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 b02 plr-109705-18 date date legend taxpayer ---------------------------------------------------- ------------------------------------------------ date a b c d e --------------------------- ---- -- -- ----------- ---- dear ------------------- this letter responds to a letter dated date and subsequent submissions requesting a ruling on behalf of taxpayer taxpayer requests a ruling that amounts received by taxpayer from unrelated third parties for_the_use_of certain real_property assets described below qualify as rents_from_real_property under sec_856 of the internal_revenue_code for purposes of sec_856 and taxpayer is a corporation that has elected to be taxed and has operated as a real_estate_investment_trust reit under sec_856 through of the code facts plr-109705-18 beginning with its taxable_year that ended on date taxpayer principally invests in u s energy infrastructure assets and intends to acquire an offshore oil_and_gas platform storage tank facilities and pipelines as described below a offshore oil_and_gas platform taxpayer is negotiating to construct and lease an offshore oil_and_gas platform the platform to an unrelated partnership the platform lessee taxpayer represents that the platform is real_property for purposes of sec_856 the platform will include equipment that is affixed to the platform the equipment that will i control the extraction of crude_oil and gas produced by the platform lessee from existing or future undersea wells owned by the platform lessee or its partners and located within proximity to the platform ii separate oil gas and water from the fluid extracted from those wells and iii condition the oil_and_gas for export in undersea oil_and_gas pipelines taxpayer represents that the equipment is personal_property for federal_income_tax purposes taxpayer will enter into a multi-year lease with the platform lessee providing the platform lessee with the exclusive right to use the platform and the equipment the platform lease taxpayer represents that the fair_market_value of any personal_property including the equipment leased to the platform lessee is less than percent of the total fair_market_value of the real and personal_property leased to the platform lessee the platform lessee will be solely responsible for operating maintaining and repairing the platform the equipment and any other_property associated with the platform taxpayer will not perform any activities and no services will be furnished in connection with the lease of the platform or equipment the rent paid_by the platform lessee the platform rent will be computed based upon a fixed dollar amount per volumetric measure of product flowing through the platform the fixed dollar amount may change after a specified volume of product flows through the platform the fixed dollar amount may also change periodically pursuant to a formula set forth in the platform lease to reflect changes in crude_oil or gas prices taxpayer also expects that the platform rent will include a specified minimum amount that will provide for a return of taxpayer’s invested capital associated with the construction of the platform plus a market-based return thereon taxpayer represents that the platform rent will not depend in whole or in part on the income or profits of any person the platform lessee may sublease the platform to one or more third parties during the term of the platform lease the platform sublease in this case the sublessee will pay to the platform lessee a fixed amount of rent plus additional plr-109705-18 payments based on volume the platform lessee will be required to pay a negotiated percentage of approximately a percent of the gross revenue it receives from a sublease to taxpayer as part of the platform rent under the terms of the platform lease the platform lessee will be separately compensated for operating the platform on behalf of the sublessee and will not pay any portion of that amount to taxpayer taxpayer represents that the rent paid_by the sublessee will not depend in whole or in part on the income or profits of any person b storage tank facilities taxpayer intends to purchase several storage tank facilities the storage tank facilities from unrelated third parties the storage tank facilities include various interests in or rights to occupy land driveways roadways docks rail spurs dikes fencing loading unloading facilities and storage tanks the storage tank facilities also include other types of real_property including pipes and inherently permanent steel structures such as racks or docks taxpayer represents that the storage tank facilities are real_property or interests_in_real_property for purposes of sec_856 taxpayer will enter into agreements with unrelated third-party users each a storage user with respect to the storage tank facilities for a term that will generally be between b and c years and in no event will be less than d each a storage agreement taxpayer represents that the fair_market_value of any personal_property leased to a storage user is less than percent of the total fair_market_value of the real and personal_property leased to the storage user in some cases a storage agreement will specify the particular tank or tanks in which the storage user’s product will be stored and in other cases a storage agreement will provide the storage user with a right to a fixed portion of the storage capacity at the respective storage tank facility but will not specify the specific tank or tanks taxpayer will not oversell storage capacity and will be obligated to ensure that the capacity specified in a storage agreement is reserved for the storage user a storage agreement may provide for the lease of a portion of the capacity of a tank when the stored content is fungible and may be stored on a comingled basis taxpayer represents that it will only undertake activities with respect to the storage tank facilities that are consistent with its fiduciary duty to manage the trust itself taxpayer will inspect maintain repair and construct storage tanks and other real_property assets located at the storage tank facilities these activities will include painting and repairing the storage tanks to prevent atmospheric corrosion or excessive wear_and_tear testing product in the storage tanks to verify it is the product specified in the storage agreement solely to ensure the safety and integrity of the storage tanks and the safety of the environment and providing security at the storage tank facilities plr-109705-18 a taxable_reit_subsidiary trs will perform all services these services will include loading unloading and moving product adding agents or additives to product in a storage tank for the benefit of a storage user taking samples of product in a storage tank for the benefit of a storage user measuring or weighing product for the benefit of a storage user heating and circulating product as necessary to ensure the stored product retains the appropriate physical characteristics and blending different products and maintaining the blended state of the products the trs will operate maintain and repair all equipment used to heat circulate and blend the products the trs will receive arm's length compensation from taxpayer for the performance of all services taxpayer represents that consistent with sec_1_856-4 all services furnished to the storage users in connection with a storage agreement are customarily provided to tenants of similar properties in the geographic market in which the respective storage tank facility is located the fee paid_by a storage user the storage fee will be calculated on a monthly basis and will be a fixed monthly amount for a prescribed amount of reserved storage capacity the storage user will pay the fixed monthly amount regardless of whether it uses the capacity reserved for it in some cases a storage user will have the right to exceed the capacity reserved for it in these cases the storage fee will include an additional_amount for the excess capacity computed based upon a fixed dollar amount set forth in the storage agreement multiplied by the volume of product stored fixed dollar amounts may change after a specified volume of product is stored fixed dollar amounts may also increase over time by an agreed upon amount change periodically to reflect changes in the consumer_price_index or other public index commonly used as a benchmark for inflation or both the storage fee will also include amounts paid for the services performed by the trs described above taxpayer represents that the storage fee will not depend in whole or in part on the income or profits of any person c pipelines taxpayer intends to purchase oil_and_gas pipelines the pipelines from unrelated third parties taxpayer represents that the pipelines are real_property for purposes of sec_856 taxpayer will enter into agreements with one or more unrelated third-party users each a pipeline user with respect to each pipeline for a term that will generally be between b and e years and in no event will be less than d each a pipeline use agreement taxpayer represents that the fair_market_value of any personal_property leased to a pipeline user is less than percent of the total fair_market_value of the real and personal_property leased to the pipeline user taxpayer will not oversell capacity in the pipelines and will be obligated to ensure that the capacity specified in a pipeline use agreement is reserved for the pipeline user plr-109705-18 taxpayer represents that it will only undertake activities with respect to the pipelines that are consistent with its fiduciary duty to manage the trust itself taxpayer will inspect and monitor the physical condition of the pipelines mark the location of buried pipelines to minimize the possibility of damage due to digging by unrelated parties make decisions with respect to and supervise the maintenance repair and construction of the pipelines and test product as it enters the pipelines to verify that it is the product specified in the pipeline use agreement solely to ensure the safety and integrity of the pipeline and the environment a trs will perform all services these services will include scheduling the use of the pipelines with the pipeline users pursuant to the pipeline use