department of the treasury internal_revenue_service washington d c j tax exempt and government entities uniform issue list jan - tep ray uk attention legend entity a order b church c state d plan x entity e directory f committee g entity h dear this is in response to correspondence dated date as suppiemented by correspondence dated march april and date submitted on your behalf by your authorized representatives concerning whether plan x qualifies as a church_plan under sec_414 of the internal_revenue_code code the following facts and representations have been made on your behalf page entity a is a not-for-profit corporation which is exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 entity a was formed by order b a religious community of church c entity a incorporated under civil law pursuant to the laws of state d on june order b is a congregation of church c women religious on november began its ministry to the sick and needy in state d by caring for patients and families in their own homes and the homes of order b members this relationship provided opportunity for prayer and spiritual guidance as integral parts of their healing mission within years of their arrival order b had built hospitals in state d order b on june the members of order b who settled in state d entity e incorporated under civil law pursuant to the laws of state d as a not-for-profit corporation called entity a according to its articles of incorporation entity a operates exclusively for religious charitable educational and scientific purposes within the meaning of sec_501 of the code entity a’s bylaws state that the purpose of entity a is to own purchase possess manage and provide real_estate for the housing maintaining and operating of convents and other homes and accommodations for entity e and offices for the administration of and to administer the religious charitable eleemosynary and educational works of entity e the vows rules regulations and procedures now or hereafter made or promulgated according to the general constitutions and statutes of entity e provides that its members are the members of entity e in all its branches endeavors and departments and to fulfill entity a’s bylaws also entity a is controlled and managed by a board_of directors who are members of entity e and who are elected to certain positions pursuant to entity e’s general constitutions and the statutes of entity e entity a order b and entity e are listed in the most recent directory f the official directory of church c effective july entity a established plan x as a new retirement savings_plan for the benefit of its employees and the employees of participating affiliates no employees of any for-profit entities affiliated with entity a are eligible to participate in plan x there are currently no affiliates participating in the plan all of the employees participating in plan x are employees of entity a pursuant to sec_1 of plan x entity a intended that contributions under plan x would be used for the benefit of participants and their beneficiaries would be excluded from the gross_income of participants in accordance with sec_403 of the code and would otherwise satisfy all of the requirements of sec_403 sec_1 also states that it is understood that plan x is a church_plan as provided under sec_414 of the code and accordingly is not subject_to the employee_retirement_income_security_act_of_1974 in a meeting of its board_of directors entity a created committee g the specific powers and duties of committee g are outlined in section b of plan x committee g has the sole responsibility for the administration of plan x participant claims and appeals and general legal compliance and is responsible for overseeing and reviewing the investment of plan x assets the board_of directors of entity a appoints the members and chairperson of committee g may remove members of committee g and in its discretion reer appoint successors to fill any vacancies the members of committee g may be officers directors employees or agents of entity a the chairperson of committee g is required to report at least annually to the board_of directors of entity a the principal purpose of committee g is the management and administration of plan x concurrent with this ruling_request it has been represented that entity a changed its name to entity h based on the above a ruling is requested that plan x constitutes a church_plan under e of the code sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code defines employee to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if convention or association of churches it shares common religious bonds and convictions with that church or in order for an organization to have a qualified church_plan it must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization's affiliation with the church_or_convention_or_association_of_churches and that the plan will be administered by an organization of the type described in sec_414 entity a is an organization described in sec_501 of the code which is exempt from tax under sec_501 entity a was formed by order b a religious community of church c the entire membership of entity a is composed of entity e members who are entity a is controlled and managed by a the members of order b who settled in state d page board_of directors who are members of entity e and who are elected to certain positions pursuant to entity e’s general constitutions and the statutes of entity e in addition entity a is listed in directory f the official directory of church c the internal_revenue_service has determined that any organization that is listed in directory f shares common religious bonds and convictions with church c and is deemed associated with church c within the meaning of sec_414 of the code the members of committee g may be officers directors employees or agents of entity a the chairperson of committee g is required to report at least annually to the board_of directors of entity a the principal purpose of committee g is the management and administration of plan x in view of the stated purposes of entity a its structure its actual activities and its recognized status within church c entity a employees meet the definition of sec_414 of the code and are deemed to be employees of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church_or_convention_or_association_of_churches however an organization must also establish that its plan is established and maintained by a church or a convention or association of churches or by an organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration of the plan and must also be controlled by or associated with a church or a convention or association of churches in this regard plan x is administered by committee g the specific powers and duties of committee g are outlined in plan x the principal purpose of committee g is the management and administration of plan x appointed by the board_of directors of entity a which also appoints successors to fill any vacancies and may remove members all of the members of committee g are therefore the administration of plan x satisfies the requirements regarding church_plan administration under sec_414 of the code accordingly plan x is maintained by an organization that is controlled by or associated with a church_or_convention_or_association_of_churches and the principal purpose or function of which is the administration of plan x for the provision of retirement benefits for the employees of entity a and their beneficiaries accordingly with respect to your ruling_request we conclude that plan x constitutes a church_plan under sec_414 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling expresses no opinion with respect to whether plan x satisfies the requirements of sec_403 of the code this letter 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 page pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representatives should you have any concerns regarding this letter please contact idf at - sincerely my es employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


