internal_revenue_service department of the treasury number release date index number taxpayer washington dc person to contact telephone number refer reply to cc tege eb hw plr-164963-02 date plan dear this responds to your letter of date and supplemental submission of date requesting rulings on behalf of taxpayer concerning the proper federal tax treatment of a medical reimbursement plan and a qualified_parking payment plan this ruling responds only to your ruling requests concerning the medical reimbursement plan as amended by your submission of date your ruling_request concerning parking will be addressed under separate cover by employment_tax branch of the tax exempt government entities division you represent that taxpayer has established the plan which is an employer-provided reimbursement plan for employees’ qualified expenses other than health insurance there is also a separate health insurance program for employees you represent that all benefits under the plan are nontaxable benefits to the employees all eligible employees can participate in the plan although participation is restricted for those employees who do not select health_insurance_coverage the plan reimburses participating employees for medical_expenses as defined in sec_213 of the internal_revenue_code the code except for health insurance premiums and long-term care expenses and insurance of the employee and the employee’s spouse and dependents as defined in sec_152 to the extent that the employee or the employee’s spouse or dependants have not been reimbursed for the expense or are not entitled to reimbursement from any other plan you represent that the plan satisfies the nondiscrimination_rules of sec_105 h the code the medical reimbursement plan is available only to those employees who have elected through salary reduction to purchase employer-sponsored health insurance under the plan taxpayer pays for the medical reimbursement plan and employees do not make any salary reduction elections to pay for the medical reimbursement plan at the beginning of the plan_year taxpayer designates a specified annual aggregate amount of reimbursements or payments based on each employee’s wages and personal exemptions reported on form_w-4 thus employees with a higher withholding rate have a lower aggregate amount those with a lower withholding rate have a higher aggregate amount the annual aggregate amount of the medical expense reimbursements with respect to a particular employee is not related to the employee’s salary reduction to purchase health insurance under taxpayer’s health insurance program and the salary reduction never exceeds the actual cost of employer-sponsored health insurance under the plan only those medical_expenses that an employee incurs while a participant in the plan will be reimbursed any qualified_medical_expenses in excess of the available reimbursement amount can be carried over for reimbursement in the next plan_year the amount designated by taxpayer for medical expense reimbursements that an employee does not use during the plan_year is carried over to the next plan_year provided that the employee continues to participate in the plan thus the employee will have the carryover balance available as well as additional_amounts for medical_expenses in the next plan_year an employee cannot receive cash or any other benefit in lieu of medical expense reimbursements or payments in addition taxpayer requires employees to substantiate medical_expenses before reimbursements or payments are made although an annual aggregate amount is designated at the beginning of the plan_year for each employee only a pro-rata portion of that amount is available for reimbursement of substantiated medical_expenses on each payday sec_61 of the code and sec_1_61-21 of the income_tax regulations provide that except as otherwise provided in subtitle a gross_income includes compensation_for services including fees commissions fringe_benefits and similar items sec_106 provides that gross_income of an employee does not include employer- provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations provides that the gross_income of an employee does not include contributions which the employee's employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by the employee or the employee's spouse or dependents as defined in sec_152 sec_105 provides that except as otherwise provided in sec_105 amounts received by an employee through accident_or_health_insurance for personal injuries or sickness shall be included in gross_income to the extent such amounts are attributable to contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_105 states that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical_expenses for any prior taxable_year gross_income does not include amounts referred to in subsection a if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer for expenses_incurred by the taxpayer for the medical_care as defined in sec_213 of the taxpayer or the taxpayer's spouse or dependents as defined in sec_152 sec_1_105-2 of the regulations provides that only amounts that are paid specifically to reimburse the taxpayer for expenses_incurred by the taxpayer for the prescribed medical_care are excludable from gross_income thus sec_105 does not apply to amounts that the taxpayer would be entitled to receive irrespective of whether or not the taxpayer incurs expenses for medical_care in revrul_2002_41 2002_28_irb_75 an employer sponsors a major medical plan that provides coverage under a policy of accident_and_health_insurance and is paid for in part pursuant to salary reduction elections under the employer’s cafeteria_plan the employer also sponsors a health_reimbursement_arrangement hra that is paid for solely by the employer and not through salary reduction contributions coverage under the hra is available only to those employees who participate in the major medical plan no portion of the salary reduction for the major medical plan is attributable to the hra the hra reimburses substantiated medical_care expenses as defined in sec_213 of participating employees and their spouses and dependants as defined in sec_152 up to a maximum annual reimbursement amount unused amounts from one coverage period are carried forward to subsequent coverage periods participating employees have no right to receive cash or any other benefit in lieu of medical expense reimbursements the ruling concludes that coverage and reimbursements made under the hra are excludable from the gross_income of participating employees under sec_106 and sec_105 notice_2002_45 2002_28_irb_93 provides that an hra is an arrangement that is paid for solely by the employer and not pursuant to salary reduction reimburses the employee for medical_care expenses as defined in sec_213 and provides that any unused portion of the maximum dollar amount available during the coverage period is carried forward to subsequent periods notice_2002_45 also provides that with the exception of amounts carried forward from previous coverage periods the maximum reimbursement amount under an hra for a coverage period need not be available to the employee-participant at all times during the coverage period in addition an hra may reimburse claims incurred during one coverage period in a later coverage period provided that the individual was covered under the hra when the claim was incurred notice_2002_45 further provides that benefits under an hra must be limited to reimbursements of sec_213 expenses and that such expense reimbursements must be substantiated to be excludable under sec_105 the plan is an employer-provided accident_and_health_plan that is paid for solely by the taxpayer and amounts are used exclusively to reimburse employees for expenses_incurred for medical_care as defined in sec_213 no benefits other than reimbursements for medical_care expenses are available at any time to participants either in the form of cash or other nontaxable or taxable benefits accordingly the plan meets the requirements as set forth in revrul_2002_41 and notice_2002_45 based on the information submitted and the representations made we conclude that coverage of medical reimbursements under the plan is excludable from a participating employee’s gross_income under sec_106 of the code and that reimbursements of medical_care expenses under the plan are excludable from a participating employee’s gross_income under sec_105 of the code no opinion is expressed concerning whether the medical reimbursement plan discriminates within the meaning of sec_105 of the code moreover no opinion is expressed concerning the federal tax consequences of the plan under any provision of the code other than those specifically stated herein 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 sincerely harry beker chief health and welfare branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy of letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------- -------------------------------- ---------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------ telephone number --------------------- refer reply to cc fip b02 plr-105300-10 date date legend taxpayer ------------------------ ------------------------------------------------------------------------------ employer ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------- -------------------------------------------------------------- parent company a company b company c law firm state year year year year year ------------------------------------------------- ------------------------------- ----------------------------- ---------------------------------- --------------------------- ----------- ------- ------- ------- ------- ------- plr-105300-10 year year year dear --------------- ------- ------- ------- this is in reply to a letter dated date and supplemental correspondence dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a written representation under sec_1_7872-15 of the income_tax regulations if this written representation under sec_1_7872-15 is considered timely filed and the other requirements under sec_1_7872-15 are satisfied then an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 facts employer and parent employer’s parent_corporation are state non-profit corporations exempt from taxation under sec_501 of the internal_revenue_code as organizations described in sec_501 and are classified as public_charities under sec_509 since year parent has had a split-dollar_life_insurance program for certain of its executive level employees and employees of its subsidiary corporations including employer in year parent hired company a to consult on matters relating to the split- dollar program and to administer the program company a recommended revising the split-dollar plan and in year parent implemented a new split-dollar_life_insurance program company b subsequently acquired company a and became parent’s consultant and administrator of the split-dollar program in year parent implemented a new split-dollar_life_insurance program current sdp upon the recommendation of company b the current sdp was entered into after the treasury department’s issuance of final regulations under sec_1_61-22 and sec_1_7872-15 pertaining to split-dollar_life_insurance arrangements the split-dollar regulations under the current sdp employer pays the premiums on a life_insurance_policy owned by taxpayer the premium payments made by employer are treated as loans pursuant to the split-dollar regulations whereby employer is the lender and the taxpayer is the borrower the parties to the loan taxpayer represents that the loans were to each have a stated_interest rate equal to the applicable_federal_rate so as not to be below-market split-dollar loans under the split-dollar regulations employer made the first loan under the current sdp to taxpayer in year taxpayer represents that a plr-105300-10 reasonable person would expect that all payments under the loans will be made as described in sec_1_7872-15 company b was instrumental in implementing the current sdp for parent employer and employee participants including taxpayer collectively plan participants company b was responsible for advising plan participants regarding the set-up of the current sdp determining the type of life_insurance policies associated with the current sdp and administering the current sdp taxpayer represents that taxpayer lacked knowledge and experience with regards to split-dollar_life_insurance arrangements and the split-dollar regulations and therefore relied on employer’s guidance representations conclusions and information regarding the current sdp employer in turn relied on company b’s guidance in developing implementing and administering the current sdp company b provided employer’s tax_return_preparer with a governing document pertaining to the current sdp but did not provide the preparer with a copy of the plan’s participation_agreement due to some confusing language in the governing document the tax_return_preparer erroneously concluded that the loans involved in the current sdp were recourse loans the tax_return_preparer has provided an affidavit stating that discussions with company b representatives regarding the current sdp confirmed his conclusion that the loans were recourse in nature therefore employer did not execute or file the written representations for nonrecourse split-dollar loans pursuant to sec_1_7872-15 and neither did taxpayer in year company b ceased administering the current sdp and employer hired company c to administer the current sdp due to the decline in the value of common stocks and many bonds from year to early year the cash surrender values of the life_insurance policies under the current sdp declined employer employed counsel from law firm to review the current sdp and advise employer on options to revise or terminate the plan counsel from law firm determined that under applicable state law the loans under the current sdp were not recourse loans but rather nonrecourse loans secured_by the life_insurance policies subsequently employer informed taxpayer that the loans were nonrecourse loans and that a written representation should have been filed by both taxpayer and employer to ensure that payments on the loans were not treated as contingent payments employer further explained that the written representation should have been made in year when the first loan was made to taxpayer under the plan and asked that taxpayer file a request for an extension of time to make the written representations under sec_1 d i and ii taxpayer makes the following representations the granting of relief under sec_301_9100-3 would not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than it would have had if the election had been plr-105300-10 timely made taking into account the time_value_of_money taxpayer did not knowingly choose not to file the election taxpayer did not use hindsight in requesting relief finally taxpayer represents that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 in support of its ruling_request taxpayer has submitted the affidavits of taxpayer employer’s chief_executive_officer employer’s tax_return_preparer and employer’s counsel from law firm regarding the events that led to taxpayer’s failure to make the regulatory election pursuant to sec_1_7872-15 and ii law and analysis sec_1_7872-15 of the regulations provides that except as provided in sec_1_7872-15 if a payment on a split-dollar loan is nonrecourse to the borrower the payment is a contingent payment for purposes of sec_1_7872-15 sec_1_7872-15 provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 if the parties to the split-dollar_life_insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made sec_1_7872-15 describes the time and manner requirements for providing the written representation required by sec_1_7872-15 sec_1 d ii provides in part that the written representation be signed by both the borrower and lender not later than the last day including extensions for filing the federal_income_tax return of the borrower or lender whichever is earlier for the taxable_year in which the lender makes the first split-dollar loan under the split-dollar_life_insurance arrangement sec_301_9100-1 defines election to include an application_for relief in respect of tax a request to adopt change or retain an accounting_method or accounting_period the term does not include an application_for an extension of time for filing a return under sec_6081 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulation or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under sec_301_9100-2 sec_301_9100-3 provides that when a taxpayer does not meet the plr-105300-10 requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and taxpayer’s representations we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to file the written representation as required under sec_1 d i and ii taxpayer is therefore granted a period of time not to exceed days from the date of this letter to prepare and have both parties to the loan sign the written representation provided that the written representation is timely signed by both parties to the loan as required by this letter and filed with the taxpayer’s tax_return for year plr-105300-10 the written representation will be deemed effective for all years in which the arrangement has been in effect in accordance with sec_1_7872-15 a copy of the written representation should be attached to taxpayer’s tax_return for any subsequent taxable_year in which employer makes a split-dollar loan to taxpayer to which the representation applies except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code this ruling is limited to the timeliness of the filing requirement of the written representation under sec_1_7872-15 and ii no opinion is expressed with regard to whether taxpayer satisfied the other requirements under sec_1_7872-15 and ii the loan treatment requirements under sec_1_7872-15 or whether payments under the loan are otherwise noncontingent payments for purposes of sec_1_7872-15 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect 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 representatives sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service number release date index number --------------- --------------- -------------------------- -------------------------------- in re --------------------------- - department of the treasury washington dc person to contact -------------------------- id no ---------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc intl - plr-155739-02 date september legend ------------- --------------- ------------------------- --------------------------- ------------------------- wife husband individual a cpa firm country x year one year two date a dear --------- this replies to a letter dated date in which wife requests an extension of time under sec_301_9100-3 to submit a ruling_request under sec_877 as provided by section iv of notice_97_19 as modified by notice_98_34 the information submitted for consideration is substantially as set forth below ------------------------------------------- ---------------------- --------------------- plr-155739-02 the ruling contained in this letter is predicated upon facts and representations submitted by wife and accompanied by a penalty of perjury statement executed by wife this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process husband and wife were born in and are citizens of country x husband and wife are both former residents of the united_states husband and wife permanently relocated back to country x in year one and have lived there continuously ever since individual a is a senior manager with cpa firm which has prepared the tax returns for husband and wife for several years around the fall of year two which was after date a individual a had a conversation with husband regarding some year-end tax planning husband mentioned at some point in the conversation that husband and wife had relinquished their green cards this disclosure prompted a discussion of the tax ramifications of relinquishing a green card later husband and wife decided to request rulings under sec_877 cpa firm was then contracted by husband’s employer to prepare the ruling requests cpa firm husband and wife began collecting information and documentation to file the ruling requests when it was discovered that wife had relinquished her green card on date a at the time of this discovery the one-year period for filing wife’s ruling_request had already expired the affidavits of individual a and wife and the facts submitted indicate that wife relied upon cpa firm to handle her u s tax matters however cpa firm did not advise wife of the tax ramifications of surrendering her green card until after the green card had been surrendered sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement plr-155739-02 sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the standards set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation section iv of notice_97_19 fixes the time for an individual to submit a ruling_request under sec_877 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant wife an extension of time provided that wife satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that wife satisfies sec_301_9100-3 accordingly wife is granted an extension of time until days from the date of this ruling letter to submit a ruling_request under sec_877 as provided by section iv of notice_97_19 as modified by notice_98_34 no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented specifically no opinion is expressed as to the tax consequences under sec_877 a copy of this ruling letter should be associated with the ruling_request filed pursuant to notice_97_19 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 a power_of_attorney on file in this office a copy of this letter is being sent to wife and the other representative sincerely associate chief_counsel international plr-155739-02 by s allen goldstein allen goldstein reviewer enclosure copy for purposes


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eb qp3 preno-127157-17 uilc date date to david conrad area_counsel mountain states area denver tax exempt government entities from stephen b tackney deputy associate chief_counsel employee_benefits tax exempt government entities subject request for advice on plan language designed to prevent the occurrence of a nonallocation_year under sec_409 of the internal_revenue_code this chief_counsel_advice responds to your request for assistance relating to sec_409 this advice may not be used or cited as precedent issues l whether an employee_stock_ownership_plan esop may include plan language providing for a trustee fiduciary and or administrator to transfer employer_securities in an s-corporation and assets attributable to such securities back to the esop if the esop previously transferred such securities and related assets to prevent a nonallocation_year pursuant to the transfer method described in sec_1 p - b v a of the income_tax regulations regulations from the account of a participant who was a disqualified_person or was reasonably expected to become a disqualified_person as described in sec_409 disqualified_person to a non-esop plan of the employer or a separate portion of the esop that is not an esop and the transfer back to the esop will not a cause a non-allocation year or a prohibited_allocation in a nonallocation_year for purposes of sec_409 preno-127157-17 whether an esop may include plan language that provides for_the_use_of the alternative methodologies for prevention of a nonallocation_year suggested in the preamble to the final regulations under sec_409 either independently or in advance of transfers of s_corporation stock and assets attributable to such stock to a non-esop plan of the employer or a separate portion of the esop that is not an esop provided the application of one or more of the methodologies does not discriminate in favor of highly compensated employees with respect to the availability of s_corporation stock improperly reduce an existing allocation to a participant’s account in violation of sec_411 and the definite allocation formula requirement provide for employer discretion in determining which participants are impacted by reductions or increases in allocations of s_corporation stock in violation of the definite written program and definite allocation formula requirements and provide for use of a prevention methodology which fails to become operative until after a nonallocation_year has occurred and assets held in the accounts of disqualified persons are deemed an impermissible accrual as defined in the regulations under sec_409 in particular you ask whether an s_corporation_esop may include provisions designed to prevent a nonallocation_year by excluding from allocations only the highly compensated employees hces who would otherwise become disqualified persons excluding from allocations all hces expanding allocations to nhces who are not disqualified persons with less than big_number hours service expanding allocations to the nonhighly compensated employees nhces who are not disqualified persons with less than big_number hours service and who were employed on the last day of the plan_year or expanding allocations to nhces who are not disqualified persons and who were employed on any day of the plan_year you further ask whether an esop may include more than one of these provisions in addition to a provision providing for the transfer method you also ask whether an esop may include the following or a substantially_similar provision notwithstanding any other provision of the plan to the contrary no allocation of any company stock whether by reason of any employer_contribution forfeiture dividend or otherwise shall be made to or on behalf of xx or any member of xx’s family that would make xx or such family_member a disqualified_person within the meaning of sec_409 j in all these prevention methods referred to as prevention methods through the sec_409 prevention provisions operate exclusively before the actual allocations are made to participant accounts whether an esop may include plan language that includes a methodology which provides for multiple adjustments to participant accounts through incremental preno-127157-17 reallocations of stock initially allocated to hces with such reallocations continuing until total allocations of stock released from the esop_loan suspense to hce participants as a percentage of compensation do not exceed the lowest percentage allocated to the account of a nhce participant law sec_4975 provides that the term esop means a defined_contribution_plan -- a which is a stock_bonus_plan which is qualified or a stock bonus and a money purchase plan both of which are qualified under sec_401 and which are designed to invest primarily in qualifying employer_securities and b which is otherwise defined in regulations prescribed by the secretary a plan shall not be treated as an esop unless it meets the requirements of sec_409 sec_409 and as applicable sec_409 sec_409 and sec_664 and if the employer has a registration-type_class_of_securities as defined in sec_409 it meets the requirements of sec_409 sec_1_401-1 provides that a qualified_pension profit-sharing or stock_bonus_plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer sec_1_401-1 provides that a profit-sharing_plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan after a fixed number of years the attainment of a stated age or upon the prior occurrence of some event such as layoff illness disability retirement death or severance of employment a formula for allocating the contributions among the participants is definite if for example it provides for an allocation in proportion to the base compensation of each participant sec_1_401-1 provides that a stock_bonus_plan is a plan established and maintained by an employer to provide benefits similar to those of a profit-sharing_plan except that the benefits are distributable in stock of the employer company for the purpose of allocating and distributing the stock of the employer which is to be shared among his employees or their beneficiaries such a plan is subject_to the same requirements as a profit-sharing_plan sec_401 provides that a_trust created or organized in the united_states and forming part of a stock bonus pension or profit- sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified_trust under this section if the contributions or benefits provided under the plan do not discriminate in favor of hces preno-127157-17 sec_1_401_a_4_-4 of the regulations provides rules for determining whether the benefits rights and features provided under a plan that is all optional forms of benefit ancillary_benefits and other rights and features available to any employee under the plan are made available in a nondiscriminatory manner benefits rights and features provided under a plan are made available to employees in a nondiscriminatory manner only if each benefit right or feature satisfies the current availability requirement and the effective availability requirement of this section sec_1_401_a_4_-4 provides that the current availability requirement is satisfied if the group_of_employees to whom a benefit right or feature is currently available during the plan_year satisfies sec_410 without regard to the average_benefit_percentage test of sec_1_410_b_-5 of the regulations sec_410 provides that a_trust shall not constitute a qualified_trust under sec_401 unless such trust is designated by the employer as part of a plan which meets one of the following requirements a the plan benefits at least percent of employees who are not highly compensated employees b the plan benefits a percentage of employees who are not highly compensated employees which is at least percent of the percentage of highly compensated employees benefiting under the plan or c the plan meets the requirements of the average_benefit_percentage test sec_1_410_b_-7 provides that the portion of the plan that is an esop and the portion of the plan that is not an esop are treated as separate plans for purposes of sec_410 sec_1_401_a_4_-4 provides that whether a benefit right or feature that is subject_to specified eligibility conditions is currently available to an employee generally is determined based on the current facts and circumstances with respect to the employee sec_1_401_a_4_-4 provides that the effective availability requirement is satisfied if based on all of the relevant facts and circumstances the group_of_employees to whom a benefit right or feature is effectively available does not substantially favor hces sec_1_401_a_4_-4 defines other right or feature in general to mean any right or feature applicable to employees under the plan different rights or features exist if a right or feature is not available on substantially the same terms as another right or feature sec_1_401_a_4_-4 provides that other rights and features include but are not limited to the right to direct investments and the right to a particular form of investment including for example a particular class or type of employer_securities preno-127157-17 taking into account in determining whether different forms of investment exist any differences in conversion dividend voting liquidation preference or other rights conferred under the security sec_409 provides that an esop holding employer_securities consisting of stock in an s_corporation shall provide that no portion of the assets of the plan attributable to or allocable in lieu of such employer_securities may during a nonallocation_year accrue or be allocated directly or indirectly under any plan of the employer meeting the requirements of sec_401 for the benefit of any disqualified_person sec_409 defines nonallocation_year as any plan_year of an esop if at any time during such plan_year i such plan holds employer_securities consisting of stock in an s_corporation and ii disqualified persons own at least percent of the number of shares of stock in the s_corporation sec_409 defines disqualified_person as any person if i the aggregate number of deemed-owned_shares of such person and the members of such person’s family is at least percent of the number of deemed-owned_shares of stock in the s_corporation or ii in the case of a person not described in clause i the number of deemed-owned_shares of such person is at least percent of the number of deemed- owned shares of stock in such corporation sec_409 provides that the secretary shall prescribe such regulations that be necessary to carry out the purposes of this subsection sec_1_409_p_-1 provides that an esop may prevent a nonallocation_year by having assets including s_corporation securities allocated to the account of a disqualified_person or a person reasonably expected to become a disqualified_person without the transfer described here be transferred to the non-esop portion of the plan or to another plan of the employer that is qualified under sec_401 but is not an esop under sec_1_409_p_-1 these transfers will not cause either the esop or the non-esop portion of the plan to fail the requirements of sec_1_401_a_4_-4 further subsequent to the transfer both the transferee_plan and the non-esop portion of the plan will not fail to satisfy the requirements of sec_1_401_a_4_-4 merely because of the benefits rights and features with respect to the transferred benefits if those benefits rights and features would satisfy the requirements of sec_1_401_a_4_-4 if the mandatory disaggregation rule for esops at sec_1_410_b_-7 did not apply this is what was previously referred to as the transfer method described in the preamble to the final sec_409 regulations preno-127157-17 sec_411 provides that a plan does not satisfy sec_401 if an amendment to the plan decreases a participant’s accrued_benefit that is the anti-cutback_rules sec_411 provides that a plan amendment that has the effect of eliminating an optional form of benefit with respect to benefits attributable to service before the amendment is treated as reducing accrued_benefits sec_411 provides that an esop is not treated as failing to meet the requirements of sec_411 merely because it modifies distribution options in a nondiscriminatory manner sec_411 provides that for defined contribution plans the balance of the employee’s account constitutes his accrued_benefit issue l analysis and conclusion as explained in its legislative_history sec_409 was enacted to address congress’s belief that esops should not be used by s_corporation owners to obtain inappropriate tax_deferral h_r rep no part pincite as an anti- abuse statute its violation through the occurrence of a nonallocation_year results in serious consequences for the esop the participant and the employer these consequences may include deemed distributions subjecting the exempt loan to excise_taxes under sec_4975 b loss of sec_401 qualified_plan status jeopardizing the employer’s status as an s_corporation and the imposition of excise_taxes under sec_4979a with sec_409 compliance required on a current operational basis a plan may violate sec_409 and trigger these consequences in real time within this context several options have been formulated that a plan may use to maintain its ongoing compliance these options described in the preamble to the sec_409 regulations preamble include the transfer method under sec_1_409_p_-1 and b the preamble states that these options must also satisfy applicable legal and qualification requirements including the nondiscrimination requirements of sec_401 the transfer method allows an esop to transfer s_corporation securities allocated to the account of a disqualified_person or a person reasonably expected to become a disqualified_person to the non-esop portion of the plan or to another plan of the employer that is qualified under sec_401 prior to the occurrence of a nonallocation_year under sec_1_409_p_-1 these transfers will not cause either the esop or the non-esop portion of the plan to fail the requirements of sec_1_401_a_4_-4 since the right to a particular investment in a participant’s account is a plan right benefit or feature under sec_1_401_a_4_-4 a transfer would likely involve a mandatory exchange of assets with a nhce this would likely violate the sec_1_401_a_4_-4 rules without the special exception further since the non-esop portion would likely be covering only preno-127157-17 hces it would likely fail the coverage standard under the current availability requirement without the exception from the disaggregation rule there is no basis to expand the applicability of the special exception beyond the scope described in sec_1_409_p_-1 the transfer as described in the regulations is designed as a measure that may be used by an esop to prevent the occurrence of a nonallocation_year it serves to prevent a sec_409 violation through the transfer of s_corporation shares from the s_corporation_esop trust