agreements loading product on the pipelines and unloading product off the pipelines some pipelines will include compressors or pumps a trs will own monitor maintain and operate all compressors or pumps the trs will receive arm's length compensation from taxpayer for the performance of these services taxpayer represents that all services furnished to the pipeline users in connection with a pipeline use agreement are customarily provided to tenants of similar properties in the geographic market in which the respective pipeline is located within the meaning of sec_1_856-4 the fee paid_by a pipeline user the pipeline use fee will be calculated on a monthly basis in some cases the pipeline use fee will be a fixed monthly amount for a prescribed amount of reserved pipeline capacity the pipeline user will pay the fixed monthly amount regardless of whether it uses the capacity reserved for it in some of these cases a pipeline user will have the right to exceed the capacity reserved for it in these cases the pipeline use fee will include an additional_amount for the excess capacity computed based upon a fixed dollar amount set forth in the pipeline use agreement multiplied by the volume of product that exits the pipeline in other cases the pipeline use fee will be computed solely based upon a fixed dollar amount set forth in the pipeline use agreement multiplied by the volume of product that exits the pipeline in these cases the pipeline user will agree to use the pipeline for all of the product it extracts from a particular area or field and taxpayer will agree to accept and reserve capacity for that product fixed dollar amounts may change after a specified volume of product exits the pipeline fixed dollar amounts may also increase over time by an agreed upon amount change periodically to reflect changes in the consumer_price_index or other public index commonly used as a benchmark for inflation or both the pipeline use fee will also include amounts paid for the services performed by the trs described above taxpayer represents that the pipeline use fee will not depend in whole or in part on the income or profits of any person law and analysis plr-109705-18 sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that rents_from_real_property includes subject_to exclusions provided in sec_856 a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to personal_property that is leased under or in connection with a lease of real_property but only if the rent attributable to such personal_property for the taxable_year does not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with such lease sec_856 provides that subject_to certain exceptions rents_from_real_property does not include any amount received or accrued directly or indirectly with respect to any real or personal_property if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property except that any amount so received or accrued will not be excluded from rents_from_real_property solely by reason of being based on a fixed percentage or percentages of receipts or sales sec_856 provides that any impermissible_tenant_service_income is excluded from rents_from_real_property sec_856 defines impermissible_tenant_service_income to mean with respect to any real or personal_property any amount received or accrued directly or indirectly by the reit for services furnished or rendered by the reit to the tenants of the property or for managing or operating the property sec_856 provides as an exception from impermissible_tenant_service_income services furnished or rendered or management or operation provided through an independent_contractor from whom the reit does not derive or receive any income or through a trs of the reit sec_1_856-4 defines rents_from_real_property generally as the gross amounts received for_the_use_of or the right to use real_property of the reit sec_1_856-4 provides that for purposes of sec_856 and c rents_from_real_property includes charges for services customarily furnished or rendered in connection with the rental of real_property whether or not the charges are separately_stated services furnished to the tenants of a particular building will be considered as customary if in the geographic market in which the building is located plr-109705-18 tenants in buildings of a similar class such as luxury apartment buildings are customarily provided with the service sec_1_856-4 provides in relevant part that except as provided in sec_1_856-4 no amount received or accrued directly or indirectly with respect to any real_property or personal_property leased under or in connection with real_property qualifies as rents_from_real_property if the determination of the amount depends in whole or in part on the income or profits derived by any person from the property however any amount so accrued or received will not be excluded from rents_from_real_property solely by reason of being based on a fixed percentage or percentages of receipts or sales whether or not receipts or sales are adjusted for returned merchandise or federal state or local sales_taxes an amount will not qualify as rents_from_real_property if considering the lease and all the surrounding circumstances the arrangement does not conform with normal business practice but is in reality used as a means of basing the rent on income or profits sec_1_856-4 provides that except as provided in sec_1_856-4 if a reit leases real_property to a tenant under terms other than solely on a fixed sum rental for example a percentage of the tenant's gross_receipts and the tenant subleases all or a part of the property under an agreement that provides for a rental based in whole or in part on the income or profits of the sublessee the entire amount of the rent received by the reit from the prime tenant with respect to the property is disqualified as rents_from_real_property sec_1_856-4 provides that the trustees or directors of the reit are not required to delegate or contract out their fiduciary duty to manage the reit itself as distinguished from rendering or furnishing services to the tenants of the property or managing or operating the property thus the trustees or directors may do all those things necessary in their fiduciary capacities to manage and conduct the affairs of the reit itself including establishing rental terms choosing tenants entering into renewal of leases and dealing with taxes interest and insurance relating to the trust’s property the trustees may also make capital expenditures with respect to the trust’s property as defined in sec_263 and may make decisions as to repairs of the trust’s property of the type that would be deductible under sec_162 the cost of which may be borne by the trust see also revrul_67_353 1967_2_cb_252 taxpayer represents that the platform the storage tank facilities and the pipelines are real_property for purposes of sec_856 the platform lease will be a multi-year lease that provides the platform lessee with the exclusive right to use the platform the storage agreements will typically have a term of b to c years and the pipeline use agreements will typically have a term of b to e years no storage agreement or pipeline use agreement will have a term of less than d each of the storage agreements and pipeline use agreements will provide the user with the exclusive right to use a fixed portion of the capacity of the storage tank facilities or the plr-109705-18 pipelines throughout the term of the lease taxpayer represents that the platform rent the storage fee and the pipeline use fee will not depend in whole or in part on the income or profits of any person with respect to the platform sublease taxpayer further represents that the rent paid_by the sublessee will not depend in whole or in part on the income or profits of any person the pipeline use fees received by taxpayer that are solely based upon the volume of product that exits the pipeline are comparable to amounts received that are based upon a percentage of gross_receipts accordingly each of the platform rent storage fee and pipeline use fee are an amount received for_the_use_of or the right to use real_property of taxpayer and qualify as rents from interests_in_real_property under sec_856 taxpayer represents that it will not perform any activities and no services will be furnished in connection with the platform with respect to the storage tank facilities and the pipelines taxpayer represents that it will only undertake activities that are consistent with its fiduciary duty to manage the trust itself a trs will perform all services in connection with the storage tank facilities and the pipelines therefore the activities performed by taxpayer and the services furnished to the users detailed in the facts section of this letter do not give rise to impermissible_tenant_service_income taxpayer represents that all services furnished to the storage users in connection with a storage agreement are customarily provided to tenants of similar properties in the geographic market in which the respective storage tank facility is located and that all services furnished to the pipeline users in connection with a pipeline use agreement are customarily provided to tenants of similar properties in the geographic market in which the respective pipeline is located taxpayer represents that the fair_market_value of any personal_property leased to the platform lessee a storage user or a pipeline user is less than percent of the total fair_market_value of the real and personal_property leased to the respective tenant conclusion based on the facts submitted and representations made by taxpayer we rule that the platform rent storage fee and pipeline use fee received by taxpayer qualify as rents_from_real_property under sec_856 of the code for purposes of sec_856 and 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 in particular we express no opinion regarding whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code furthermore we express no opinion regarding whether any assets are real_property for purposes of sec_856 any amount received by taxpayer will depend on plr-109705-18 the income or profits of any person any activities are fiduciary duties to manage the reit itself any services are customarily provided to tenants of similar properties in the same geographic market or any income attributable to personal_property leased in connection with real_property does not exceed percent of the total rent under sec_856 this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representatives sincerely ___________________________ andrea m hoffenson chief branch office of associate chief_counsel financial institutions products cc


t c memo united_states tax_court annette l morello petitioner v commissioner of internal revenue respondent docket no filed date annette l morello pro_se robert f saal for respondent memorandum findings_of_fact and opinion cohen judge this proceeding was commenced under sec_6015 for review of respondent’s determination that petitioner is not entitled to relief from joint_and_several_liability for and with respect to joint income_tax returns that she filed with her former husband the issue for decision is whether respondent abused respondent’s discretion in denying petitioner’s request for relief from joint_and_several_liability under sec_6015 for those years unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue all amounts have been rounded to the nearest dollar findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time that the petition in this case was filed petitioner resided in keyport new jersey background petitioner and frank mazzilli mazzilli were married in they had two children during their marriage between the time that petitioner married mazzilli and date petitioner was a homemaker mazzilli became unemployed for a period of approximately weeks during as a result of mazzilli’s unemployment petitioner and mazzilli exhausted their savings and could not make the monthly mortgage payments on their home in order to help alleviate her family’s financial difficulties petitioner began to work as a receptionist at monmouth associates in internal medicine p a in date at the time that petitioner began working as a receptionist she completed form_w-4 employee’s withholding allowance certificate because of the financial difficulties that petitioner and mazzilli were having at that time mazzilli advised petitioner to claim withholding_allowances on the form_w-4 and petitioner agreed to do so petitioner was aware that this practice would increase her take-home pay but would result in a lesser amount of federal_income_tax being withheld from her wages than that which would become due on her portion of mazzilli’s and her joint income mazzilli began working for pfister chemical inc pfister during mazzilli also claimed withholding_allowances on the form_w-4 that he completed when he began his employment at pfister during and petitioner worked as a receptionist for lawrence katz m d and mazzilli maintained his employment at pfister petitioner and mazzilli each claimed between and withholding_allowances during those years for through petitioner had the following amounts of wage income and federal_income_tax withheld from that income year wage income federal_income_tax withheld dollar_figure big_number big_number big_number dollar_figure big_number even though petitioner and mazzilli both were employed by the end of they remained behind in their monthly mortgage payments after several foreclosure proceedings had been commenced against petitioner and mazzilli during the years in issue mazzilli filed for bankruptcy as a result of mazzilli’s filing for bankruptcy the mortgage on petitioner’s and mazzilli’s home was foreclosed petitioner was aware of the foreclosure proceedings that had been commenced against mazzilli and her as well as of mazzilli’s bankruptcy proceedings petitioner and mazzilli were divorced on date petitioner held one or more jobs during and as of date petitioner had not filed federal_income_tax returns for either or petitioner’s and mazzilli’s joint income_tax returns for through for through petitioner filed joint form sec_1040 u s individual_income_tax_return with mazzilli petitioner and mazzilli signed and filed their joint returns for and in date and their joint returns for and in date these returns showed the following balances due dollar_figure for dollar_figure for dollar_figure for and dollar_figure for no portion of the amounts shown as due on these returns was paid at the times that these returns were filed mazzilli handled the preparation and filing of petitioner’s and his joint returns for through petitioner was not aware that these returns showed balances due at the times that she signed them because she neither reviewed these returns nor asked mazzilli whether these returns showed balances due during their divorce proceedings petitioner and mazzilli agreed that mazzilli should be responsible for the payment of the federal_income_tax liabilities for through as of the time of trial on date mazzilli had not paid these liabilities petitioner’s request for relief from joint_and_several_liability on date petitioner requested relief from joint_and_several_liability under sec_6015 for through on date the internal_revenue_service sent to petitioner a notice_of_determination concerning your request for relief under the equitable relief provision of sec_6015 notice_of_determination with respect to those years attached to the notice_of_determination was a form 886-a explanation of adjustments that set forth the following reasons for the denial of petitioner’s request for relief attributatable sic to the non-requesting spouse--portions of the unpaid liability are attributable to under withholding on your wages no knowledge of sic reason to know--you had reason to know that the liabilities would not be paid when you signed the returns because outstanding tax_liabilities existed from prior year returns that had not been paid mortgage payments were in arrears and your ex-spouse was contemplating filing for bankruptcy noncompliance with federal_income_tax laws--you have not filed tax returns for tax years and and have an outstanding tax_liability for tax_year opinion generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 after making the election each spouse is fully responsible for the accuracy of the return and jointly and severally liable for the entire tax due for that year sec_6013 114_tc_276 a spouse requesting spouse may however seek relief from joint_and_several_liability by following procedures established in sec_6015 sec_6015 under sec_6015 a requesting spouse may seek relief from liability under sec_6015 or if eligible may allocate liability according to the provisions under sec_6015 relief from joint_and_several_liability under sec_6015 or c is premised on the existence of a deficiency for the year for which relief is sought sec_6015 c see h conf rept pincite 1998_3_cb_747 consequently if there is no deficiency for the year for which relief is sought relief from joint_and_several_liability is not available under either subsection see 120_tc_137 see also 121_tc_73 120_tc_62 118_tc_494 n cf sec_6015 in this case petitioner seeks relief from liabilities attributable to amounts shown as due on the joint returns that she filed with mazzilli for through rather than from deficiencies for those years accordingly no relief is available to petitioner under sec_6015 or c if relief is not available under either sec_6015 or c an individual may seek equitable relief under sec_6015 sec_6015 sec_6015 permits relief from joint_and_several_liability where it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either sec_6015 equitable relief under sec_6015 is granted at the commissioner’s discretion we review the commissioner’s determination to deny equitable relief under sec_6015 using an abuse_of_discretion standard butler v commissioner supra pincite under this standard of review we defer to the commissioner’s determination unless it is arbitrary capricious or without sound basis in fact 118_tc_106 citing butler v commissioner supra pincite 101_tc_117 affd 353_f3d_1181 10th cir the question of whether the commissioner’s determination was arbitrary capricious or without sound basis in fact is a question of fact 115_tc_183 affd 282_f3d_326 5th cir we are not limited to the matters contained in the commissioner’s administrative record when deciding this question 122_tc_32 petitioner bears the burden of proving that respondent abused respondent’s discretion in denying her relief under sec_6015 washington v commissioner supra pincite jonson v commissioner supra pincite as directed by sec_6015 the commissioner has prescribed procedures to use in determining whether a relief- seeking spouse qualifies for relief under that subsection at the time that petitioner requested relief under sec_6015 those procedures were found in revproc_2000_15 2000_1_cb_447 this court has upheld the use of these procedures in reviewing a negative determination see eg washington v commissioner supra pincite jonson v commissioner supra pincite subsequent modification of these procedures by revproc_2003_61 2003_32_irb_296 does not affect our analysis of this case revproc_2000_15 sec_4 c b pincite lists seven threshold conditions that must be satisfied before the commissioner will consider a request for relief under sec_6015 respondent has not argued that petitioner failed to meet those seven threshold conditions if the threshold conditions are satisfied revproc_2000_15 sec_4 c b pincite lists the circumstances which we refer to as elements under which the commissioner will generally grant equitable relief in cases where a liability reported on a joint_return is unpaid these elements are a at the time relief is requested the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse b at the time the return was signed the requesting spouse had no knowledge or reason to know that the tax would not be paid the requesting spouse must establish that it was reasonable for the requesting spouse to believe that the nonrequesting spouse would pay the reported liability and c the requesting spouse will suffer economic hardship if relief is not granted revproc_2000_15 sec_4 c b pincite the commissioner will grant equitable relief to the extent that the unpaid liability is allocable to the nonrequesting spouse only if all three elements of revproc_2000_15 sec_4 c b pincite are satisfied revproc_2000_15 sec_4 b c b pincite respondent concedes that petitioner satisfies the first and third elements of revproc_2000_15 sec_4 c b pincite with respect to the second element of revproc_2000_15 sec_4 c b pincite however respondent contends that petitioner knew or had reason to know that the liabilities reported on the joint returns for through would not be paid at the times that she signed those returns as discussed below we agree with respondent’s contention in order to satisfy the knowledge or reason to know element of revproc_2000_15 sec_4 c b pincite petitioner must establish that it was reasonable for her to believe that mazzilli would pay the amounts shown as due on the joint returns for through at the times that she signed them petitioner cannot rely on her lack of awareness of the amounts shown as due on these returns to establish that it was reasonable for her to believe that mazzilli would pay these amounts by signing the joint returns for through petitioner is charged with constructive knowledge of inter alia the amounts shown as due on those returns 992_f2d_1256 2d cir affg tcmemo_1992_228 see also 25_f3d_1289 5th cir affg tcmemo_1993_252 furthermore petitioner’s unquestioning reliance on mazzilli to handle the preparation and filing of the joint returns for through does not establish that it was reasonable for her to believe that mazzilli would pay the amounts shown as due on these returns at the times that she signed them taxpayers have a duty to file timely and accurate returns and to pay the amounts shown as due on those returns see generally sec_6001 sec_6011 sec_6012 sec_6072 sec_6151 we have consistently applied the principle that the provisions providing relief from joint_and_several_liability are designed to protect the innocent not the intentionally ignorant dickey v commissioner tcmemo_1985_478 see eg demirjian v commissioner tcmemo_2004_22 feldman v commissioner tcmemo_2003_201 taylor v commissioner tcmemo_1997_513 barnhill v commissioner tcmemo_1996_97 shannon v commissioner tcmemo_1991_207 berry v commissioner tcmemo_1990_396 affd without published opinion 935_f2d_1280 3d cir cohen v commissioner tcmemo_1987_537 at the times in that petitioner signed the joint returns for through petitioner was well aware of the financial difficulties that had plagued her family since in order to ease these difficulties petitioner had entered the workforce after being a homemaker for more than years and had accepted the risks of allowing a lesser amount of federal_income_tax to be withheld from her wages than that which would become due on her portion of mazzilli’s and her joint income and of not filing federal_income_tax returns during the years in issue petitioner was also aware that foreclosure proceedings had been commenced against mazzilli and her and that they would lose their home if they did not become current on their mortgage payments under these facts and circumstances petitioner has not established that it was reasonable for her to believe that mazzilli would pay the amounts shown as due on the joint returns for through at the times that she signed them consequently petitioner does not satisfy the knowledge or reason to know element of revproc_2000_15 sec_4 c b pincite and does not qualify for equitable relief under that section of the revenue_procedure if the requesting spouse satisfies the threshold conditions of revproc_2000_15 sec_4 c b pincite but does not qualify for relief under revproc_2000_15 sec_4 c b pincite the commissioner looks to revproc_2000_15 sec_4 c b pincite to determine whether the taxpayer should be granted equitable relief revproc_2000_15 sec_4 c b pincite provides a partial list of positive and negative factors that the commissioner is to take into account when considering whether to grant an individual full or partial equitable relief under sec_6015 as revproc_2000_15 sec_4 c b pincite makes clear no single factor is to be determinative in any particular case all factors are to be considered and weighed appropriately and the list of factors is not intended to be exhaustive revproc_2000_15 sec_4 c b pincite lists the following two factors that if true the commissioner weighs in favor of granting relief and that if not true are neutral the taxpayer is separated or divorced from the nonrequesting spouse and the taxpayer was abused by his or her spouse respondent concedes that the marital status factor weighs in petitioner’s favor the abuse factor is neutral in this case because petitioner failed to provide any evidence establishing abuse in addition revproc_2000_15 sec_4 c b pincite lists the following two factors that if true the commissioner weighs against granting relief and that if not true are neutral the taxpayer received a significant benefit from the unpaid liability and the taxpayer has not made a good_faith effort to comply with the federal_income_tax laws in the tax years following the tax_year to which the request for relief relates the significant benefit factor is neutral in this case because neither evidence nor argument has been presented as to whether this factor weighs against petitioner the noncompliance factor weighs against petitioner because as of date she had not filed federal_income_tax returns for either or and the explanations that petitioner gave during her testimony as to why she had not filed those returns were uncorroborated and unconvincing finally revproc_2000_15 sec_4 c b pincite lists the following four factors that if true the commissioner weighs in favor of granting relief and that if not true the commissioner weighs against granting relief the taxpayer would suffer economic hardship if relief were denied in the case of a liability that was properly reported but not paid the requesting spouse did not know and had no reason to know that the liability would not be paid at the time that the return was signed the liability for which relief is sought is attributable to the nonrequesting spouse and the nonrequesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the outstanding liability this factor weighs against relief only if the requesting spouse has the obligation respondent concedes that the economic hardship factor weighs in petitioner’s favor the knowledge or reason to know factor weighs against petitioner for the reasons discussed above the attribution factor weighs against petitioner because a portion of the income_tax liabilities for through is attributable to her ie she allowed a lesser amount of federal_income_tax to be withheld from her wages than that which became due on her portion of mazzilli’s and her joint income for those years respondent concedes that the legal_obligation factor weighs in petitioner’s favor based on our examination of the facts and circumstances in this case some of the factors in revproc_2000_15 sec_4 c b pincite are neutral with respect to the factors that are not neutral those weighing against granting petitioner relief outweigh those weighing in favor of granting her relief petitioner’s situation is unfortunate but we cannot conclude that respondent abused respondent’s discretion by acting arbitrarily capriciously or without sound basis in fact in denying petitioner’s request for equitable relief under sec_6015 to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court james b golden jr and rayliene golden petitioners v commissioner of internal revenue respondent docket no filed date james b golden jr and rayliene golden pro_se carmino j santaniello for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioners' federal_income_tax for in the amount of dollar_figure after a concession by respondent the issue remaining for decision is whether petitioners are entitled to an exemption deduction for miguel angel castellon acosta miguel some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioners resided in south windsor connecticut on the date the petition was filed in this case miguel arrived in the united_states on date as a refugee from a migrant camp in guantánamo bay cuba he was sponsored by the office of migrant services of the united_states catholic conference of the archdiocese of hartford connecticut miguel was years old when he arrived in the united_states his only belongings were the clothes he was wearing petitioners welcomed miguel into their home on date and he presently still resides there since his arrival in the united_states miguel has obtained his graduate equivalency diploma from east catholic high school has found a job that provides him with medical benefits and currently attends manchester community college on the advice of their accountant petitioners claimed an exemption deduction for miguel on their return respondent concedes that petitioners are entitled to a dependency_exemption deduction for james aiello petitioner wife's son from a previous marriage in the statutory_notice_of_deficiency respondent disallowed the claimed deduction respondent's determinations in the statutory_notice_of_deficiency are presumed to be correct and petitioners bear the burden of proving otherwise rule a 290_us_111 an individual taxpayer is allowed as a deduction in computing taxable_income an additional exemption for each dependent as defined in sec_152 sec_151 a dependent is generally defined as an individual who receives over half of his support from the taxpayer in the calendar_year in which the taxpayer's taxable_year begins sec_152 individuals listed under this general definition include among others an individual who for the taxable_year of the taxpayer has as his principal_place_of_abode the home of the taxpayer and is a member of the taxpayer's household sec_152 sec_1_152-1 income_tax regs provides that an individual is treated as a member of the taxpayer's household under sec_152 only if he lives with the taxpayer and is a member of the taxpayer's household for the entire taxable_year 268_f2d_208 9th cir affg per curiam 30_tc_879 douglas v commissioner tcmemo_1994_519 affd without published opinion 86_f3d_1161 9th cir according to petitioners their accountant relied upon language in sec_1_152-1 income_tax regs that provides that the period during the taxable_year preceding the birth of an individual does not prevent such individual from qualifying as a dependent under sec_152 the accountant concluded that miguel's situation fell within this exception to the requirement that an individual must be a member of the taxpayer's household for the entire taxable_year we disagree the exception provided in sec_1_152-1 income_tax regs clearly applies only to individuals born during the taxable_year miguel was not born during since miguel was not a member of petitioners' household during the entire taxable_year we find that he does not qualify as petitioners' dependent under sec_152 moreover petitioners introduced no evidence of amounts paid for miguel's support during we find that they have failed to prove that they provided more than half of miguel's support during rule a accordingly we hold that petitioners are not entitled to an exemption deduction for miguel for to reflect the foregoing decision will be entered under rule