office_of_chief_counsel internal_revenue_service memorandum number release date cc psi ------------------ posts-103578-11 uilc date date to ------------------------ ----------------------------- attorney small_business self-employed from bradford r poston senior counsel branch passthroughs special industries subject ------------------------------------- this chief_counsel_advice responds to your request for assistance dated date this advice may not be used or cited as precedent legend ------------------- date decedent ----------------------------- date date date date date date charity y year year trust a_trust b dollar_figurea dollar_figureb ---------------------- --------------------------- ---------------------- ------------------------ ------------------- -------------------- ---------------------------------------- ------------------------------------ ------- ------- ---------------------------------------------- ------------------------------------------------------------- -------------------- -------------------- posts-103578-11 dollar_figurec z -------------------- ---- note in accordance with sec_301_6110-3 substitutions have been made in this document with respect to certain information deleted pursuant to sec_6110 issue sec_1 does all or any portion of the date transfers of stock from the decedent to the grantor trusts in exchange for the notes with the self-cancelling feature constitute a gift how should the fair_market_value of the notes with the self-cancelling feature be determined if the date transfers do not constitute a gift what are the estate_tax consequences of the cancellation of the notes with the self-cancelling feature upon the decedent’s death conclusion sec_1 if the fair_market_value of the notes is less than the fair_market_value of the property transferred to the grantor trusts the difference in value is a deemed gift the notes should be valued based on a method that takes into account the willing-buyer willing seller standard of sec_25_2512-8 and should also account for the decedent’s medical history on the date of the gift in this case we believe there is no estate_tax consequence associated with the cancellation of the notes with the self-cancelling feature upon the decedent’s death facts decedent died on date he was ---- in the year before he died decedent revised his estate plan under his existing plan charity a charitable_organization was the primary beneficiary of his estate under the revised plan a significantly larger portion of his assets passed to family members rather than to charity at death the decedent owned a number of assets of substantial value the decedent also owned stock in y a corporation------------------------------------------------------- ------------- under the estate plan as in effect prior to year almost all of the decedent’s y stock was to pass to charity in the fall of year the decedent revised his estate plan so that a larger portion of his interest in y would pass to his family members with charity receiving the residue of his estate as part of the new estate plan the decedent established z separate trusts the decedent was treated as the owner of each of the z trusts under the grantor_trust_rules sec_671 et seq grantor trusts in addition to ------- grantor trusts that decedent established in the --------------- for the benefit of ---------------- posts-103578-11 ------------- by the end of year the decedent had established separate grantor trusts for the benefit of his family members first set of transactions on date the decedent funded the z newly created grantor trusts with common voting and preferred non-voting y stock on the same date just prior to making the transfers the decedent substituted common and preferred y shares for preferred shares held by the ------- existing grantor trusts that the decedent had established for the benefit of ----------------------------- the decedent hired appraisers to value the y stock for purposes of the substitutions and the transfers to the newly created grantor trusts the appraisal valued common shares at dollar_figure-------- per share and the preferred non-voting shares at dollar_figure----- per share the total appraised value of the stock transferred on date was dollar_figure------------------ on ------------------------ the decedent’s estate filed a form_709 united_states gift and generation-skipping_transfer_tax return for year year gift_tax_return the return reported these and other transfers made in year and also reported gift and generation-skipping_transfer_tax in the amount of dollar_figure--------------- --------------------- on --------------------------- y declared a dollar_figure----- dividend for each common and preferred share of y stock the dividend was payable on or before --------------------------- ----------------------------------------------------------------------------------------------------------------- to each shareholder of record as of ------------------------ second set of transactions on date the decedent substituted preferred and common y shares for other y shares held in the-------- previously established grantor trusts for the benefit of family members on the same date after the substitutions were complete the decedent made a gift of y shares valued at dollar_figure------------------to a grantor-retained annuity_trust grat the trust a with an annuity term of ----- years the transfer resulted in a taxable gift of dollar_figure---------- because the decedent died before the end of the grat’s-------year term the value of the assets was included in the gross_estate and under his estate plan the assets passed to charity third set of transactions also on date the decedent transferred y stock with an appraised value of dollar_figure----- ------------------- based on the previously obtained appraised values to the grantor trusts in exchange for the y stock the decedent received z promissory notes each with a ------year term the ------year term was based on decedent’s life expectancy of -- -----years as determined in the tables in the regulations under sec_7520 ---------- of the z promissory notes had face amounts equal to the appraised value of the y stock that was transferred to the grantor trusts each of these notes had an posts-103578-11 interest rate of -------percent the notes required that the trust make only annual interest payments during the term of the note and further required that the principal be paid on the final date of the term the total appraised value of the y stock transferred in exchange for these notes was dollar_figurea the remaining ---- notes had an interest rate of ---- percent like the ---- notes discussed above each note required only payments of interest during the note term and the payment of principal to the note holder on the last day of the term these ---- notes however differed in one significant way each of the notes contained a self-cancelling feature which effectively relieves the issuer the grantor_trust in this case of the obligation to make any further payments on the note if the seller the decedent in this case dies before all of the payments under the note have come due according to the year appraisal the value of the y stock that decedent transferred to the grantor trusts was dollar_figureb the total face value of the self-cancelling notes was dollar_figurec almost double the value of the stock the higher value of the notes supposedly compensated the decedent for the risk that he would die before the end of the note term and neither the principal nor a significant amount if not all of the interest would be paid in fact the decedent died less than six months after the transfer and therefore received neither the interest payments nor the principal due on the notes fourth set of transactions on date the decedent transferred stock in y with an appraised value of dollar_figure------- ------------------- to the ------- previously established grantor trusts for --------------------------- ------------- in exchange for the stock the decedent received ----- additional notes with a face value equal to the appraised value of the stock like the notes in the transaction above these notes had a ------year term required only interest payments during the term and contained a self-cancelling feature to account for the possibility that the self- cancelling feature would take effect these notes contained an interest rate of -------- percent in this case the decedent died less than six months after the transfers and therefore he received neither the interest payments nor the principal due on the notes fifth set of transactions also on date the decedent created the trust b a grat that had an annuity term of------ years the decedent funded this grat with shares of y stock valued at approximately dollar_figure------------------ and the ----- notes that he received from -------- trust and - --------------- trust with a face value of dollar_figure------------------ the decedent reported a taxable gift of only dollar_figure---------- as a result of the transfers year gift_tax_return on date the decedent’s estate filed a form_709 united_states gift and generation-skipping_transfer_tax return for year year gift_tax_return the year gift_tax_return reported the taxable_gifts related to the formation of the grats posts-103578-11 and also reported gift_tax due in the amount of dollar_figure---------- the year gift_tax_return also reported a number of non-taxable gifts annual exclusion gifts marital_gifts and charitable gifts a statement attached to the year gift_tax_return disclosed the third and fourth set of transactions described above but did not report any taxable gift as a result of those transactions the decedent’s health very shortly after the fourth and fifth set of transactions the decedent was diagnosed with ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------ after --------------------- diagnosis he survived for less than six months he died on date the decedent’s estate_tax_return on date the decedent’s estate filed a form_706 united_states estate and generation-skipping_transfer_tax return the estate_tax_return on schedule g of the estate_tax_return the ---- non-self-cancelling promissory notes from the third set of transactions were included at their face values of dollar_figurea plus accrued interest schedule g of the estate_tax_return also includes the value of the grats created in the second and fifth set of transactions the estate_tax_return does not however include any portion of the self-cancelling notes executed in the third and fourth set of transactions for y stock with an appraised value totaling dollar_figure------------------ law and analysis issue sec_1 and sec_2501 of the internal_revenue_code imposes a tax on the transfer of property by gift the gift_tax applies to all transactions whereby property is gratuitously passed or conferred upon another regardless of the means or device employed sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth then the amount by which the value posts-103578-11 of the property exceeded the value of the consideration is deemed a gift that is included in computing the amount of gifts made during the calendar_year sec_25_2512-4 of the gift_tax regulations provides that the fair_market_value of notes secured or unsecured is presumed to be the amount of unpaid principal plus accrued interest to the date of the gift unless the donor establishes a lower value unless returned at face value plus accrued interest it must be shown by satisfactory evidence that the note is worth less than the unpaid amount because of the interest rate or date of maturity or other cause or that the note is uncollectible in part by reason of the insolvency of the party or parties liable or for other cause and that the property if any pledged or mortgaged as security is insufficient to satisfy it sec_25_2512-8 provides in part that a sale exchange or other transfer of property made in the ordinary course of business a transaction that is bona_fide at arm’s length and free from any donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth in general a transaction where property is exchanged for promissory notes will not be treated as a gift if the value of the property transferred is substantially equal to the value of the notes the face value and length of payments of the notes must be reasonable in light of the circumstances to determine whether the gift_tax applies the internal_revenue_service must determine the value of the y stock that the decedent transferred to the grantor trusts shortly before his death and the value of the notes taking into consideration the notes’ self-cancelling feature if the fair_market_value of the notes is less than the fair_market_value of the property transferred to the grantor trusts the difference in value is deemed a gift sec_2512 and sec_25_2512-8 in 320_f3d_595 6th cir rev’g t c memo the decedent sold real_property to his son in exchange for a note with a self-cancelling feature scin that was fully secured_by a mortgage on the property the note provided for monthly installments over a period of years and for the payment of interest at a rate that increased every months the initial interest rate was dollar_figure percent and the rate increased by one half percent at each 24-month interval until reaching a final rate for the last months of dollar_figure percent the note also provided that if decedent died before the principal and interest had been paid it would be canceled and no more payments would be required the decedent died unexpectedly five months after the issuance of the note the appellate court stated that a scin signed by family members is presumed to be a gift and not a bona_fide transaction id pincite the appellate court stated that the presumption may be rebutted by an affirmative showing that there existed at the time of the transaction a real expectation of repayment and intent to enforce the collection of the indebtedness the court concluded that on the facts before it the presumption had been rebutted the decedent was not willing to gift the business properties to his son because he required a steady stream of income in order to retire in addition the taxpayer could show that at the time of the transaction a real expectation of repayment existed and decedent posts-103578-11 intended to enforce the collection of the indebtedness therefore there was a bona_fide transaction in estate of costanza the service argued in the alternative that the transaction constituted a bargain sale a sale for less than the fair_market_value the service argued that the note had considerably lesser value than the property for which it was exchanged and the difference between the value of the real_property and the value of the note constituted a gift the taxpayer relying on sec_20_2031-4 argued that the fair_market_value of the note is presumed to be the amount of the unpaid principal plus interest accrued to the date of death the court remanded the action to the tax_court and the parties settled thus estate of costanza does not preclude a bargain-sale argument this case is distinguishable from estate of costanza in estate of costanza had the decedent lived he would have received monthly payments consisting of income and principal throughout the term of the note the decedent required the payments for retirement income and thus had a good reason other than estate_tax savings to enter into the transaction in contrast the decedent in this case structured the note such that the payments during the term consisted of only interest with a large payment on the last day of the term of the note balloon payment thus a steady stream of income was not contemplated moreover the decedent had substantial assets and did not require the income from the notes to cover his daily living_expenses the arrangement in this case was nothing more than a device to transfer the stock to other family members at a substantially lower value than the fair_market_value of the stock in addition to the foregoing we believe that the notes lack the indicia of genuine debt because there must be a reasonable expectation that the debt will be repaid cf estate of costanza 33_fedclaims_657 the estate must demonstrate that the trust that issued the note has the ability to repay the amount of the note in the third set of transactions the trust received stock valued at dollar_figureb in exchange for a note the face_amount of which was dollar_figurec a difference of approximately dollar_figure----------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- the reasonable expectation requirement also applies to the notes issued in the fourth set of transactions we are aware however that the decedent funded the grantor trusts with approximately dollar_figureb during the first set of transactions although it is unclear how much of this amount was allocated to the various trusts thus the estate may argue that there was sufficient seed money that can be applied to reduce the debt and avoid any argument that the notes are not bona_fide ie the trust has sufficient assets such that it can repay the loan in this case the value of the notes was based upon the sec_7520 tables a term of ----- years was chosen because it was determined that the decedent had a ---- year life posts-103578-11 expectancy the decedent accounted for the self-cancellation mechanism by adjusting the principal to be repaid or the interest rate that applied to the principal specifically in the third transaction the face value of the notes with the self-cancelling feature was approximately dollar_figurec and the y stock exchanged in return for the notes was valued at dollar_figureb in the fourth transaction a higher interest rate was charged to account for the higher risk that pertained to the self-cancelling feature we do not believe that the sec_7520 tables apply to value the notes in this situation by its terms sec_7520 applies only to value an annuity any interest for life or term of years or any remainder in the case at hand the items that must be valued are the notes that decedent received in exchange for the stock that he sold to the grantor trusts these notes should be valued based on a method that takes into account the willing-buyer willing-seller standard in sec_25_2512-8 in this regard the decedent’s life expectancy taking into consideration decedent’s medical history on the date of the gift should be taken into account i r s gen couns mem date issue sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death in 74_tc_1239 acq in result 1981_2_cb_1 the decedent sold stock and other_property to moss funeral homes a corporation of which he was the president in return the decedent received three promissory notes issued by the corporation the notes contained a cancellation clause providing that the principal and interest due on the notes would cancel on the decedent’s death the notes provided for interest and equal monthly payments over a period of approximately nine and one-half years at the time of sale the physical and mental condition of the decedent was average for a man of years of age there was nothing to indicate that his life expectancy would be shorter than the approximate ten years of life expectancy that was indicated by generally accepted mortality tables only eight months after the sale the decedent discovered that he had cancer and died approximately ten months later the tax_court held that the notes were not included in the decedent’s estate because the parties had stipulated that the sales of shares of the notes were bona_fide posts-103578-11 transactions for full and adequate_consideration and that the cancellation provision was part of the bargained for consideration provided by the decedent for the purchase_price of the stock in addition there was no reason to believe that the decedent’s life expectancy would have been shorter than the ten years of life expectancy indicated by the mortality tables in 33_fedclaims_657 the united_states court of federal claims addressed the issue of whether a transfer by the decedent to his son less than one month before the decedent's death in exchange for an interest free demand note with a cancellation on death provision was bona_fide the decedent in estate of musgrove was an year old man suffering from angina arteriosclerosis and hypertension the decedent's son needed to borrow money to satisfy a debt of his sister’s estate and decedent offered to loan the funds to his son in exchange for a demand note with a cancellation upon death provision when consummating the transaction the decedent indicated that he did not believe he would ever need to make a demand for repayment the son indicated that he did not know if or when he could ever repay the debt the trial_court held that the transaction was not bona_fide since the note was unsecured the parties failed to schedule regular payments and the note provided for no interest the court indicated that the decedent retained an interest in the amount transferred because he maintained possession of the note until his death and had not made a demand for payment on the note furthermore son could not use the money for any purpose other than to pay the debt on his sister’s estate and therefore decedent had maintained control_over the money the court held that the amount should be included in the decedent’s estate under sec_2033 sec_2035 and sec_2038 there are similarities between the decedent in the subject case and the decedent in estate of musgrove in each case the decedent who received a promissory note with a self cancelling feature was in very poor health and died shortly after the note was issued in addition there is a legitimate question as to whether the note would be repaid in each case ---------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- conclusion ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------- in this case decedent transferred stock with a purported value of dollar_figureb in exchange for notes with a value of dollar_figurec that contained a cancellation feature if the decedent failed to survive the-------year term of the note the note also contained a balloon payment feature that pushed a significant portion of the payment to the end of the term because of the decedent’s health it was unlikely that posts-103578-11 the full amount of the note would ever be paid thus the note was worth significantly less than its stated amount and the difference between the note’s fair_market_value and its stated amount constitutes a taxable gift this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call --------------------- if you have any further questions


internal_revenue_service appeals_division n robinson suite ms oklahoma city ok date nov eb dear certified department of the treasury uil code taxpayer_identification_number person to contact employee id number tel fax refer reply to in re exempt status tax years last day to file a petition with the united_states tax_court this is a final adverse determination as to your application_for exempt status under sec_501 as an organization described under sec_501 of the internal_revenue_code our adverse determination was made for the following reason s your organization is not organized or operated exclusively for charitable purposes your organization has failed to establish that it will primarily engage in activities which accomplish one or more of the exempt purposes specified in sec_501 as required by sec_1_501_c_3_-1 your organization appears to have a substantial commercial purpose that serves a private rather than public interests contributions to your organization are not deductible under code sec_170 you are required to file federal form_1120 for the year s shown above if you decide to contest this determination under the declaratory_judgment provisions of code sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed before the ninety-first day after the date this determination i rtfor-rutes-for-fiting petitions - -- ' for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals procedures etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations or extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this final adverse determination of your exempt status as required by code sec_6104 c if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lll pail charles f fisher appeals team manager


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date c h i ef c ou n sel number info release date uil conex-102071-08 the honorable chris cannon u s house of representatives washington dc dear mr cannon thank you for your letter dated date expressing your continued interest in several technical issues regarding the application of the accountable_plan rules under sec_62 to tool reimbursement plans i understand that ---------------------- director irs office of legislative affairs spoke with your staff about this subject earlier this month we appreciate your interest in having published guidance specific to the tool reimbursement plan industry we are currently conducting examinations that focus on whether use of tool plans in some cases has resulted in failure to pay appropriate amounts of federal_income_tax withholding and fica tax while we are working through the examinations we are not in a position to answer the questions presented in your letter when we have concluded our enforcement activities and are able to consider these issues with the benefit of our enforcement conclusions we will consider further technical guidance on these topics please contact me or call ----------------------- director office of legislative affairs at ---- ------ --------------if you have further questions donald l korb chief_counsel office of the chief_counsel sincerely


internal_revenue_service number release date index number --------------------------------- ---------------------- ------------------------- in 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 plr-105061-10 date july legend ---------------------------- testator -------------------------------------- child a ----------------------------- child b --------------------------------------- child c -------------------------------- stock stock trust ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- residuary_trust ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ children’s agreement ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- state state a date date date date date date a b c d stock trust a ----------------------------------------------------------------------------------------------------------------- residuary_trust a ----------------------------------------------------------------------------------------------------------------------- ------------------ ---------- -------------------- ------------------- -------------------------- ------------------------- ------------------------- ----------------------- ------ ------- ------ ------ ------------------------------------------------------------------------ --------------------------------------------------------------------------------- plr-105061-10 ------------------------------------------------------------------------ ------------------------------------------------------------------------ cite --------------------------------------------------------------------------------------------------- cite --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ cite cite ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- cite ----------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------ cite ------------------------------------------------------- cite ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- highest court highest court of state a state court ---------------------------------------------------------------------------------------------------------------- state statute ------------------------------------------------------------------------------------------ --------------------------------------------- state governing statute a state governing statute b --------------------------------------------------- --------------------------------- state a statute ---- q ---- r s ---- ---- t -------- u -------- v x --------- ------ y z ------------ ------------------------------------------- ----------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------------------------- dear -------------- this responds to the date letter from your authorized representative requesting rulings on the income gift estate and generation-skipping_transfer gst tax consequences of a proposed settlement agreement plr-105061-10 the facts and representations are as follows testator died a resident of state on date he was survived by three children child a child b and child c the children five grandchildren the five grandchildren were then living there were no great-grandchildren at the time under articles third and eighth of testator’s will the will his shares of stock were to be held in trust the stock trust trust income was to be divided equally among the children on a child’s death the child’s income share was to be divided equally among the child’s then living children testator’s grandchildren the stock trust was to terminate twenty-one years after the death of testator’s last surviving grandchild when the principal would be divided equally per capita among testator’s then living great-grandchildren and deceased great-grandchildren whose then living descendants would take by representation under article twenty-second of the will the residue of testator’s estate was to be held in another trust the residuary_trust the residuary_trust provisions were identical to those of the stock trust except that the residuary_trust was to terminate when testator’s youngest great-grandchild reached age twenty-one the rule_against_perpetuities under the state rule_against_perpetuities in effect at testator’s death a bequest of a future_interest was void if considered prospectively at the testator’s death there was a possibility that the interest would not vest by the end of twenty-one years after the death of a life or lives in being at the testator’s death the permissible period a bequest to a class was void if there was a possibility that all the members of the class would not be ascertained and take vested interests within the permissible period a void specific_bequest passed to the testator’s residuary_estate if the testator’s disposition of the residuary_estate was void as well the residuary_estate passed as a reversion by intestacy cite in this case at testator’s death it was possible for the children to have additional children so that there could be grandchildren whose lives were not then in being this was the pivotal factor in determining whether his bequests of stock trust and residuary_trust income and remainders to his grandchildren and great-grandchildren violated the rule_against_perpetuities testator’s bequest of lifetime income interests to the grandchildren was to all of his grandchildren as a class a grandchild born after testator’s death would be part of the grandchildren’s class and would receive stock trust income_for_life based on this it was considered possible that not all of the grandchildren’s income interests would vest during lives in being at testator’s death certain annuities were also created that have since terminated plr-105061-10 testator’s bequests of remainders to his great-grandchildren were to vest only after all of testator’s grandchildren died the life of a grandchild born after testator’s death would also be a measuring life therefore at testator’s death it was possible that the time for vesting of the great-grandchildren’s remainders would be based on a life not in being at testator’s death accordingly the validity of these bequests was in doubt the bequests in the stock trust if void passed to the residuary_trust at testator’s death the bequests in the residuary_trust if void passed to testator’s intestate estate as a reversionary_interest the children’s agreement the children were testator’s heirs at law they acquired his property passing by intestacy consequently on date shortly after testator died the children entered into an agreement the children’s agreement revising the time when the great-grandchildren’s remainders were to vest under the children’s agreement the trusts were to terminate and the great-grandchildren’s remainders were to take effect on the death of the survivor of the children and five grandchildren that is lives in being at testator’s death the children’s agreement also changed the will’s pro_rata distribution of the stock trust and residuary_trust remainder to a per stirpes distribution on termination trust principal would be divided into three equal parts and distributed per stirpes under this revision the great-grandchildren descended from child a would share one third of the principal per stirpes those descended from child b would share a second third per stirpes and those descended from child c would share the last third per stirpes in all other respects the terms of the revised stock trust stock trust a and residuary_trust residuary_trust a were the same as those provided in testator’s will on a date before date testator’s shares of stock were transferred to stock trust a residuary_trust a was not funded it is represented that no additions have been made since then the litigation over more than x decades the trust beneficiaries and others have instituted actions for state court determinations regarding testator’s will and the children’s agreement specifically in cite the highest court of state highest court considered testator’ sec_2 each trust considered herein ie stock trust and residuary_trust in the will and stock trust a and residuary_trust a under the children’s agreement provided for distribution of the remainder at the end of twenty-one years following the death of the last survivor of the persons whose lives measured the duration of that trust because the perpetuities issue in this case centers on the lives measuring a respective trust’s duration and not on the twenty-one year period following the death of the last survivor the twenty-one year period is hereafter assumed to be a part of each trust’s duration even though it is not specifically stated plr-105061-10 bequests of income interests to the grandchildren the court reasoned that under testator’s will a grandchild’s income_interest would vest when his or her parent child a child b or child c died thus the grandchildren’s class would necessarily close at the death of the last survivor of the children who were in being at testator’s death highest court held that therefore the bequest of lifetime income interests to the grandchildren as a class did not violate the rule_against_perpetuities the court held the stock trust created in the will to be valid through the lives of the grandchildren highest court then considered testator’s bequest of remainders to his great-grandchildren the court reasoned that the grandchildren’s life estates preceded the remainders and the grandchildren’s class was not limited to lives in being at testator’s death because the remainders would take effect only after all of those including afterborn grandchildren died it was possible that the remainders would not vest within lives in being at testator’s death therefore highest court held the stock trust remainders to be void and illegal as violating the rule_against_perpetuities cite state statute the wait and see rule nearly y decades after highest court rendered its decision in cite the state legislature enacted state statute state statute provides a wait and see rule in determining whether a future_interest satisfies the rule_against_perpetuities or is void under the wait and see rule a future_interest does not violate the rule_against_perpetuities if actual events demonstrate that the interest did in fact vest by the end of the permissible period state statute applies retroactively to all interests heretofore created following the enactment of state statute highest court considered the statute’s retroactivity cite in the case before the court the trust was created many decades before state statute was enacted at the time of creation certain interests were void as violating the rule_against_perpetuities however highest court applied state statute’s wait and see rule to conclude in retrospect that the interests were not void and did not violate the rule_against_perpetuities testator’s bequest to the grandchildren though valid did not provide for distribution of a grandchild’s income share when the grandchild died before the trust ended on the death of the first grandchild to die on date the trustees petitioned the state court for instructions the state court held that based on testator’s intent a deceased grandchild’s children succeeded to the income share for the duration of the trust cite by inference highest court also considered testator’s bequest of the residuary_trust remainders highest court in effect confirmed that the stock trust remainder and residuary_trust remainder passed by intestacy to the children however the court did not rule on how the remainder would pass to the great-grandchildren plr-105061-10 as a result the courts of state now apply the wait and see rule retroactively to conclude that a future_interest that was void when created many years before state statute was enacted is not void because in hindsight it vested before the permissible period ended accordingly such otherwise void interests are retroactively sustained as not violating the rule_against_perpetuities cite however highest court has not yet addressed due process issues that may be presented the actualities in this case no additional grandchildren were born after testator’s death the lives of the children and the five grandchildren were all in being at testator’s death all of the children have died the last survivor of the five grandchildren died on date at the time there were z great-grandchildren of testator the trust will terminate twenty-one years after date which is date of testator’s z great-grandchildren a descended from child a b descended from child b and c descended from child c if the wait and see rule is applied to validate testator’s bequest of remainders to his great-grandchildren the principal would be divided into z equal shares and distributed under the will alternatively if testator’s disposition of the remainders is considered void the principal would be divided into three equal shares and distributed per stirpes under the children’s agreement the portion of a one-third share distributable to a great-grandchild would depend on the framework of the family line ie child a’s child b’s or child c’s to which that great-grandchild belongs great-grandchildren’s litigation there is a substantial difference between what a great-grandchild would receive in a per capita distribution and what he or she would receive in a per stirpes distribution on date the great-grandchildren benefitting from a per capita distribution the per capita parties instituted their action in state court for adjudication on the distribution of the stock trust remainder the great-grandchildren benefitting from a per stirpes distribution the per stirpes parties opposed the suit and also requested adjudication in addition an action was instituted concerning the distribution of income during the twenty-one year period state court combined the proceedings to consider the income and principal issues together cite in contrast the legislature of state a enacted state a statute which like state statute retroactively applies a wait and see rule to determine whether a future_interest that was void at the time it was created before the state a statute was enacted did in fact vest during the permissible period highest court of state a refused to apply the wait and see rule retroactively despite the relevant language in state a statute instead that court addressed issues of constitutionality and held that state a statute could not be applied retroactively to destroy vested or substantive rights created before state a statute was enacted cite plr-105061-10 over a d-year period guardians ad litem were appointed there was extensive discovery counsel filed three voluminous sets of briefs and the court heard two days of oral arguments the per capita parties argued that the wait and see test of state statute now applies under that test testator’s the will’s disposition of the stock trust remainder does not violate the rule_against_perpetuities therefore the stock trust principal is distributable per capita to testator’s living great-grandchildren and deceased great-grandchildren whose living descendants would take by representation the per stirpes parties argued that the highest court’s determinations were final and those rulings can not now be constitutionally impaired by a later-in-time state statute or judicial_ruling because highest court determined the remainders in the will to be void they passed as reversionary interests by intestacy to the children as such the remainders passed per stirpes under the children’s agreement some parties argued that trust income should be distributed per stirpes through the roots of the children for the duration of the stock trust others argued that the income is distributable per capita the court encouraged the parties to explore ways to resolve their differences through negotiation and compromise rather than through continued litigation among the potential outcomes regarding trust principal was a judicial_ruling that i ii iii principal is distributable per capita on date under the terms of the stock trust in the will or principal is distributable per stirpes on date under the terms of the children’s agreement or principal was distributable as of the last surviving grandchild’s death under the residuary_trust in the will which vested or will vest in the takers under the residuary_trust among the potential outcomes regarding trust income was a judicial_ruling that iv v vi income is distributable per stirpes from the death of the last surviving grandchild to date under either the will or the children’s agreement or income is distributable per capita from the death of the last surviving grandchild to date under the will or the children’s agreement or all rights to receive stock trust income terminated when the last surviving grandchild died at which time the stock trust principal was distributable under the residuary_trust of the will plr-105061-10 the great-grandchildren’s settlement agreement the parties negotiated extensively at the outset they agreed that the issues could be settled using a fractional difference settlement based on an assessment of the relative strengths of their adverse positions under the general framework of the compromise the great-grandchildren’s settlement agreement the ggc agreement provides for the stock trust principal to be divided into z separate shares based on the number of testator’s then living great-grandchildren and deceased great-grandchildren with then living children the share of a deceased great-grandchild will be divided per stirpes among that great-grandchild’s living descendants the stock trust assets will be divided in accordance with certain percentages the formula of the compromise provides for a q per stirpes r per capita fractional difference as to income and an s per stirpes t per capita fractional difference as to principal after the division into separate shares u of each great-grandchild’s share will be distributed outright to the great-grandchild if living or if the great-grandchild is deceased to his or her living descendants per stirpes the remaining v of each share will continue in trust for such great-grandchild or such descendants until the termination_date date each share will be a separate trust the respective great-grandchild or deceased great-grandchild’s descendants will be the sole beneficiary of the share for distributions of income and principal a sophisticated algorithm taken to thirteen decimal places will be used in the pro_rata division and outright distributions the division will take into account both the market_value and respective tax bases of the assets the ggc agreement was presented to state court for consideration the state court approved the settlement and ordered the division and distribution of the stock trust as set forth in the ggc agreement the ggc agreement is subject_to a favorable ruling from the internal_revenue_service you have asked for the following rulings the terms of the ggc agreement will not cause distributions from the stock trust or the continuing separate settlement trusts to become subject_to the generation-skipping_transfer_tax the terms of the ggc agreement will not cause any party to the agreement to make a gift to any other party to the ggc agreement for purposes of describing the ggc agreement the stock trust and stock trust a are considered to be the same trust plr-105061-10 the terms of the ggc agreement will not cause any party to the agreement to be required to include trust assets in his or her gross_estate unless such assets are distributable or have been distributed to such party prior to his or her death the terms of the ggc agreement will not cause any party to the agreement to realize income from the sale_or_exchange of any trust assets or interests ruling generation-skipping_transfer gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer 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_2601-1 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 court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to chapter if the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case the stock trust was irrevocable on date further it is represented that there have been no actual or constructive additions to the stock trust after date accordingly the stock trust is exempt from gst tax under sec_26_2601-1 plr-105061-10 the terms of the ggc agreement including the proposed division of the stock trust into separate shares and partial distributions of principal are the result of a settlement of substantial issues between the per capita parties and the per stirpes parties these issues have been tenaciously litigated over more than x decades highest court rendered opinions regarding these trusts many years ago however state statute has since been enacted with retroactive effect and highest court has affirmed state statute’s retroactive application to a similarly-created trust in light of this that court’s earlier determinations of the issues in this case are now in question we conclude that the ggc agreement constitutes a settlement of bona_fide issues concerning the provisions of the stock trust and its administration we also conclude that the terms of the ggc agreement are the product of arm's length negotiations they represent a compromise between the positions of the parties and reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and the applicable state law addressing the issues resolved in the ggc agreement accordingly based upon the facts submitted and the representations made we rule that the division of the stock trust into the z separate great-grandchildren’s trusts and the distributions to the living great-grandchildren and the descendants by representation of a deceased great-grandchild made in accordance with the ggc agreement will not cause the stock trust the continuing separate stock trusts or the distributions as described above to be subject_to the generation-skipping_transfer_tax ruling gift_tax issue sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on plr-105061-10 whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated the proposed settlement is a mediated settlement and is based on arm's length negotiations among all the parties all interested parties who hold or may hold an interest in the trusts including any minors and unborn heirs have been represented in the negotiations as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties the terms of the ggc agreement are the product of arm's length negotiations and represent i a compromise between the positions of the per capita parties and the per stirpes parties and ii reflect the parties' assessments of the relative strengths of their positions we further conclude that the ggc agreement is within the range of reasonable outcomes under the governing instruments and applicable state law accordingly based on the facts submitted and representations made we conclude that the terms of the ggc agreement as described above will not cause any of the beneficiaries to have made a taxable gift_for purposes of the federal gift_tax under sec_2501 ruling estate_tax issue sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the date of death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of the property or interest that would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time plr-105061-10 made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the death sec_2041 provides that the value of the gross_estate shall include the value of all property with respect to which the decedent possessed a general_power_of_appointment at the time of death sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate in order for sec_2035 through to apply a decedent must have made a transfer of property or an interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property as discussed above the ggc agreement represents the resolution of a bona_fide controversy between the parties it is a settlement of bona_fide issues and is the product of arm's length negotiations it reflects the parties' assessments of the relative strengths of their positions no great-grandchild or deceased great-grandchild’s descendants by representation has made a transfer to the stock trust or to any other great-grandchild by reason of the settlement agreement accordingly based upon the facts submitted and representations made we conclude that the terms of the ggc plr-105061-10 agreement will not cause any party to the agreement to have made a transfer within the meaning of sec_2035 through however once the ggc agreement becomes effective any trust property actually distributed or receivable by a beneficiary or his or her assignee would generally be included in the beneficiary’s federal transfer_tax base see eg sec_2033 sec_2041 sec_2501 ruling income_tax issue sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides 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 sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 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 499_us_554 addresses the issue of whether a sale_or_exchange that has taken place results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one 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 supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and 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 cottage savings u s 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 cottage savings u s pincite plr-105061-10 in the present case state governing statute a allows the court for cause shown to authorize the division of a_trust into two separate trusts on such terms and conditions and with such notice as the court directs in addition state governing statute b gives trustees the power to distribute in cash or in_kind or partly in each and allocate particular assets in proportionate or disproportionate shares in this case the court order approving the ggc agreement orders the division and distribution of the stock trust as set forth in the ggc agreement accordingly the court approved the non-pro rata distributions called for in the ggc agreement and further authorized the trustees to make the necessary transfers and assignments of the unconverted investment securities t herein awarded in_kind accordingly the submission concludes that the distribution scheme in this case is authorized by state law we agree the stock trust will be divided into z trusts on a non pro-rata basis under the state statutes cited above the court has the authority to authorize the trustees to make this type of non pro-rata apportionment thus the proposed division and distribution of the stock trust assets among the z trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings accordingly based upon the facts submitted and representations made we conclude that the division of the stock trust into the z great-grandchildren’s trusts will not result in the recognition of gain_or_loss under sec_1001 by the stock trust any beneficiary of the stock trust or any separate great-grandchild’s trust the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosure plr-105061-10 copy for purposes


date internal_revenue_service number info release date conex-135507-04 uil ---------------------- ------------------------- ------- ---------------------------------- dear ----------- senator herb kohl wrote to us on your behalf he asked us to respond to you directly and send a copy of our response to his office you asked for guidance on accountable plans as they relate to situations where individuals provide their own equipment for use when performing services as employees on date the department of the treasury released the priority guidance plan copy enclosed and available on our website at http www irs gov pub irs-utl 2004-2005pgp pdf this plan contain sec_276 projects it intends to complete over a twelve-month period from date through date and reflects the department’s commitment to increased and more timely published guidance i am pleased to tell you the accountable_plan issue you wrote about is one of the projects listed on the priority guidance plan revenue_ruling on tool rental page employee_benefits section b item number four i hope this information is helpful if you have further questions please call me at ---------------------or ----------------- of my staff at --------------------- sincerely catherine e livingston assistant chief_counsel exempt_organizations employment_tax government entities enclosure cc senator herb kohl


department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division jan 20if tep rat uniform issue list legend taxpayer a country s cpa j year year amount m ira x roth_ira y company b dear this is in response to a letters dated date date date and date in which your authorized representative requests relief under sec_301_9100-3 of the procedure and administration regulations the regulations you submitted the following facts and representations in connection with your request taxpayer a works overseas and resides in country s taxpayer a files form_1040 as a united_states citizen and maintained a traditional individual_retirement_account under sec_408 of the internal_revenue_code with company b ira oo pee x page taxpayer a has been a client of cpa j for over years and has relied upon him for her tax preparation and tax planning in year taxpayer a consulted cpa j regarding converting ira x to a roth_ira cpa j examined taxpayer a’s previous tax returns and advised taxpayer a that for year her gross_income would be under the modified_adjusted_gross_income limit of sec_408a of the internal_revenue_code for purposes of converting her traditional_ira ira x to a roth_ira in year taxpayer a relying upon the advice of cpa j transferred amount m from ira x to a roth_ira roth_ira y and assumed that she had successfully converted her traditional_ira x to a roth_ira however cpa j did not advise taxpayer a that prior to the conversion of ira x her modified_adjusted_gross_income for conversion purposes included taxpayer a's foreign_earned_income which was usually deducted in computing adjusted_gross_income for form_1040 purposes and as a result taxpayer a’s modified_adjusted_gross_income for year exceeded the limit of code sec_408 taxpayer a did not discover this error and that her conversion of ira x was a failed conversion until after the expiration of the time limit for recharacterizing her failed roth_ira_conversion as a traditional_ira the service has not discovered taxpayer a’s error or sought to disqualify the year roth_ira_conversion based on your submission and the above facts and representations you request a ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a is granted a period not to exceed days from the date of this letter_ruling to recharacterize roth_ira y as a traditional_ira with respect to your ruling_request code sec_408a and sec_1_408a-5 of the federal_income_tax regulations the regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having originally been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 question answer-6 of the regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's wig page intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides that an individual with an adjusted_gross_income as modified within the meaning of subparagraph c c in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the regulations provides that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income agi subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple's combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer rete page failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v 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 sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section taxpayers a’s ruling_request requires the internal_revenue_service to determine whether she is eligible for relief under the provisions of sec_301_9100-3 of the regulations although taxpayer a was ineligible to convert her ira x to roth_ira y in year taxpayer a was unaware of these facts until the year and her lack of awareness was primarily based upon her reliance on the advice of her cpa cpa j upon realizing her mistake taxpayer a in a timely manner subsequently submitted this request for relief under sec_301 to the service under the set of circumstances described above taxpayer a satisfies the requirements of sec_301_9100-3 of the regulations accordingly we rule that pursuant to clauses i iii and v of sec_301_9100-3 of the regulations taxpayer a is granted a period not to exceed days from the date of this letter_ruling to recharacterize roth_ira y as a traditional_ira this letter assumes that the above iras qualify under either code sec_408 or code sec_408a at all relevant times this letter is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office page if you wish to inquire about this ruling please contact x xx x sincerely yours frances v sloan ’ manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose cc


department of the treasury internal_revenue_service te_ge eo examinations fulton street room brooklyn ny tax_exempt_and_government_entities_division date number release date legend org organization name xx date address address org address certified mail dear taxpayer_identification_number person to contact identification_number contact telephone number this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated march 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx _ you have failed to establish that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 and that no part of your net_earnings inure to the benefit of private shareholders or individuals you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities and have failed to file information_return form_990 for year ended december 20xx as required by sec_6001 sec_6033 and revrul_59_95 1959_1_cb_627 contributions to your organization are no longer deductible under sec_170 you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments these courts at the following addresses by referring to the enclosed publication you may write to you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing director eo examinations enclosure publication department of the treasury internal_revenue_service metrotech center fulton street brooklyn ny tege eo 7909---5th floor tax_exempt_and_government_entities_division date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely nanette m downing acting director eo examinations enclosures publication publication report of examination letter catalog number 34809f form_886 a name of taxpayer schedule no or exhibit year period ended 20xx explanation of items department of the treasury - internal_revenue_service org a legend org organization name xx date issue whether org org qualifies for exemption under sec_501 of the internal_revenue_code as a public charity after failure to provide requested information facts org failed to respond to numerous correspondence sent to the organization by the internal_revenue_service the service the exempt_organization compliance unit eocu sent a letter to org dated september 20xx the file was assigned to the service’s exempt_organization examination_division the agent who was assigned the file sent the initial contact letter dated august 20xx to the entity the entity provided a response dated august 20xx which included copies of the delinquent returns the entity stated were filed however the response omitted material information needed for the examination of the entity including the delinquent form_990 for the tax period ending 20xx12 the financial records for the tax period form_941 inquiry etc a follow-up information_document_request form request was sent on september 20xx a request for an extension of time was made by the officials and granted until october 20xx no response was submitted by the entity and the official requested an extension of time until after the thanksgiving holiday another follow-up form_4564 request was issued extending the time to submit the request until december 20xx there was no response to the requests submitted by the entity a special drafted 90-day letter was created on january 20xx to submit the required information per form_4564 request exhibit a provides copies of the internal_revenue_service correspondence requesting that the organization file the delinquent forms law internal_revenue_code sec_6001 provides that every person liable for any_tax imposed by the internal_revenue_code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe internal_revenue_code sec_6033 provides that every organization_exempt_from_taxation under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purpose of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe form 886-a ev department of the treasury - internal_revenue_service page -1- form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx org a federal tax regulations sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law federal tax regulations sec_1_6033-2 provides that every organization which is exempt from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt status and administering the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 of the code revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of internal_revenue_code sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 as well as the revenue_ruling organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax conclusions it is the position of the internal_revenue_service that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 as a private_foundation accordingly the organization’s exempt status is revoked effective january 20xx form 886-a rev department of the treasury - internal_revenue_service page -2-