t c summary opinion united_states tax_court david timothy and jennifer f heydt petitioners v commissioner of internal revenue respondent docket no 13093-08s filed date david timothy and jennifer f heydt pro sese jill morris and janice b geier for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the issue for decision is whether petitioners are entitled to a dollar_figure1 deduction for alimony paid to pamela f heydt former spouse in background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference when the petition was filed petitioners resided in oregon in petitioner david timothy heydt mr heydt and his former spouse initiated divorce proceedings among other things they agreed to the payment of child and spousal support by mr heydt and the stipulation was incorporated into an order of a california superior court in date specifically mr heydt agreed to pay monthly child_support of dollar_figure on the first of each month from the date of the order he also agreed to pay monthly spousal support of dollar_figure on the 15th of each month from the date of the order in petitioners paid dollar_figure to the placer county department of child_support services california agency the california agency applied dollar_figure of petitioners’ payment to 1petitioners claimed a dollar_figure deduction for alimony paid in petitioners concede that they overstated their deduction by dollar_figure interest on child_support arrearages and dollar_figure to interest on spousal support arrearages as of the close of the arrearages in mr heydt’s child_support obligation were dollar_figure petitioners filed a joint federal_income_tax return for they claimed a dollar_figure deduction for alimony paid in respondent disallowed petitioners’ deduction for alimony paid determined a dollar_figure deficiency in their federal_income_tax and issued a notice_of_deficiency to petitioners i burden_of_proof discussion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden of proving that the determinations are in error rule a 290_us_111 but the burden_of_proof on factual issues that affect a taxpayer’s tax_liability may be shifted to the commissioner if he introduces credible_evidence with respect to the issue sec_7491 and petitioners have not alleged that sec_7491 applies but the court need not decide whether the burden shifted to respondent since the court’s analysis is based on the record before it not on who bears the burden_of_proof ii alimony deduction sec_71 as amended by the deficit_reduction_act_of_1984 publaw_98_369 98_stat_795 defra applies to divorce or separation instruments executed after date sec_1_71-1t temporary income_tax regs fed reg date mr heydt and his former spouse’s stipulation was incorporated into the superior court’s order in date accordingly the tax consequences of petitioners’ payments are governed by relevant sections of the internal_revenue_code as in effect before defra amended sec_71 former sec_215 generally provided that in the case of a husband described in sec_71 there shall be allowed as a deduction amounts includable under sec_71 in the gross_income of his wife payment of which is made within his taxable_year similarly former sec_71 in part provided that if a wife is divorced or legally_separated from her husband under a decree of divorce or separate_maintenance the wife’s gross_income includes periodic_payments received after the decree in discharge of a legal_obligation which because of the marital or family relationship is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation sec_71 in part provided that sec_71 does not apply to that part of any payment which the terms of the decree instrument or agreement fix in terms of an amount of money or a part of the payment as a sum which is payable for the support of minor children of the husband and if any payment is less than the amount specified in the decree instrument or agreement then so much of the payment as does not exceed the sum payable for child_support shall be considered a payment for child_support sec_71 sec_163 provides that there shall be allowed as a deduction all interest_paid or accrued within the taxable_year on indebtedness sec_163 however provides that in the case of a taxpayer other than a corporation no deduction is allowed for personal_interest paid_or_accrued during the taxable_year personal_interest means any interest allowable as a deduction under this chapter other than certain exceptions not applicable here sec_163 in 42_tc_983 the payor and payee had entered into a separation agreement in which provided for the payment of alimony and child_support and was incorporated into a decree of divorce when the payor defaulted on his child_support obligation the payee sued for the child_support arrearages interest and costs the court entered judgment in her favor of dollar_figure id pincite the payor and payee stipulated a settlement whereby the payor agreed to pay dollar_figure in satisfaction of the judgment among other things id pincite the payor deducted the dollar_figure payment as alimony id the court held that the dollar_figure payment was allocated first to the outstanding child_support obligation of dollar_figure and then to the costs of dollar_figure and interest on the indebtedness of dollar_figure id pincite the court held further that the payor was not entitled to deduct the portion of the payment allocated to child_support id in 51_tc_1 the payee was awarded a judgment in for specific amounts as alimony temporary support child_support interest and other nondeductible items eg costs legal fees discharge of an encumbrance the payor and payee entered into a settlement agreement whereby the payor agreed to pay the payee dollar_figure the payee agreed to release the payor from certain obligations and all liability under the and judgments and the payee relinquished any claim to further alimony id the payor deducted the dollar_figure payment as alimony id the court held that the dollar_figure payment was first allocated to the payor’s outstanding child_support obligation of dollar_figure and that any excess was to be allocated pro_rata to the remaining items under the judgment eg alimony interest and other nondeductible items id pincite with these principles in mind the court now turns to petitioners’ alimony deduction the court finds that petitioners’ dollar_figure payment is allocated first to mr heydt’s outstanding child_support obligation of dollar_figure notwithstanding that the california agency allocated the payment to interest on the child_support and alimony arrearages see sec_71 smith v commissioner supra pincite borbonus v commissioner supra pincite see also miller v commissioner tcmemo_1972_9 characterization of the payments as child_support or alimony and the right to any deduction must be decided under federal_law because the amount is a payment of child_support as defined by sec_71 petitioners are not entitled to deduct it see sec_215 the court also finds that the remaining dollar_figure is allocated pro_rata as follows dollar_figure2 as alimony paid dollar_figure3 as interest on alimony arrearages and dollar_figure4 as interest on child_support arrearages see smith v commissioner supra pincite borbonus v commissioner supra pincite- accordingly petitioners are entitled to a dollar_figure deduction for alimony paid in see sec_215 but 2dollar_figure x dollar_figure alimony arrearages dollar_figure sum of alimony arrearages total interest 3dollar_figure x dollar_figure interest accrued alimony arrearages dollar_figure sum of alimony arrearages total interest 4dollar_figure x dollar_figure interest accrued child_support arrearages dollar_figure sum of alimony arrearages total interest petitioners are not entitled to deduct those amounts allocated to interest_expense see sec_163 and to reflect the foregoing decision will be entered under rule 5the court notes that the statement petitioners provided represents arrearages and interest as of date to the extent that petitioners might be entitled to a greater deduction for alimony paid in their inexactitude is of their own making see 39_f2d_540 2d cir


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 1-plr-108476-00 date date legend x d1 state this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x on was incorporated on d1 pursuant to the laws of state the shareholders of x intended for x to be treated as an s_corporation effective d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-108476-00 sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer signed dianna k miosi sincerely dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------ ------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ---------------- telephone number -------------------- refer reply to cc psi b01 plr-136350-15 date date legend x y ------------------------------------------------- ein ---------------- -------------------------------------------------- z --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------- ein ---------------- date date date date date state state -------------------------- --------------------- -------------------------- ------------------ ----------------- ---------- -------- plr-136350-15 dear -------------------- this responds to a letter signed date submitted on behalf of z successor to x and y by z’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations made within x was incorporated on date under the laws of state on date x made an election to be treated as an s_corporation on date x converted to y a limited_partnership under the laws of state and made an election to be treated as an association_taxable_as_a_corporation for u s federal_income_tax purposes on date y converted to z a corporation under the laws of state on date all of the shares of z were sold to an unrelated third party purchaser an ineligible s_corporation shareholder x y and z are hereinafter collectively referred to as the taxpayer the conversion on date may have created a second class of stock in violation of the one class of stock requirement under sec_1361 thereby possibly causing x’s s_corporation_election to terminate other than this potential termination of the s_corporation_election z has qualified as an s_corporation the taxpayer represents that the conversions on date and date qualified as f reorganizations within the meaning of sec_368 the taxpayer represents that it believed that the s_corporation_election succeeded to y and z because the conversions were f reorganizations the taxpayer represents that the possible termination of its s_corporation_election was inadvertent and was not motivated by tax_avoidance or retroactive tax planning the taxpayer represents that neither it nor any of its shareholders intended to terminate the taxpayer’s subchapter_s_election in addition the taxpayer represents that other than the possible inadvertent termination the taxpayer has qualified as a small_business_corporation at all times since date further the taxpayer represents that the taxpayer and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided under sec_1362 of the code that may be required by the secretary the taxpayer and its shareholders represent that they have filed all returns consistent with the taxpayer being an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a plr-136350-15 domestic_corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate and a_trust described in subsection c or an organization described in subsection c who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in the termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period of inadvertent termination of the s election agrees to makes such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation is treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that the conversion on date may have caused the taxpayer to have more than one class of stock we conclude however that if the taxpayer’s s election was terminated such termination was inadvertent within the meaning the meaning of sec_1362 therefore the taxpayer will be treated as an s_corporation effective date through date when z was sold provided the taxpayer’s s_corporation_election is not otherwise terminated under sec_1362 except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding the taxpayer’s eligibility to be an s_corporation in addition we express or imply no opinion on conversions on date and date qualified as f reorganizations within the meaning of sec_368 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-136350-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative sincerely david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


significant index nos department of the treasury l u q internal_revenue_service washington d c tax_exempt_and_government_entities_division bec se t-ep kato ai in re company dear this letter constitutes notice that with respect to the above-named defined benefit pension_plan we have granted a conditional waiver of the minimum_funding_standard for the plan_year ended date this conditional waiver for the plan_year ended date has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the waived amount is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which this conditional waiver has been granted this letter also acknowledges the modification of your request of date as your authorized representative stated by letter of date which was transmitted by facsimile you have withdrawn your requests for a waiver of the minimum_funding_standard for the plan_year withdrawn your request for a waiver of the the code on the accumulated_funding_deficiency for the plan_year ending date in h excise_tax due under sec_4971 of and you have the company has an april to march fiscal_year the information furnish indicates that the company had _ negative earnings for the fiscal years ending le in response to these losses and its a inability to service its debt the company significantly reduced fixed payroll costs and sold off its real_estate facilities leasing back a portion for its own use using the proceeds to pay off a substantial portion of its debt to its principal lender concurrently the lender agreed to convert the remaining debt to preferred_stock under an agreement under which the company is required to repurchase such stock over three years beginning with the fiscal_year endin after these changes the company was able to report positive earnings for the fiscal_year endin year ending however through the first four months of the fiscal he company has reported negative earnings as of se the vatue of the assets of the plan was equal tol of the plan’s current_liability because the prospects for recovery are uncertain and because the plan is under-funded we are granting this waiver subject_to the following conditions the contributions required to satisfy the minimum_funding_standard for the plan years - within the meaning of sec_412 of the granted for such years and shall be timely made code without a waiver being the company pays within days of the date of the ruling letter the excise_tax applicable under sec_4971 a of the internal_revenue_code associated with the funding deficiency for the plan_year ended lf these conditions are not satisfied the waiver is retroactively null and void you agreed to these conditions in a letter dated date which was transmitted by facsimile your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year onde should be entered on schedule b actuarial information a copy of this letter is being furnished to your authorized representative pursuant to a power_of_attorney form on file a copy of this letter is also being employee_plans classification in furnished to the enrolled_actuary for the plan sent to the manager ne a copy of this letter should be the date of this letter if you have any questions on this ruling letter please contact sincerely norman greenberg manager employee_plans actuarial group


internal_revenue_service number release date index number ------------------------- - ------------- ---------------------------------- -------------------------------------------- ---------------------- ------------------------------------------ -------------------------- ------------------------ --------------------------------------------- legend legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc fip plr-151475-09 date date company x ------------------------------------------------------------------------------- -------------------------------------- -------------------------------------------------------------- company y --------------------------------------------------------------------------------------------------------------------- --- ------------------------------- parent ------------------------------------------------------------------------------- -------------------------------------------- intermediate parent ------------------------------------------------------------------------------- ---------------------------------------- ultimate parent ---- ------------------------------------------------------------------------------- -------------------------------------------------------------- foreign_country a state b state c state d year ------------ ----------- -------- --------------------- ------- plr-151475-09 year dear ---- --------------- ------- this is in response to your authorized representatives’ submission dated date requesting a ruling on the meaning of the term state law or regulation under sec_817 of the internal_revenue_code_of_1986 facts company x was incorporated and licensed to conduct insurance_business under foreign_country a law company x’s principal office is located in foreign_country a company x does not maintain permanent offices in the united_states all of the stock of company x is owned by parent parent is a corporation organized under the laws of state b all of the stock of parent is owned by intermediate parent a state c_corporation which in turn is owned by ultimate parent a state d corporation company x joins with ultimate parent in filing a consolidated federal_income_tax return company y was incorporated and licensed to conduct insurance_business under foreign_country a law company y’s principal office is located in foreign_country a company y does not maintain permanent offices in the united_states all of the stock of y is owned by company x company y anticipates filing its initial federal_income_tax return by joining in ultimate parent’s consolidated_return for calendar_year in accordance with sec_953 company x has already filed its election statement and company y intends to file its election statement in year consistent with revproc_2003_47 2003_2_cb_55 company x states that it qualifies as a life_insurance_company as defined in sec_816 and subject_to tax under sec_801 company y states that it will qualify as a life_insurance_company as defined in sec_816 and will be subject_to tax under sec_801 when it begins operations company x issues and company y proposes to issue annuity_contracts and life_insurance contracts apart from the issue addressed in this request for rulings each of the contracts otherwise meets the definition of a variable_contract in sec_817 thus the contracts that are annuity_contracts provide for the payment of annuities and the amounts paid in or the amount_paid out reflect the investment return and the market_value of the separate_accounts likewise for contracts that are life_insurance contracts the amount of the death_benefit or the period of coverage is adjusted on the basis of the investment return and the market_value of the separate_accounts premiums_paid for the contracts less any applicable charges are allocated to separate_accounts company x's separate_accounts are established pursuant to a private act plr-151475-09 that it obtained in year which modifies foreign_country a’s law as it applies to company x as represented below the legal effect of the private act is that assets credited to a separate_account are not available to pay the amounts due to creditors whose claims do not relate to that separate_account prior to issuing any contracts company y will obtain its own private act that will have the same legal effect with respect to separate_accounts it establishes the contracts are designed to comply with sec_72 sec_817 sec_7702 and sec_7702a as applicable company x has issued contracts since year whereas company y will begin issuing them in year or thereafter the company x and company y plan to issue contracts only to non-united states persons but they may issue contracts to u s persons in the future for purposes of this request for rulings company x and company y represent as follows a company x has satisfied and company y will satisfy all requirements of sec_953 and applicable procedures thereunder so that each company will be treated as a domestic_corporation for united_states tax purposes b apart from the requirement that the separate_accounts supporting the contracts be segregated from each company’s general_asset_account pursuant to state law or regulation each of the contracts otherwise meets the definition of a variable_contract in sec_817 c the legal effect of the private act pursuant to which the separate_accounts are or will be established is that assets credited to a separate_account are not available to pay the amounts due to creditors whose claims do not relate to that separate_account d generally for purposes of part i of subchapter_l the amount of the life_insurance_reserves for the contracts will be based on their net surrender values as provided in sec_807 reflecting the values of the underlying separate_account assets supporting the contracts ruling requested for purposes of sec_817 of the code the separate_accounts to which company x allocated and company y will allocate all or part of the amounts received under the life and annuity_contracts which pursuant to foreign_country a law are segregated from the general asset accounts of the companies will be treated as accounts that are segregated from the general asset accounts of the companies pursuant to state law or regulation law and analysis plr-151475-09 sec_817 of the code provides that with respect to variable_contracts increases and decreases in sec_807 reserves attributable to the appreciation and deprecation in the value of the assets in the segregated_asset_account are disregarded for purposes of sec_807 and b under sec_817 the basis of each asset in a segregated_asset_account is increased or decreased by the amount of appreciation or deprecation to the extent the reserves or other items referred to in sec_817 are adjusted sec_817 provides that for purposes of part i of subchapter_l a life_insurance_company which issues variable_contracts shall separately account for the various income exclusion deduction asset reserve and other liability items attributable to such variable_contracts sec_817 defines the term variable_contract for purposes of part i of subchapter_l as a contract that provides for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law or regulation is segregated from the general assets of the company provides for the payment of annuities is a life_insurance_contract or provides for funding of insurance on retired lives as described in sec_807 and in the case of an annuity_contract the amounts paid in or the amounts paid out reflect the investment return and market_value of the segregated_asset_account or in the case of a life_insurance_contract the amount of the death_benefit or the period of coverage is adjusted on the basis of the investment return and market_value of the segregate asset account or in the case of funds held under a contract described in sec_817 the amounts paid in or the amounts paid out reflect the investment return and the market_value of the segregated_asset_account sec_817 of the code provides that for purposes of subchapter_l sec_72 relating to annuities and sec_7702 relating to the definition of a life_insurance_contract a variable_contract other than a pension contract which is otherwise described in sec_817 and which is based on a segregated_asset_account shall not be treated as an annuity endowment or life_insurance_contract for any period and any subsequent period for which investments made by such account are not in accordance with regulations prescribed by the secretary adequately diversified sec_7701 of the code provides a when used in this title where not otherwise distinctly expressed or manifestly incompatible with the intent thereof - united_states the term united_states when used in a geographic sense includes only the states and the district of columbia plr-151475-09 state the term state shall be construed to include the district of columbia where such construction is needed to carry out the provisions of this title sec_953 provides in general if - a a foreign_corporation is a controlled_foreign_corporation as defined in sec_957 by substituting percent or more for more than percent and by using the definition of united_states_shareholder under sec_953 b such foreign_corporation would qualify under part i or part ii of subchapter_l for the taxable_year as if it were a domestic_corporation c such foreign_corporation meets such requirements as the secretary shall prescribe to ensure that the taxes imposed imposed on it by chapter of the code are paid and d such foreign_corporation makes an election to have this paragraph apply and waives all benefits to such corporation granted by the united_states under any treaty for purposes of this title such corporation shall be treated as a domestic_corporation sec_953 provides that for purposes of sec_953 and sec_954 the determination of whether a contract issued by a controlled_foreign_corporation or a qualified_business_unit within the meaning of sec_989 is a life_insurance_contract or an annuity_contract shall be made without regard to sec_72 sec_101 sec_817 and sec_7702 if - a such contract is regulated as a life_insurance or annuity_contract by the corporation’s or unit’s home_country and b no policyholder insured annuitant or beneficiary with respect to the contract is a united_states_person the issue presented in this case is whether the company x’s and company y’s companies’ separate_account products are variable_contracts as defined in sec_817 of the code the difficulty in this case lies in sec_817 which requires a sec_953 provides an exception to the electing corporation’s treatment as a domestic_corporation it provides that if any corporation treated as a domestic_corporation under sec_953 is treated as a member_of_an_affiliated_group for purposes of chapter relating to consolidated_returns any loss of such corporation shall be treated as a dual_consolidated_loss for purposes of sec_1503 without regard to paragraph b thereof plr-151475-09 variable_contract to provide for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law or regulation is segregated from the general assets of the companies emphasis added the term state is defined in sec_7701 and which are set forth above the implication from these paragraphs of sec_7701 is that the term state means that one of the states or the district of columbia this implication is however subject_to the flush language appearing at the beginning of sec_7701 when used in this title where not otherwise directly expressed or manifestly incompatible with the intent thereof sec_817 does not contain a distinctly expressed meaning for state other than one of the states or the district of columbia neither does the legislative_history underlying this code provision thus our task is to determine whether the sec_7701 meaning of state - one of the states or the district of columbia - is manifestly incompatible with the intent of federal tax law in the context of sec_817 and a foreign taxpayer that has elected to come within the provisions of sec_953 in this case the companies have elected or will elect under sec_953 to be treated for purposes of the federal tax law as a domestic_corporation if the companies’ separate_account contracts are not treated as variable_contracts because state is given a restrictive meaning companies and any of their u s policyholders will in the following respects be treated differently from a situation involving a domestic life_insurance_company sec_817 requires that a life_insurance_company that issues variable_contracts separately account from the various income exclusion deduction asset reserve and other liability items properly attributable to such variable_contracts if the companies’ contracts are not variable_contracts even though they have separate_accounts protected from the companies’ general creditors the policyholders and the companies will not receive separate_account treatment this would be a major difference between the treatment of a domestic life_insurance_company and sec_953 electing company issuing a similar product this disparity of treatment is readily seen if we focus on the treatment of the reserves for the companies and a domestic company’s separate_account products first assume that the companies’ reserves for its separate_accounts do not receive the treatment mandated by sec_817 a - c for variable_contracts the reserves estabished by the companies for their life_insurance contracts should qualify as life_insurance_reserves under sec_807 the companies will be allowed a deduction for increases in the reserve under sec_805 and sec_807 and will be required to include deceases in reserves in gross_income under sec_803 and sec_807 the amount of the reserves will be sec_7701 is actually a definition of the term united_states sec_7701’s definition of united_states helps place sec_7701’s definition of state in context plr-151475-09 established under sec_807 as the greater of the net_surrender_value of the contract or the reserve established under sec_807 if the value of the underlying assets held in the separate_account increases the cash_surrender_value of the contract will increase the companies will be entitled to a deduction for the increase in the reserve no adjustment will be made to the basis of the assets to reflect the increase in market_value when the assets are sold the companies will recognize a capital_gain accordingly the companies will recognize a current deduction when the value of the assets increases and a future capital_gain when the assets are disposed in contrast life_insurance_companies that are subject_to sec_817 would not recognize a current deduction for the increase in reserve attributable to the increase in the value of the assets and due to the basis_adjustment provisions of sec_817 would not recognize any gain on the disposition of the assets conversely if the value of the assets held in the separate_account decreases the cash_surrender_value of the contract will decrease if sec_817 does not apply to the companies the companies unlike domestic life_insurance_companies subject_to the provisions of sec_817 will be required to include the decrease in reserves in gross_income no adjustment will be made to the basis of the assets to reflect the decrease in market_value when the assets are sold the companies will recognize capital losses accordingly the companies will recognize current ordinary_income when the value of the assets decreases and a future capital_loss when the assets are disposed if the companies’ separate_account products are not treated as variable_contracts its contracts will receive different treatment from domestic contracts under sec_817 and the regulations thereunder prescribing diversification rules the diversification rules under sec_817 only apply to variable_contracts other than pension_plan_contracts thus if the companies’ separate_account products are not variable_contracts the diversification rules would be inapplicable to them the code’s sanction for not meeting the diversification requirements is severe sec_817 provides that for purposes of subchapter_l sec_72 and sec_7702 a variable_contract that does not meet the diversification requirements shall not be treated as an annuity endowment or life_insurance_contract for any period and any subsequent period for which the investments made by the segregate asset account are not adequately diversified under regulations prescribed by the secretary the diversification rule_of sec_817 was added to the code in the tax_reform_act_of_1984 the senate_finance_committee in s prt 98th cong 2d sess explained the purposes of new sec_817 as follows the bill adopts a provision that grants the secretary_of_the_treasury regulatory authority to prescribe diversification standards for investments of segregated assets accounts underlying variable_contracts the diversification plr-151475-09 requirement is provided in order to discourage the use of tax-preferred variable annuities and variable life_insurance primarily as investment vehicles the committee believes that by limiting a customer’s ability to select specific investments underlying a variable_contract the bill will help ensure that a customer’s primary motivation in purchasing the contract is more likely to be the traditional economic protections provided by annuities and life_insurance if the companies’ separate_account products are denied variable account status then as stated above the diversification rules of sec_817 and the regulations thereunder will not apply to the companies’ separate_account products the result will be that the companies’ separate_account products will be recognized as life_insurance contracts without meeting the diversification rules of the code and regulations further congress’ stated purpose in enacting the diversification requirements to discourage the use of tax-preferred variable_annuity and variable life_insurance primarily as investment vehicles would be subverted thus another anomaly will exist if the companies’ separate_account products are denied variable account status a foreign_insurance_company that elected to be treated as a domestic insurance_company under sec_953 would be able to issue separate_account products that do not meet the diversification rules but nevertheless qualify as life endowment or annuity_contracts the inside_buildup on the electing foreign company’s nondiversified contracts would not be subject_to current taxation while the inside_buildup on nondiversified contracts issued by domestic companies would be subject_to current taxation this is a dubious result which does not treat the electing sec_953 company the same as a domestic company the electing foreign company is given better treatment and their policyholders given less protection against what congress saw as an abusive use of separate_account products the anomalies that we have discussed above with respect to reserves for separate_account products and with respect to the diversification standards exist because sec_953 was added to the code later than sec_817 which was added to the code in we conclude in light of the anomalies whose existence we have demonstrated the statutory scheme of sec_953 permitting an electing foreign_insurance_company to be treated as a domestic insurance_company for all purposes except with respect to dual consolidated losses is manifestly incompatible with giving state a restrictive meaning in sec_817 and denying variable_contract status to companies’ separate_account products we conclude that in the context of electing sec_953 companies state in sec_817 should be interpreted broadly enough to include the jurisdiction cf 365_fsupp_459 s d n y dealing with the six year statute_of_limitations in which the court found reasons including legislative_history not to use sec_7701’s definition of united_states and instead used a broader definition sec_953 was added to the code by section a of the technical_and_miscellaneous_revenue_act_of_1988 effective for tax years beginning after date plr-151475-09 exercising statutory or regulatory authority over the companies’ separate_accounts in this case that is foreign_country a another provision that further supports our conclusion is sec_953 set forth above sec_953 was added to the code in by section b b of the tax and trade relief extension act of pub_l_no if the foreign controlled corporation’s separate_account products are regulated as life_insurance or annuity_contracts by the home_country and no policyholder insured annuitant or beneficiary with respect to the contract is a united_states_person the reference to sec_817 is given a restrictive meaning conclusion for purposes of sec_817 of the code the separate_accounts to which company x allocated and company y will allocate all or part of the amounts received under life_insurance and annuity_contracts issued by the companies which pursuant to foreign_country a law are segregated from the general asset accounts of the companies will be treated as accounts that are segregated from the general asset accounts of the companies pursuant to state law or regulation caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or reference in this ruling letter no opinion is expressed or implied concerning any foreign_insurance_company that has not made an election to be treated as a domestic company under sec_953 this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the authorization on file with this office copies of this letter are being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-151475-09 sincerely s donald j drees jr senior technician reviewer financial institutions products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-106402-02 date date legend x a date date year dear this letter responds to a letter dated date requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date a the president of x represents and x’s form ss-4 application_for employer_identification_number indicates that x was intended to be an s_corporation beginning on date however no timely filed form_2553 election by a small_business_corporation was filed on behalf of x for year sec_1362 provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be plr-106402-02 attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service q l washington d c c we qa q q we uil tax_exempt_and_government_entities_division date g je p00 contact person identification_number telephone number t e0 b3 employer_identification_number n i u w dear sir or madam this letter is in response to x's request and subsequent correspondence requesting rulings relating to x's public charity status factual representations x is a corporation organized and existing under state law it was incorporated on date x has received a letter from the internal_revenue_service determining that it is exempt from federal_income_tax under sec_501 c of the internal_revenue_code x has been classified as a public charity under sec_509 and sec_170 while x more generally describes its exempt purposes as operating exclusively for charitable scientific religious literary and or scientific purposes both its promotional materials and its document titled procedures for donor advised funds hereafter procedures indicate that x’s primary exempt focus is on y organizations exempt under sec_501 of the code article sec_2_1 of its procedures identifies its exempt purposes as including providing grants to exempt y organizations and specifically identifying the type of y grantees it would-support further its procedures define the term y x's promotional materials will restrict x's grants to sec_501 public_charities and sec_170 government entities the eligible exempt_organizations are not geographically restricted under its procedures x is establishing donor advised funds hereafter dafs x has established three types of funds an endowment fund a regular daf and a general fund collectively funds hereafter -2- the endowment fund allows donors to make gifts and contributions to x for two purposes the first is where the donor specifies at the time of the gift the recipient exempt_organizations that will receive fund principal and recommend but not specify the amounts and the times of distribution to those designated organizations the second allows the donor to recommend either in the year of the contribution or after such year recipients that are exempt_organizations to receive all or stated portions of the fund’s income and principal each year that makes-up the donor’s sub account in the fund the regular daf allows donors to make gifts and contributions to x for the purpose of setting up separate_accounts under x’s ownership and control thereafter the procedures allow a donor to such fund to recommend but not require distribution from the daf to one or more specific beneficiaries in furtherance of x’s exempt_purpose the donor recommended beneficiaries must be exempt_organizations with goals and purposes compatible with the stated goals and purposes of x x has also established a general fund which may receive gifts and contributions from donors without providing for any endowment specification or donor recommendation by the transferor donors for purposes of determining x’s ownership dominion and control_over funds x asserts that it will be governed by sec_1_507-2 of the income_tax regulations article ill of x’s procedures states generally as follows x shall be the owner in fee of all assets it receives all assets shall be held and administered by x in a manner consistent with one or more of its exempt purposes the board_of trustees of x shall have the ultimate authority and control_over all assets and income therefrom and the board_of trustees of x shall at all times be organized to operate independently from all donors to x article ill then continues to recite nearly every factor listed in sec_1_507-2 of the regulations that would support the conclusion that x exercises full ownership dominion and control_over the assets and funds it receives from its donors article of the procedures of x provides that because the funds are the property of x the property and interest therefrom may be commingled with other funds established by x or donors and may be invested in a common_investment_fund that is established or used by x x will maintain separate_accounting records for each of the funds until that fund is closed article further provides that because the funds are the property of x it has full authority for investments of the principal and interest therefrom of each fund and is not bound by investment restrictions applicable to fiduciaries article of the procedures provides that x expects that its grant distributions for the year will equal or exceed percent of its average net assets on a fiscal_year rolling basis if this level of grant activity is not attained x will identify the named accounts from which grants over veo the same period totaled less than percent of each account's average assets x will then contact the donors of these accounts to request that they recommend grants of at least this amount if a donor does not provide the qualified_grant recommendations x is authorized to transfer up to percent of assets from the donor’s named account to the charity selected by x article a of the procedures provides that all of x’s solicitations written or oral for funds shall state that x will investigate allegations of improper use of grant funds for the private benefit of donors such private benefit is prohibited such statement will also be included in x's promotionai materials article b of the procedures provides that all grantee letters shall state that grants shall be used by grantees exclusively in furtherance of charitable purposes and cannot be used for the private benefit of the donors or the grantees with respect to the dafs article a provides that the privilege of making recommendations by donors may be exercised for a period of ten years from the date of establishment of the fund and x may extend in writing the privilege of making recommendations beyond said ten year period if x determines in its sole discretion that substantial additional contributions have been made and the donor has maintained a continuing charitable involvement with x article of the procedures provides that x shall be the owner in fee of the earnings from investments of donor gifts and shall retain ultimate and full authority and control_over such eamings ordinarily attributable earnings shall accrue to the endowment funds but x retains the right to grant up to percent of the earnings attributable to endowment funds to x’s general fund article of the procedures aiso provides that regular dafs shall accrue no earnings and x will only be accountable for principal amounts and distribution of said principal amounts under article of the procedures x shall establish and maintain a priority guideline list of specific charitable needs and particular causes that further its exempt purposes and such guideline list shall be made available to donors x shall consult this priority guideline list and the advice from the donor in approving distributions from the fund created from donor contributions article a of the procedures provides that x’s staff shall independently investigate all recommendations and prepare a report of its determination whether the recommendation furthers the exempt purposes of x and otherwise meets charitable needs most deserving of support by x both as to beneficiary and amount and timing x's promotional materials make it clear that it will not be bound by the advice of donors the procedures also provide for minimum amounts for contributions to the funds as well as minimum amount for distributions an amount for the minimum fund balance is suggested the procedures provide for the prorating of administrative costs to each fund regular dafs shall be charged no administrative costs provided the number of distributions from an account do not exceed per year there is a z fee for investigating recommendations vy x's submission includes sample promotional material as well as a sample donor_advised_fund gift form law and analysis sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable and other exempt purposes sec_507 of the code deals with the termination of private_foundations sec_1_507-2 of the income_tax regulations provides factors including adverse factors for determining whether a private_foundation has made a valid transfer of all of its right title and interest in and to all of its net assets to a transferee organization sec_509 of the code defines a private_foundation as something other than an organization qualifying as a public charity a daf must have appropriate control and ownership over the donated assets the service applies the material restriction or condition provisions relating to the termination of private_foundation_status in sec_1_507-2 of the income_tax regulations to measure the level of control thus by analogy the regulation is used to determine whether the daf has sufficient dominion and control_over the funds contributed to it to be treated for tax purposes as the owner of the assets the information represented indicates that x will indeed exercise dominion and control_over the assets and income in the dafs the factors in sec_1_507-2 of the regulations support the conclusion there is no inappropriate reservation of a material restriction or condition by a donor who makes a gift to x for example x will make an independent investigation of whether the donor's recommendation is consistent with its charitable purpose x has promulgated guidelines enumerating specific charitable needs and has made donor’s aware of such guidelines x’s solicitation materials specifically state x will not be bound by the advice offered by the donor further x’s solicitations of funds does not create an expectation by donors that the donors advice will necessarily be followed by x further x represents that it will not follow the advice of all donors with respect to their funds substantially_all the time other factors support the conclusion that x exercises dominion and contro over the dafs and that the donors do not reserve a material restriction or condition with respect to their separate_accounts x has also imposed a percent distribution requirement x has a statement in the solicitation materials regarding investigation of improper use of grant funds and has included a statement in the grantee letters regarding proper use of charitable grants additional factors favoring x is it is responsible for all investment of donor funds and income is not accrued to a donor's account except for the endowment accounts and even with endowment accounts x has the right to distribute percent of earnings vw rulings based on x’s representations and information submitted x will exercise ownership dominion and control_over the dafs and no donor material restrictions or conditions exist we conclude that the donor advised funds are to be treated as commingled accounts of x's overall fund and not as separate and individual legal or trust accounts of each donor advisor in the nature of mini private_foundations accordingly based on the facts and representations submitted we hold as follows donor transfers of assets or funds to x with respect to the dafs represent transfers of all of the right title and interest of donors in and to the transferred properties the transfers are not subject_to any material restrictions or conditions within the meaning of sec_1_507-2 of the regulations contributions by donors of assets or funds to x with respect to the dafs may be treated by x as contributions of support within the meaning of sec_509 of the code that may cause x to be treated as other than a private_foundation as provided in sec_509 and sec_170 of the code provided the levels of public support meet the criteria set out in the regulations under those stated code provisions since the matters in this ruling are very factual in nature the ruling is valid only to the extent that x’s actual operation and conduct is as represented herein a copy of this letter is being sent to your authorized representative listed on the power_of_attorney on file with this office this ruling is directed only to x sec_6110 of the code provides that this letter may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group c


internal_revenue_service date number release date cc ita tl-n-7313-00 uilc internal_revenue_service national_office field_service_advice memorandum for bradford a johnson associate area_counsel area cc l fsh har attn carmino j santaniella from heather maloy associate chief_counsel cc ita subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend x year year year dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurej issue may the reduction in tax allowed by sec_1341 be taken into account in determining the amount of alternative_minimum_tax amt a taxpayer is required to pay conclusion yes the reduction in tax provided for in sec_1341 which is essentially treated as a payment of tax may be taken into account in determining the total amount of chapter tax that a taxpayer is required to pay because the amt is a tax_imposed_by_chapter_1 of the code the sec_1341 reduction in tax may be taken into account in computing the amount of amt payable facts for calendar_year sec_1 and restoration years x filed consolidated income_tax returns as the common parent of an affiliated_group in each restoration year x returned substantial funds previously included in gross_income under the claim_of_right_doctrine these funds which were reported as income in years inclusion years prior to year sec_1 and consist of access fees ordered to be refunded by local public_utility commissions the refunded amounts were originally reported by x in years in which it was subject_to regular income_tax rates of for some years and for one year x did not pay any other tax such as the corporate_minimum_tax under former sec_56 in any of those years in the restoration years x was subject_to a regular income_tax rate of in statements attached to its year and returns x notified the service that it was claiming certain tax benefits under sec_1341 relating to the refunded access fees x computed its income_tax for each year by reducing its regular income_tax by dollar_figurea dollar_figureb and dollar_figurec respectively as permitted under sec_1341 these amounts represent the repayment amounts multiplied by the income_tax rate differential between the inclusion and restoration years le sec_34 or le sec_34 in year sec_1 x’s tentative_minimum_tax tmt exceeded its regular income_tax by dollar_figured and dollar_figuree consequently x paid amt in those years under sec_55 equal to the excess of its tmt over its regular_tax for year x claimed a credit for prior year minimum_tax of dollar_figuref under sec_53 according to the year and forms x also reduced its tmt for the years in question based on a similar application of sec_1341 specifically the taxpayer reduced its year and tmt by dollar_figureg dollar_figureh and dollar_figurej these amounts were computed by multiplying the repayment amounts for each year by less as a result the tax it actually paid for those years was less than an amount equal to of the alternative_minimum_taxable_income amti the examination team does not disagree with the manner in which x applied sec_1341 in computing its year and regular income_tax they do though disagree with taxpayer’s reduction of the tmt for those same years under sec_1341 in the examiners’ view the maximum amount that the tmt may be reduced for a given restoration year is of the repayment amount law the amt is an alternative_tax that is computed by applying an alternative rate to an alternative income base in computing the amt a corporation determines its tmt for the taxable_year sec_55 tmt is calculated on the basis of the corporation’s amti a broader based calculation of income than that used in calculating the regular federal_income_tax due once the amti is determined the corporation computes its tmt by multiplying by the excess if any of amti over the amt_exemption_amount and then subtracts from this amount the amt foreign_tax_credit sec_55 the regular_tax_liability is then subtracted from the tmt and the amount by which tmt exceeds the regular_tax_liability is the amount of the amt csx corp v united_states f 3d big_number 4th cir 108_tc_11 the amt is paid only if and to the extent that it exceeds the taxpayer’s regular income_tax the corporate amt provisions were enacted as part of the tax_reform_act_of_1986 congress sought a more efficient means of collecting taxes from corporate taxpayers with significant financial profits who were escaping tax_liability through tax_preferences deductions and incentives csx corp f 3d pincite congress determined that the existing minimum_tax on corporations needed modification so that corporations which were prospering but were able to structure their affairs to eliminate significant federal_income_tax would incur some federal tax_liability the changes effectively created a separate parallel tax system in addition to the ordinary corporate_income_tax doyon inc v united_states 214_f2d_1309 fed cir sec_1341 was enacted to eliminate the inequity occasioned by such claim of right cases as 286_us_417 and 340_us_590 in north american the supreme court held that if a taxpayer receives earnings under a claim of right without restriction as to its disposition it has received income which it is required to report even though it may later be adjudged liable to restore it u s pincite sec_1341 enables taxpayers to ameliorate the sometimes harsh result of the claim_of_right_doctrine which requires reporting the income in the year of receipt if it is later determined that the income must be repaid or restored sec_1341 gives taxpayers the ability in the year of restoration to put themselves in the same position as if the income had never been reported the legislative_history of sec_1341 indicates that it was enacted to adequately compensate a taxpayer for the tax it paid for a prior year when it subsequently has been obliged to restore amounts included in gross_income in the prior year because it appeared that it had an unrestricted right to such amounts h_r rep no 83d cong 2d sess s rep no 83d cong 2d sess see also cong rec s22531 daily ed date statement of senator kerr thus the purpose of sec_1341 is to place a taxpayer in no worse tax position than he would have been in had he never received the income originally revrul_72_551 1972_2_cb_508 sec_1341 provides that if an item was included in gross_income for a prior taxable_year or years because it appeared that the taxpayer had an unrestricted right to such item and a deduction is allowable for the current taxable_year because it was established after the close of such prior year or years that the taxpayer did not have an unrestricted right to such item and the amount of such deduction exceeds dollar_figure then the chapter tax_liability is the lesser_of i the tax for the taxable_year computed with such deduction or ii the tax for the taxable_year computed without such deduction minus the decrease in chapter tax for the prior year or years that would result solely from the exclusion of such item from gross_income for such prior taxable_year or years sec_1341 in computing the decrease in chapter tax referred to in ii above the exclusion of such item shall be given effect not only in the taxable_year in which it was included in gross_income but also for any other taxable_year up to and including the restoration year to the extent the exclusion affects the chapter tax for those years sec_1_1341-1 sec_1341 provides that if the decrease in tax computed under ii above exceeds the tax computed under i the excess shall be considered to be a payment of tax on the last day prescribed by law for payment of the tax for the taxable_year and shall be refunded or credited in the same manner as if it were an overpayment for the taxable_year analysis based on the facts recited above which were taken from the request for field_service_advice we have been unable to definitively determine the positions of both the examining agents and x with regard to the proper application of sec_1341 however this does not prevent us from addressing the fundamental issue to compute the decrease in tax under sec_1341 a taxpayer must recalculate its chapter tax for the taxable_year in which the item subject_to sec_1341 treatment was originally included in gross_income by excluding that item from gross_income any chapter tax affected by this exclusion must be recomputed both for the inclusion year and any other taxable_year prior to or including the restoration year that is affected by the exclusion this includes regular_tax amt add-on minimum tax2 or any other tax_imposed_by_chapter_1 of the code there is no authority to exclude the amt from the benefit of sec_1341 for example assume a taxpayer has the following chapter tax_liabilities tmt regular_tax year year dollar_figurex dollar_figurex 90x 90x although this regulatory provision literally only applies to the extent that the exclusion results in a net_operating_loss or capital_loss_carryover carryback for the inclusion year to serve the purpose of sec_1341 the rule should also apply to take into account the effect of other tax_attributes such as credits that are freed-up or generated as a result of the exclusion sec_1_1341-1 makes clear that any increase in add-on_minimum_tax that would have resulted from excluding an item from gross_income in an inclusion year because of the reduction in the regular_tax_deduction taken for add-on_minimum_tax purposes must be taken into account in determining the sec_1341 decrease in chapter tax for the inclusion year amt 0x 0x regular_tax 90x 90x total chapter tax dollar_figure 90x dollar_figurex in year it is determined that the taxpayer did not have a right to dollar_figurex of gross_income reported for year the taxpayer restores this income to its rightful owner and properly claims a dollar_figurex deduction for that restoration in year assume the deduction qualifies for sec_1341 treatment if the taxpayer had excluded the dollar_figurex from gross_income in year its year and year chapter taxes would have been as follows year year dollar_figurex dollar_figurex tmt regular_tax 73x 90x amt 7x 0x regular_tax 73x 90x subtotal 80x 90x minimum_tax_credit 0x 7x total recomputed chapter tax 80x 83x chapter tax as originally reported 90x 90x sec_1341 decrease in chapter tax dollar_figurex dollar_figure 7x a comparison of the taxpayer’s chapter tax_liability for year both with and without the dollar_figurex deduction follows with without tmt dollar_figurex dollar_figurex 73x 90x regular_tax amt 37x 30x 90x regular_tax 73x total chapter tax dollar_figurex dollar_figurex because excluding the dollar_figurex from gross_income in year results in a greater chapter tax reduction than taking the dollar_figurex deduction for year dollar_figurex versus dollar_figurex the taxpayer computes its total chapter tax_liability under sec_1341 for year it appears that in the instant case the only chapter tax_liability that x may have been subject_to in some of the inclusion years may have been the regular_tax however the analysis remains the same under sec_1341 x is entitled to take the net decrease in chapter tax no matter what the components thereof into account in determining how much chapter tax it is required to pay for the restoration years sec_1341 makes clear that the sec_1341 reduction in tax is treated as a payment made on the last day of the taxable_year to the extent it exceeds the chapter tax computed for the restoration year without taking the deduction into account however to serve the intent behind sec_1341 that is to put the taxpayer in no worse position than if the taxpayer had never included the item in gross_income the entire sec_1341 reduction in tax must be treated as a payment of tax for the restoration year the sec_1341 reduction in tax does not affect the computation of tmt regular_tax or any other chapter tax reported for the restoration year it only affects the total amount of chapter tax payable for the restoration year heather maloy by gerald m horan senior technician reviewer income_tax accounting branch