internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc corp 3-plr-108328-00 date date distributing controlled controlled sub sub sub sub sub sub sub sub sub sub sub sub sub sub llc sub llc sub sub sub sub sub sub sub sub sub aa bb cc dd ee ff gg hh ii jj kk ll mm nn oo business a business b business c financial advisor date a date b date c date d date e date f date g date h date i date j date k date l date m date n year a country x country y dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a partially completed transaction additional information was submitted in letters dated july september october november december date january and date the information submitted is summarized below summary of facts distributing is the common parent of a consolidated_group the stock of which is widely held and publicly traded distributing is primarily a holding_company that conducts a number of businesses through its wholly owned and majority-owned subsidiaries collectively the distributing group no five_percent_shareholder of distributing actively participates in the management of the distributing group all businesses conducted by distributing use the accrual_method of accounting all corporations described below are domestic corporations unless otherwise indicated prior to date a distributing wholly owned all of the stock of controlled approximately aa of controlled approximately bb of sub and approximately cc of sub distributing purchased less than percent of the controlled stock in taxable transactions within the last five years tainted_stock controlled owned all of the stock of sub sub owned all of the outstanding_stock of sub and sub a country x corporation sub owned all of the outstanding_stock of sub and approximately dd and ee of sub and sub respectively the remaining stock of sub and sub was held by the public sub owned all of the outstanding_stock of sub and sub the stock of sub was owned approximately ff by sub ff by sub and gg by sub sub owned all of the outstanding_stock of sub and sub distributing has various stock_option plans under which options to purchase shares of distributing and controlled common_stock may be granted to key employees directors and other service providers controlled also has various stock_option plans under which options to purchase controlled shares may be granted to key employees directors and others of controlled these plans permit the grant of a variety of stock and stock-based awards the option recipients and the terms of the options granted under these plans vary however nonqualified options are generally granted at fair_market_value and incentive stock_options must be granted at not less than the fair_market_value of the underlying stock on the date of grant compensatory_option distributing’s business a is primarily operated through sub its business b is operated primarily through controlled and its affiliates and its business c is operated through controlled and its affiliates we have received financial information indicating that each of businesses a b and c has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years management problems have resulted from business a business b and business c all being conducted within a single consolidated_group additionally controlled and controlled wish to raise additional capital distributing’s financial advisor has concluded that a spin-off of controlled and controlled followed by an initial_public_offering of controlled and controlled stock would be the most efficient way to solve the management problems and raise capital furthermore more money will be raised in the ipos if controlled and controlled are independent companies proposed transaction to solve the management problems and accomplish the separation distributing has proposed the following transaction some of the steps of which have been completed i ii iii iv v vi on date a and date b respectively sub and sub merged with and into sub in complete_liquidation the sub liquidation and the sub liquidation respectively on date c sub merged a newly created subsidiary acquisition sub with and into sub with sub surviving the public shareholders of sub received cash in exchange for the sub shares the sub merger on date d a tender offer was closed whereby distributing transferred to the public shareholders of sub distributing stock in exchange for sub shares the sub tender offer as a result of the sub tender offer distributing owned hh of the outstanding sub stock on date d a tender offer was closed whereby distributing transferred to the public shareholders of sub distributing stock in exchange for sub shares the sub tender offer as a result of the sub tender offer distributing owned hh of the outstanding_stock of sub on date e subsequent to the sub tender offer sub merged with and into distributing in exchange for distributing stock sub merger on date e subsequent to the sub tender offer sub merged with and into distributing in exchange for distributing stock the sub liquidation vii on date f sub merged into distributing in complete_liquidation the sub liquidation viii distributing will form an llc sub llc all of the interests of which will be owned by distributing the sub llc will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 of the income_tax regulations distributing will merge its wholly owned subsidiaries sub and sub with and into the sub llc the sub liquidation and the sub liquidation respectively ix x xi sub will merge with and into controlled in complete_liquidation the sub liquidation on date g distributing formed an llc sub llc all of the interests of which were issued to distributing sub llc will be treated as a disregarded_entity for federal_income_tax purposes under sec_301_7701-3 distributing merged its wholly owned subsidiary sub with and into sub llc the sub liquidation on date g sub llc distributed all of the stock it held in the following corporations that are engaged in business a to distributing i sub ii sub and iii sub the sub llc transfer xii on date h distributing contributed assets previously held by sub and related to business b including the stock of sub and its interest in sub llc to controlled and controlled assumed related liabilities the contribution xiii distributing will distribute all of the stock it owns in controlled and controlled at least percent by vote and value pro_rata to its shareholders the distributions immediately prior to the distributions controlled will increase the number of outstanding shares of common_stock to a number which will be determined at the date_of_issuance based upon then existing market conditions and valuations and controlled will engage in a reverse_stock_split distributing compensatory options that are now held by controlled and controlled employees will be exchanged for controlled and controlled compensatory options respectively that are subject_to restrictions and conditions substantially_similar to those to which the distributing compensatory options are subject xiv within one year of the completion of the distributions each of controlled and controlled will issue ii of its stock to the public representations the taxpayer has made the following representations liquidation representations sub liquidation a b c d e f g h i j k sub on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution was completed was the owner of at least percent of the single outstanding class of stock of sub no shares of sub stock were redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub distributions from sub pursuant to the plan of complete_liquidation were made within a single taxable_year of sub as soon as the first liquidating_distribution was made sub ceased to be a going concern and its activities were limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders sub retained no assets following the final liquidating_distribution sub did not acquire assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation no assets of sub were disposed of by sub except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation the sub liquidation was not preceded by nor will be followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 prior to the adoption of the liquidation plan no assets of sub were distributed in_kind transferred or sold to sub except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan sub did not hold at the time of the liquidation any assets representing earned but unreported income the fair_market_value of the assets of sub exceeded its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution was made l on the date of the sub liquidation there will be no intercorporate debt existing between sub and sub and none has been canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan m the fair_market_value of the property received by sub in satisfaction of the indebtedness of sub owed to sub equals sub 2’s basis in the indebtedness sub liquidation n o p q r s t u sub on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution was completed was the owner of at least percent of the single outstanding class of stock of sub no shares of sub stock were redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub distributions from sub pursuant to the plan of complete_liquidation were made within a single taxable_year of sub as soon as the first liquidating_distribution was made sub ceased to be a going concern and its activities were limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders sub retained no assets following the final liquidating_distribution sub did not acquire assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation no assets of sub have been disposed of by sub except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation the sub liquidation was not preceded by nor will be followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 v w x y z prior to the adoption of the liquidation plan no assets of sub were distributed in_kind transferred or sold to sub except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan sub did not hold at the time of the liquidation any assets representing earned but unreported income the fair_market_value of the assets of sub exceeded its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution was made on the date of the sub liquidation no intercorporate debt existed between sub and sub and none was canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan the fair_market_value of the property received by sub in satisfaction of the indebtedness of sub owed to sub equals sub 2’s basis in the indebtedness sub liquidation 2a distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution was completed was the owner of at least percent of the single outstanding class of stock of sub 2b no shares of sub were redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub except for the repurchase of jj shares 2c distributions from sub to distributing pursuant to the plan of complete_liquidation were made within a single taxable_year of sub 2d as soon as the first liquidating_distribution was made sub ceased to be a going concern and its activities were limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 2e sub retained no assets following the final liquidating_distribution 2f sub did not acquire assets in any nontaxable transactions at any time except for i acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation ii the date i acquisition of kk shares of sub in exchange for sub and iii the date j acquisition of ll shares of sub in exchange for sub and sub 2g other than as described below no assets of sub have been or will be disposed of by either sub or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation date k sub contributed certain assets to sub for stock in a tax-free sec_351 exchange date l sub acquired sub from sub for stock and the assumption of debt 2h the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 2i prior to the adoption of the liquidation plan no assets of sub were distributed in_kind transferred or sold to distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan 2j sub did not hold at the time of the liquidation any assets representing earned but unreported income 2k the fair_market_value of the assets of sub exceeded its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution was made 2l on the date of the sub liquidation there was no intercorporate debt existing between sub and distributing and none had canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan 2m the fair_market_value of the property received by distributing in satisfaction of the indebtedness of sub owed to distributing equals distributing’s basis in the indebtedness sub liquidation 2n distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution was completed was the owner of at least percent of the single outstanding class of stock of sub 2o no shares of sub stock were redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub except for the repurchase of mm shares 2p distributions from sub pursuant to the plan of complete_liquidation were made within a single taxable_year of sub 2q as soon as the first liquidating_distribution was made sub ceased to be a going concern and its activities were limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 2r sub retained no assets following the final liquidating_distribution 2s sub did not acquire assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation 2t no assets of sub have been or will be disposed of by either sub or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation 2u the sub liquidation was not preceded by nor will be followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 2v prior to the adoption of the liquidation plan no assets of sub were distributed in_kind transferred or sold to distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan 2w sub did not hold at the time of the liquidation any assets representing earned but unreported income 2x the fair_market_value of the assets of sub exceeded its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution was made 2y on the date of the sub liquidation there was no intercorporate debt existing between distributing and sub and none has been canceled forgiven or discounted except for an intercompany account balance transactions that occurred more than three years prior to the date of adoption of the liquidation plan and dollar_figurenn sub oo percent debentures owned by distributing that matured on date m 2z the fair_market_value of the property received by distributing in satisfaction of the indebtedness of sub owed to distributing equals distributing’s basis in the indebtedness sub liquidation 3a distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of stock of sub 3b no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub 3c distributions from sub to sub llc pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub 3d as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 3e sub will retain no assets following the final liquidating_distribution 3f sub will not have acquired assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation 3g no assets of sub have been or will be disposed of by either sub sub llc or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation 3h the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 prior to the adoption of the liquidation plan no assets of sub will have been distributed in_kind transferred or sold to sub llc or distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan sub does not hold and will not hold at the time of the liquidation any assets representing earned but unreported income the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution is made on the date of the sub liquidation there will be no intercorporate debt existing between distributing or sub llc and sub and none has been canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan 3i 3j 3k 3l 3m the fair_market_value of the property received by distributing in satisfaction of the indebtedness of sub owed to distributing equals distributing’s basis in the indebtedness sub liquidation 3n distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of stock of sub 3o no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub 3p distributions from sub to sub llc pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub 3q as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 3r sub will retain no assets following the final liquidating_distribution 3s sub will not have acquired assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation 3t no assets of sub have been or will be disposed of by either sub sub llc or distributing except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation 3u the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 3v prior to the adoption of the liquidation plan no assets of sub will have been distributed in_kind transferred or sold to sub llc or distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan 3w sub does not hold and will not hold at the time of the liquidation any assets representing earned but unreported income 3x the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution is made 3y on the date of the sub liquidation there will be no intercorporate debt existing between distributing or sub llc and sub and none has been canceled forgiven or discounted except for transactions that occurred more than three years prior to the date of adoption of the liquidation plan 3z the fair_market_value of the property received by distributing in satisfaction of the indebtedness of sub owed to distributing equals distributing’s basis in the indebtedness sub liquidation 4a controlled on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of stock of sub 4b no shares of sub stock will have been redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub 4c distributions from sub to controlled pursuant to the plan of complete_liquidation will be made within a single taxable_year of sub 4d as soon as the first liquidating_distribution has been made sub will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 4e sub will retain no assets following the final liquidating_distribution 4f sub will not have acquired assets in any nontaxable transactions at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation 4g no assets of sub have been or will be disposed of by either sub or controlled except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of complete_liquidation 4h the sub liquidation will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 4i 4j 4k prior to the adoption of the liquidation plan no assets of sub will have been distributed in_kind transferred or sold to controlled except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan sub does not hold and will not hold at the time of the liquidation any assets representing earned but unreported income the fair_market_value of the assets of sub will exceed its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution is made 4l on the date of the sub liquidation there will be no intercorporate debt existing between controlled and sub and none has been canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan 4m the fair_market_value of the property received by controlled in satisfaction of the indebtedness of sub owed to controlled equals controlled 1’s basis in the indebtedness sub liquidation 4n distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution was completed was the owner of at least percent of the single outstanding class of stock of sub 4o no shares of sub stock were redeemed during the three years preceding the adoption of the plan of complete_liquidation of sub 4p distributions from sub to sub llc pursuant to the plan of complete_liquidation were made within a single taxable_year of sub 4q as soon as the first liquidating_distribution was made sub ceased to be a going concern and its activities were limited to winding up its affairs paying its debts and distributing its remaining assets to its shareholders 4r sub retained no assets following the final liquidating_distribution 4s sub did not acquire assets in any nontaxable transactions at any time except for i acquisitions occurring more than three years prior to the date of adoption of the plan_of_liquidation ii the contributions of the stock of sub sub and sub in year a and iii the contribution of the stock of sub on date n 4t no assets of sub were or will be disposed of by either sub sub llc or distributing except for dispositions in the ordinary course of business dispositions occurring more than three years prior to adoption of the plan of complete_liquidation or as described in steps xi xii and xiii 4u the sub liquidation was not preceded nor will be followed by the reincorporation in or transfer or sale to a recipient corporation of any of the businesses or assets of sub if persons holding directly or indirectly more than percent in value of the sub stock also hold directly or indirectly more than percent of the value of the stock of the recipient corporation except as detailed above certain assets of sub will be transferred to controlled for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 4v prior to the adoption of the liquidation plan no assets of sub were distributed in_kind transferred or sold to sub llc or distributing except for transactions occurring in the ordinary course of business and transactions occurring more than three years prior to adoption of the liquidation plan 4w sub did not hold at the time of the liquidation any assets representing earned but unreported income 4x the fair_market_value of the assets of sub exceeded its liabilities both at the date of the adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution was made 4y on the date of the sub liquidation there was no intercorporate debt existing between distributing or sub llc and sub and none has been canceled forgiven or discounted except for an intercompany account balance and transactions that occurred more than three years prior to the date of adoption of the liquidation plan 4z the fair_market_value of the property received by distributing in satisfaction of the indebtedness of sub owed to distributing equals distributing’s basis in the indebtedness the following representations apply to the liquidations of sub sub3 sub sub sub sub sub and sub 5a no corporation which is receiving the assets of a liquidating corporation is exempt from tax under sec_501 or any other provision of the code 5b all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the above liquidations have been fully disclosed contribution and distributions representations 5c any indebtedness owed by controlled or controlled to distributing or any other related_party after the distributions will not constitute stock_or_securities for federal_income_tax purposes distributing will continue to guarantee controlled public debentures after the distributions this guarantee will not constitute stock_or_securities 5d no part of the consideration distributed by distributing is being received by a shareholder as a creditor employee or in any capacity other than as a shareholder of distributing 5e the five years of financial information submitted on behalf of sub sub sub and controlled are representative of each corporation’s present operations and with regard to each corporation there has not been any substantial operational changes since the date of the last financial statement submitted 5f immediately after the distributions the gross assets of distributing controlled and controlled used in their respective active trades_or_businesses as defined in sec_355 will have a fair_market_value equal to at least percent of the value of the total fair_market_value of the gross assets of distributing controlled and controlled respectively 5g following the distributions distributing controlled and controlled will each continue the active_conduct of its business independently and with its separate employees 5h the distributions are carried out for the following corporate business purposes to solve management problems and raise additional capital the distributions are motivated in whole or substantial part by these corporate business purposes 5i 5j 5k there is no plan or intention by any shareholder who own sec_5 percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of distributing controlled or controlled after the transaction there is no plan or intention by distributing controlled or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing controlled or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business and except that distributing controlled and controlled may liquidate or merge wholly owned subsidiaries in order to simplify the corporate structure 5l the total adjusted_basis and the fair_market_value of the assets contributed to controlled in the contribution each equals or exceeds the sum of any liabilities assumed by controlled 5m the liabilities assumed by controlled in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred 5n no intercorporate debt will exist between distributing or any related_party on the one hand and controlled or controlled or any related_party on the other hand at the time of or after the distributions except for the continued guarantee by distributing of the controlled public debentures and continued guarantee by distributing of the controlled redemption rights 5o immediately before the distributions items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany regulations further there will be no excess_loss_account in respect of any stock of distributing controlled controlled or any direct or indirect subsidiary thereof immediately before the distributions 5p payments made in connection with all continuing transactions between distributing or any related_party on the one hand and controlled controlled or any related_party on the other hand will be for fair_market_value and based on terms and conditions arrived at by the parties bargaining at arm’s-length 5q payments made in connection with all continuing transactions between controlled or any related_party on the one hand and controlled or any related_party on the other hand will be for fair_market_value and based on terms and conditions arrived at by the parties bargaining at arm’s-length 5r 5s 5t no two parties to the proposed transaction are investment companies as defined in sec_368 and iv for purposes of sec_355 immediately after the distributions no person will hold disqualified_stock as defined in sec_355 in either distributing controlled or controlled possessing percent or more of the total combined voting power or value of the outstanding distributing controlled or controlled stock the distributions are not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock or at least percent of the total value of shares of all classes of stock of either distributing controlled or controlled for purposes of this representation stock acquired upon exercise of compensatory options in distributing controlled or controlled will not be treated as acquired as part of a plan or series of related transactions of which the distribution is a part 5u the compensatory options will contain customary terms and conditions will be granted in_connection_with_the_performance_of_services for distributing controlled controlled or a person related to the grantor under sec_355 will not be excessive by reference to the services performed and immediately after the distributions and within six months thereafter i will not be transferable within the meaning of sec_1_83-3 and ii will not have a readily_ascertainable_fair_market_value as defined in sec_1_83-7 rulings as follows based solely on the information submitted and representations made it is held with respect to the sub liquidation we hold that the sub liquidation qualifies as a distribution by sub to sub in complete_liquidation of sub under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by sub on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis sub has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period sub has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 sub succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 sub succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or sub will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 9's earnings_and_profits are reflected in sub 2's earnings_and_profits the sub earnings_and_profits to which sub succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that the sub liquidation qualifies as a distribution by sub to sub in complete_liquidation of sub under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by sub on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis sub has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period sub has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 sub succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 sub succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or sub will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 10's earnings_and_profits are reflected in sub 2's earnings_and_profits the sub earnings_and_profits to which sub succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that the sub liquidation qualifies as a distribution by sub to distributing in complete_liquidation of sub under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by distributing on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period distributing has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 distributing succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 distributing succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 2's earnings_and_profits are reflected in distributing's earnings_and_profits the sub earnings_and_profits to which distributing succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that the sub liquidation qualifies as a distribution by sub to distributing in complete_liquidation of sub under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by distributing on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period distributing has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 distributing succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 distributing succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 11's earnings_and_profits are reflected in distributing's earnings_and_profits the sub earnings_and_profits to which distributing succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that for federal_income_tax purposes the merger of sub into sub llc ie the sub liquidation will be treated as a distribution by sub to distributing in complete_liquidation of sub qualifying as a complete_liquidation under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by distributing on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period distributing has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 distributing succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 distributing succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 12's earnings_and_profits are reflected in distributing's earnings_and_profits the sub earnings_and_profits to which distributing succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that for federal_income_tax purposes the merger of sub into sub llc ie the sub liquidation will be treated as a distribution by sub to distributing in complete_liquidation of sub qualifying as a complete_liquidation under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by distributing on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period distributing has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 distributing succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 distributing succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 13's earnings_and_profits are reflected in distributing's earnings_and_profits the sub earnings_and_profits to which distributing succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that the sub liquidation qualifies as a distribution by sub to controlled in complete_liquidation of sub under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by controlled on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the distribution of its assets and liabilities to controlled sec_336 sec_337 and sec_337 the basis controlled has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period controlled has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 controlled succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 controlled succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or controlled will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 3's earnings_and_profits are reflected in controlled 1's earnings_and_profits the sub earnings_and_profits to which controlled succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the sub liquidation we hold that for federal_income_tax purposes the merger of sub into sub llc ie the sub liquidation will be treated as a distribution by sub to distributing in complete_liquidation of sub qualifying as a complete_liquidation under sec_332 and sec_1_332-2 no income gain_or_loss was recognized by distributing on receiving the assets and liabilities of sub in the sub liquidation sec_332 no income gain_or_loss was recognized by sub on the sub liquidation sec_336 sec_337 and sec_337 the basis distributing has in each asset received from sub as a result of the sub liquidation equals the basis of that asset in the hands of sub immediately before the sub liquidation sec_334 the holding_period distributing has in each asset received from sub as a result of the sub liquidation includes the period during which that asset was held by sub sec_1223 distributing succeeds to and takes into account the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 sec_1_381_a_-1 distributing succeeds to and takes into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the sub liquidation sec_381 sec_1_381_c_2_-1 any deficit in the earnings_and_profits of sub or distributing will be used only to offset earnings_and_profits accumulated after the date of the sub liquidation sec_381 notwithstanding the above to the extent that sub 4's earnings_and_profits are reflected in distributing's earnings_and_profits the sub earnings_and_profits to which distributing succeeds must be adjusted to prevent duplication sec_1_1502-33 with respect to the contribution and distributions we hold that the contribution by distributing to controlled followed by the distribution of the controlled stock to distributing’s shareholders will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing in the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the deemed issuance of stock in connection with contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period of each asset received by controlled in the contribution will include the holding_period of that asset in the hands of distributing sec_1223 distributing will recognize no gain_or_loss on its distribution of the controlled stock to the distributing shareholders sec_361 the distributing shareholders will recognize no gain_or_loss and no amount will be includible in their income upon the receipt of the controlled stock sec_355 the holding_period of the controlled common_stock received by the distributing shareholders will include the holding_period of the distributing common_stock on which the distribution will be made provided such stock is held as a capital_asset on the date of the distribution sec_1223 no gain_or_loss will be recognized to distributing upon the distribution of its controlled stock as described above but only to the extent that such stock is not tainted_stock sec_355 because the tainted_stock does not constitute qualified_property within the meaning of sec_355 gain but not loss shall be recognized to distributing as if it sold the tainted_stock to its shareholders at its fair market on the date of distribution sec_355 the distributing shareholders will recognize no gain_or_loss and no amount will be includible in their income upon the receipt of the controlled stock which does not represent tainted_stock sec_355 to the extent that distributing shareholders receive tainted_stock that distribution will be treated as a distribution_of_property to which the rules of sec_301 other than sec_301 and sec_301 apply sec_355 sec_356 and sec_1_356-2 as to each controlled shareholder the part of the tainted_stock distribution treated under sec_301 as a dividend within the meaning of sec_316 will be includible in the gross_income of that controlled shareholder sec_301 pursuant to sec_301 the part of the tainted_stock distribution not treated as a dividend will be applied against and reduce the adjusted_basis of each shareholder's distributing common_stock the part of the tainted_stock distribution that is not a dividend to the extent that it exceeds the adjusted_basis of distributing common_stock held by such shareholders will be treated as gain from the sale_or_exchange of property sec_301 the basis of the tainted_stock in the hands of the controlled shareholders after the distribution will in each instance be the fair_market_value of such stock on the date of distribution sec_358 the aggregate basis of the distributing controlled and controlled stock except for tainted_stock in the hands of each distributing shareholder after the controlled and controlled distributions will equal the aggregate adjusted_basis of the distributing stock held immediately before the distribution but after any reduction under sec_301 allocated in proportion to the fair_market_value of all three corporations under sec_1_358-2 sec_358 b and c the holding_period of the controlled common_stock except for tainted_stock received by the distributing shareholders will include the holding_period of the distributing common_stock on which the distribution will be made provided such stock is held as a capital_asset on the date of the distribution sec_1223 the holding_period of the tainted_stock will commence as of the day after the date of distribution proper allocation of earnings_and_profits between distributing controlled and controlled will be made under sec_1_312-10 and sec_1_1502-33 the issuance or exercise of a compensatory_option is not an acquisition pursuant to a plan or series of related transactions under sec_355 we express no opinion about the tax treatment of the sub or sub merger additionally we express no opinion about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination temporary or final regulations pertaining to one or more of the issues addressed in this ruling letter have not yet been adopted therefore this ruling will be modified or revoked if adopted temporary or final regulations are inconsistent with any conclusions in the ruling see dollar_figure of revproc_2001_1 2001_1_irb_1 however when the criteria in dollar_figure of revproc_2001_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances each affected taxpayer must attach a copy of this letter to the taxpayer's federal_income_tax return for the tax_year in which the transaction covered by this ruling letter is consummated we have sent copies of this letter to the authorized representatives designated on the power_of_attorney on file in this office sincerely yours associate chief_counsel corporate by senior technician reviewer branch


id office uilc cca_2009101616072437 ---------- number release date from ------------------- sent friday date pm to ----------------- cc ----------- subject re tefra statute_of_limitations issues --------- essentially correct but partnerships generally cannot settle on behalf of their partners since tefra proceedings are essentially class actions of the partners in which the tefra entity is not itself a party and has no settlement authority i r c c there is no downside to getting forms 872-i the form 872-p is nothing more than an extension of each partner's sec_6501 period for partnership items by the agent for the partners their tmp there is nothing that prohibits us from getting an extension directly from the principals rather than through their agent it is a misnomer to say we are getting the form 872-p from the partnership we aren't we get it from the agent for the partners typically the tmp


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 b07 plr-108119-05 date date legend corporation x y dear ---- ------------------------------------------ ------------------------ -------------------------- -------------------------- we received your letter requesting permission for corporation to revoke its election under sec_41 of the internal_revenue_code this letter responds to that request the facts and representations submitted are as follows corporation is a calendar_year accrual_method taxpayer corporation is the parent of a sec_41 controlled_group that files a consolidated federal_income_tax return for the taxable_year ending on x corporation elected to utilize the alternative_incremental_research_credit airc rules of sec_41 to calculate its research_credit before the due_date of its return including extensions for the taxable_year ending on y corporation submitted a request on behalf of itself and its sec_41 controlled_group to revoke its election to determine its research_credit under the airc rules for qualified_research_expenses paid_or_incurred on or after the taxable_year ending on y and all subsequent taxable years for taxable years beginning after date taxpayers may elect to determine their research_credit under the airc rules of sec_41 sec_41 provides that any election under sec_41 shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary based solely on the facts submitted and representations made we grant permission for corporation and its controlled_group to revoke its election to determine its plr-108119-05 credit_for_increasing_research_activities under the airc rules of sec_41 for qualified_research_expenses paid_or_incurred during the taxable_year ending on y corporation should compute its credit_for_increasing_research_activities for the taxable_year ending on y and all succeeding taxable years using the general_rule of sec_41 provided that corporation does not make a new election to determine its credit_for_increasing_research_activities under the airc rules of sec_41 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 further we express or imply no opinion concerning expenditures corporation or any member of its controlled_group treated as qualified_research_expenses this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely leslie h finlow chief branch passthroughs special industries


internal_revenue_service number release date index number ------------------------------- ---------------------------------------- --------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number refer reply to cc psi b04 plr-149856-07 date date legend legend trust decedent year niece niece nephew nephew nephew a b c d e f state statute --------------------------------- state statute ------------------------------------- ------------------------------------------- -------------------------------- ------- ------------------------- ------------------------------------- ---------------------- ------------------ ------------------ --------- ------------------------------------ ------------------------------------ -------------- --------- -------------- dear --------------- this responds to your representative’s letter dated date requesting rulings on the income and generation-skipping_transfer gst tax consequences of the proposed modification of trust facts the facts and representations submitted are summarized as follows trust was established under the will of decedent in year a date prior to date under the terms of trust niece niece nephew nephew and nephew decedent’s nieces and nephews are each to receive an annuity of dollar_figurea out of the net plr-149856-07 income of the trust the remaining income of the trust each year is to be divided into six shares to be paid to six identified charitable organizations the charitable remaindermen upon the death of niece nephew nephew or nephew the respective annuity of dollar_figurea allocable to that niece or nephew is payable to the lawful issue of that niece or nephew by right of representation upon the death of niece or upon the death of any named niece or nephew without any surviving lawful issue his or her share of the net_income will augment the amounts provided to be paid to the charitable remaindermen upon the death of the last survivor of the lawful issue of niece nephew nephew and nephew living at the time of decedent’s death the corpus of the trust and any undistributed_income is to be distributed to the charitable remaindermen in equal shares trust was funded with approximately dollar_figureb of assets the assets of the trust are currently valued at dollar_figurec more than four and one half times the original asset value because of the death of niece and the death of nephew without surviving issue only three of the five annuities are currently being paid_by the trust to the annuitant beneficiaries pursuant to the terms of trust the remaining net_income after payment of the annuities is being distributed in equal shares to the charitable remaindermen based on the life expectancy of the youngest measuring life the trust is estimated to terminate years from now it is represented that only dollar_figured which is less than percent of the value of the trust corpus is necessary to fund the annuities for the expected duration of the trust based on the foregoing the charitable remaindermen obtained legal representation to pursue the acceleration of the charitable_remainder interests the charitable remaindermen noted that the total yearly annuity currently payable to the annuitant beneficiaries is only percent of the value of the corpus of the trust and that the trustee’s fees each year are three times the amount of the annuities distributed under these circumstances the charitable remaindermen have argued that no material purpose is served by continuing the trust until the estimated termination_date in and therefore trust should be fully or partially terminated after lengthy negotiations between counsel for the charitable remaindermen and counsel for the annuitant beneficiaries the parties came to an agreement the agreement as follows a b except to the extent of dollar_figured which is the amount required to fund the annuity payments for the remainder of trust’s duration trust should terminate and the corpus should be distributed to the charitable remaindermen trust will continue to pay the annuities of dollar_figurea out of the trust’s income each year to the annuitant beneficiaries and will continue to distribute any excess income each year to the charitable remaindermen as provided for under the original terms of trust plr-149856-07 c d upon the final termination of trust in accordance with the original terms of trust all of the then-remaining balance will be distributed outright to the charitable remaindermen in equal shares as provided for under the original terms of trust the charitable remaindermen will purchase separate and apart from the trust commercial annuities for the benefit of each of the three annuitant families under the annuity_contracts an annuity amount of approximately dollar_figuree will be paid to each annuitant family for a term identical to the term of trust at a total cost to the charitable remaindermen of dollar_figuref the charitable remaindermen have represented that each annuity policy to be purchased will remain the asset of the purchasing charity and the annuitants will have no rights to the annuity payments superior to those of the purchasing charity’s other creditors pursuant to the agreement counsel for the charitable remaindermen filed a petition for modification of trust with the consent of all beneficiaries under the authority of state statute state statute provides in pertinent part a b except as provided in b if all beneficiaries of an irrevocable_trust consent they may compel the modification or termination of the trust upon petition to the court if the continuance of the trust is necessary to carry out a material purpose of the trust the trust cannot be modified or terminated unless the court in its discretion determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust the petition attests that the non-petitioning beneficiaries as well as the petitioning beneficiaries have consented to the proposed modification you have requested the following rulings the implementation of the agreement and court order will not cause trust to lose its exempt status under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the partial_termination of trust and the early distribution to the charitable remaindermen will not result in the immediate realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries the trust or the charitable remaindermen the purchase of the commercial annuities by the charitable remaindermen for the benefit of the annuitant beneficiaries will not result in the immediate plr-149856-07 realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26 b i of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides in part that a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest plr-149856-07 in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in the present case trust was irrevocable on date it is represented that no additions actual or constructive have been made to trust after that date accordingly trust is exempt from the gst tax under sec_26_2601-1 in measuring the effect of implementing the agreement we have determined that the interest of the annuitant beneficiaries in trust will not change as a result of the implementation of the agreement the annuitant beneficiaries will receive the same amount under the terms of trust as before implementation of the agreement accordingly provided the agreement is valid under applicable state law we conclude that implementing the agreement will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a lower generation than the beneficiaries holding the beneficial interests prior to the modification in addition implementing the agreement will not extend the time for vesting of any beneficial interests in the trust beyond the period provided for in the trust therefore the agreement will not affect the status of trust as exempt from the gst tax under sec_2601 ruling sec_2 sec_61 of the internal_revenue_code provides that gross_income includes gains derived from dealings in property and under sec_61 from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in ' for determining gain and the loss shall be the excess of the adjusted_basis provided in ' for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under ' c except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under ' on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained in 499_us_554 the supreme court considered whether a sale_or_exchange had taken place that resulted in realization of gain_or_loss under sec_1001 when a financial_institution exchanged its interests in one plr-149856-07 group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the court concluded that sec_1_1001-1 reasonably interprets sec_1001 id pincite the court also stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite it is consistent with the supreme court's opinion in cottage savings to find that the interests of the annuitants and the six charities in trust will not differ materially as a result of the proposed partial_termination of trust and the early distribution to the charitable remaindermen the legal entitlements of the beneficiaries will not be changed each annuitant beneficiary’s payment from trust will remain unchanged only the timing of the receipt of a large portion of trust corpus by the charitable remaindermen will be modified except for the changes described above all other provisions of trust will remain unchanged accordingly the modification of trust to provide for the partial_termination of trust and the early distribution to the charitable remaindermen will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries and no gain_or_loss will be recognized on the modification of trust under sec_1001 as for the purchase of the annuities for the benefit of the annuitant beneficiaries it is represented that each annuity policy to be purchased by the charitable remaindermen will remain the asset of the purchasing charity and the annuitant beneficiaries will have no rights to the annuity payments superior to those of the purchasing charities’ other creditors accordingly the purchase of the annuities by the charitable remaindermen for the benefit of the annuitant beneficiaries will not result in the immediate realization of capital_gain capital_loss or taxable_income by the annuitant beneficiaries this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-149856-07 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ----------------------- ---------------------------------- ----------------------------- re ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------ --------- telephone number ---------------------- refer reply to cc psi b04 plr-128234-12 date date legend --------------------------------------------------------- --------------------------------------------------- ------------------------------------------------- ---------------------------------------------------- ------------------------------------------------- ----------------------------------------------------------- ------------------------------------ -------------------------------------------------------- -------------------------------------------------------- husband wife son son daughter granddaughter trust trust -------------------------------------------------------------- trust -------------------------------------------------------------- accountant ------------------------ law firm ---------------------------------------------------------------- ---------------------------------------------------------- date ----------------- date year year year year year year year year year year ------------------------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- plr-128234-12 dear ------------------ this letter responds to correspondence dated date from your authorized representative requesting an extension of time under sec_301 of the procedure and administration regulations to make an election under sec_2632 of the internal_revenue_code to opt_out of the automatic allocation rules under sec_2632 with respect to transfers to certain trusts facts on date husband established two irrevocable trusts trust for the benefit of daughter son and their descendants and trust for the benefit of son and his descendants on date husband established another irrevocable_trust trust for the benefit of daughter and her descendants husband made gifts to trust sec_1 and prior to the enactment of sec_2632 the automatic allocation rules for applying gst_exemption to gst trusts husband also made gifts to trust in year sec_1 through husband made gifts to trust in year sec_1 through and wife made gifts to trust in year sec_2 through husband made gifts to trust in year sec_1 through year is the year in which the automatic allocation rules became effective husband and wife anticipated that trust and trust would terminate during their children’s lifetime and did not intend to allocate any of their gst_exemption to trust sec_1 or accountant reported the gifts on form sec_709 united_states gift and generation- skipping tax returns husband and wife elected to gift split the year sec_1 through gifts to the trusts on the form sec_709 all returns were timely filed however for year sec_1 through form 709s accountant did not advise husband and wife that under sec_2632 they had to elect out of the automatic allocation rules of sec_2632 in order not to have their gst_exemption automatically allocated to the trusts the error was discovered when law firm was reviewing the form sec_709 for year husband and wife elected to opt_out of the allocation rules on their year form sec_709 husband and wife request an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to opt_out of the automatic allocation rules with respect to the year sec_1 through transfers to trust sec_1 and law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the plr-128234-12 transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of this subsection the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust sec_2632 provides in part that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the exceptions enumerated in i through vi apply sec_2632 provides that an individual may elect to have this subsection not apply to any or all transfers made by such individual to a particular trust sec_2632 provides that an election under sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_2513 provides that a gift made by one spouse to any person other than his spouse shall be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2513 only applies if both spouses have signified their consent to the application of this section in the case of all such gifts made during the calendar_year by either while married to the other sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of chapter under sec_26_2652-1 in the case of a transfer with respect to which the donor’s spouse makes an election under sec_2513 to treat the gift as made one-half by the spouse the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 the donor is treated as the transferor of one-half of the value of the entire property sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including plr-128234-12 evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election 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 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election a gst_trust is defined in sec_2632 in general as any trust that could have a generation-skipping_transfer a_trust is a gst_trust unless it meets one of the exceptions described in sec_2632 through vi where a sufficient possibility exists based on the statutory criteria that the trust corpus will not be distributed to lower generations based upon the facts submitted and the representations made none of the exceptions in sec_2632 apply to the trusts accordingly trust sec_1 and are gst trusts for purposes of sec_2632 based upon the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore wife is granted an plr-128234-12 extension of time of days from the date of this letter to elect out of the automatic allocation rules under sec_2632 with respect to the portion of the year sec_1 through transfers for which she is treated as the transferor for purposes of chapter to trust sec_1 and the elections should be made on supplemental form sec_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form sec_709s a copy is enclosed for this purpose except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel passthroughs special industries by ______________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc