose of obtaining a material financial advantage based on the difference between tax-exempt and taxable interest rates in a manner that is inconsistent with the purposes of sec_148 this authority permits the commissioner to depart from the rules of sec_1 through as necessary to clearly reflect the economic_substance of a transaction sec_1_148-1 defines issuer to include the issuer and each conduit borrower of the issue unless the context or a provision clearly requires otherwise we conclude that the structure of the original financing including the trs and the proposed extension of the trs does not reflect a principal purpose by the borrower to obtain a material financial advantage by either rate exploitation or by overburdening improved market conditions and the improved credit quality of the borrower are the motivating factors for the extension the modified pricing reflected in the extension was negotiated in an arms’ length transaction based on fair_market_value pricing and not on the amount of arbitrage earned or expected to be earned on the hedged bonds in a manner that is inconsistent with the purposes of sec_148 conclusion based solely on the documents provided to us and the factual representations made by the bondholder we conclude that i the extension of the trs will not be an abusive arbitrage device under sec_1_148-10 and ii the trs described herein will not be integrated with the bonds under the authority of the commissioner in sec_1_148-10 except as expressly provided herein no opinion is expressed or implied about the tax consequences of any transaction or item discussed in this letter we specifically express no opinion about whether the extension of the trs causes a reissuance under sec_1001 or about issuer’s precautionary treatment of such extension as a reissuance plr-147816-13 we also specifically express no opinion about whether interest_paid on the bonds may be excluded from gross_income under sec_103 this ruling is directed only to the taxpayer and bondholder who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to the authorized representative of the bondholder the ruling contained in this letter is based upon information and representations submitted by the bondholder and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification upon examination sincerely associate chief_counsel financial institutions and products s ________________________ by timothy l jones senior counsel branch


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi bo1-plr-123487-00 date date x w date this letter responds to your letter written on behalf of x requesting a ruling that x be granted an extension of time in which to elect to treat its subsidiary w as a qualified_subchapter_s_subsidiary qsub facts according to the information submitted 0n date x incorporated w a wholly owned subsidiary from its inception x intended to have w treated as a qsub but it inadvertently failed to timely file a qsub election for w law and analysis sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub the election is made by filing form_8869 under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a notice published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an plr-123487-00 election section provides automatic extensions of time for making certain elections but does not apply to qsub elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and the representations made the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to make an election to treat w as a qsub effective date x should submit a properly completed form_8869 to the relevant service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is a valid s_corporation or whether its subsidiary w is a valid qsub for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the first and second listed authorized representatives s paul f kugler sincerely yours associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c of f i c e of c h i e f c ou n s e l date number release date cc pa apjp b3 tl-n-3285-98 uilc internal_revenue_service national_office field_service_advice memorandum for mary helen weber associate area_counsel - strategic litigation cc lm mct slcin richard g goldman chief branch office of assistant chief_counsel administrative provisions and judicial practice cc pa apjp b03 subject mitigation and carryovers this field_service_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend year year x a issue can the internal_revenue_service assess a deficiency in year a year for which assessments are barred if adjustments to income_tax_liability for year make unavailable for carryover to year net operating losses passive_activity_losses excess charitable_contributions and a credit carry forward conclusion if the adjustments to year are sustained by a determination as defined in sec_1313 then assessment of a deficiency may be authorized for year under the mitigation provisions facts tl-n-3285-98 in year x a tefra partnership reconfigured its partnership structure the internal_revenue_service the service has determined that this reconfiguration may have effectuated a sale of partnership interests by certain partners including a during year a owned a partnership_interest in x a filed a federal_income_tax return for year reporting income from wages and interest a reduced that income by deducting net operating losses that a had carried forward to year from years preceding year because a deducted a portion of the net operating losses carried into year a reported no income_tax_liability for year a was able to carry forward to year additional net operating losses passive_activity_losses excess charitable_contributions and general business credits because they were not used in year on his return for year a offset his income with deductions of the net operating losses passive_activity_losses excess charitable_contributions and general_business_credit carryovers from years prior to year to fully exhaust the available carryovers the service proposes to increase a’s income for year to reflect the recognition of gain from the sale of part of a’s interest in x if the proposed increase in income is sustained a must use the entire amount of the carryovers from the years prior to year in year thereby making them unavailable for carryforward to year disallowance of the deductions for the net operating losses passive_activity_losses excess charitable_contributions and general business credits in year will result in a deficiency because the limitations_period for making assessments for year has expired the service will be barred from assessing the deficiency unless the mitigation provisions of sec_1311 -- apply law and analysis the mitigation provisions of i r c were designed to palliate the effect of the period of limitations in certain meticulously and narrowly drafted situations see 34_tc_1051 for an adjustment to be authorized under these provisions four conditions must be met first an error must have occurred in a closed tax_year that cannot otherwise be corrected by operation of law see sec_1311 second there must be a determination for an open tax_year as defined in sec_1313 a determination is a final_decision by a court a closing_agreement a final disposition of a claim_for_refund or an agreement under sec_1_1313_a_-4 third the determination must result in a circumstance under which an adjustment is authorized by sec_1312 there are seven circumstances under which an adjustment is authorized these circumstances involve double inclusion of an item_of_gross_income sec_1312 double allowance of a deduction or credit i r c tl-n-3285-98 sec_1312 double exclusion of an item_of_gross_income sec_1312 double disallowance of a deduction or credit sec_1312 correlative deductions and inclusions for trusts or estates and legatees beneficiaries or heirs sec_1312 correlative_deductions_and_credits for certain related corporations sec_1312 and basis_of_property after erroneous treatment of a prior transaction sec_1312 fourth except for determinations described in sec_1312 and in sec_1312 the determination must adopt a position maintained by a party that is inconsistent with the error that has occurred see sec_1311 as relevant in this case sec_1312 allows an adjustment to be made in a barred year if a determination allows a deduction or credit in an open tax_year that was erroneously allowed to the taxpayer in the tax_year for which assessments are now barred in other words allowance of the deduction or credit in the determination gives a taxpayer the benefit of a double allowance of the deduction or credit a condition necessary for this adjustment is the maintenance of a position by the taxpayer that is inconsistent with the erroneous allowance of the deduction or credit see sec_1311 the type of inconsistent_position referred to in the statute is illustrated by the example under sec_1_1311_b_-1 a taxpayer in his return for claimed and was allowed a deduction for a loss arising from a casualty after the taxpayer had filed his return for and after the period of limitations upon the assessment of a deficiency for had expired it was discovered that the loss actually occurred in the taxpayer therefore filed a claim_for_refund for the year based upon the allowance of a deduction for the loss in that year and the claim was allowed by the commissioner in the taxpayer thus has maintained a position inconsistent with the allowance of the deduction for by filing a claim_for_refund for based upon the same deduction as the determination the allowance of the claim_for_refund adopts such inconsistent_position an adjustment is authorized for the year as the example under sec_1_1311_b_-1 illustrates for an adjustment to be made in the government’s favor the taxpayer rather than the government must have taken an inconsistent_position for another tax period in the example in subparagraph of this paragraph assume that the taxpayer did not file a claim_for_refund for but the commissioner issued a notice_of_deficiency for based upon other items the taxpayer filed a petition with the tax_court of the united_states and the commissioner in his answer voluntarily proposed the allowance for tl-n-3285-98 of a deduction for the loss previously allowed for the tax_court took the deduction into account in its redetermination in of the tax for the year in such case no adjustment would be authorized for the year as the commissioner and not the taxpayer has maintained a position inconsistent with the allowance of a deduction for the loss in that year the examples under sec_1_1311_b_-1 illustrate instances where an inconsistent_position has been maintained they do so however outside the context of a carryover from one year to another in that context there is little authority on the maintenance_of_an_inconsistent_position the principal reported authority is 95_tc_397 in that case the taxpayers had claimed a net_operating_loss on their return for which they carried back to and forward to and sometime after the taxpayers agreed to a substantial increase in their taxable_income for and the effect of this increase was to reduce the amount of net operating losses available for carryover beyond the taxpayers and the service entered into a closing_agreement stipulating to the allowable deductions for and subsequently the commissioner of internal revenue pursuant to the closing_agreement determined a deficiency for proposing an increase in the taxpayers’ taxable_income equal to the amount by which the closing_agreement had reduced the carryover available for use in that year at the time the notice_of_deficiency was issued was a closed_year the united_states tax_court concluded that the net_operating_loss_deduction taken in was erroneous to the extent it exceeded the amount allowed in the closing_agreement it described the situation as one covered by sec_1312 which permits an adjustment if the conditions of sec_1311 are satisfied the conditions of that provision are satisfied if a determination adopts a position maintained by the taxpayer that is inconsistent with an erroneous allowance finding that the taxpayers made no argument regarding this requirement the court did not address whether the requirement was satisfied ultimately the court held that the mitigation provisions lifted the bar of the statute_of_limitations to permit assessment of a deficiency based upon a reduction of the net_operating_loss_deduction for the outcome of bolten if not the reasoning suggests that a taxpayer having previously carried over a loss or credit from one year to the next maintains an inconsistent_position under sec_1313 whenever a determination duplicatively allows a deduction for the loss or duplicatively allows the credit in the earlier year in such a circumstance the taxpayer cannot waive the right to deduct the loss or claim the credit for the earlier year by law the deduction for the loss or the credit must be claimed the premise of a carryover to a later year is that a loss tl-n-3285-98 or credit could not be used in an earlier year by carrying over a loss or credit a taxpayer essentially maintains that the loss or credit has not been fully absorbed this position is inconsistent with the allowance of a deduction for the loss in an earlier tax_year based upon bolten it follows that a will have maintained an inconsistent_position if a determination reduces in year the amounts that were erroneously carried over as losses or credits to year in proposing an adjustment for year the service should take into account these losses and credit doing so will not jeopardize the service’s ability to propose an adjustment for year as a by carrying over the losses and credits to year has already maintained that these amounts could be applied in year but for a lack of offsetting income it should be noted that the facts of this case are not the same as those described in the example under sec_1_1311_b_-1 in that example the taxpayer made no implied claim in an open_year to a deduction also claimed in a closed_year in this case there is such a claim case development hazards and other considerations although bolten ducked the issue you have asked us to address it did point out that the case law on whether a taxpayer has maintained an inconsistent_position is in a word inconsistent we think the strongest support for the position we have reached is the outcome in bolten other cases present dissimilar facts and point in no clear direction please call if you have any further questions this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney-client_privilege if disclosure becomes necessary please contact this office for our views


internal_revenue_service number release date index number ------------------------- ------------------------------- ------------------------------------------ ------------------------------------- --------------------------------------- - - legend legend department of the treasury washington dc person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-154137-03 date date -------------------------------------------------- --------------------------------- ------------- -------------- ------------------- ------------------------ leasco ------------------------------------------------------------ corp parent ---------------------------------------------------------- holding business_trust state state f g h j m o p -------------- -------------- -------------- ----------- --------- -------- ------- ---- this responds to a letter dated date submitted on behalf of leasco provides the following services to its customers vehicle acquisitions according to the facts submitted and representations made parent is a closely plr-154137-03 dear ----------------- parent and leasco requesting rulings under sec_7701 of the internal_revenue_code held state corporation that is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return leasco the principal operating subsidiary of parent is engaged in the motor_vehicle fleet leasing business and has a motor_vehicle fleet in excess of n vehicles leasco’s customers lease from o to more than p vehicles the vast majority of leasco’s customers have high-quality credit historically rental defaults by leasco’s customers have been extremely low for each customer there is a master lease agreement and a lease order for each new vehicle added to the master lease services and maintenance and collision services license title and tax_administration services remarketing services data processing services truck engineering and coordination services gasoline credit card administration rental replacement vehicles and administration of factory incentives owned percent prior to j leasco or corp borrowed from banks to finance the purchase of motor_vehicle fleets the debt was secured_by a lien on the vehicles and a pledge of rents from the vehicle leases in j leasco restructured its financing by forming holding another state limited_liability_company of which leasco owned percent holding is capitalized with dollar_figuref and corp is capitalized with dollar_figureg these amounts are minimum capital which will exist at the inception of every new borrowing percent holding borrows funds from leasco and contributes the funds to the business_trust holding pledges its undivided_interest in the business_trust evidenced by an undivided business_trust interest certificate the uti certificate to leasco as security for the payment of its borrowing from leasco subsequently holding causes business_trust to create a sub-trust comprised of identified vehicles and leases which is allocated to a special unit of beneficial_interest the subi evidenced by a certificate the subi certificate holding sells the subi certificate to leasco pursuant to a subi certificate transfer agreement to purchase the subi certificate from holding leasco borrows funds from a consortium of lenders on a full recourse basis and secured_by the subi certificate in h leasco formed corp a state limited_liability_company of which leasco holding formed business_trust a state statutory trust of which holding owns leasco proposes to reallocate certain vehicles and leases allocated to the plr-154137-03 leasco subi back to holding as uti beneficiary in exchange for a payment by holding to leasco business_trust will issue a new subi certificate and sell that subi certificate to spv spv will borrow funds for the purchase from banks or other financial institutions on a full recourse basis with the subi certificate as security leasco as agent for business_trust collects all amounts payable under a lease and all net disposition proceeds such rentals and disposition proceeds are distributed to the holder of the uti or a subi to which the vehicles and leases are allocated if disposition proceeds are such that the lessee is entitled to receive a payment at the termination of the lease under the terminal_rental_adjustment_clause a trac payment the obligation to make the trac payment will be satisfied out of funds held by business_trust or contributed to business_trust by holding or the holder of the subi to which the lease is allocated assuming rental defaults are consistent with historical experience amounts received by business_trust should be sufficient for holding leasco or corp to satisfy obligations to lenders and make a profit holding’s liability to leasco is a full recourse obligation therefore leasco is able to look to all of holding’s assets subject_to the ordinary debtor-creditor priority rules similarly leasco’s and corp 2’s liability to the lenders is a full recourse obligation therefore the lenders are able to look to all of leasco’s or corp 2’s assets subject_to the ordinary debtor-creditor priority rules and the lease order pursuant to which the business_trust is the lessor is a qualified_motor_vehicle_operating_agreement under sec_7701 qualification of the master lease agreement and the lease order as a lease for federal_income_tax purposes in the hands of the trust will be determined without regard to the trac provision of the master lease agreement no gain loss or income will be realized by leasco or holding as a result of the transfer of money from leasco to holding or the transfer of the subi certificate by holding to leasco no gain loss or income will be realized by leasco or holding as a result of the transfer of the property from holding to business_trust or by the business_trust to holding or leasco all income deductions and credits of business_trust will be treated as income deductions and credits of leasco and no gain loss or income will be realized by leasco holding spv or business_trust as a result of the payment by holding to leasco in connection with the reallocation of the vehicles and leases allocated to the leasco subi to the uti the allocation of such vehicles and leases to a new subi evidenced by a new subi certificate and the sale of the new subi certificate by holding to spv parent leasco and holding request rulings that the master lease agreement sec_7701 provides that in the case of a qualified motor_vehicle sec_7701 defines a qualified_motor_vehicle_operating_agreement as any plr-154137-03 ruling sec_1 and operating_agreement that contains a terminal_rental_adjustment_clause the agreement is treated as a lease if but for such terminal_rental_adjustment_clause the agreement would be treated as a lease for federal_income_tax purposes and the lessee is not treated as the owner of the property subject_to the agreement during the period the agreement is in effect agreement with respect to a motor_vehicle including a trailer that meets the following requirements first under the agreement the sum of the amount the lessor is personally liable to repay and the net fair_market_value of the lessor ’s interest in any property pledged as security for property subject_to the agreement must equal or exceed all amounts borrowed to finance the acquisition of property subject_to the agreement any property pledged that is property subject_to the agreement or property directly or indirectly financed by indebtedness secured_by property subject_to the agreement is not taken into account second the agreement must contain a separate written_statement signed by the lessee that the lessee certifies under penalty of perjury that it intends that more than percent of the use of the property subject_to the agreement is to be in a trade_or_business of the lessee and that clearly and legibly states that the lessee has been advised that it would not be treated as the owner of the property subject_to the agreement for federal_income_tax purposes finally the lessor must not know that the certification is false agreement and lease order will meet the definition of a qualified_motor_vehicle_operating_agreement under sec_7701 accordingly based on the foregoing facts representations and law we rule that the master lease agreement and the lease order pursuant to which the business_trust is the lessor is a qualified_motor_vehicle_operating_agreement under sec_7701 we also rule that qualification of the master lease agreement and the lease order as a lease for federal_income_tax purposes in the hands of the trust will be determined without regard to the trac provision of the master lease agreement ruling sec_3 and the facts and representations provided indicate that the master lease sec_301_7701-2 of the procedure and administration regulations provides that the definition of a corporation includes an association as determined under sec_301_7701-3 plr-154137-03 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that a domestic eligible_entity with a single owner is disregarded as an entity separate from its owner for federal tax purposes unless the entity elects to be treated as a corporation if the entity is disregarded its activities are treated in the same manner as those of a division of its owner and its assets will be treated as those of the owner sec_301_7701-4 provides that in general the term trust refers to an arrangement created either by a will or by an inter_vivos declaration whereby trustees take title to property for the purposes of protecting or conserving it for the beneficiaries generally speaking an arrangement will be treated as a_trust under the internal_revenue_code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_301_7701-4 addresses business trusts and provides that there are other arrangements which are known as trusts because the legal_title to property is conveyed to trustees for the benefit of beneficiaries but which are not classified as trusts for purposes of the internal_revenue_code because they are not simply arrangements to protect or conserve the property for the beneficiaries these trusts which are often known as business or commercial trusts generally are created by the beneficiaries simply as a device to carry on a profit-making business which normally would have been carried on through business organizations that are classified as corporations or partnerships under the internal_revenue_code however the fact that the corpus of the trust is not supplied by the beneficiaries is not sufficient reason in itself for classifying the arrangement as an ordinary_trust rather than as an association or partnership the fact that any organization is technically cast in the trust form by conveying title to property to trustees for the benefit of persons designated as beneficiaries will not change the real character of the organization if the organization is more properly classified as a business_entity under sec_301_7701-2 based on the foregoing facts representations and law we conclude that business_trust is a business_trust as described in sec_301_7701-4 and not a_trust under sec_301_7701-4 we further conclude that under sec_301_7701-3 business_trust spv and holding are domestic eligible entities with a single owner that are disregarded as entities separate from their owner plr-154137-03 accordingly we rule that that no gain loss or income will be realized by leasco or holding as a result of the transfer of money from leasco to holding or the transfer of the subi certificate by holding to leasco no gain loss or income will be realized by leasco or holding as a result of the transfer of the property from holding to the business_trust or by the business_trust to holding or leasco all income deductions and credits of the business_trust will be treated as income deductions and credits of leasco and no gain loss or income will be realized by leasco holding spv or the business_trust as a result of the payment by holding to leasco in connection with the reallocation of the vehicles and leases allocated to the leasco subi to the uti the allocation of such vehicles and leases to a new subi evidenced by a new subi certificate and the sale of the new subi certificate by holding to spv these rulings are based on the ownership structure submitted and are conditioned upon no other party obtaining an equity_interest in the business_trust spv or holding by virtue of a security_interest in the subi certificate or otherwise except as specifically set forth above no opinion is expressed concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically no opinion is expressed concerning whether or not the master lease agreement and lease order are true leases for federal_income_tax purposes provides that it may not be used or cited as precedent letter is being sent to the taxpayer and the taxpayer’s second authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 in accordance with the power_of_attorney on file with this office a copy of this sincerely walter h woo senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purpose-


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr- date date number release date index number legend x a b d1 y1 dear this letter responds to a letter dated date written on behalf of x and subsequent correspondence requesting a ruling under sec_1362 of the internal_revenue_code that x’s s_corporation status will be effective as of the taxable_year beginning d1 facts x was incorporated on d1 x’s shareholders a and b intended that x would elect to be treated as an s_corporation and hired an attorney to file x’s form_2553 election by a small_business_corporation x timely filed a form_1120s for y1 but a and b mistakenly failed to pass through their proportionate shares of losses to their individual returns subsequent to the filing of the from 1120s x was notified by the internal_revenue_service that the form_2553 was never received x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 b a and b represent that they will amend their individual tax returns for y1 to reflect their proportionate shares of x’s income and losses law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr- sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions based on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly provided that x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made this ruling is conditioned on x’s shareholders a and b filing within days following the date of this letter amended federal_income_tax returns for any taxable_year for which they had filed returns inconsistent with the treatment of x as an s_corporation a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours christine ellison branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division date date release number release date tax_year ending taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax uil certified mail - return receipt dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 effective january 20xx your determination_letter dated august 20xx is revoked the revocation of your exempt status was made for the following reason s organizations described in sec_501 of the internal_revenue_code and exempt from tax under sec_501 must be both organized and operated exclusively for exempt purposes you have failed to produce documents or otherwise establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inure to the benefit of private shareholders or individuals you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by sec_6001 and sec_6033 and the regulations thereunder contributions to your organization are no longer deductible under sec_170 after january 20xx organizations that are not exempt under sec_501 generally are required to file federal_income_tax returns and pay tax where applicable for further instructions forms and information please visit www irs gov if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosure publication ai department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations pa agust ‘fication taxpayer_identification_number number form tax_year s ended person to contact id number contact numbers telephone fax manager’s name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we’ll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation catalog number 34809f letter rev if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance for additional information 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 enclosures report of examination form_6018 publication publication sincerely margaret von lienen director eo examinations letter rev catalog number 34809f form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal revenuc service 20xx12 date of notice issues whether the organization continues to qualify for exemption from federal_income_tax under sec_501 of the internal_revenue_code irc facts the organization filed form_1023 for exemption on june 20xx and was granted exemption under sec_501 on august 20xx with an effective date of exemption of may 20xx an organization exempt under sec_501 needs to be organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes and to foster national and amatuer sports competition the organization was selected for audit to ensure that the examined organization’s activities and operations align with its approved exempt status the organization failed to respond to the internal_revenue_service attempts to obtain information to perform an audit of form_990 for the above mentioned tax period e correspondence for the audit was as follows - - - - - june 20xx letter rev with attachments was mailed to the organization on with a response date of july 20xx july 20xx no response follow up letter’ with attachments was mailed to the organization on with response date of august 20xx october 20xx letter rev with attachments was mailed to the organization on by with a response date of november 20xx case re-assigned on october 20xx december 20xx search accurint to obtain additional contact information board members send contact letters to additional board members listed on form_1023 response date december 20xx march 20xx final contact letters mailed via certified mail to organizations board members response date april 20xx may 20xx proof of receipt that certified letter was signed for and received 20xx at location e telephone contact for the audit was as follows form 886-a rev department of the treasury - internal_revenue_service page -1- form_886 a department of the treasury - internal_revenue_service name of taxpayer 20xx12 explanation of items schedule no or exhibit year period ended - - - chairman from september 20xx revenue_agent ra called the form_1023 and spoke to her she said she was glad she received call because of her travel schedule for work she just got the two audit letters last week ra reviewed why they are being audited went through talking points and what information is needed ra discussed a reasonable_time frame to respond ra granted her until xx ra provided contact information and asked for information to be faxed ra also informed her today is the last day of day detail to eo exam and the case will be reassigned but still want her to call me if she needs anything and to fax the response to me and will forward it to the appropriate person she understood december 20xx ra called the phone number listed on the form_1023 application ra left voice message to inquire about status of previous inquiries requested that an officer to return the phone call by december 20xx may 20xx ra spoke to an individual identified as approximately pm pst the individual used profanity toward ra told ra to f k off’ ra attempted to provide contact information she terminated phone contact ra initiated a second call back leave a voice message to advise to contact ra after receipt of letter that ra would mail at - june 20xx ra called organization spoke to an individual identified as at approximately pm pst she hung up the phone ra will attempt no further contact law internal_revenue_code irc sec_61 of the code provides that gross_income means all income from whatever source derived unless exciuded by law gross_income includes income realized in any form whether in money property or services income may be realized therefore in the form of services meals accommodations stock or other_property as well as in cash sec_501 of the code provides that an organization organized and operated exclusively for charitable or educational_purposes is exempt from federal_income_tax provided no part of its net_earnings inures to the benefit of any private_shareholder_or_individual sec_511 of the code imposes a tax at corporate rates under sec_11 on the unrelated_business_taxable_income of certain tax-exempt organizations including those described in sec_501 sec_6001 of the code provides that every person liable for any_tax imposed by this title or for the collection thereof shall keep such records render such statements make such returns and comply with such rules and regulations as the secretary may from time to time prescribe whenever in the judgment of the secretary it is necessary he may require any person by notice served upon such person or by regulations to make such returns render such statements or keep such records as the secretary deems sufficient to show whether or not such person is liable for tax under this title form 886-a rev department of the treasury - internal_revenue_service page -2- form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx12 federal tax regulations ftr sec_1_6001-1 provides that such permanent books_and_records as are required by paragraph a of this section with respect to the tax imposed by sec_511 on unrelated_business_income of certain exempt_organizations every organization exempt from tax under sec_501 shall keep such permanent books of account or records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall also keep such books_and_records as are required to substantiate the information required by sec_6033 see sec_6033 and ftr sec_1_6033-1 through sec_1_6033-3 ftr sec_1_6001-1 provides that the books_or_records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe ftr sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the irc and sec_6033 sec_1_501_c_3_-1 in order to be exempt under sec_501 the organization must be both organized and operated exclusively for one or more of the purposes specified in the section religious charitable scientific testing for public safety literary or educational ftr sec_1_501_c_3_-1 states 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 organizational_test or the operational_test it is not exempt if an organization fails to meet either the sec_1_501_c_3_-1 provides that an organization will not be regarded as operated exclusively for one or more exempt purposes described in sec_501 of the code if more than an insubstantial part of its activities is not in furtherance of a c purpose accordingly the organization does not qualify for exemption under sec_501 of the code revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on form 886-a crev department of the treasury - internal_revenue_service page -3- form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx12 the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status organizations position the organization has failed to respond to all attempts to contact them governments position based on the above facts the organization failed to verify that they are organized and operated exclusively for one or more of the purposes specified in sec_501 if an organization fails to meet either the organizational_test or the operational_test it is not exempt in accordance with the above-cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to verify and support whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax sec_1_6033-1 of the federal tax regulations specifically state that exempt_organizations shall submit additional information for the purpose on enabling the internal_revenue_service to inquire further into its exempt status using the rationale that was developed in revrul_59_95 the organization’s failure to provide requested information should result in the revocation of exempt status conclusion based on the above facts the organization failed to verify that they are organized and operated exclusively for one or more of the purposes specified in sec_501 if an organization fails to meet either the organizational_test or the operational_test it is not exempt it is the irs's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under c of the internal_revenue_code accordingly the organization's exempt status is revoked effective january 20xx form_1120 returns should be filed for the tax periods after january 20xx form 886-a crev department of the treasury - internal_revenue_service page -4-