to a non-esop trust any transfer of s_corporation stock back into the esop trust would only serve to increase the likelihood of a sec_409 violation accordingly the exception to the current availability rule applies only to the transfer described in sec_1_409_p_-1 and not to the transfers as described in issue l without the exception to the current availability rules the transactions described in issue would likely cause both the esop and the non-esop portion to violate sec_1_401_a_4_-4 thus any plan language providing for this is not appropriate issue analysis and conclusion the preamble provides for a number of actions that may be taken to prevent the concentration of deemed-owned esop shares that are prohibited under sec_409 in addition to the transfer method under the preamble an s_corporation may reduce contributions for hces who are or may become disqualified persons provide additional benefits to nhces who are not disqualified persons or expand coverage to include all employees these provisions may be used independently or in conjunction with each other and the transfer method the preamble further states that these provisions must also satisfy any other legal requirements that may apply and be completely implemented before a nonallocation_year occurs these other legal requirements include the non-discrimination rules under sec_401 nondiscrimination is an operational requirement however a plan provision that would likely result in a sec_401 violation would be inappropriate in addition these other legal requirements include the written plan requirement under sec_1_401-1 the requirement of a definite pre-determined formula for allocating the contributions made to the plan among the participants under sec_1_401-1 and the anti-cutback_rules as they apply to esops the prevention methods and described in your inquiry are all variations on the two examples in the preamble that provide for the reduction of allocations to hces or the increase of allocations to nhces in prevention method and allocations are not made to hces who would otherwise be disqualified persons or to all hces respectively in prevention methods through allocations are expanded to include nhces who are not disqualified persons with less than big_number preno-127157-17 hours_of_service prevention method who had less than hours_of_service and were employed on the last day of the plan_year prevention method and who were employed on any day of the plan_year prevention method since these examples either expand allocations to nhces or exclude allocations to hces they would not likely discriminate in favor of hce’s as prohibited under sec_401 with respect to the requirements for a written plan and for a definite pre-determined formula in allocating contributions these provisions also need to articulate a methodology to guide the esop administrator in making the allocations prevention methods and simply provide that either all or an identifiable group of hces are excluded from allocations in a plan_year similarly prevention methods and provide for the expansion of allocations in a plan_year to include all or an identifiable portion of the nhces in addition all these provisions are effective in plan years prior to the allocations for such years as a result these prevention methods analyzed independently of any other provision designed to prevent a nonallocation_year meet all the legal requirements as stated in the preamble esops with two or more of these provisions including the transfer method illustrate multiple sec_409 prevention methods working together for example in esops with provisions described in prevention methods through the exclusion of allocations in and might be insufficient to prevent a nonallocation_year subsequent to the exclusions described in prevention methods and the expansion of allocations to the three groups of nhces described in prevention methods and might be applied another example would be an esop having the same provisions but after applying the allocation exclusion in prevention methods and and subsequently applying allocation expansion in prevention method a nonallocation_year is prevented lastly in an esop with the above prevention methods in addition to the transfer method upon the failure of the methods in prevention methods through the transfer method would be applied as stated above all these provisions meet the standards stated in the preamble analyzed independently however esops with more than one of these provisions raise issues related to the predetermined allocation requirement one way to meet this requirement is for the esop to have plan language stating the order in which these provisions are to be applied for example a plan can provide that each provision that is prevention methods through will be applied individually in a specified order until the allocations are sufficient to prevent the occurrence of a nonallocation_year you also ask whether an esop may include the following or a substantially_similar provision notwithstanding any other provision of the plan to the contrary no allocation preno-127157-17 of any company stock whether by reason of any employer_contribution forfeiture dividend or otherwise shall be made to or on behalf of xx or any member of xx’s family that would make xx or such family_member a disqualified_person within the meaning of sec_409 this provision provides that no member of a particular family would receive any allocations that would make one of these persons a disqualified_person under sec_409 similar to prevention methods through this example meets the requirements as stated in the preamble this provision meets the requirements of a written plan and a definite predetermined formula with regard to the nondiscrimination_rules it would be unlikely that the members of this family who would otherwise become disqualified persons under sec_409 would be nhces issue analysis and conclusion as discussed above one of the standards used to determine whether a plan amendment is appropriate is whether it would cause the anti-cutback_rules as applied to esops to be violated the subject plan provision provides for the re-allocation of stock that has been already allocated to participants’ accounts this would result in the forfeiture of accrued_benefits as described in sec_411 accordingly the plan language described in issue would be not acceptable please call robert gertner at if you have any further questions


internal_revenue_service number release date ------------------------------------------------- ------------------------------------------------ ---------------------------------------- --------------------------- - 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 ita b03 plr-154334-05 date february --------- legend taxpayer ----------------------- ------------------------------------------------------------ ------------------------ ------------------------------------------------------------ year dear -------------- this is in response to your letter dated date in your letter you requested an extension of time on behalf of taxpayer to make a late election to treat qualified_dividend_income as investment_income under sec_163 and sec_163 of the internal_revenue_code for year additionally you requested a revocation under sec_1 d - c of the income_tax regulations of the election previously made to treat qualified_dividend_income as investment_income under sec_163 for year the request to make the late election is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayer timely filed form_1040 individual_income_tax_return for year the return was prepared using a computerized tax_return preparation software program sold to the general_public taxpayer's return included form_4952 investment_interest expense deduction it is represented that the tax_return preparation program permits a taxpayer plr-154334-05 to elect to include all of the taxpayer’s qualified_dividend_income in investment_income the software program does not calculate the optimal amount of qualified_dividend_income the taxpayer should include in investment_income and does not advise the taxpayer that the software program does not calculate this optimal amount instead a taxpayer using the program was required to compute this amount and manually enter it into the software program it is represented that taxpayer did not realize that the software program did not compute the proper amount to include in investment_income and merely elected to include all qualified income in investment_income on form_4952 for year applicable law sec_163 of the code provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest for any taxable_year shall not exceed the net_investment_income of the taxpayer for the taxable_year sec_163 of the code provides in part that investment_income means the sum of -- i gross_income from property_held_for_investment other than any gain taken into account under clause ii l ii the excess if any of -- l the net gain attributable to the disposition of property_held_for_investment over ll the net_capital_gain determined solely by taking into account gains and losses from dispositions of property_held_for_investment plus iii so much of the net_capital_gain referred to in clause ii ll or if lesser the net gain referred to in clause ii l as the taxpayer elects to take into account under this clause such term shall include qualified_dividend_income as defined in sec_1 only to the extent the taxpayer elects to treat such income as investment_income for purposes of this subsection sec_1_163_d_-1 of the regulations provides that the election for qualified_dividend_income must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the qualified_dividend_income is received sec_1_163_d_-1 of the regulations provides that the election under sec_163 is revocable with the consent of the commissioner sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory 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 plr-154334-05 sec_301_9100-1 of the regulations defines the term 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 of the regulations provides that 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 internal_revenue_code except subtitles e g h and i sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner 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 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 of the regulations provides that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph c i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer plr-154334-05 would have had if the election had been timely made conclusion taxpayer's election is a regulatory election as defined under section b because the due_date of the election is prescribed in the regulations under sec_1_163_d_-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith with this request furthermore granting an extension will not prejudice the interests of the government it is represented that the taxpayer will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the election in the appropriate amount at this time than taxpayer would have if the election were made in the appropriate amount by the original deadline for making the election accordingly taxpayer is granted an extension of time for making the election until days following the date of this ruling the election should be made by filing a revised form_4952 and schedule d and by including a copy of this ruling with an amended_return for year additionally taxpayer is granted consent to revoke the first election made on the year return these rulings are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement 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 expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling under the powers of attorney on file in this office a copy of this ruling is being sent to your authorized representatives this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours christopher f kane chief branch associate chief_counsel income_tax accounting


internal_revenue_service department of the treasury washington dc significant index no person to contact kkk eker keke ker keke ree kkkeeeee rrr kerr kkk re rkkee re ee kkk kek krekekekekekkekkekee telephone number id te kee kkk keke kkkekrekekekeekrerkee keke keke keke eker ek kkk ek kk ek better reply to e op e ep t attn ke r rk rk kr kkk kkk kek kkk kkk kek kekeekekkekekrkekek mar date a legend state a employer m plan x plan y plan z ek keke kkk ke kkekekeke kr kr kek kk kkk kkk keke eee kekekkekekek orr rrr rrr eer ker kerr ere kr er rk kk keke kek kkk kkk kk kek kek ke rkekeekkek keke or kek kk kkk keke keke keke ee kekrkekeekkekkeekk kkk kkk kkk kkk kkekeekekkkeekkkekk kkk kkk ke kkk kr kr keke keke keke ree eek kee keekeeee kkk kek keke kkk keke keke kr keke kkekkeeeek dear meekkkkkkekkkkekke this is in response to a ruling_request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative with respect to an arrangement described under sec_403 of the internal_revenue_code code the following facts and representations have been submitted on your behalf plan x a plan intended to allow elective_deferrals of salary under sec_403 of the code was established effective march state a which is exempt from tax under sec_501 the code and was restated effective date by employer m an organization in of under sec_2_1 and dollar_figure of plan x all reguiar exempt cla sec_3 employees of employer m are eligible to participate in plan x except employees who are covered by a collective bargaining agreement employees who are nonresident_aliens with no u s source income leased employees and employees who are current participants in either plan y or plan z other arrangements described under sec_403 of the code and maintained by employer m eligible employees commence participation in plan x on the first day of the payroll_period following the completion of a year_of_service an anniversary year in which he or she has at least hours_of_service rekkkkekkkkkekkk kkk kkk kr kek under article iii of plan x three types of employer contributions salary contributions may be made reduction contributions and after tax contributions sec_3_2 and sec_3_2 of plan x provide that participants may make salary reduction contributions or after tax contributions pursuant to a salary reduction agreement which may be made or changed only once per calendar_quarter salary reduction contributions are made under sec_3_1 of plan x for each payroll_period percent of the for which an eligible_employee makes salary reduction contributions or after-tax contributions equal to percent of basic compensation employer m will make employer contributions for the employee equal to employee's basic compensation_for the payroll_period basic compensation is defined in sec_1 of plan x to include regular salary and any pay for paid time off which is paid in cash including amounts deferred pursuant to code sec_125 sec_401 sec_402 compensation is also limited to the extent required by sec_401 as incorporated by sec_403 under section-4 of plan x employer contributions and after tax contributions for highly compensated participants taken together may not exceed the limits of sec_401 m of the code employer and after tax contributions are also subject_to the other code limitations discussed below or b h under sec_4 of plan x the total amount of employer and salary reduction contributions to be made with respect to a participant for a calendar_year may not exceed the participant's exclusion_allowance for the year under sec_403 of the code employer salary reduction and after tax contributions made with respect to a participant for a calendar_year may not exceed the maximum permitted annual_addition for the year under sec_415 under sec_402 sec_403 deferrals made under plans y and z for the participant are taken into account in determining the applicable limits and the total amount of any elective and under section of plan x contributions are invested as the participant directs among such annuity_contracts issued by insurance_companies or custodial accounts investing in the shares of one or more regulated_investment_companies as employer m makes available from time to time shall be nontransferable as provided in sec_1 sec_3_4 of plan x employer salary reduction and after tax contributions are paid over to the annuity_contract issuer or custodial_account custodian as soon after each payroll_period as the amounts can be reasonably segregated each annuity_contract available under plan x under kkk keke keke kekeekekekekkkekek under article vi of plan x participants are at all times fully vested in all contributions and attributable income made under plan x plan x except as may otherwise be provided in a qualified_domestic_relations_order amounts held in an annuity_contract or custodial_account may be withdrawn no earlier than a participant's death or other separation_from_service under articles vii and ix of under section of plan x all amounts are payable in in a manner consistent with sec_403 of the code general all amounts held in an annuity_contract or custodial_account other than those held as of date are payable to a participant beginning no later than the april following the calendar_year in which he or she attains age or retires whichever is later as required by sec_403 any loans hardship withdrawals or any other withdrawals while the participant is an employee section c custodial accounts will also comply with direct_rollover rules similar to those required by sec_401 require by sec_403 all annuity_contracts and finally under of the code of plan x plan x does not provide for as under the establishment and purpose section of plan to the extent any plan x provision is inconsistent with x any annuity_contract or custodial_account agreement provision the plan x provision will control based on the foregoing facts and representations your authorized representative has requested rulings that b of the code plan x satisfies the requirements of section contributions including elective_deferrals under plan x are not includible in the income of the participants so long as the amounts do not exceed the limitations of sec_403 of the code and under sec_72 and sec_403 of the code all distributions from plan x will be taxed sec_403 of the code provides that amounts contributed by an employer to purchase an annuity_contract for an employee are excludable from the gross_income of the employee in the year contributed to the extent of the applicable_exclusion allowance as defined in sec_403 services for an employer which is exempt from tax under sec_501 sec_501 educational_institution as defined in section or the employee performs services for an an organization described in of the code provided the employee performs of the code as ree kekkekekkkkekekekrekekekekekk kek of the code a state a political the annuity_contract a ii of the code which is a state or an agency_or_instrumentality of b subdivision of any one or more of the foregoing is not subject_to sec_403 employee's rights under the contract are nonforfeitable except for failure to pay future premiums is purchased under a plan which meets the nondiscrimination requirements of sec_403 the case of the case of a salary reduction agreement the plan meets the requirements of sec_401 the code provides further that the employee shall include in his gross_income the amounts actually distributed under such contract in the year distributed as provided in sec_72 of the code a contract purchased by a church and a contract purchased under a plan which provides of the code except in in sec_403 such contract the of sec_403 b e of the code provides that in the a contract purchased under a plan which provides a of the code requires a code sec_403 b case of salary reduction agreement the contract must meet the requirements of sec_401 a arrangement which provides for elective_deferrals to limit such deferrals under the arrangement in combination with any other qualified_plans or arrangements providing for elective_deferrals of an employer maintaining such plan the limitation in effect under sec_402 for taxable years beginning in such calendar_year of the code section to of the code except as provided in sec_403 custodial_account described in sec_403 as an annuity_contract for all purposes of the code of the code a is treated sec_403 provides that the amounts paid_by a qualifying employer to a custodial_account which satisfies the requirements of sec_401 shall be treated as amounts contributed by the employer for an annuity_contract for his employee if the amounts are to be invested in regulated_investment_company stock to be held in that custodial_account and under the custodial_account no such amounts may be paid or made available to any distributee before the employee dies attains age separates from service becomes disabled within the meaning of sec_72 or in the case of contributions made pursuant to a salary reduction agreement encounters financial hardship sec_403 b b provides that a custodial_account shall which satisfies the requirements of sec_401 be treated as an organization described in sec_401 solely for purposes of subchapter_f and subtitle f with respect to amounts received by it investment thereof and income from krrekkkkkeekrerererekkekkeee sec_401 of the code provides that a custodial a qualified_trust under section account shall be treated a sec_401 if the assets thereof are held by a bank as defined in sec_408 or another person who demonstrates to the satisfaction of the secretary that the manner in which he will hold the assets will be consistent with the requirements of sec_401 sec_402 of the code provides generally that the elective_deferrals of any individual for any taxable_year shall be included in such individual's gross_income to the extent the amount of such deferrals exceeds dollar_figure sec_402 of the code provides that the limitation under paragraph to any amount in excess of dollar_figure by the amount of any employer contributions for the taxable_year used to purchase an annuity_contract under sec_403 of the code under a salary reduction agreement shall be increased but not sec_402 of the code provides that in the case of for i dollar_figure ii dollar_figure reduced a qualified_employee of a qualified_organization with as modified by sec_402 of respect to employer contributions to purchase an annuity_contract under sec_403 of the code under a salary reduction agreement the limitation of sec_402 the code of the code any taxable_year shall be increased by whichever of the following is the least by amounts not included in gross_income for prior taxable years by reason of this paragraph or the excess of dollar_figure multiplied by the number of years_of_service of the employee with the qualified_organization over the employer contributions described in paragraph made by the organization on behalf of such employee for prior taxable years determined in the manner prescribed by the secretary means any education organization hospital home health service agency health and welfare service agency church_or_convention_or_association_of_churches and includes any organization described in sec_414 b ii of the code completed years_of_service with the qualified_organization a qualified_organization for these purposes and a qualified_employee means any employee who has iii sec_1 b -1 b of the income_tax regulations provides in pertinent part applicable to amounts contributed by the employer for an annuity_contract as employee to take a reduction in salary or to forego an increase in salary but only to the extent such amounts are earned by the employee after the agreement becomes that the exclusion_allowance is an agreement with an a result of kor kkk kkk khaki ek kek kk kk the agreement must be legally binding and in effect and the employee is not permitted to effective irrevocable with respect to amounts earned while the agreement is make more than one such agreement with his employer during any taxable_year amounts which are contributed under any further agreement made by such employee during the same taxable_year beginning after such date the employee may be permitted however to terminate the entire agreement with respect to amounts not yet earned the exclusion shall not apply to any effective for tax years beginning after december sbjpa provides that the frequency that an section a of the small_business job protection act of employee is permitted to enter into a salary reduction agreement the salary to which such an agreement may apply and the ability to revoke such an agreement shall be determined under the rules applicable to cash or deferred elections under sec_401 of the code sec_415 of the code provides in relevant that an annuity_contract described in sec_403 b part shall not be considered as an annuity_contract described in sec_403 unless it satisfies the sec_415 limitations in sec_403 the preceding sentence applies only to the portion of the annuity_contract exceeding the sec_415 limitations and the amount of the contribution for such portion shall reduce the exclusion_allowance as provided for by sec_403 b in the case of an annuity_contract described under sec_415 of the code contributions to a sec_403 plan for a limitation_year are generally limited to the lesser_of compensation a dollar_figure or of b sec_403 of the code requires that of the code with respect to benefits accruing arrangements pursuant to sec_403 satisfy requirements similar to the requirements of sec_401 after december date distributions made after december of sec_401 a rollovers of distributions made after december of the code contains provisions for direct in addition this section requires that in taxable years ending after such the requirements section of the code are met of the code must for sec_401 of the code provides generally for a mandatory benefit_commencement_date at age specifies required_minimum_distribution rules for the payment of benefits from qualified_plans beginning after date section a of the and for taxable years kkk keke kee ere kee kkekekekek sbjpa amended sec_401 required_beginning_date means april year following the later of the calendar_year in which the employee attains age or the calendar_year in which the employee retires to provide that the term of the calendar sec_403 of the code provides generally that sec_403 annuity_contract distributions attributable to contributions made pursuant to a salary reduction agreement within the meaning of sec_402 c attains age separates from service dies becomes disabled within the meaning of sec_72 code or in the case of hardship provide for the distribution of any income attributable to such contributions in the case of hardship of the code may be paid only when the employee such contract may not of the with respect to your ruling requests you represent an employer described in sec_403 of that employer m the code has established plan kx as its sec_403 b program for certain of its employees participant's salary reduction contributions are fully vested and nonforfeitable at all times is not subject_to sec_403 transferability are present in plan x as required by sec_401 plan x the restrictions on or a plan x correctly limits under sec_403 of the distributions made pursuant to the salary the code reduction agreement to attainment of age separation_from_service or hardship sec_403 contributions in accordance with sec_403 of the code and g requirements and limits on and in addition plan x satisfies the plan x also properly provides rules under section c for direct rollovers and transfers as required by sec_401 of the code plan x complies under sec_3_4 and with all of the requirements of sec_403 including the requirement that contributions are invested in custodial accounts investing in the shares of one or more regulated_investment_companies of the code accordingly based on the foregoing law and facts we conclude with respect to ruling_request number one that plan x satisfies the requirements of sec_403 of the code with respect to ruling requests number two and three since we concluded above that plan x satisfies the requirements of sec_403 of the code we conclude that kek ker eek kkk ek keke kek rhee ek contributions including elective_deferrals under plan x are not includible in the income of the participants so long as the amounts do not exceed the limitations of sec_403 of the code and that all distributions from plan xx will be taxed under sec_72 and sec_403 of the code this ruling does not extend to any operational violations of sec_403 by plan x future the nondiscrimination requirements of sec_403 the code where applicable in either form or operation this ruling has not addressed whether plan x meets of now or in the a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed joyor b floyd joyce e floyd chief employee_plans technical branch enclosures deleted copy of this letter notice of intention to disclose


t c memo united_states tax_court gregory james robertson petitioner v commissioner of internal revenue respondent docket no filed date gregory james robertson pro_se fred e green for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioner’s federal income taxes for and respectively respondent also determined that petitioner is liable for an accuracy-related_penalty of dollar_figure for under sec_6662 all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues for decision are whether petitioner had unreported gross_receipts whether he is entitled to business deductions and capital losses not allowed by respondent and whether he is liable for the sec_6662 penalty findings_of_fact petitioner is a canadian citizen who resided in nevada at the time he filed his petition during and he was employed as an electrician for wynn resorts on his federal_income_tax returns for and petitioner claimed on schedules c profit or loss from business_losses from advertising businesses that offset his wages and other items of reported income the largest items of expense included in the claimed losses were commissions and fees of dollar_figure for and dollar_figure for petitioner also claimed a dollar_figure capital_loss in deducting dollar_figure relating to that loss in and a carryover loss to the business_losses petitioner claimed related to three activities two of the activities universal advertising network and motor zoo inc were engaged in telemarketing the third west coast motoring was primarily engaged in the business of selling automobile rims petitioner’s involvement with the businesses lasted for less than months in with respect to universal advertising network and west coast motoring and for approximately months from date to date with respect to motor zoo inc the internal_revenue_service conducted a bank_deposits analysis of various bank accounts maintained by petitioner and determined that petitioner had unreported gross_receipts from his business activities certain expenses substantiated by petitioner were allowed but unsubstantiated expenses were disallowed although petitioner claimed to have documentary_evidence substantiating the expenses and losses he failed to produce any such evidence before or during trial opinion petitioner testified at trial about his business activities during late and early he claims that he was forced to abandon them and that he lost his investments in them allegedly dollar_figure in west coast motoring and dollar_figure in motor zoo inc because of various misrepresentations and misconduct by his associates in the businesses he testified that most of the expenditures were in cash but some were probably checks he acknowledged that he had not shown the internal_revenue_service any records related to the commissions claimed on his tax returns petitioner’s testimony was rambling and did not address specific bank_deposits or explain the disallowed expenses although he called a witness with respect to the west coast motoring activity that witness did not provide any evidence that would help determine petitioner’s taxable_income or deductible expenses the examining revenue_agent testified that petitioner failed to produce any substantiation for the disallowed deductions at the conclusion of trial the court ordered seriatim briefs with respondent filing the first brief in the hope that petitioner would focus on the issues in this case petitioner failed to file an answering brief or to respond to an order to show cause as to why the court should not conclude that he has abandoned this case it appears that he may have returned to his native canada and he has not notified the court of his current address see rule b the principles applicable to this case are well established and are set out in respondent’s brief they are the bank_deposits method is appropriate to reconstruct income when a taxpayer fails to maintain or produce adequate_records and the taxpayer has the burden of showing that the reconstruction of his income is incorrect 96_tc_858 affd 959_f2d_16 2d cir and cases cited therein the taxpayer has the burden of proving that he is entitled to deductions rule a 503_us_79 although respondent has the burden of production with respect to the penalty under sec_6662 petitioner has the ultimate burden_of_proof that he is not liable for the penalty sec_7491 116_tc_438 the evidence that petitioner claimed commissions and fees of dollar_figure without any substantiation satisfies respondent’s burden of production petitioner’s failure_to_file a brief and his apparent abandonment of his case may indicate that he recognizes that his failure to present reliable evidence is fatal and that respondent will prevail under the applicable law see 84_tc_716 under the circumstances we do not believe that any further elaboration is necessary decision will be entered for respondent


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 intl b02 plr-111752-16 date march ty ------- legend taxpayer country x company y state z date accounting firm ------------------------------------------------ ----------------------- ------------- -------------------------------------------------------- ----------------------- --------------------------- ---------------------------- --------------------------- dear ------------------- this is in response to a letter received by our office on date and subsequent submissions submitted on behalf of taxpayer by its authorized representative requesting an extension of time under sec_301_9100-3 to make the election provided by sec_953 of the internal_revenue_code code to be treated as a domestic_corporation for u s tax purposes effective for taxpayer’s taxable_year ended date the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of the audit process plr-111752-16 taxpayer is a regulated insurance_company organized under the laws of country x taxpayer is a wholly owned subsidiary of company y a corporation organized under the laws of state z taxpayer did not become aware of the availability of a sec_953 election until company y engaged the services of accounting firm to assist with certain tax matters including its ownership and operation of taxpayer sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that except as provided in paragraphs b i through iii of that section a taxpayer is deemed to have acted reasonably and in good_faith if it meets one of the conditions described in sec_301 b i through v sec_301_9100-3 provides that relief will be granted only when the interests of the government will not be prejudiced revproc_2003_47 2003_2_cb_55 provides that the election to be treated as a domestic_corporation under sec_953 to be effective for a taxable_year must be filed by the due_date prescribed in sec_6072 with extensions for the united_states income_tax return that is due if the election becomes effective in the present situation revproc_2003_47 fixes the time to make the election under sec_953 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth under sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to make the election provided by sec_953 in accordance with the procedural rules set forth in revproc_2003_47 plr-111752-16 to be treated as a domestic_corporation for federal_income_tax purposes effective for taxpayer's taxable_year ended date the above extension of time is conditioned on taxpayer’s tax_liability if any being not lower in the aggregate for all years to which the sec_953 election applies than it would have been if the election had been timely filed taking into account the time_value_of_money no opinion is expressed as to taxpayer’s tax_liability for the years involved further the granting of the above extension is not a determination that taxpayer is otherwise eligible to make the sec_953 election sec_301_9100-1 the taxpayer should attach a copy of this letter_ruling to its federal_income_tax return for the relevant year 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 a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely kristine a crabtree senior technical reviewer branch international