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-125054-11 uil the honorable amy klobuchar united_states senator washington avenue south suite minneapolis mn attention ------------------------ dear senator klobuchar this letter is in response to your inquiry dated date on behalf of your constituent ----------------------------- ---------------------- asked about the employment_tax treatment of long-term disability payments as a general matter apart from the procedure for issuing a formal ruling as described in revproc_2011_1 internal_revenue_bulletin we cannot provide binding legal advice to particular taxpayers however we have reviewed the facts ------- ------------------provided and can provide general information which we hope will be helpful the law imposes old-age survivors and disability insurance taxes and hospital insurance taxes on wages employers pay to employees these two taxes comprise the federal_insurance_contributions_act fica_taxes under fica apply to wages as defined in sec_3121 of the internal_revenue_code the code that employers pay for employment as defined in sec_3121 of the code the law exempts long term-disability payments from wages for fica purposes in two situations if neither of these situations applies then fica applies to the full amount of the disability payment first the law exempts from wages any payment made to or on behalf of an employee under a plan or system an employer established that provides for its employees on account of sickness or accident disability if the employee receives the payments under a workmen’s compensation law for purposes of this exemption a payment an employer made under a workers’ compensation law includes a payment conex-125054-11 made under a statute in the nature of a workers’ compensation act if an employee receives a payment on account of non-occupational injury sickness or accident disability he or she cannot exclude the payment from wages sec_31 a - d of the treasury regulations the second exemption is for any payment on account of sickness or accident disability an employer makes to or on behalf of an employee after the expiration of calendar months following the last calendar month in which the employee worked for the employer sec_3121 of the code fica_taxes apply to the full amount of the disability payment while the employee continues to perform services for the employer and for the first six calendar months after the employee has ceased performing services for the employer disability payments will be exempt from fica starting in the seventh calendar month after the employee has stopped performing services for the employer any changes to the law would require legislative action by the congress i hope this information is helpful if you have any questions please contact me or ------------------ of my staff at ----- ------------- sincerely lynne camillo branch chief employment_tax branch government entities tax exempt and government entities exempt_organizations employment_tax


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n number info release date se t eo ra t3 uniform issue list no dear this letter is in response to your request for a letter_ruling submitted on behalf of concerning a charitable_trust to be created as provided in her last will and testament will the requested ruling is that scholarship grants awarded by the trust will not constitute taxable_expenditures under sec_4945 of the internal_revenue_code code the trust is organized exclusively for educational_purposes as described in sec_501 of the code and the trust as proposed will be a private_foundation described in sec_509 of the code organizations seeking tax-exempt status under sec_501 of code and determinations of private_foundation_status under sec_509 must file the notice described in sec_508 of the code the notice is filed by submitting a properly completed form_1023 exemption application which requires a showing that the applicant is a fully established legal entity in the case of a_trust the applicant is required to attach a signed and dated copy of the trust agreement you may wish to read the recently revised instructions for form_1023 application_for recognition of exemption under c of the internal_revenue_code which you may access on the irs website to familiarize yourself with the process for applying for exemption for an organization established only upon her death during the administration of her estate therefore any requests for determinations regarding the exempt status or foundation status of the trust are premature we cannot consider these issues prior to the establishment of the trust and the filing of form_1023 by the executor at that time if the trust is classified as a private_foundation advance approval of the trust’s grant making procedures can be the trust described in will has not been established and will be we are unable to issue the ruling you have requested as a matter of law we hope this information will be of assistance to you this information_letter is for if you have any questions please contact id at - requested by completing schedule h of form_1023 your general information only this information_letter is not a ruling and it may not otherwise be used or cited as precedent any user fees your client has paid in connection with this ruling_request will be refunded in full robert c harper jr manager exempt_organizations technical group 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 psi b04 plr-135402-08 date february decedent ---------------------------------------------------- ----------------- date --------------------------------------------- spouse son --------------------------------------------- grandson ---------------------------------------------- dear --------------- this is in response to a letter of date and subsequent correspondence in which you seek a ruling concerning the application of sec_2632 of the internal_revenue_code we understand the relevant facts to be as follows decedent died testate on date under the terms of his will decedent made pre-residuary specific bequests of certain personal_property and real_estate to his surviving_spouse spouse son and grandson the residue of the estate is to be distributed among the descendants’ trust marital trust and marital trust specifically under article v of the will a descendants’ trust for the benefit of son and his issue is established to be funded with certain identified assets article vi directs that the balance of the residue is to be distributed between marital trust and marital trust marital trust is to be funded with a pecuniary amount equal to decedent’s available generation-skipping_transfer gst tax exemption less the date of death value of the assets funding the descendants’ trust and less all gst direct skips occurring by reason of decedent’s death marital trust is to be funded with the balance of the residue both marital trust and are intended to qualify as qualified_terminable_interest_property qtip and the will provides that the executor may elect to treat all or a portion of each as qtip property on page of form_706 united_states estate and generation-skipping tax_return filed by decedent’s estate decedent’s executor reported the amount passing to the descendants’ trust as dollar_figure---------- the amount passing to marital trust as dollar_figure----------- plr-135402-08 and the amount passing to marital trust as dollar_figure---------- on schedule m the executor elected to treat dollar_figure-----------or -------- of the amount reported as passing to marital trust dollar_figure----------- as qtip property and claimed a marital_deduction for that amount the executor also elected to treat ----- of the property passing to marital trust reported as dollar_figure----------- as qtip property and claimed a marital_deduction for that amount on schedule r the executor reported that dollar_figure----------of gst tax exemption had been allocated to decedent’s lifetime transfers and that dollar_figure-----------was being allocated to direct skips under decedent’s will on part line of schedule r the executor elected to allocate the remaining dollar_figure-----------of gst_exemption to marital trust by listing marital trust in part line the executor also made a reverse_qtip_election with respect to marital trust on subsequent review of the form_706 the executor discovered that the amounts reported as passing to marital trust sec_1 and were incorrect the reported amount available for funding the trusts is dollar_figure-------------- dollar_figure------------plus dollar_figure----------- under the will the amount of the residue passing to marital trust is equal to decedent’s available gst tax exemption less the date of death value of the descendants’ trust and less all direct skips occurring by reason of decedent’s death thus under decedent’s will the amount passing to marital trust is dollar_figure---------- dollar_figure----------- available gst_exemption less dollar_figure----------- corrected value of the descendants’ trust less dollar_figure----------- direct skips the balance of the residue passes to marital trust thus under the will the amount passing to marital trust is dollar_figure----------- dollar_figure--------------less dollar_figure------------passing to marital trust the executor requests a ruling regarding the inclusion_ratio of the descendants’ trust marital trust and marital trust for gst tax purposes in view of the reporting errors made on the form_706 sec_2056 provides that for purposes of the tax imposed by the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides generally that no deduction is allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail and on such termination or failure an interest passes to any person other than the surviving_spouse or the estate of the surviving_spouse see sec_2056 and b sec_2056 provides that in the case of qualified_terminable_interest_property the entire property is treated as passing to the surviving_spouse for purposes of section plr-135402-08 a and no part of the property is treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under b b v applies sec_2056 provides that an election under b with respect to any property is to be made by the executor on the return of tax imposed by the election once made is irrevocable under sec_2044 any property in which the decedent possessed a qualifying_income_interest_for_life and for which a deduction is allowed under b is includible in the decedent's gross_estate sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b a generation-skipping_transfer is defined under a as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio of any property transferred in a generation- skipping transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as in effect on decedent’s date of death provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under a once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under a may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that in general any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a plr-135402-08 direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual's death sec_26_2632-1 provides in part that an allocation of gst_exemption to a_trust is void to the extent the amount allocated exceeds the amount required to obtain an inclusion_ratio of zero with respect to the trust sec_2642 provides that if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter except that if the requirements prescribed by the secretary respecting allocation of post-death changes in value are not met the value of such property shall be determined as the of time of the distribution concerned sec_2642 provides that any allocation to property transferred as a result of the death of the transferor shall be effective on and after the date of death of the transferor sec_2652 provides that for gst tax purposes the transferor_of_property is the last person with respect to whom the property was subject_to estate or gift_tax thus in the case of property subject_to a qtip_election that is subsequently includible in the surviving spouse's gross_estate under sec_2044 the surviving_spouse is the transferor of the property for gst purposes however sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of the gst tax as if the election to be treated as qualified_terminable_interest_property had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst_exemption may be allocated to the qtip_trust in the present case as discussed above dollar_figure-----------passed to marital trust and on schedule m of form_706 the executor made a qtip_election with respect to ------- of the amount passing to marital trust and a reverse_qtip_election with respect to marital trust accordingly decedent is the transferor of the entire dollar_figure-----------passing to marital trust for gst tax purposes that is decedent is the transferor of the dollar_figure------ ----------------portion subject_to both the qtip and reverse qtip elections and decedent is the transferor of the balance of marital trust that is not subject_to a qtip_election and therefore not eligible for the reverse_qtip_election the executor’s allocation of gst_exemption to marital trust on schedule r is void to the extent it exceeded dollar_figure------ ---- the amount passing to the trust see sec_26_2632-1 decedent is not the transferor of marital trust and no reverse_qtip_election was made with respect to marital trust to change that result therefore the balance of decedent’s gst_exemption dollar_figure-- was automatically allocated to the descendants’ trust under plr-135402-08 the automatic allocation rules of sec_2632 accordingly because the amount of gst_exemption allocated to each of marital trust and the descendants’ trust is equal to the amounts passing to each of those trusts the inclusion_ratio with respect to marital trust and with respect to the descendants’ trust is zero except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _______________________________ george l masnik chief branch office of the associate chief_counsel passthroughs special industries enclosure


internal_revenue_service department oh reasury uil washington oc contact person telephone number in reference to op e eo t date oct ai e i n a l i n i u dear sir or madam this is in response to a ruling_request dated date submitted on your behalf by your authorized representatives you a are seeking rulings on the federal_income_tax consequences of proposed transaction as more fully set forth below x is an organization that has been recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code and is a private_foundation described in sec_509 y has been recognized as exempt from federal_income_tax under a public charity described sec_501 and is classified as in sec_509 and b a vi of the code of the ten a disqualified_person members of ’s board_of directors one with respect to xx is z has also been recognized as exempt from federal_income_tax a public under sec_501 charity described in sec_509 and sec_170 iii of no of the individual is the twelve members of a disqualified_person with respect to x board_of directors and classified as the code code z's of of fe the mission of x is to assist state charities in developing their internal capacity to meet present and future needs x has historically made grants to charitable organizations in the v area a major employer and intimately of the state where x’s family is the involved in community affairs one family_member serves on y board_of this member’s father had served as chairman of the board_of y in the last four years to organizations that provide medical or health services in or around has pledged new medical facility in vy local medical facilities x to continue its support of has provided over dollar_figure the construction of dollar_figure for to x a at the time of the pledge z had not yet chosen a site for the medical facility but there was a possibility that z would select property owned by w a disqualified_person with respect to xx the v community currently lacks a hospital that provides adequate emergency and extended medical_care to the residents of the area since its hospital had earlier declared bankruptcy and was forced to merge with z through its operation of several regional health care systems z has acquired experience operating a facility in the individuals serving on the board_of z are not disqualified persons with respect to x and x has no control_over any board member a rural community such as vy the v area offering only urgent care after the merger z scaled back the medical services provided in imaging and minimal laboratory work the closest hospital that provides inpatient care and emergency care is twenty miles away in addition to limiting medical services available to residents local businesses were also affected by the closure of the hospital the hospital had been the largest employer in area and resulting layoffs brought a downturn in the local economy the v to meet z is moving forward with plans to reopen the existing facility in but long-term success of medical services in the community requires that a new facility be built the overall economies of operating a modern and efficient building constructed for present day medical services outweigh the benefits of updating an old facility local demands z investigated the feasibility of building a limited service hospital in vv the analysis revealed that its network of healthcare systems and management experience would help to avert the fiscal problems that occurred with the old hospital after the board_of z decided to build a new hospital in the v y began a fundraising campaign to raise a portion of the area amount needed for construction of the facility y was originally created to raise funds for the v hospital now its purpose has expanded to in general although one member of x’s family is a member of the board_of y neither x or any group of its disqualified persons controls y organizations healthcare services medical and y has over volunteers soliciting a list of potential donors to reach its goal as part of the solicitation process it submitted a request to x for a dollar_figure grant prior to the grant a local newspaper that z might request it had been reported in xx consider locating the facility near pledged dollar_figure towards the campaign goal the location selected by z for the new facility the interstate highway regardless of disqualified z considered several parcels of land on which to locate the new hospital to conduct a preliminary search of potential sites for the facility z hired a real_estate consultant who was not a disqualified_person with respect to it directly or indirectly controlled by x the consultant was not a vendor to x or any consultant recommended seven parcels of land to the advisory committee of 2z’s a board partnership and the advisory committee forwarded the list of potential sites to z’s stewardship committee which made a recommendation to full board for final selection the seven parcels recommended are owned by a disqualified_person with respect to respect person with nor was the the two to of xx w xx x of it for did been land lease the not want to although none the seven properties had was highly unlikely that the ruled out w parcels would be initially chosen because z new facility its preference being to buy a fee outright however z subsequently contacted w and informed them that after a thorough analysis they are considering a long-term_lease of one of the two z gave six reasons for choosing the w parcels of land owned by w parcel a larger geographical market all utilities are accessible at the site i sec_2z’s tertiary care eccurring and distance facilities maintaining medicare designation of twenty miles it is ready for construction with the least infrastructure costs and long-term leasing is now acceptable given the above outlined economies the north end is the closest site to has freeway visibility with access to it is free of contaminants town where of of one rural located at growth while the its it it is x2 a as determined by if z chooses one of the parcels it will be leased at its fair using independent market_value appraisers over the past several years w has had inquiries from over fifty businesses that have expressed an interest in leasing various is considering the parties parcels parcels that area two the the in of z if z selects property owned by w for building the new hospital facility fulfilling the pledge by x is contingent on the approval of this ruling_request sec_4941 of the code imposes a tax self-dealing foundation between a disqualified_person on each act of and private a sec_4941 of the code in relevant part provides that the term self-dealing includes any direct or indirect -- a sale_or_exchange or leasing of property between a private_foundation and a disqualified_person b lending of money or other extension of credit between a private_foundation and a disqualified_person c furnishing of goods services or facilities between a private_foundation and a disqualified_person d payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person e transfer to or for the use by or for the benefit of disqualified_person of the income or assets of a private_foundation a sec_4946 of the code provides in general that the private disqualified respect means with to a term foundation a person who is -- person a a substantial_contributor to the foundation b foundation subsection b a manager within the meaning of c an owner of more than percent of -- i the total combined voting power of the corporation ii the profits interest of a partnership or iii the beneficial enterprise interest which is of a a_trust or substantial unincorporated contributor to the foundation a member_of_the_family as defined in subsection d b or d of any individual described in subparagraph a cc of an the and that taxes section provides foundation regulations organization d -1 b similar excise is controlled by a private_foundation if the foundation or one of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing similarly an organization is controlled by a private_foundation in the case of a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such a person’s relationship within the meaning of sec_4946 through g to such disqualified or positions of authority with that of the private_foundation require the organization to engage in such a transaction aggregating person their votes only may by example of sec_53_4941_d_-1 of the regulations provides that private_foundation y made a grant to m university -an organization described in sec_170 for the purpose of conducting a seminar to study methods for improving the administration of the judicial system m is not controlled by y within the meaning of subparagraph in conducting the seminar m made of this paragraph payments to certain government officials by the nature of the grant y had reason to believe that government officials would be compensated for participation in the seminar m however had completely independent control_over the selection of such participants thus such grant by y shall not constitute an indirect act of self-dealing with respect to the government officials -- you have represented that z hired an independent real_estate consultant to find the best possible location for the facility and that z had independent control_over the selection of the property for the medical facility z’s ultimate selection of one of the w properties was based on objective criteria including location accessibility to the freeway and related tertiary care facilities accessibility of utilities and cost-effective infrastructure in addition any lease entered into with w would be at arm’s length and would be based on the fair_market_value of the property you have further represented that x has no control_over y or over the use that y makes of the grant funds and has not otherwise earmarked funds to be used for the benefit of disqualified persons therefore the grant by x to will not constitute an indirect act of self-dealing example of sec_53 d -1 b based on the information submitted and the representations made therein we rule as follows x’s grant to in connection with its building program for the v area does not the provisions of sec_4941 of the code which will be distributed to self-dealing constitute under’ act an of z this that requested it sec_6110 provides that it may not be used or cited as precedent organization directed ruling only the to is because this ruling may help resolve any questions regarding your exempt status you should keep a copy of this ruling letter in your permanent files if you have any questions please call the person whose name and telephone number appear in the heading of this letter sincerely robert c harper jr chief exempt_organizations technical branch 2tl


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b09-plr-113017-01 date date legend donor date trust grandchild grandchild date grandchild grandchild child year dollar_figurea spouse year dollar_figureb year dollar_figurec year dollar_figured dear plr-113017-01 this letter is in response to your authorized representative’s letter dated date requesting a ruling regarding the automatic allocation of donor’s generation-skipping_transfer gst_exemption pursuant to sec_2632 of the internal_revenue_code this letter responds to that request the facts and representations submitted are summarized as follows on date donor established trust an irrevocable_trust for the benefit of donor’s grandchildren other than grandchild and grandchild article ii paragraph a of trust provides that if at i any time any contribution is made to any trust hereunder or ii any payment is made of premiums for policies of life_insurance held in trust hereunder with respect to which addition or payment the trustee has received written notice from the grantor or other transferor of such addition to the trust to the effect that such addition payment or some specified portion thereof shall be subject_to withdrawal under the provisions of this section by the beneficiary of this trust then notwithstanding any other provision hereof such thus designated_beneficiary shall thereupon have the absolute right at all times during the two month period commencing on the date of such addition or payment to withdraw from this trust in cash or in_kind as determined by the trustee that portion or all of the value of such contribution or payment determined in the same manner as such value would be determined for the transferor’s or transferors’ federal gift_tax purposes which is specified as withdrawable by such beneficiary in such notice the total value which may be withdrawn by any beneficiary on account of such additions or payments hereunder shall not be cumulative and to the extent that such a withdrawal right has not been exercised by the end of such two month period it shall lapse article ii paragraph a of trust provides that each such withdrawal right shall be exercisable only by a written instrument executed by the beneficiary having such right and delivered to the trustee of the trust involved on or before the date specified in such instrument as the effective date of such withdrawal which must be during the above specified withdrawal period if any such beneficiary is then under any legal disability of any kind execution of such instrument may be by his or her legal guardian or if no guardian has been appointed by his or her natural guardian other than the donor of such gift or the grantor in each case acting solely on behalf of such beneficiary in making such withdrawal and receiving such distribution for such beneficiary’s sole benefit distribution of the thus withdrawn value pursuant to any proper instrument of withdrawal shall be made on such effective date to this end the trustee shall at all times while any such withdrawal right is outstanding retain in the trust sufficient borrowable or transferable assets from such addition or otherwise to satisfy all such withdrawal rights then outstanding each beneficiary designated as having a withdrawal right with respect to any addition or additions or if he or she is then under legal disability his or her legal guardian or if there is none his or her natural guardian shall be kept reasonably informed by the trustee of all withdrawable additions that are made or expected to be made plr-113017-01 article ii paragraph b of trust provides that until the first to occur of i the death of the survivor of the grantor and his wife or ii date the trustee shall pay to or use for the benefit of any one or more of the grantor’s grandchildren other than grandchild and grandchild so much of the net_income and principal of this trust as the trustee determines to be in their best interests taking into account their respective incomes from all sources known to the trustee for their education including college post-graduate and professional education health maintenance and support in reasonable comfort adding any excess income to principal at the trustee’s discretion the trustee may in its discretion pay the same to or use it for the benefit of one or more of the grantor’s grandchildren other than grandchild and grandchild to the exclusion of one or more of them and may completely exhaust the principal the grantor’s concern being primarily for the health maintenance comfortable support and education of the beneficiaries article ii paragraph b of trust provides that upon the first to occur of i the death of the survivor of the grantor and his wife or ii date the trustee shall divide the trust estate as then constituted into separate equal shares so that there shall be one share for each then living grandchild of the grantor other than grandchild and grandchild or if there is no living grandchild of the grantor other than grandchild and grandchild the trustee shall divide the trust into separate shares for the then living descendants of the grantor per stirpes the trustee shall distribute each share set_aside for a great-grandchild or more remote descendant of the grantor to such descendant the trustee shall hold each share set_aside for a child or grandchild of the grantor hereinafter referred to as a beneficiary upon the following trusts a the trustee shall pay to each beneficiary or use for his or her benefit all the net_income from his or her trust in convenient installments at least as often as quarter-annually during his or her life subject however to the limitations set forth in subparagraph d of this subparagraph adding any excess income to principal in the trustee’s discretion b whenever the trustee determines that the income of the beneficiary from all sources known to the trustee is not sufficient for the support of the beneficiary for the beneficiary’s maintenance in reasonable comfort for his or her health and for his or her education including but not limited to college post-graduate and professional education the trustee may in its discretion pay to or use for the benefit of the beneficiary so much of the principal of his or her trust as the trustee determines to be reasonably required therefor subject however to the limitations set forth in subparagraph d of this subparagraph c upon the death of the beneficiary the trustee shall distribute his or her trust estate as then constituted to or in trust for the benefit of such person or persons other than the said beneficiary among the grantor’s descendants upon such conditions and estates with such powers in such manner and at such time or times as the said beneficiary may appoint or direct by will specifically referring to this power_of_appointment and to the extent that the beneficiary does not effectively exercise this power_of_appointment the trustee shall distribute the trust estate as then constituted to the then living descendants of the beneficiary per stirpes or if the beneficiary has no then living descendants the trustee shall divide his or her trust estate as then constituted into separate equal shares so that there is one share set_aside for each living grandchild of the grantor for whom there is then a_trust plr-113017-01 held hereunder and the trustee shall add each such share to the trust for the grandchild for whom it was set_aside to be held and administered as if it had been an original part thereof or if there is no trust then held for a living grandchild of the grantor the trustee shall divide the trust estate as then constituted into separate shares for the then living descendants of the grantor per stirpes the trustee shall distribute each share set_aside for a great-grandchild or more remote descendant of the grantor to such descendant the trustee shall hold each share set_aside for a child or grandchild of the grantor herein referred to as a beneficiary upon the trusts set forth in subparagraphs a b c and d of this subparagraph of this paragraph b from the establishment of trust on date until date grandchild and grandchild have been the sole beneficiaries of trust on date two successor trusts were created pursuant to article ii of trust grandchild is the sole beneficiary of one of the successor trusts and grandchild is the sole beneficiary of the other successor trust all assets from trust were distributed to these successor trusts child the mother of grandchild and grandchild has been alive since trust was first established on date during year donor transferred dollar_figurea to trust during year spouse also transferred dollar_figurea to trust donor and spouse timely reported these gifts on their respective form sec_709 united_states gift and generation-skipping_transfer_tax return donor and spouse each consented to have the gifts made by one another to third parties during the calendar_year considered as made one-half by each of them under sec_2513 on donor’s year gift_tax_return and spouse’s year gift_tax_return the transfers to trust were entered on schedule a part as gifts subject only to gift_tax during year donor transferred cash and marketable_securities with an aggregate value of dollar_figureb to trust donor timely reported this gift on his form_709 donor and spouse consented to have the gifts made by one another to third parties during the calendar_year considered as made one-half by each of them on donor’s year gift_tax_return the transfer to trust was entered on schedule a part as a gift subject only to gift_tax spouse did not make any transfers to trust during year on spouse’s year gift_tax_return spouse included one-half of the total value of gifts of made by donor in year donor transferred dollar_figurec to trust donor timely reported this gift on form 709-a united_states short_form gift_tax_return spouse consented to have the gifts made by donor and herself to third parties during the calendar_year considered as made one-half by each of them spouse did not make any transfers to trust during year in year donor transferred cash and marketable_securities with an aggregate value of dollar_figured to trust donor timely reported this gift on form 709-a spouse consented to have the gifts made by donor and herself to third parties during the calendar_year considered as made one-half by each of them spouse did not make any transfers to trust during year plr-113017-01 on donor’s gift_tax returns for year year year and year donor did not allocate any of his available gst_exemption to trust in addition donor did not pay any gst tax with respect to the gifts to trust a ruling has been requested that an automatic allocation of donor’s gst_exemption pursuant to sec_2632 occurred with respect to the gifts made to trust in each of the taxable years year year year and year sec_2601 imposes a tax on every generation-skipping_transfer gst sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term direct_skip means a transfer subject_to a tax imposed by chapter the estate_tax or chapter the gift_tax of an interest in property to a skip_person sec_2613 provides that the term skip_person means a natural_person assigned to a generation which i sec_2 or more generations below the generation assignment of the transferor or a_trust if all interests in such trust are held by skip persons or if there is no person holding an interest in such trust and at no time after such transfer may a distribution including distributions on termination be made from such trust to a non-skip_person sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides generally that if any individual makes a direct_skip during his lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the direct_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of paragraph the unused portion of an individual’s gst_exemption is that portion of such exemption which has plr-113017-01 not previously been allocated by such individual or treated as allocated under paragraph with respect to a direct_skip sec_2632 provides that an individual may elect to have the deemed_allocation under sec_2632 not apply to a transfer sec_2652 provides that except as provided in this subsection or sec_2653 the term transferor means a in the case of any property subject_to the tax imposed by chapter the estate_tax the decedent and b in the case of any property subject_to the tax imposed by chapter the gift_tax the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides that if under sec_2513 one-half of the gift is treated as made by an individual and one-half is treated as made by that individual’s spouse then for purposes of the gst tax each spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse sec_2652 provides in part that a person has an interest_in_property_held_in_trust if at the time the determination is made such person has a right to receive income or corpus from the trust or is a permissible current recipient of income or corpus from the trust and is not described in sec_2055 sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides generally that if a direct_skip occurs during the transferor’s lifetime the transferor’s gst_exemption not previously allocated unused gst_exemption is automatically allocated to the transferred property but not in excess of the fair_market_value of the property on the date of the transfer the transferor may prevent the automatic allocation of gst_exemption by describing on a timely-filed united_states gift and generation-skipping_transfer_tax return form_709 the transfer and the extent to which the automatic allocation is not to apply in addition a timely-filed form_709 accompanied by payment of the gst tax as shown on the return with respect to the direct_skip is sufficient to prevent an automatic allocation of gst_exemption with respect to the transferred property sec_26_2632-1 provides that a form_709 is timely filed if it is filed on or before the date required for reporting the transfer if it were a taxable gift ie the date prescribed by sec_6075 including any extensions to file actually granted the due_date except as provided in paragraph b iii of this section the automatic allocation of gst_exemption or the election to prevent the allocation if made is irrevocable after the due_date an automatic allocation of gst_exemption is effective as of the date of the transfer to which it relates except as provided above a form_709 need not be filed to report an automatic allocation in the present case because all interests in trust are held by skip persons trust qualifies as a skip_person under sec_2613 because donor and spouse consented to split the gifts under sec_2513 donor is treated as the transferor of one-half of all gifts plr-113017-01 made to trust under sec_2652 the transfers that donor is treated as making to trust were direct skips as defined in sec_2612 based on the information submitted and the representations made we conclude that an automatic allocation of donor’s unused gst_exemption occurred under sec_2632 with respect to the gifts that donor is treated as making to trust in year year year and year an automatic allocation of gst_exemption is effective as of the date of the transfer to which it relates we are expressing no opinion regarding the value of the property transferred to trust or regarding the inclusion_ratio of trust the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file we are sending a copy of this letter to your authorized representatives sincerely frances schafer counsel to the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes