t c summary opinion united_states tax_court jeffrey laurence marchisio petitioner v commissioner of internal revenue respondent docket no 30806-09s filed date jeffrey laurence marchisio pro_se james r bamberg for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax the issue for decision is whether petitioner received cancellation_of_indebtedness_income of dollar_figure background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in florida at the time the petition was filed petitioner and his former spouse married in in petitioner’s spouse apparently sold her automobile and purchased a new vehicle she signed a retail installment contract financing contract the financing contract listed petitioner and his spouse as buyers and included two signatures the amount of the loan reflected in the financing contract was dollar_figure petitioner was unaware of this transaction did not sign the financing contract and never saw the new vehicle petitioner and his spouse divorced in in wells fargo financial acceptance inc wells fargo issued a form 1099-c cancellation of debt to petitioner reflecting the cancellation of the outstanding loan balance of dollar_figure petitioner did not report the cancellation of indebtedness amount as income on his individual federal_income_tax return on date the irs issued a notice_of_deficiency to petitioner determining a deficiency of dollar_figure petitioner timely filed a petition contesting the deficiency petitioner has consistently denied knowledge of a canceled loan petitioner made multiple requests to wells fargo to obtain information regarding the financing contract petitioner ultimately obtained a copy of the financing contract from wells fargo petitioner then contacted an appeals officer ao about the deficiency and informed the ao that he had no knowledge of a loan with wells fargo but had been able to obtain a copy of the financing contract the ao informed petitioner that he would make a notation in the administrative file regarding their conversation and petitioner faxed a copy of the financing contract to the ao to include in the administrative file discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of showing that the determination is in error rule a 290_us_111 under certain circumstances the burden may shift where a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the income_tax_liability of the taxpayer sec_7491 gross_income includes any income from whatever source derived including income_from_discharge_of_indebtedness sec_61 sec_6201 provides that in any court_proceeding where a taxpayer asserts a reasonable dispute with respect to any item_of_income reported on an information_return and the taxpayer has fully cooperated with the secretary the secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the information_return petitioner disputes that he borrowed money from wells fargo or that he was a signatory to a financing agreement petitioner provided a copy of the financing contract to respondent and the parties provided a copy of the financing contract to the court the financing contract includes two signatures that of petitioner’s former spouse and a purported signature of jeffrey marchisio petitioner asserts that the purported signature is not his the court notes that the purported signature on the financing contract does not appear to match petitioner’s signature on the petition or on the stipulation of facts petitioner credibly testified that he did not own never saw and could not identify the vehicle listed in the financing contract petitioner testified that he never saw his former spouse with the vehicle during the 8-year period from the date of the financing contract until the divorce in a third-party witness corroborated petitioner’s testimony we conclude that petitioner has asserted a reasonable dispute as to the form 1099-c accordingly the burden shifts to respondent under sec_6201 respondent has not produced any evidence to show that petitioner borrowed funds from wells fargo or purchased the vehicle which was the subject matter of the financing contract nor has respondent rebutted any of the testimony provided by petitioner or the witness respondent has failed to produce reasonable and probative information beyond the information_return we note that the evidence of the existence of the loan was initially provided by petitioner to respondent with an explanation that the financing contract was not signed by petitioner on the basis of this record we conclude that petitioner did not receive income_from_discharge_of_indebtedness from wells fargo in to reflect the foregoing decision will be entered for petitioner 1respondent has not argued and the record does not demonstrate that petitioner failed to fully cooperate with respondent additionally respondent has not refuted the application of sec_6201


internal_revenue_service number release date index numbers -------------------------------------- ------------------------------------ ------------------------------ --------------------------------------- ------------------------------------ department of the treasury washington dc person to contact ---------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-113186-16 date october legend x ---------------------------------------------------------- --------------------------------------- y ---------------------------------------------------------- --------------------------------- country d1 -------- --------------------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes facts the information submitted discloses that x was formed on d1 under the laws of country x’s indirect owner y intended x to be classified as a disregarded_entity for federal tax purposes however x failed to timely file form_8832 entity classification election to be classified as a disregarded_entity for federal tax purposes effective d1 plr-113186-16 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 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 code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-113186-16 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 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 conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a disregarded_entity effective d1 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached this ruling is contingent on x and its owner filing within days from the date of this letter all required federal_income_tax and information returns including amended returns for all years consistent with the requested relief these returns must include but are not limited to form_8858 information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives plr-113186-16 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by __ s ___________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number legend purchaser target shareholder a shareholder b date a date b date c date d date e year f company official outside tax professional authorized representatives dear washington dc person to contact telephone number refer reply to cc corp - plr-116863-00 date date this responds to your authorized representatives’ letter dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser shareholder a and shareholder b are requesting an extension to file a sec_338 election under plr-116863-00 sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations the election with respect to purchaser's acquisition of the target stock on date b which is within year f the acquisition all citations in this letter to regulations under sec_338 are to regulations in effect on date b additional information was received in letters dated date and date the material information is summarized below at the time of the acquisition purchaser was the common parent of a consolidated_group that has a calendar taxable_year and uses the accrual_method of accounting target was an s_corporation within the meaning of sec_1361 all the stock of which was owned by shareholder a and shareholder b the sellers target did not have any subsidiaries on date a purchaser and sellers entered into a purchase agreement for purchaser to acquire all of the target stock from sellers on date b purchaser acquired all of the stock of target from sellers in exchange for cash pursuant to the purchase agreement following the acquisition new target was included in purchaser’s consolidated_group as a subchapter_c_corporation it has been represented that the target stock was acquired for cash in a fully taxable transaction neither parent nor any members of the parent affiliated_group was related to the target shareholders within the meaning of sec_338 and the acquisition of the stock of target was a qualified_stock_purchase within the meaning of sec_338 further the internal_revenue_service has not examined the year f federal_income_tax returns filed by purchaser target shareholder a or shareholder b nor made an inquiry regarding the acquisition prior to the acquisition purchaser and sellers determined that they would file a joint election pursuant to the provisions of sec_338 the election was due on date c but for various reasons the election was not filed on date d which is after date c company official learned that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the statute_of_limitations under sec_6501 has not expired for the taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or for any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the 12-month_acquisition_period plr-116863-00 sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qualified_stock_purchase generally is ignored a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qualified_stock_purchase of the target_corporation stock sec_1_338_h_10_-1 provides that if a sec_338 election is made for the target_corporation it is irrevocable sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation and the common parent of the selling_consolidated_group or selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by a person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 under sec_301_9100-1 the commissioner has discretion to 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 plr-116863-00 sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser sellers company official and outside tax professional explain the circumstances that resulted in the failure to timely file an election the information establishes this request for an extension was filed before the failure to make the election was discovered by the internal_revenue_service and that a competent tax professional was responsible for the election and was aware of all relevant facts that parent and sellers relied on the tax professional to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until date e for purchaser and sellers to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing by date e of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' purchaser's consolidated group’s sellers’ and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 plr-116863-00 purchaser and sellers must file the election in accordance with sec_1_338_h_10_-1 that is a new election on form_8023 or form 8023-a must be filed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form purchaser and sellers having reported the acquisition as a sec_338 transaction must amend their returns to attach to the returns a copy of this letter and a copy of the election we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or if sec_338 is applicable the amount and character of gain_or_loss if any recognized on target’s deemed asset sales and deemed liquidation or the amount of the deemed sale gain if any sellers will take into account under sec_1366 and sec_1367 or the amount if any of gain_or_loss recognized by sellers as a result of the deemed liquidation under sec_331 see sec_1_338_h_10_-1 in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply purchaser must provide each of the sellers with a copy of this letter this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel corporate by mark s jennings chief branch


department of the treasury internal_revenue_service washington d c date number release date cc dom fs proc uilc internal_revenue_service national_office field_service_advice memorandum for from deborah a butler assistant chief_counsel field service subject deficiency_interest this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x corp authorized representative year year issue dollar_figurea dollar_figureb at what date does interest start running on a deficiency in tax where x originally reported an overpayment on its return elected to have the overpayment credited against its estimated_tax liability for the next succeeding year but paid all required quarterly installments of estimated_tax without resort to the credit elect conclusion to the extent the credit elect is not used to satisfy estimated_taxes interest on the deficiency corresponding in amount to the unused_credit elect does not start running until the unextended due_date of the succeeding year’s income_tax return facts x timely filed its tax_return for year on the extended due_date september year the year return reflected an overpayment of dollar_figurea which x elected to apply to its year estimated_tax liability upon audit the service determined that x had a deficiency of dollar_figureb for year which was greater than the amount of the credit elect in computing interest on the deficiency amount corresponding to the credit elect x claims interest should run from the date the credit was used to satisfy any shortfalls in x’s estimated_taxes for year and since no amount of the credit was used to satisfy x’s estimated_tax liabilities-x fully paid all quarterly installments of estimated_tax for year without resort to the credit elect interest should run on the subsequently determined deficiency corresponding in amount to the credit elect from the unextended due_date of the year return we agree law and analysis in general deficiency_interest under code sec_6601 can be charged only when the tax is both due and unpaid 588_f2d_342 2d cir when an amount originally paid with respect to one tax here x’s income taxes for year is subsequently credited against a different obligation x’s estimated_tax liabilities for year the date that interest starts running under sec_6601 is the point at which the government loses the use of the money in question as a payment of the original year’s tax in a credit situation this occurs when the credit is effective as payment of the next year’s estimated_tax even when that point precedes the credit election revrul_88_98 1988_2_cb_356 modified and superseded by revrul_99_40 1999_40_irb_441 revrul_77_475 1977_2_cb_476 revoked by revrul_83_111 1983_2_cb_245 reinstated and modified by revrul_84_58 1984_1_cb_254 however where other funds are available to fully pay the estimated_tax the credit would not be effective as a payment of estimated_tax under the use-of-money principles enunciated in 36_fedclaims_680 these facts are based on x’s transcript of account and acq aod cc-1997-008 date and sequa corporation v united_states u s t c cch big_number s d n y date these cases hold that the credit elect may not be used as a payment of estimated_tax installments due prior to or even after the date of the election where those taxes are fully paid without application of the credit in may department stores the taxpayer reported overpayments on its timely filed and returns and elected to have the overpayments applied to the following years’ estimated_tax liabilities but did not designate which quarterly installments against which the credit elect should be applied in accordance with revrul_84_58 1984_1_cb_254 the service applied the credit elect to the following years’ first quarterly installment even though the taxpayer had made sufficient estimated_tax payments for its first and second installments without application of the credit elect on audit the service determined deficiencies in tax for the and years in amounts less than the credit elects and computed deficiency_interest from the due dates of the first installments of estimated_tax for each year the court of federal claims held no interest was owed on the deficiency until the due dates of the third estimated_tax installments because the credit elects were not needed to cover estimated_tax payments and were available to offset the deficiencies until those third installments sequa holds that if a taxpayer elects to apply an overpayment to its estimated_taxes for the following year and later discovers that it has overstated its overpayment which creates a deficiency_interest on the deficiency begins to run not on the date of the election but on the date on which such funds were actually so applied relying on the fact that sequa’s payment of its first quarterly installment of estimated_taxes was more than enough to satisfy its total estimated_tax liability and the credit elect was never needed to pay taxes-estimated or actual-the district_court concluded that the service had use of the credit elect funds to offset the deficiency until date in light of may department stores the service has reconsidered the manner in which deficiency_interest is computed under sec_6601 when taxpayer makes an election to credit the overpayment to the succeeding year's estimated_taxes when such election is made the credit is applied to unpaid installments of estimated_tax due on or after the date the overpayment arose in the order in which they are required to be paid to avoid an addition_to_tax for failure to pay estimated income_tax under code sec_6654 and sec_6655 revrul_99_40 1999_40_irb_441 thus the service will in revrul_84_58 the service held that for returns filed after date when a taxpayer elects to have an overpayment of income_tax credited against its estimated_tax for the next succeeding year such overpayment arising on or before the due_date of the return will be applied against the first installment of estimated_tax for the next succeeding year unless the taxpayer requests that it be applied to a later installment accrue interest on a subsequently determined deficiency from the date the credit elect is applied to the succeeding year’s estimated_taxes to the extent the credit elect is equal to or less than the deficiency amount in all situations the estimated_tax rules in effect for the tax_year in which the credit is used will determine the amount of estimated_taxes due and thus the amount of the credit needed to satisfy the quarterly installments revrul_99_40 does not address the situation where the credit elect is not needed to satisfy any installment of estimated_tax in the succeeding year however such amount shall be considered as a payment of the income_tax for the succeeding taxable_year pursuant to code sec_6513 and for purposes of limitations on credits or refunds shall be deemed to have been paid on the last day prescribed for filing the return for such taxable_year determined without regard to any extension of time for filing under code sec_6513 since the unextended due_date of the succeeding year’s return is the date the credit is effective as a payment of the succeeding year’s income taxes for purposes of claiming a refund_or_credit for that year the government should also be treated as having lost the use of that money as a payment of the original year’s tax at that point in time accordingly where no part of the credit is used to satisfy estimated_taxes the original year’s tax would become due and unpaid as of the unextended due_date of the succeeding year’s return and on that date interest would start running under sec_6601 here because the entire credit elect was not needed to pay estimated_taxes it is deemed a payment of income taxes for year as of the unextended due_date for the year return the year deficiency corresponding to the amount of the unused_credit elect started running interest as of the unextended due_date of the year income_tax return by george e bowden technical assistant to the assistant chief_counsel field service where a taxpayer splits the credit elect between installments of estimated_tax the estimated_tax rules allow the credit elect to be applied as needed to satisfy all or part of the amount payable on the quarterly installment due_date when a credit elect is split among various installments the taxpayer will use money ultimately belonging to the government at differing times to satisfy estimated_tax liabilities accordingly we conclude that deficiency_interest computations that take into account the manner in which the credit elect was split among installments of estimated_tax are consistent with both may department stores and avon products inc v united_states see notice n issued date


internal_revenue_service number release date index number ----------------------------------- ---------------------- ------------------------------------ ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b02 plr-136311-14 date february legend --------------------------------------------------------------------------------------------------- x -------------------------- --------------------- state ---------- date ------------------- ---- year ------- n1 n2 -------------- ------------ dear ------------- this letter responds to a letter dated date submitted by x's authorized representative on behalf of x requesting a ruling that rental income that x received from certain real_estate is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state and anticipates making an election to be treated as an s_corporation effective date x owns leases and manages a certain commercial real_estate property the property x through its officers employees and independent contractors has provided and continues to provide certain services with respect to the leasing of the property these services include daily janitorial and rubbish removal services regular maintenance repairs and inspection covering plumbing electrical and drainage systems as well as roofing landscaping and building improvements these services also include daily security services and management and control of all common areas including parking plr-136311-14 lots and picnic table areas x additionally negotiates and executes leases with tenants settles tenant disputes and collects rents and monthly sales reports negotiates bank loans and insurance contracts for the property and performs background checks on prospective tenants for the year taxable_year x collected approximately dollar_figuren1 in gross rents and paid_or_incurred approximately dollar_figuren2 in relevant operating_expenses excluding depreciation x represents that these figures are generally representative of the amounts of income and expenses it incurs with respect to the property in a typical year sec_1361 of the code defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination under this paragraph shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the information submitted and the representations made we conclude that the rental income that x receives from its operations described above is not passive_investment_income under sec_1362 plr-136311-14 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion on whether x is a small_business_corporation under sec_1361 further the passive_investment_income rules of sec_1362 are independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 this ruling is directed only to the taxpayer who requested it section sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court harold lee and melissa diane thomas petitioners v commissioner of internal revenue respondent docket no 7007-02s filed date harold lee thomas pro_se james a kutten for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure for the taxable_year the issue for decision is whether petitioners are entitled to a dependency_exemption deduction and a child_tax_credit for a son of petitioner husband petitioner jonathan lee thomas jonathan petitioners resided in illinois on the date the petition was filed in this case petitioner and his former wife jonnie linda thomas ms thomas were divorced pursuant to a judgment of dissolution of marriage of the circuit_court twentieth judicial circuit st clair county illinois dated date this judgment provided in relevant part that the husband shall have the income_tax deduction or exemption for the minor child jonathon sic thomas and the wife shall not claim said child on her tax returns so long as the husband pays child_support and is current thereon during the entire year in issue jonathan resided with ms thomas in rome new york and did not reside with petitioners 1petitioners argue in the petition that the irs has exceeded its 3-year statutory period to process any claims petitioners did not address this issue at trial and we therefore consider it to have been abandoned however we note that petitioners’ return for taxable_year was filed on or about date the statutory_notice_of_deficiency with respect thereto was timely issued on date and the petition in this case was timely filed thus the 3-year period of limitations on assessment and collection has not expired sec_6213 sec_6501 and b a petitioners filed a joint federal_income_tax return for taxable_year on this return they claimed a dependency_exemption deduction and child_tax_credit for jonathan petitioners did not attach to the return a written declaration entitling them to the dependency_exemption deduction in the statutory_notice_of_deficiency respondent disallowed the deduction and credit claimed for jonathan a deduction generally is allowed for each dependent of a taxpayer under sec_151 sec_151 c as a general_rule a child of a taxpayer is a dependent of the taxpayer only if the taxpayer provides over half of the child’s support for the taxable_year sec_152 a special rule applies to taxpayer- parents who are divorced who are separated or who live separately for at least the last months of the calendar_year but who have custody of the child for more than half of the year and who together provide over half of the child’s support sec_152 under this rule the parent with custody of the child for the greater portion of the year the custodial_parent generally is treated as having provided over half of the child’s support regardless of which parent actually provided the support id sec_1_152-4 income_tax regs an exception to this special rule exists which entitles the noncustodial_parent to the dependency_exemption deduction sec_152 for the exception to apply the custodial_parent must sign a written declaration releasing his or her claim to the deduction and the noncustodial_parent must attach the declaration to his or her tax_return id language in a divorce decree purportedly giving a taxpayer the right to an exemption deduction does not entitle the taxpayer to the deduction in the absence of the signed written declaration required by the statute 114_tc_184 affd sub nom 293_f3d_1208 10th cir a credit generally is allowed to a taxpayer for each qualifying_child of the taxpayer sec_24 among other requirements a qualifying_child is one for whom the taxpayer is entitled to a dependency_exemption deduction under sec_151 sec_24 petitioner admits that he is the noncustodial_parent in this case because petitioners did not attach to their return a written declaration signed by ms thomas they are not entitled to the dependency_exemption deduction sec_151 and sec_152 because they are not entitled to the deduction they also are not entitled to the child_tax_credit sec_24 reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------------------------- --------------------------- ---------------------------------------------------- ------------------------------ ---------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-154172-09 date may legend date date date date date date date recent date recent date parent ------------------- ----------------------- ----------------------- ------------------- ------------------------- ------------------------- ------------------------- ----------------------- ----------------- ------------------------------- -------------------------------- ----------------------- stock market ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------ company ------------------------- plr-154172-09 company ---------------------------------------------- identified holders ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ---------------------------------------------------------------------- excess cash --------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------ bank a b c d dollar_figuree f dollar_figureg dollar_figuregg ggg ------- --------------- ------ ------ ------ ----------------- -------------- -------- ----- --------------- plr-154172-09 h j dollar_figurek dollar_figurel dollar_figurem dollar_figuren dollar_figureo p q -------------- ----------- ------ --------------- ------ ------------- ----------------- ---- ---- dear ----------------- we respond to your letter dated date and subsequent correspondence in which you requested rulings as to certain federal_income_tax consequences of the transactions discussed below the rulings contained in this letter are based on 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 materials submitted in support of the request for rulings verification of the information and other data may be required as part of the audit process facts parent is the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return on a week fiscal_year which ends on the saturday nearest to january 31st the parent group also referred to as the taxpayer the parent group is a loss group within the meaning of sec_1_1502-91 parent was formed date and has a single class common_stock outstanding the common the common trades publicly on the stock market as of recent date parent had approximately a shares of common outstanding which were owned approximately b by public shareholders c by company and d by five identified plr-154172-09 holders parent has never declared or paid any dividends or made any distributions with respect to its common on date parent issued all f shares of its series a redeemable convertible preferred_stock preferred a to company for dollar_figuree the preferred a was convertible into an equal number of shares of common subject_to anti-dilution adjustments and was subject_to mandatory redemption on the tenth anniversary of its issuance or upon a change_of control at dollar_figureg per share ie for dollar_figuree in the aggregate on date common was trading for about dollar_figuregg per share and ggg shares of common were outstanding the preferred a participated in dividends on the same basis as the common and had a liquidation preference over the common on date shortly before the date on which the preferred a was to be mandatorily redeemed for dollar_figuree under its original terms all of the preferred a was redeemed the preferred_stock exchange in exchange for- i h shares of series b redeemable preferred_stock the preferred b ii warrants to purchase up to j shares of common_stock at dollar_figurek per share warrants and a cash payment of dollar_figurel on date common was trading for only about dollar_figurem per share and the warrants were valued at dollar_figuren the preferred b is redeemable at any time by parent for the initial redemption amount of approximately dollar_figureo plus accrued but unpaid dividends the preferred b accrues cumulative dividends at a base annual rate of p percent subject_to adjustment all payments on the preferred b will be applied first to any accrued but unpaid dividends and then to the redemption of preferred b q percent of the preferred b including accrued but unpaid dividends is required to be redeemed on date and the remainder on date in addition the preferred b includes a cash sweep mechanism that may require accelerated redemption if parent generates excess cash above agreed upon thresholds the preferred b including accrued but unpaid dividends is also required to be redeemed at the option of the holders upon a change in control the preferred b is not convertible into common or any other security but initially is entitled to vote with the common on a one-for-one basis on general corporate matters other than the election of directors in addition the holders of the preferred b stock have certain class voting rights concerning the election of directors parent has on occasion issued warrants to acquire common to company in exchange for licensing distribution and marketing agreements parent also has outstanding various non-statutory stock_options and incentive stock_options issued to employees none of which were issued at a per share exercise price less than the fair_market_value of the common on the date of grant as of recent date parent had no long term debt obligations outstanding parent has however recently entered into an agreement with bank to establish a senior secured revolving credit facility there were no borrowings against this credit facility as of the date of taxpayer’s initial letter plr-154172-09 representations taxpayer makes the following representations parent group has been a loss group within the meaning of sec_1_1502-91 of the income_tax regulations since its taxable_year ended date there have been no classes of parent stock outstanding that constituted stock within the meaning of sec_382 and sec_1_382-2 at any time during the period beginning date and ending recent date other than the common preferred a and preferred b parent has treated and will continue to treat the common the preferred a and the preferred b as equity for u s federal_income_tax purposes none of the common the preferred a or the preferred b satisfies the requirements of sec_1504 accordingly each of the common the preferred a and the preferred b constitutes stock for purposes of sec_382 other than the preferred a issued on date and preferred b issued on date parent has not issued any additional shares of the preferred a or the preferred b nor any rights to acquire the preferred a or the preferred b other than in the preferred_stock exchange which occurred on date parent did not redeem any of the preferred a parent has never declared or paid any dividends or made any distributions with respect to its common parent has treated and will continue to treat any parent debt as debt for u s federal_income_tax purposes parent has not issued nor has any parent group member issued any contingent purchase warrant convertible debt put stock subject_to a risk of forfeiture contract to acquire stock or option with a principal purpose of avoiding or ameliorating the impact of an ownership_change to the best of the taxpayer’s knowledge the amount of tax_liability on any of taxpayer’s federal_income_tax returns filed to date would not be affected by whether or not taxpayer takes into account the effect of fluctuations in the relative values of different classes of stock for purposes of determining owner shifts and ownership changes under sec_382 rulings plr-154172-09 for purposes of the rulings below the hold constant principle is defined as follows on any testing_date in determining the ownership percentage of any 5-percent_shareholder the value of each share of such shareholder's stock relative to the value of all other shares of the taxpayer’s stock shall be considered to remain constant since the acquisition_date of that share except as properly adjusted to account for the dilutive effect of subsequent issuances or the accretive effect of subsequent redemptions of other shares of the taxpayer’s stock the issuance of a second class of stock generally establishes the acquisition_date for the preexisting class as well as the second class for stock acquired before the beginning of any given testing_period the taxpayer may use as its acquisition_date the date that begins the testing_period in lieu of its actual acquisition_date s provided it does so with respect to every testing_period and with respect to each and every share of stock so acquired based solely on the information submitted we rule as follows taxpayer may apply a method employing the hold constant principle the method to determine the increase in percentage ownership of each of its 5-percent shareholders on each of its testing dates on or after date and to identify which such testing dates are change dates for purposes of sec_382 provided that- i taxpayer takes a return position consistent therewith on its tax_return for its first taxable_year in which the application of the method would affect the amount of its tax_liability and ii if employment of the method does not result in an ownership_change during said first taxable_year taxpayer continues to apply the method thereafter through the testing_date on which the method first results in an ownership_change see sec_382 in applying the method to the extent that there was a value-for-value recapitalization of preferred a into preferred b such recapitalization shall be disregarded and the exchanging shareholder shall be considered to have acquired such newly issued stock as of the date it acquired the stock exchanged therefor caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether or not- i any warrants or options should have been treated as exercised under sec_1_382-4 and ii any exchange of stock pursuant to a recapitalization represented a value for value exchange further no opinion is expressed on the value of the preferred b or the warrants on the date of their issuance or what portion of the total value of the consideration paid in redemption of the preferred a that the preferred b or the warrants plr-154172-09 represented one or more rulings given in this letter deal with issues that may be addressed in subsequent published guidance see sec_11 of revproc_2010_1 2010_1_irb_1 regarding the circumstances including published guidance which may result in the revocation or modification of a ruling letter procedural statements this ruling letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this ruling letter in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely mark s jennings branch chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-135855-02 date date legend x date country dear this letter responds to a letter dated date submitted on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x was formed in country on date x represents that it is an entity that is eligible to elect to be treated as a partnership for federal tax purposes under sec_301_7701-3 all members of x have limited_liability within the meaning of sec_301_7701-3 x intended at all times to be treated as a partnership however due to inadvertence x failed to timely file form_8832 entity classification election law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an plr-135855-02 election to be treated otherwise to make an election sec_301_7701-3 provides that an entity classification election must be filed on form_8832 an election can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 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_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based on the information submitted and representations made x has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently x is granted an extension of days from the date of this letter to make an election under sec_301_7701-3 to be treated as a partnership effective date x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election plr-135855-02 this ruling is directed only to the taxpayer on whose behalf it was requested according to sec_6110 of the internal_revenue_code this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for purposes


internal_revenue_service departmental he treasury significant index no washington dc person to contact telephone number refer reply to t ep ra t3 date legend state a i plan x plan y i board b group c employees payroll authorization form p this is in response to a ruling_request dated date concerning plan x and the pick up under sec_414 h of the internal_revenue_code of certain employee contributions to purchase optional service_credit including service_credit attributable to amounts previously withdrawn from plan x the following facts and representations have been submitted plan x is a multiple employer cost-sharing defined_benefit_plan qualified under sec_401 administered by board b for the benefit of group c employees the members of board b are appointed by the governor of state a and serve staggered five-year terms the governing provisions of of the code plan x is page board b and plan x are statutorily promulgated by the state a legislature the plan documents that relate to plan x are the relevant sections of the state a code annotated and the relevant provisions of the administrative rules of state a group c employees include all sheriffs and investigators all as further delineated under applicable provisions of with certain exceptions and certain electing sheriffs and investigators who were participants in plan y date the state a code annotated and the relevant provisions of the administrative rules of state a an employee is regarded asa participant as long as the employee is employed in covered job or has contributions or service on account under plan xx a specified a plan x of as under conditions specified in plan x for example a member may elect to purchase credit for a participant may elect to purchase certain optional service_credit including service_credit attributable to amounts previously withdrawn from plan x time spent in the military and other state a public service plan x has been amended per section of the state a code annotated to provide group c employees with the option of electing to have their respective employers pick up these optional service_credit contributions under sec_414 h the code when the contributions are being made through payroll deduction of to be signed by the plan x payroll authorization form p attached will be used to of the above-referenced payroll deduction effect the pick up contributions this form which is participant and his employer states that the employee authorizes the deduction from salary for pick-up purposes and understands that this authorization is binding and irrevocable the number of months during which the deductions will be made amount of the deductions and the specific kind of service being purchased are designated on this form payroll authorization form p that with respect to the specified type of service_credit being funded payment from the employer and not directly from the employee the- employee is thus precluded from revoking the pick-up election by making payments directly to plan x payroll authorization form p and plan x also provide that the contributions are being picked up by the employer and paid directly to plan x and that the employee does not have the option of receiving the amounts directly plan x provides that the contributions are paid from is used to pay compensation to the employee the same source as no employer resolution is required to implement the pick up if the employee elects an irrevocable payroll deduction the employer must pick up the employee will agree in plan x will only accept the dollar page the effective date of the employer pick up is the date on which the employee contribution is first deducted from the employee’s compensation but in no event earlier than after completion of all steps required to be taken by the employer and employee with respect to payroll authorization form p the pick up does not apply to any contribution made before the effective date or to any contribution that relates to compensation earned for services before the effective date it is represented that the picked-up contributions described herein are exclusively for the purpose of purchasing service_credit attributable to amounts previously withdrawn from plan x as well as other optional service_credit available under plan xx the picked-up contributions are made only on behalf of current employees who are active participants in plan x and for whom plan x is being maintained by the employer making the contributions based on the facts and representations above you request the following rulings the above-described employee contributions which are be picked up pursuant to plan x section of the state to a code annotated and paid to plan x by the employers of group c employees on their behalf although designated as employee contributions under state law will be treated as employer contributions for federal_income_tax purposes under sec_414 of the code the picked -up contributions will not be treated as annual_additions for purposes of sec_415 of the code sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to plan described in sec_40l a established by a state government or by the employing unit a political_subdivision thereof and are picked up a the federal_income_tax treatment to be accorded c b of the code is specified in revenue contributions which are picked up by the employer within the meaning of sec_414 ruling employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district's picked-up contributions to the plan are excluded from the employees' gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 a the school district's contributions to the plan are excluded from in that revenue_ruling the of the code page wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees' salaries with respect to such picked-up contributions the issue of whether contributions have been picked up by an c b c b of the code is and revenue these revenue rulings established employer within the meaning of sec_414 addressed in revrul_81_35 ruling that the following two criteria must be met must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan furthermore it is immaterial for purposes of the applicability of sec_414 whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both the employer revrul_87_10 1987_1_cb_136 provides that in order to satisfy revenue rulings and specification of designated employee contributions must be completed before the period to which such contributions relate thus employees may not exclude from current gross_income designated employee contributions to the date of the last governmental action necessary to effect the employer pick up a qualified_plan prior to the required with respect to the pick up of the employee contributions to purchase the optional service_credit described herein and further specified in plan x plan x satisfies the criteria set forth in revrul_81_35 and revrul_81_36 by providing that the employers will make the contributions on behalf of the employees in lieu of contributions by the employees and that no employee will have the option of receiving the contributions directly instead of having them contributed to plan x payroll authorization form p is irrevocable and also provides that the contributions are being picked up by the employer and paid directly to plan x and that the employee does not have the option of receiving the amounts directly the effective date of the pick up deducted from the employee’s compensation but in than after completion of all steps required to be taken by the employer and the employee with respect to payroll authorization form p before the effective date is the date on which the employee contribution is first the pick up does not apply to any contribution made no event earlier accordingly assuming the proposed pick ups are implemented as proposed it request that the above-described optional employee contributions which are to is concluded with respect to the first ruling be picked up pursuant to plan x page section of the state a code annotated and paid to plan x by the employers of group c employees on their behalf although designated as employee contributions under state law will be treated as employer contributions for federal_income_tax purposes under sec_414 of the code with respect to the second ruling_request sec_1 of the income_tax regulations provides that where a d defined_benefit_plan provides for mandatory employee contributions the annual_benefit attributable to such contributions is not taken into account for purposes of sec_415 of the code sec_1 d further provides that the mandatory employee contributions are considered a separate defined_contribution_plan maintained by the employer that is subject_to the limitations on contributions and other annual_additions described in sec_415 contributions that are picked up by the employer pursuant to sec_414 are treated as employer contributions and such a separate defined_contribution_plan for purposes of sec_415 accordingly with respect to the second ruling_request it contributions will not be treated as annual_additions for purposes of sec_415 is concluded that the picked-up are not annual_additions to of the code employee of the code as in accordance with revrul_87_10 this ruling does not apply to any contribution before the later of the effective date of the relevant statute the date the pick-up election is executed or the date it is put into effect this ruling is based on the assumption that plan x will be qualified under sec_40l a proposed contributions and distributions of the code at the time of the no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act amounts in question are being paid pursuant to reduction agreement within the meaning of sec_3121 v b of the code no opinion is expressed as to whether the a salary further this ruling is not a ruling with respect to the tax effects of the pick up for the tax effects that follow from this ruling to apply to the employees of a particular employer the pick-up arrangement must be implemented in the manner described herein on group c employees however in order this ruling is directed only to the taxpayer who requested it section k used or cited by others as precedent of the code provides that it may not be page a copy of this letter has been sent to your authorized representative in accordance with the power_of_attorney submitted with the ruling_request sincerely yours bearer uc hla frances v employee_plans technical group tax exempt and government entities sloan manager division attachment payroll authorization form p enclosures deleted copy of letter_ruling form_437


internal_revenue_service number release date index number ---------------------------- -------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------ telephone number --------------------- refer reply to cc psi b02 plr-132899-07 date g a b c e ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- --------------------------- d1 -------------------------- trust x ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- --- dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of g by g’s authorized representative requesting a ruling under sec_678 and sec_1361 of the internal_revenue_code the information submitted states that g created trust on d1 and transferred stock of various corporations to the trust the trust includes four separate trusts for the respective benefit of g’s children a b c and e beneficiaries section vi k provides that with respect to any trust under the agreement until the first to occur of the death of the settlor or the permanent release by the trustee of the additional powers of section k there shall always be serving a trustee or plr-132899-07 special trustee who is not an adverse_party as defined by sec_672 non adverse trustee if there is no non adverse trustee for any trust the then acting trustee shall immediately appoint a non adverse trustee any non adverse trustee shall only possess the powers of section k and such additional powers as the appointing trustee shall direct section vi k provides that the non adverse trustee may make loans with or without security to the settlor provided however that the then non adverse trustee may release this power for any separate trust by written notice to the settlor and the then current beneficiary of that trust unless otherwise provided by the non adverse trustee in the release any release shall apply to the then non adverse trustee and all successor non adverse trustees sections iii b and iii d of trust provides that after a beneficiary attains age x that beneficiary may at any time direct the trustee to distribute to the beneficiary all or any portion of the assets of that beneficiary’s separate trust sec_671 provides that where it is specified in sec_673 to that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under this chapter in computing taxable_income or credits against the tax of an individual sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power exercisable by the grantor or a nonadverse_party or both enables the grantor to borrow the corpus or income directly or indirectly without adequate interest or without adequate security except where a trustee other than the grantor is authorized under a general lending power to make loans to any person without regard to interest or security sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of sec_671 to inclusive subject a grantor of a_trust to treatment a the owner thereof sec_678 provides that sec_678 shall not apply with respect to a power over income as originally granted or thereafter modified if the grantor of the trust or a transferor to whom sec_679 applies is otherwise treated as the owner under the provisions of sec_671 to other than this section plr-132899-07 sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust may be a shareholder if all of it is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states sec_1361 provides that for purposes of sec_1361 in the case of a_trust described in sec_1361 the deemed owner shall be treated as the shareholder based solely on the facts submitted and the representations made we conclude that the power of the non adverse trustee to make loans to the settlor causes g to be treated as the owner under sec_675 of each of the separate trusts created by trust before the beneficiaries attain age x so long as g is alive and the non adverse trustee has not released the power to make loans to g with or without security with respect to each separate trust in addition we conclude that after the beneficiaries of the separate trusts created by trust attain age x g will continue to be treated as the sole owner of each trust so long as g is alive and the non adverse trustee has not released the power to make loans to g with or without security with respect to each separate trust under the terms of trust the power of the non adverse trustee to make loans with or without security to the settlor causes g to be treated as the owner of each trust under sec_675 because the separate trusts are grantor trusts under sec_675 with respect to g they are grantor trusts in their entirely with respect to g notwithstanding the powers of withdrawal held by the beneficiaries that would otherwise make the beneficiaries the owners under sec_678 when they attain age x the separate trusts before and after each beneficiary attains age x are treated as a permissible s_corporation shareholders under sec_1361 g is treated as the shareholder of any stock held by these trusts under sec_1361 so long as g is alive and the non adverse trustee has not released the power to make loans to g with or without security with respect to each separate trust except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code plr-132899-07 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes