internal_revenue_service number release date index number ------------------------------------------ ------------------------------------------------- ----------------------- ------------------------------------ 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 b02 plr-104519-11 date date taxpayer ------------------------------------------------------------ -------------------------------------------------- ------------ ------------------------------------------------------ ---------------------------------------- ---------------------- ------------------------- ---- ---- ---- ------ ---- ------ state advisor dealer manager date date a b c d e f dear ------------------ plr-104519-11 this is in reply to your letter requesting rulings on behalf of taxpayer you have requested rulings that the issuance of two classes of common_stock with different distribution fees as described below will not cause dividends_paid by taxpayer with respect to its shares to be preferential dividends within the meaning of sec_562 of the internal_revenue_code the issuance of two classes of common_stock with different distribution fees will not cause taxpayer to fail to qualify as a real_estate_investment_trust reit under part ii of subchapter_m of the code and the deferred distribution fees described below will be deductible under sec_162 facts taxpayer is a corporation organized under the laws of state that intends to qualify as a reit within the meaning of sec_856 taxpayer uses an overall accrual_method of accounting and the calendar_year as its taxable_year taxpayer will be externally managed by advisor taxpayer intends through its operating partnership to invest primarily in freestanding single-tenant retail properties in the united_states net leased to investment grade and other creditworthy tenants taxpayer may also invest in other real_estate related investments taxpayer’s primary investment objectives are to preserve and protect capital provide attractive and stable cash distributions and increase the value of assets in order to generate capital appreciation taxpayer’s shares of common_stock are not listed on a securities exchange stockholders will however obtain liquidity for their shares through taxpayer’s share repurchase plan the repurchase plan would generally allow stockholders to request on a daily basis that taxpayer redeem their shares at the net asset value nav per share taxpayer’s shares will be distributed on a reasonable best efforts basis through dealer manager non-traded reits have been subject_to criticisms for lack of liquidity lack of market pricing of their shares and advisory fees based on the cost of assets rather than performance taxpayer intends to address those issues with its proposed structure taxpayer proposes to adopt a multiple class structure the multi-class structure under the multi-class structure taxpayer will issue two different classes each a class of shares of its common_stock retail shares which will bear certain upfront fees and commissions the retail shares and institutional shares which are intended for those investors with accounts managed by registered investment advisors rias including wrap accounts the institutional shares the retail shares will bear a selling commission equal to a of the gross_proceeds of taxpayer’s primary offering the selling commission and a dealer manager fee equal to b of the gross_proceeds of taxpayer’s primary offering the dealer manager fee each investor will pay taxpayer the selling commission and the dealer manager fee in connection with its acquisition of retail shares and plr-104519-11 taxpayer will in turn pay both the selling commission and the dealer manager fee to the dealer manager the institutional shares will bear an annual asset-based distribution fee which will be deducted from the nav on the institutional shares the deferred distribution fee equal to c of the nav per institutional share provided that with respect to each institutional share held by an investor the deferred distribution fee will be capped at d of the gross_proceeds from the sale of the institutional share taxpayer will accrue the deferred distribution fee daily and pay it to the dealer manager monthly taxpayer represents that the deferred distribution fee is substantially equivalent to fees that are subject_to rule 12b-1 c f_r sec_270 12b-1 under the investment_company act of usc 80a-1 et seq as amended 12b-1 fees taxpayer will institute a distribution reinvestment plan the drip which will allow investors to elect to have the distributions they receive from taxpayer reinvested in whole or in part in additional shares of the class of stock on which they receive their distributions the purchase_price per share under the drip will be equal to taxpayer’s nav per share determined on a class by class basis on the date that the distribution is payable after giving effect to the distribution no selling commission or dealer manager fee will be payable with respect to retail shares purchased under the drip no deferred distribution fee will be payable with respect to institutional shares purchased under the drip however because the deferred distribution fee reduces the nav for all institutional shares it indirectly affects those institutional shares issued under the drip taxpayer will pay advisor an annual advisory fee based on performance calculated on the basis of taxpayer’s total return to stockholders payable annually in arrears such that for any year in which the taxpayer’s total return on stockholders’ capital exceeds e per annum advisor will be entitled to f of the excess total return not to exceed d of the aggregate total return for that year consistent with the statement of policy regarding real_estate_investment_trusts revised and adopted by the north american securities administrators association nasaa the nasaa reit guidelines advisor will also be entitled to receive subordinated distributions of the following amounts from taxpayer’s operating partnership pursuant to a special limited_partnership_interest in the operating partnership held by advisor subordinated participation in net sales proceeds in general taxpayer expects this to be an amount equal to f of the remaining net sales proceeds after the return_of_capital contributions plus payment to investors of an annual e cumulative pre-tax non-compounded return on the capital contributions by investors plr-104519-11 subordinated incentive listing distribution in general taxpayer expects to be an amount equal to f of the amount by which the sum of taxpayer’s adjusted market_value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual e cumulative pre- tax non-compounded return to investors if taxpayer is listed on a national securities exchange taxpayer will also pay certain expenses and fees each of which will be allocated between the retail shares and the institutional shares based on the relative nav for each class these expenses include but are not limited to asset management fees acquisition fees real_estate commissions and operating expense reimbursement each retail share and institutional share will be entitled to one vote per share taxpayer represents that the only fees that will be specially allocated between the retail shares and the institutional shares are the selling commission the dealer manager fee and the deferred distribution fee on date taxpayer filed a registration_statement on form s-11 to register its shares of common_stock to be offered to the public with the securities_and_exchange_commission sec taxpayer amended its registration_statement on date taxpayer expects to engage in a primary offering of its shares for a three-year period from the effective date of its registration_statement because taxpayer’s shares will not be listed on a national securities exchange its shares will not be covered securities as defined by the national securities markets improvement act of therefore taxpayer will have to register its shares for sale to the public in each of the states the district of columbia and puerto rico before offers and sales may be made in those jurisdictions taxpayer has filed its registration_statement with the states where it intends to offer its shares taxpayer will be subject_to continued compliance with the rules and regulations of the sec and applicable state laws while it offers and sells shares it will also be subject_to ongoing compliance under the securities and exchange act and state laws while some of the states will approve the offering conditioned only upon it being declared effective by the sec without further review the offering is subject_to a merit review by the securities regulators in up to states the merit review process involves the consideration by state securities regulators of whether an offering is fair just and equitable applying both objective and subjective standards law and analysis sec_857 requires in part that a reit’s deduction for dividends_paid for a tax_year as defined in sec_561 but determined without regard to capital_gains dividends equal or exceed of its reit taxable_income for the tax_year determined without regard to the deduction for dividends_paid and by excluding any net_capital_gain plr-104519-11 sec_561 defines the deduction for dividends_paid for purposes of sec_857 to include dividends_paid during the taxable_year sec_561 applies the rules of sec_562 for determining which dividends are eligible for the deduction for dividends_paid under sec_561 sec_562 provides that the amount of any distribution will not be considered as a dividend for purposes of computing the dividends_paid deduction under sec_561 unless the distribution is pro_rata the distribution must not prefer any shares of stock of a class over other shares of stock of that same class the distribution must not prefer one class of stock over another class except to the extent that one class is entitled without reference to waivers of their rights by stockholders to that preference in general stock issuance expenses are capital expenditures not deductible under ' see 651_f2d_828 2nd cir however revrul_73_463 1973_2_cb_34 provides an exception to the general_rule revrul_73_463 holds that stock issuance expenses of an open-end investment_company not incurred in the initial 90-day offering period are deductible as ordinary and necessary business_expenses revrul_94_70 1994_2_cb_17 amplifies revrul_73_463 and holds that 12b-1 fees are indistinguishable from the stock issuance expenses deductible under revrul_73_463 revproc_99_40 1999_2_cb_565 describes conditions under which distributions made to a shareholder of a regulated_investment_company ric may vary and nevertheless be deductible as dividends under sec_562 revproc_99_40 provides in part that variations in distributions to shareholders that exist solely as a result of certain allocations of fees and expenses described in the revenue_procedure do not prevent the distributions from being dividends under sec_562 the requirements of revproc_99_40 are based on similar requirements contained in rule 18f-3 c f_r 18f-3 under the investment_company act of u s c 80a-1 et seq act that are meant to ensure the fair and equal treatment of shareholders one requirement of revproc_99_40 is that the advisory fee must not be charged at different rates for different groups of shareholders however the groups of shareholders may be allocated and may pay a different advisory fee to the extent that any difference in amount_paid is the result of the application of the same performance fee provisions in the advisory contract to the different investment performance of each group of shareholders as a reit taxpayer is not within the scope of revproc_99_40 however congress and the service have acknowledged the similarity between rics and reits in many areas and have afforded them similar treatment in many situations the legislative_history underlying the tax treatment of reits indicates congress generally intended to equate the tax treatment of reits with the treatment accorded rics reits were created to provide an investment vehicle similar to the ric for small investors to invest in real_estate and real_estate mortgages see h_r rep no 86th cong 2d sess rics and reits are each subject_to the requirements under sec_562 plr-104519-11 prohibiting preferential dividends in order to be entitled to a deduction for dividends_paid under sec_561 under the multi-class structure distributions payable to holders of the proposed retail shares and the institutional shares will differ only by reason of the special_allocation of the selling commission and dealer manager fee to the retail shares and the deferred distribution fee to the institutional shares and differences attributable to different net asset values of each class as permitted under revproc_99_40 with respect to rics the advisory fee is charged at the same rate for each class consistent with the requirement for rics under revproc_99_40 the retail shares and the institutional shares may be allocated and may pay a different advisory fee but only to the extent that any difference in amount_paid is the result of the application of the same performance fee provisions of the advisory contract which is also consistent with the requirement for rics under revproc_99_40 also although taxpayer is not governed by rule 18f-3 it is subject_to numerous sec state and financial industry regulatory authority finra restrictions regulations and oversight with respect to its stock offerings operations and rights of its stockholders taxpayer’s offering is subject_to a merit review that is specifically intended to ensure that stockholders are treated fairly the state review process entails an extensive response process that can last for several months the registration of the offering in the states will expire in most cases after one year and in some cases sooner in order to continue offering shares in those states taxpayer will be required to renew the offering separately with each state the renewal process is generally less involved than the initial registration of the offering but it will still include a merit review by some of the states nasaa has established the nasaa reit guidelines for review of offerings by non-listed reits the nasaa reit guidelines which have been adopted largely intact by all of the states contain comprehensive investor protections for example the nasaa reit guidelines require that a reit’s board_of directors be comprised of a majority of independent directors the nasaa reit guidelines also require a determination by taxpayer’s independent directors that the total fees and expenses of taxpayer are reasonable to holders of both classes this will entail a determination as to whether different expenses charged to different classes are reasonable in addition to the regulatory review of taxpayer’s continuous offering by the sec and states finra rule governs the behavior of financial advisors who participate in taxpayer’s offering pursuant to finra rule all finra member firms who recommend the purchase of taxpayer’s shares to a potential investor must have reasonable grounds to believe the investment is suitable for such investor on the basis of information obtained from the investor concerning his investment objectives other investments financial situation and needs and any other information known by the finra member or registered_representative finra also requires that finra member firms that participate in taxpayer’s offering have reasonable grounds to believe that all plr-104519-11 material facts regarding the program are adequately and accurately disclosed by the program for a continuous offering this obligation applies throughout the duration of the offering as a reit taxpayer is not within the scope of revproc_94_70 and the deferred distribution fee is not technically a 12b-1 fee however as noted above congress and the service have acknowledged the similarity between rics and reits in many areas and have afforded them similar treatment in many situations furthermore the deferred distribution fee is imposed in a manner consistent with 12b- fees accordingly we conclude that taxpayer’s issuance of the retail shares and the institutional shares as described above will not cause dividends_paid by taxpayer with respect to the retail shares and the institutional shares to be preferential dividends within the meaning of sec_562 furthermore the issuance of the retail shares and the institutional shares will not cause taxpayer to fail to qualify as a reit in addition the deferred distribution fee will be deductible under sec_162 except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code furthermore no opinion is expressed concerning the accuracy of the nav of taxpayer’s stock for purposes of subchapter_m this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jonathan d silver________________ jonathan d silver assistant to the branch chief branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury number info release date index no cid washington dc person to contact telephone number refer reply to cc tege eoeg et1- genin-100471- date date dear this is in response to your letter dated date asking for clarification of our position in the case of 255_f3d_599 8th cir in 2001_53_irb_1 date the service announced its nonacquiescence to this case relating to whether early retirement payments that the taxpayer made to tenured faculty members are wages subject_to federal_insurance_contributions_act fica_taxes the text of the action on decision is published in aod lexis i have enclosed a copy for your convenience i hope this information is helpful please call at not a toll- free number if you have any questions sincerely michael a swim chief employment_tax branch office of the associate chief_counsel tax exempt and government entities enclosure


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 tege eb qp2 plr-133791-17 date date legend entity a ------------------------- church official b ---------------------------------------------------------------------------------- church official c church d ------------------------------------------------------------------------ ---------------------------------------------------------------------------------- -------------------------------------- church directory e ---------------------------------------- committee f ---------------------------------------------- ---------------------------------------------------------------------------------- --------- ------- --------------------------- ----------------------- plan x year date date dear ------------- this letter is in response to entity a’s request submitted on its behalf by its authorized representative regarding the status of plan x as a church_plan within the meaning of sec_414 of the internal_revenue_code code plr-133791-17 the following facts and representations have been submitted under penalty of perjury on entity a’s behalf entity a is a residential addiction treatment center that has served church d for more than years entity a provides alcoholism and addiction treatment solely to clergy men and women religious and seminarians entity a is a sec_501 non-profit organization and is listed in church directory e entity a’s articles of incorporation provide that entity a was formed in part to perform the ----------------------------------and to encourage their performance for and on behalf of alcoholics and addicts who are in need the ----------------------------------are a basic foundation of church d historically all members of the board_of trustees of entity a have been members of church d although such membership is not required by the bylaws currently at least five of the members of the board_of trustees are -----------------------------------of church d under entity a’s bylaws a minimum of two board_of trustee seats must be held by alumni of entity a meetings of the board begin and end with a church d prayer upon entity a's dissolution entity a’s assets shall be distributed to church official b and church official c and their successors for the use and benefit of church d the president of entity a is selected by the board_of trustees and also serves as the chief_executive_officer of entity a the executive leadership of entity a appointed by the board_of trustees historically has consisted of members of church d and often entity a’s spiritual director or pastor will conduct a traditional ------------------------------------ ------------formally recognizing the executive leader as a ------------- of church d entity a’s bylaws also provide for the appointment of advisory boards whose purpose is to assist management in improving entity a’s services to church d entity a has two such advisory boards all board members of the advisory boards are members of church d and of the board members are -----------------------------------of church d each of entity a’s campuses includes a church d chapel the majority if not all of the governance fundraising and alumni activities of entity a are accompanied by a celebration of a church d religious service and a daily church d religious service is held on entity a’s campus for the benefit of entity a’s staff and clients when clients of entity a are discharged from treatment a church d religious service is held in the client’s honor entity a established plan x a defined_benefit_plan qualified under sec_401 effective in year in order to provide retirement benefits to eligible employees of entity a plan x was frozen effective date plr-133791-17 entity a has the authority to designate the plan_administrator of plan x and has established committee f to administer the retirement benefits of employees of entity a including plan x the members of committee f are appointed by the board_of trustees committee f is comprised of three members entity a’s chief_executive_officer ceo chief financial officer cfo and human resources manager the ceo and cfo are members of church d and members of committee f carry out their duties in accordance with entity a’s mission none of the eligible participants in plan x are employed in connection with a for-profit entity or one or more unrelated trades_or_businesses of entity a within the meaning of sec_513 neither entity a nor committee f has ever filed an affirmative and irrevocable election attached to a form_5500 annual return report of employee_benefit_plan or a form_5300 application_for determination for employee_benefit_plan under sec_410 with regard to plan x however entity a has in the past voluntarily operated plan x in compliance with standards of the employee_retirement_income_security_act_of_1974 erisa as amended including filing form_5500 for the plan paying premiums to the pension_benefit_guaranty_corporation and updating and amending the plan on a continuous basis a notice to interested persons regarding plan x was provided in accordance with revproc_2011_44 2011_39_irb_446 this notice explained the consequences of church_plan status based on the foregoing entity a requests the following rulings a that plan x is and has been a church_plan retroactive to date under the provisions of sec_414 of the code b that entity a’s administration and operation of plan x through committee f as if subject_to title i of erisa does not constitute an irrevocable election under sec_410 with respect to your first ruling_request sec_414 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 sec_414 provides in part that the term church_plan does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 or sec_414 or their beneficiaries plr-133791-17 sec_414 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 see advocate health care network v stapleton 137_sct_1652 holding that a plan that is maintained by an organization described in sec_414 may be a church_plan under sec_414 even if it was not established by a church or a convention or association of churches sec_414 generally defines employee of a church or a convention or association of churches 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 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 provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches revproc_2011_44 2011_39_irb_446 supplements the procedures for requesting a letter_ruling under sec_414 relating to church plans the revenue_procedure requires that plan participants and other interested persons receive a notice in connection with a letter_ruling request under sec_414 for a qualified_plan requires that a copy of the notice be submitted to the irs as part of the ruling_request and provides procedures for the irs to receive and consider comments relating to the ruling_request from interested persons in order for an organization that is not itself a church or a convention or association of churches to have a qualified church_plan it must establish that its employees are employees or deemed employees of a church or a convention or association of churches under sec_414 by virtue of the organization’s control by or association with the church_or_convention_or_association_of_churches employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 and is controlled by or associated plr-133791-17 with a church or a convention or association of churches in addition in order to be a church_plan the administration or funding or both of the plan must be by an organization described in sec_414 to be described in sec_414 an organization must have as its principal purpose the administration or funding of the plan and must also be controlled by or associated with a church or a convention or association of churches with respect to your ruling_request under the facts you have represented entity a is a residential addiction treatment center that serves clergy men and women religious and seminarians of church d entity a is listed in church directory e and is a sec_501 non-profit organization entity a’s bylaws provide that one of the purposes of entity a is to carry out certain tenets of church d historically all members of the board_of trustees of entity a have been members of church d upon entity a’s dissolution entity a’s assets are required to be distributed to church official b and church official c for the use and benefit of church d entity a’s bylaws provide for the appointment of advisory boards whose purpose is to assist management in improving entity a’s services to church d each of entity a’s campuses includes a church d chapel the majority if not all of the governance fundraising and alumni activities of entity a are accompanied by a church d religious service and a daily church d religious service is held on entity a’s campus you represent that none of the eligible participants in plan x are employed in connection with a for-profit entity or one or more unrelated trades_or_businesses of entity a within the meaning of sec_513 based on these facts we conclude that entity a is controlled by or associated with church d for purposes of sec_414 we further conclude that the employees of entity a are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization 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 committee f is the plan_administrator of plan x and its sole purpose is to administer entity a’s employee benefit plans the members of committee f are appointed by the board_of trustees of entity a and include entity a’s chief_executive_officer chief financial officer and human resources manager the chief_executive_officer of entity a is selected by the board_of trustees and has historically been a member of church d the spiritual director or pastor of entity a will often conduct a traditional ------ -------------------------------------------- formally recognizing the ceo as a ------------- of church d we thus conclude that committee f is controlled by or associated with church d accordingly plan x is maintained by an organization that is controlled by or associated with a church or a convention or association of churches the principal purpose or plr-133791-17 function of which is the administration of plan x for the provision of retirement benefits for the deemed employees of a church or a convention or association of churches based on the foregoing facts and representations we conclude that plan x is a church_plan as defined in sec_414 and has been a church_plan since date with respect to your second ruling_request sec_410 allows a church or a convention or association of churches which maintains any church_plan to make an irrevocable election that certain provisions of the code and title i of erisa shall apply to the plan as if it were not a church_plan sec_1_410_d_-1 of the regulations provides that the plan_administrator of the church_plan may make the election by attaching an affirmative statement to either i the plan’s annual return required under sec_6058 ie form with respect to the plan which is filed for the first plan_year for which the election is effective or ii a written request for a determination_letter relating to the qualification of the plan eg form sec_1_410_d_-1 does not provide for an alternative form of election accordingly we conclude that the administration and operation of plan x through committee f as if it were subject_to title i of erisa does not constitute an election under sec_410 this letter expresses no opinion as to whether the plan x satisfies the requirements of sec_401 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 provides that it may not be used or cited as precedent 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 as specified in revproc_2018_1 2018_1_irb_1 b this office has not verified any of the material submitted in support of the request_for_ruling and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions the controlling facts change during the course of the transaction see revproc_2018_1 sec_11 plr-133791-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lauson c green branch chief qualified_plans branch office of associate chief_counsel tax exempt and government entities-


internal_revenue_service number release date index number ------------------------------------ ------------------------------------------ -------------------------- ---------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ---------------- ----------------- telephone number --------------------- refer reply to cc psi b04 plr-125222-10 date ------------------------------- date ----- decedent date date trust individual a individual b individual c individual d individual e individual f individual g individual h charity charity foundation charity charity charity x ------------------------ ---------------- ----------------------- ----------------------------------------------------------------------------------- ---------- -------------------- ------------------------ ------------------------ ----------------- ------------------------- ----------------------- ------------------- ----------------------------- -------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------- ------------------------------- --------- dear ------------------ this letter responds to your submission dated date and subsequent correspondence requesting rulings concerning the reformation of a_trust under sec_2055 of the internal_revenue_code decedent died testate on date a date after date under decedent’s will the residue was bequeathed to trust income is payable to individual a and individual b for their concurrent and consecutive lives during that period dollar_figurex is payable annually to plr-125222-10 each of charity and charity individuals a and b survived decedent but are not individuals described in sec_20_2055-2 of the estate_tax regulations trust terminates on the death of the last to die of individual a and individual b at that time dollar_figurex is distributed to charity dollar_figurex is distributed to charity dollar_figurex is distributed to individual c and dollar_figure 5x is distributed to each of individuals d e f and g the remaining trust corpus is then distributed one-third to individual h one-third to charity foundation and one-third to charity on date a date before the 90th day after the last date including extensions for filing decedent's_estate tax_return the executor of decedent’s estate commenced a judicial proceeding under the provisions of state law and sec_2055 the executor proposes to reform trust to create two trusts a charitable_lead_annuity_trust clat and a charitable_remainder_unitrust crut the clat will pay dollar_figurex annually to each of charity and charity for a period of years the term corresponding to the actuarial life expectancy of individuals a and b on the expiration of the 22-year term dollar_figurex is distributed to individual c dollar_figure 5x is distributed to each of individuals d e f and g and the remainder is distributed to individual h the trust will comply with the terms of revproc_2007_46 2007_1_cb_102 which contains trust provisions that meet the requirements for a testamentary charitable_lead_annuity_trust providing for annuity payments payable to one or more charitable beneficiaries for the annuity period followed by the distribution of trust assets to one or more noncharitable remaindermen the crut will pay a unitrust_amount to individual a and individual b or the survivor of them on the death of the last to die of individual a and individual b dollar_figurex is distributed to charity dollar_figurex is distributed to charity and the remainder is divided equally between charity foundation and charity the trust will comply with the terms of revproc_2005_59 2005_2_cb_412 which contains trust provisions that meet the requirements for a testamentary charitable_remainder_unitrust with concurrent and consecutive interests for two measuring lives followed by the distribution of trust assets to a charitable remainderman sec_664 provides in relevant part that a crut is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or plr-125222-10 for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_2055 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises or transfers to or for_the_use_of religious charitable scientific literary or educational organizations described in sec_2055 through a sec_2055 provides that where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest which is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 no deduction shall be allowed under sec_2055 for the interest that passes or has passed to the person or for a use described in sec_2055 unless - a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly sec_20_2055-2 provides in part that in the case of decedents dying after date where an interest in property passes or has passed_from_the_decedent for charitable purposes and an interest in the same property passes or has passed form the decedent for private purposes no deduction is allowed for the value of the interest which passes or has passed for charitable purposes unless the interest is a deductible_interest described in sec_20_2055-2 sec_20_2055-2 provides that a deductible_interest includes a charitable interest in the form of a guaranteed_annuity_interest the term guaranteed_annuity_interest means the right pursuant to the instrument of transfer to receive a guaranteed annuity a guaranteed annuity is an arrangement under which a determinable amount is paid periodically but not less often than annually for a specified term of years or for the life or lives of certain individuals each of whom must be living at the date of death of the decedent and can be ascertained at such date only one or more of the following individuals may be used as measuring lives the decedent's spouse and an individual who with respect to all remainder beneficiaries other than charitable organizations described in sec_170 sec_2055 or sec_2522 is either a lineal ancestor or the spouse of a lineal ancestor of those beneficiaries the rule in this paragraph that a charitable interest may plr-125222-10 be payable for the life or lives of only certain specified individuals does not apply in the case of a charitable guaranteed_annuity_interest payable under a charitable_remainder_trust described in sec_664 an amount is determinable if the exact amount which must be paid under the conditions specified in the instrument of transfer can be ascertained as of the appropriate valuation_date for example the amount to be paid may be a stated sum for a term of years or for the life of the decedent's spouse at the expiration of which it may be changed by a specified amount but it may not be redetermined by reference to a fluctuating index such as the cost of living index sec_20_2055-2t e iii provides in part that if a guaranteed_annuity_interest created pursuant to a will or revocable_trust of a decedent dying on or after date uses an individual other than one permitted in paragraph e vi a of this section the interest may be reformed into a lead_interest payable for a specified term of years the term of years is determined by taking the factor for valuing the annuity or unitrust_interest for the named individual measuring life and identifying the term of years rounded up to the next whole year that corresponds to the equivalent term of years factor for an annuity interest for example in the case of an annuity interest payable for the life of an individual age at the time of the transfer on or after date assuming an interest rate of percent under sec_7520 the annuity factor from column of table s contained in irs publication actuarial valuations version 3a for the life of an individual age i sec_12 minus divided by based on table b contained in publication actuarial valuations version 3a the factor corresponds to a term of years between and years accordingly the annuity interest must be reformed into an interest payable for a term of years a judicial reformation must be commenced prior to the date prescribed by sec_2055 any judicial reformation must be completed within a reasonable_time after it is commenced sec_20_2055-2t e iii applies on or after date sec_20_2055-2t f sec_2055 provides for the reformation of interests to comply with the requirements of sec_2055 sec_2055 provides that a deduction shall be allowed under sec_2055 in respect of any qualified_reformation sec_2055 defines the term qualified_reformation to mean a change_of a governing instrument by reformation amendment construction or otherwise that changes a reformable_interest into a qualified_interest but only if - i ii any difference between i the actuarial value determined as of the date of the decedent's death of the qualified_interest and ii the actuarial value as so determined of the reformable_interest does not exceed percent of the actuarial value as so determined of the reformable_interest in the case of i a charitable_remainder interest the nonremainder interest before and after the qualified_reformation terminated at the same time or ii any other interest the reformable_interest and the qualified_interest are for the same period and plr-125222-10 iii the change is effective as of the date of the decedent's death sec_2055 defines the term reformable_interest to mean any interest for which a deduction would be allowable under sec_2055 at the time of the decedent's death but for sec_2055 sec_20_2055-2 provides in part that if a_trust is created for both a charitable and a private purpose deduction may be taken of the value of the charitable beneficial_interest only insofar as the interest is presently ascertainable and hence severable from the noncharitable interest thus in the case of decedents dying before date if money or property is placed in trust to pay the income to an individual during his life or for a term of years and then to pay the principal to a charitable_organization the present_value of the remainder is deductible sec_2055 provides that the term reformable_interest does not include any interest unless before the remainder vests in possession all payments to persons other than an organization described in sec_2055 are expressed either in specified dollar amounts or a fixed percentage of the fair_market_value of the property sec_2055 provides in part that sec_2055 does not apply to any interest if not later than days after the last date including extensions for filing an estate_tax_return if an estate_tax_return is required to be filed a judicial proceeding is commenced to change the interest into a qualified_interest sec_2055 defines the term qualified_interest to mean an interest for which a deduction is allowable under sec_2055 sec_2055 provides that the deduction allowable under sec_2055 for the qualified_interest shall not exceed the amount of the deduction which would have been allowable for the reformable_interest but for sec_2055 in this case the charitable interests constitute reformable interests under sec_2055 because as originally drafted trust provides for charitable interests that are presently ascertainable and hence severable from the noncharitable interests prior to the enactment of sec_2055 such interests would have been deductible under sec_2055 see sec_20_2055-2 although the payments to individual a and individual b were not expressed in specified dollar amounts or a fixed percentage of the fair_market_value of the property as required by sec_2055 a judicial proceeding was commenced as provided under sec_2055 before the 90th day after the last date including extensions for filing decedent's_estate tax_return further the reformation satisfies the requirements of sec_2055 ii and iii because the difference between the actuarial value determined as of the date of the decedent's death of the qualified_interest and the actuarial value as so plr-125222-10 determined of the reformable_interest does not exceed percent of the actuarial value as so determined of the reformable_interest both before and after the reformation in the case of the crut the nonremainder interest terminates at the same time and in the case of the clat the reformable_interest and the qualified_interest are for the same period see sec_20_2055-2t e iii and the reformation is effective as of the date of decedent's death accordingly based on the information submitted and representations made we conclude that the reformation of trust as described above will be a qualified_reformation within the meaning of sec_2055 provided the reformation is effective under local law and provided the clat meets the requirements of a guaranteed_annuity_interest under sec_2055 and the applicable regulations and the crut meets the requirements of a charitable_remainder_unitrust under sec_664 and and the applicable regulations subject_to the limitation of sec_2055 a charitable deduction will be allowable under sec_2055 for the present_value of the qualified interests determined under sec_20_2055-2 and iv however we are specifically not ruling on whether the crut otherwise satisfies the requirements of sec_664 and and the regulations thereunder see revproc_2010_3 2010_1_irb_110 sec_4 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _____________________ james f hogan chief branch office of the associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service index no number release date cc dom p si plr-107973-98 date re legend donor x z trust agreement child trust bank bank state foundation spouse this is in response to a letter dated date and subsequent correspondence in which rulings were requested concerning the gift estate and generation-skipping_transfer_tax consequences of a partial_release of a testamentary special_power_of_appointment facts donor executed trust agreement on date w creating an irrevocable_trust for the benefit of donor’s two daughters child and child and grandchild article i of trust agreement states that on the date of execution donor transferred to bank as trustee x shares of stock in z article ii parts a b and c provide for the trust estate to be divided into three separate shares each to be held as a separate trust percent for child trust percent for child trust and percent for grandchild trust is the subject of this ruling_request article ii part b provides for the quarterly payment for life to child of all of the net_income of trust as well as any amount of principal the trustee in its discretion deems necessary for child 2’s maintenance care and emergency needs in view of her income and other resources article ii part b further provides that at the death of child the corpus of trust is to be distributed pursuant to the exercise of child 2’s special_power_of_appointment as follows trust shall be distributed to such person or persons other than the beneficiary her creditors her estate or creditors of her estate in such share or shares in trust or otherwise as child shall by last will and testament appoint to the extent that child fails to exercise this power trust is to be distributed at her death to her then living issue or if none to the then living issue of the donor or if none to child 2’s spouse or if none to foundation article ii part f provides for the termination of any trust created pursuant to a power_of_appointment under the trust agreement as follows i n the event any trust created hereby or pursuant to a power_of_appointment hereunder has not terminated it shall in any event terminate not later than the expiration of twenty-one years from and after the death of the last survivor of donor donor’s wife spouse his said daughters and grandson upon termination the principal of any such trust will be distributed outright to the person or persons then entitled to the income from such share article iv part c provides that any powerholder may surrender any part of any power_of_appointment by delivering a written instrument to the trustee the current trustee of trust is bank which is the successor_in_interest to bank article vii of the trust agreement provides that any trustee may be removed by spouse or if spouse is deceased by child and child jointly or if only one child is alive by that child article vii further provides that any trustee must be a corporation with trust powers and a capital and surplus aggregating at least dollar_figure article iv part a contains the powers and duties of the trustee and provides that these powers and duties are subject_to the provisions of article iv part b article iv part b provides for a_trust advisor who is to hold powers only in a fiduciary capacity if a_trust advisor is living and competent the trustee cannot sell z stock without the written approval of the trust advisor and must sell z stock at the written request of the trust advisor if the trustee finds the price and terms to be reasonable further the trustee cannot sell or invest in any other_securities without consulting an existing competent trust advisor and must consult with such advisor about any question of discretionary distribution of income or principal the trust advisor is authorized to designate independent professional investment counsel for the trusts and the trustee must delegate full investment power to any such counsel during its designation donor is named as the initial trust advisor to be succeeded by spouse followed by child however if only one child of donor is living that child will be trust advisor for all trusts at the present time donor spouse child and child are all living on date child partially released her testamentary special_power_of_appointment over trust under the partial_release child retained the testamentary power to appoint the assets of trust remaining at her death to such taker or takers in such share or shares on such terms and conditions and in trust or otherwise among the group consisting of descendants of child 2’s parents donor and spouse other than child spouses of such descendants including any surviving_spouse of child and qualified charities any appointment to a spouse of a descendant of donor and spouse may not confer a beneficial_interest that exceeds the payment of income to the spouse for life of amounts sufficient for the spouse’s health maintenance education and support at the spouse’s standard of living on the date when the spouse first becomes entitled to receive the payments you have requested that we rule as follows child 2’s partial_release of her nongeneral_power_of_appointment provided under trust agreement will not result in the inclusion under sec_2041 for federal estate_tax purposes of the trust property in child 2's gross_estate child 2's partial_release of her nongeneral_power_of_appointment provided under trust agreement does not constitute a gift by child under sec_2514 for federal gift_tax purposes child 2's partial_release of her nongeneral_power_of_appointment provided under trust agreement does not constitute a constructive_addition to trust for purposes of the effective date rules of the generation-skipping_transfer_tax gstt under sec_26_2601-1 and therefore trust continues to be grandfathered from the application of the gstt law and analysis issue sec_1 sec_2041 and sec_2514 sec_2041 of the internal_revenue_code provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides that the term general_power_of_appointment means a power that is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides that a power_of_appointment is not a general power if by its terms it is either a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent's_estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the decedent’s estate or the creditors of his estate sec_2501 of the code provides for a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax imposed by sec_2501 shall apply 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 under sec_2514 the exercise or release of a general_power_of_appointment created after date is deemed the transfer of property by the individual possessing such power under sec_2514 general_power_of_appointment is defined as a power which is exercisable in favor of the individual possessing the power the possessor his estate his creditors or creditors of his estate under sec_25_2514-1 a power_of_appointment is not a general power if by its terms it is either a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent's_estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the decedent's_estate or the creditors of his estate under article ii part b of trust agreement child was given the testamentary power to appoint trust among any persons expressly excepting herself her creditors her estate or creditors of her estate thus under sec_20_2041-1 and sec_25_2514-1 child 2's power under article ii part b is not a general_power_of_appointment under sec_2041 and d the release of a nongeneral_power_of_appointment will not cause inclusion in the gross_estate of the powerholder of the property subject_to the power similarly under sec_2514 and sec_25_2514-3 the release of a nongeneral power is not treated as a transfer for gift_tax purposes accordingly we rule that child 2's partial_release of her nongeneral_power_of_appointment provided under trust agreement will not result in the inclusion under sec_2041 for federal estate_tax purposes of the trust property in child 2's gross_estate we further rule that child 2's partial_release of her nongeneral_power_of_appointment provided under trust agreement does not constitute a gift by child under sec_2514 for federal gift_tax purposes issue sec_2601 sec_2601 imposes a tax on each generation-skipping_transfer gst under a of the tax_reform_act_of_1986 the generation- skipping transfer_tax gstt is generally applicable to generation- skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides a special rule for certain powers of appointment this section provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if such power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise such power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years trust was irrevocable when it was created on date w you represent that there have been no constructive or actual additions to trust since date consequently based on these representations we conclude that trust is currently exempt from the gstt because trust was irrevocable on or before date and because no additions either actual or constructive have been made to trust after that date child 2's power_of_appointment is a nongeneral power the release or partial_release of which is not taxable under either sec_2041 of chapter or sec_2514 of chapter accordingly based on the facts submitted and representations made we rule that child 2's partial_release of her power_of_appointment does not constitute a constructive_addition to trust for purposes of the effective date rules of the gstt under sec_26_2601-1 and therefore after that partial_release trust continues to be exempt from the gstt assuming no additions constructive within the meaning of sec_26_2601-1 or otherwise are made to the trust except as we have specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions of the code or under any other provisions of the code specifically we express no opinion on the estate and gift_tax consequences of child 2’s ability to replace the corporate trustee of trust or of child 2’s becoming trust advisor of trust this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely assistant chief_counsel passthroughs and special industries branch by katherine a mellody assistant to the chief enclosure copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c apr cc dom fs p si uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel from deborah a butler assistant chief_counsel field service cc dom fs subject research_and_experimental_expenditures this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend t p year year year year w x y z dollar_figure dollar_figure dollar_figure dollar_figure issue whether the taxpayer’s expenditures were for the acquisition of another’s production or process or incurred in connection with the construction or manufacture of depreciable_property by another not at the taxpayer’s risk or pursuant to a performance guarantee conclusion the taxpayer’s expenditures were for the acquisition of another’s production or process and not at the taxpayer’s risk facts t is in the business of developing and marketing p in fiscal years ending april year through year t claimed a deduction for research expenses pursuant to sec_174 in the amounts of dollar_figurew dollar_figurex and dollar_figurey respectively t filed an amended_return for the fiscal_year ending april year claiming a deduction for research expenses pursuant to sec_174 in the amount of dollar_figurez the claimed expenses arose from three standard contracts a standard product agreement a standard product license agreement and a standard independent_contractor agreement standard product agreement under the standard product agreement t hired the developer to develop specific property ie p on a work-for-hire basis work the work is defined as finalization of that certain p known as which shall operate on the computer systems the systems having at least the following system requirements the work includes delivery to t of the object and source codes for the work for use on the systems plus the development tools including compilers and editors and all data and information at each milestone delivery date and deemed necessary by t to carry out and perform its rights under this agreement the deliverable such deliverables must include all the files and tools necessary to compile and create the final sellable version of the work under the terms of the agreement t will be the owner of the copyright and all other proprietary rights in the work and all products materials reports or other data developed under the terms of this agreement developer agrees and acknowledges that the work shall be considered a work made for hire that developer has no claim to any right title or interest in the work supplied to t pursuant to the terms of this agreement or otherwise and that developer will make no claims that any of such works infringe upon the copyright or other right title or interest of developer and that the work shall upon creation be owned exclusively by t t had the right to request any and all modifications which it deemed necessary to adapt the work to its specifications the work was not deemed accepted until all modifications requested by t had been made by the developer t reserved the right to terminate the agreement at any time for any reason if terminated the amounts paid_by t under the agreement to the developer were non- refundable unless termination occurred as a result of a breach of the developer’s representations and warranties the developer represented and warranted the following developer hereby represents and warrants that it has full and exclusive right and power to the work sold to t hereunder that it has not heretofore granted any rights to the work to any other person party or company which remain in effect that the rights granted herein will not infringe upon the rights of any other person or entity or breach or cause a default under developer’s organizational documents or any agreements entered into by developer that the work will be merchantable and fit for use on the computer system for which the work is intended to be used that developer will complete the work in accordance with the provisions set forth on schedule a and that the work and any enhancements made thereto does not and shall not violate or infringe any united_states or foreign patent trademark trade secret copyright or similar law or right in regards to the development of the work developer shall immediately initiate the development of the work and will notify t of developer’s expected delivery to t of the competed work and the associated computer_software in conformity with the milestones described herein developer shall consult with t during the development of the work and t shall have the right to review developer’s work developer shall make available to t all of developer’s work product in connection with such work in the event any bug may appear in the work at any time after acceptance of the work in addition to any other rights or remedies which t may have in such event developer agrees to immediately following t’s notification to developer of such problem correct such bug at developer’s own cost and expense if developer fails or refuses to correct such bug and t does so then in such event developer shall upon t’s demand reimburse t for any and all reasonable costs incurred by t in connection with such bug t reserves the right to offset any amounts not reimbursed to t against amounts otherwise owed to developer developer shall complete the work on the work in accordance with the milestones and no later than the dates set forth below as such may be modified from time to time by written_agreement of the parties t shall pay developer the sums set forth opposite each milestone below upon t’s being satisfied that such milestone has been satisfactorily achieved in the event that t does not believe that any milestone has been satisfactorily achieved t shall so notify developer after the milestone date together with t’s comments regarding such rejection and developer shall promptly submit or resubmit the materials to t this procedure shall be repeated until t determines that the milestone has been met or that further submission will be to no avail if t determines that further submission would be to no avail or that the project should be terminated for any reason t may immediately terminate this agreement whereby t’s entire liability to developer hereunder shall be the payments already made to developer at the time such determination is made minus amounts recoupable as a result of any breach of any representation or warranty by developer the parties were required to set forth a schedule of milestones standard product license agreement the standard product license agreement was used to purchase exclusive world- wide computer_software rights to existing p the consideration paid was composed of advance_payments and royalty payments t provided to the licensor the right_of_first_refusal to provide conversion or modification services in exchange for a royalty t had the right to request any and all reasonable modifications which it deemed to be necessary to adapt p to its specifications p was not deemed acceptable until all requested modifications had been made by the licensor as specified in the agreement any trademark or service_mark to p which came into existence during the term of the agreement was owned exclusively by t the agreement provided a licensor shall immediately initiate the development and subsequent delivery of the p and will notify t of licensor’s expected delivery to t of the completed p and the associated computer_software in conformity with the milestones described herein licensor shall consult with t during the development of the p and t shall have the right to review licensor’s work licensor shall make available to t all of licensor’s work product in connection with such p b in the event any bug may appear in the p at any time after acceptance of the p in addition to any other rights or remedies which t may have in such event licensor agrees to immediately correct such bug at licensor’s own cost and expense if licensor fails or refuses to correct such bug and t does so then in such event licensor shall upon t’s demand reimburse t for any and all reasonable costs incurred by t in connection with correcting such bug t reserves the right to offset any amounts not reimbursed to t against amounts otherwise owed to licensor c i licensor shall complete the work on the p in accordance with the milestones and no later than the dates set forth below as such may be extended or modified from time to time by written_agreement of the parties it is expected that t will have creative input with respect to deliverables and licensor will employ its best efforts to incorporate t’s creative input into the p t shall pay licensor as advances recoupable against all royalties payable to licensor hereunder the nonrefundable royalties sums set forth opposite each milestone below upon t’s being satisfied that such milestone has been satisfactorily achieved in the event that t does not believe in good_faith that any milestone has been satisfactorily achieved t shall so notify licensor after the milestone date together with t’s comments regarding such rejection and licensor shall promptly submit or resubmit the materials to t this procedure shall be repeated until t determines that the milestone has been met or that further submission will be to no avail if licensor determines that the changes requested by t will substantially increase the number of person-hours required to meet a particular milestone the parties will negotiate in good_faith any changes thus required in payments to licensor and or changes to the milestones if t determines in good_faith that further submission would be to no avail t’s entire liability to licensor hereunder shall be the payments already made to licensor at the time such determination is made minus amounts recoupable as a result of any breach of any representation or warranty by licensor all such milestones must be accompanied by the latest version of the source code ii within two weeks following licensor’s delivery to t of completed computer_software for the p in such form as required to meet the milestones described herein as determined by t t shall make an initial evaluation of such software to determine whether such computer_software is in t’s sole opinion in an acceptable form for testing by t should t determine that such computer_software is not acceptable for testing t shall give licensor written notice of said determination or terminate this agreement at t’s sole discretion upon t’s determination that such computer_software is ready for testing t shall have sixty days within which to test it and review the completed software and computer_software for such p hereinafter the test period the p is subject_to t’s acceptance as being commercially and technically satisfactory iii prior to the expiration of such test period t shall notify licensor in writing of t’s acceptance or rejection of such software if t rejects such software t shall specify the basis of t’s rejection and licensor shall have thirty days thereafter to correct such software as specified by t and return the software to t together with such documentation thereto for retesting by t within sixty days after licensor’s redelivery of the computer_software t shall provide licensor with either a written acceptance or rejection with a specification of the reasons for rejection this procedure shall be repeated until the computer_software and the documentation are accepted by t or until t determines in its sole discretion that licensor is unable to complete the p at which time t may terminate this agreement if t terminates this agreement t’s entire liability to licensor hereunder shall be the payments already made to licensor at the time such determination is made minus amounts recoupable as a result of any breach of any representation or warranty by licensor standard independent_contractor agreement the standard independent_contractor agreement was used primarily to hire independent contractors to develop non-technical aspects of p such as background or theme music on a work-for-hire basis under the terms of the agreement the contractor was required to deliver the work completed on each milestone delivery date including all source codes in addition contractor agrees to perform all services hereunder to t’s reasonable satisfaction and in compliance with the requirements of t under this agreement services shall be performed by contractor at its place of business services shall be performed to the satisfaction of t contractor agrees to use its best efforts in performing such services at a level consistent with persons having a similar level of education experience and expertise in the software industry in the performance of the services called for hereunder if contractor fails to deliver any deliverable item in conformance with the specification by its specified delivery date t will have the option to either a terminate this agreement and or b supply correct or complete the services and the deliverable item and deduct an amount equal to reasonable_compensation for t’s efforts including all compensation payments paid to others from any payments due contractor under this agreement contractor shall also be liable for any damages incurred by t resulting in the failure to timely deliver a deliverable item by its due_date t will be the owner of the copyright and all other proprietary rights in the work and all products materials reports or other data developed under the terms of this independent_contractor agreement contractor agrees and acknowledges that the work shall be considered works made for hire that contractor has no claim to any right title or interest in the work supplied to t pursuant to the terms of this agreement or otherwise and that contractor will make no claims that any of such products infringe upon the copyright or other right title or interest of the contractor and that the work shall upon creation be owned exclusively by t law and analysis a taxpayer may treat research or experimental expenditures which are paid_or_incurred by it during the taxable_year in connection with its trade_or_business as expenses which are not chargeable to the capital_account sec_174 a taxpayer is generally allowed the election of either currently deducting its research_and_experimental_expenditures or amortizing those expenditures over a period of not less than months sec_174 b sec_1_174-1 research expenses which are neither treated as expenses nor deferred and amortized must be charged to the capital_account sec_1_174-1 in general research_and_experimental_expenditures are those which represent research_and_development costs in the experimental or laboratory sense sec_1_174-2 the term generally includes all such costs incident to the development or improvement of a product sec_1_174-2 product includes any pilot_model process formula invention technique patent or similar_property and includes products to be used by the taxpayer in its trade_or_business as well as products to be held_for_sale lease or license sec_1 a it does not include the acquisition of another’s production or process sec_1_174-2 sec_174 applies to costs paid_or_incurred by a taxpayer for research_and_experimentation undertaken directly by the taxpayer and to costs paid_or_incurred for research or experimentation carried on in the taxpayer’s behalf by a third party sec_174 does not apply to costs paid_or_incurred that represent expenditures_for the acquisition or improvement of depreciable_property used in connection with the research or experimentation to which the taxpayer acquires rights of ownership sec_1_174-2 if expenditures_for research or experimentation are incurred in connection with the construction or manufacture of depreciable_property by another they are deductible under sec_174 only if made upon the taxpayer’s order and at its risk no deduction is allowed if the taxpayer purchases another’s product under a performance guarantee whether express implied or imposed by local law unless the guarantee is limited to engineering specifications or otherwise in such a way that economic utility is not taken into account sec_1_174-2 under the given facts the amounts paid pursuant to the standard product agreement standard product license agreement and standard independent_contractor agreement are deductible if made upon t’s order and at its risk standard product agreements in the standard product agreement t would establish specific property which contained specific requirements to be developed on a work-for-hire basis t had the right to request any and all modifications which it deemed necessary to adapt the product to its specifications and the work was not deemed acceptable until all modifications requested by t had been made by the developer t paid the developer on a milestone basis when t believed the milestone had been met if t did not believe a milestone had been achieved t would notify the developer with comments regarding the rejection and the developer was to submit or resubmit the materials to t this process would be repeated until t determined that the milestone had been met or that further submission would be to no avail if further submission would be to no avail t could immediately terminate the agreement if terminated the amounts paid_by t under the agreement to the developer were non-refundable unless termination occurred as a result of a breach of the developer’s representations and warranties in addition the developer had to make any necessary corrections for program errors discovered after acceptance of the final software programs at its own expense the agreement provides that the computer_software programs produced by the developers would be the exclusive property of t and all materials produced by the developers in fulfilling their obligations under the agreements are works made for hire the developer had no claim to any right title or interest in the work t had the right to request any and all modifications which it deemed necessary to adapt the work to its specifications the work was not deemed accepted until all modifications request by t had been made by the developer at any time after acceptance of the work a bug appeared developer was required to correct the bug at the developer’s own cost and expense based on the terms of the standard product agreements the developers were responsible for the operability of the p software according to t’s specifications accordingly the standard product agreements were contracts for the purchase of computer_software standard product license agreement the standard product license agreement was used to purchase exclusive world- wide computer_software rights to existing p research_and_experimental_expenditures do not include the acquisition of another’s production or process sec_1_174-2 accordingly the amounts paid pursuant to the licensing agreement for the purchase of exclusive world-wide computer_software rights to existing p are excluded from the definition of research_and_experimental_expenditures and are not deductible under sec_174 under the standard product license agreement consideration was also paid for the conversion or modification services provided by the licensor t would establish specific modifications and the product was not deemed acceptable until all requested modifications had been made by the licensor t had the right to request any and all reasonable modifications which it deemed necessary to adapt the product to its specifications the product was not deemed accepted until all modifications request by t had been made by the licensor at any time after acceptance of the product a bug appeared licensor was required to correct the bug at the licensor’s own cost and expense t paid the licensor on a milestone basis when t believed the milestone had been met if t did not believe a milestone had been achieved t would notify the licensor with comments regarding the rejection and the licensor was to submit or resubmit the materials to t this process would be repeated until t determined that the milestone had been met or that further submission would be to no avail if further submission would be to no avail t could immediately terminate the agreement if terminated the amounts paid_by t under the agreement to the licensor were non- refundable unless termination occurred as a result of a breach of the developer’s representations and warranties within two weeks following the delivery of the product t could determine if the software was acceptable if t determined that the software was not acceptable t could terminate the agreement or the licensor had days to correct the software after redelivery of the product t had days to determine whether the product should be accepted or rejected the process could be repeated until t either accepted the product or terminated the agreement if terminated t’s entire liability to the licensor was for payments already made minus amounts recoupable as a result of any breach of any representation or warranty by licensor any trademark or service_mark which came into existence during the term of the agreement was owned exclusively by t based on the terms of the standard product license agreements the licensors were responsible for the conversion or modification of the p software accordingly the standard product licensing agreements were contracts for the purchase of computer_software standard independent_contractor agreement in the standard independent_contractor agreement t would establish specific property which contained specific requirements to be developed on a work-for-hire basis t paid the contractor on a milestone basis when t believed the milestone had been met if t did not believe a milestone had been achieved t could either terminate the agreement and or supply correct or complete the services and the deliverable items and deduct an amount equal to reasonable_compensation for t’s efforts from any payments due under the agreement the agreement provides that t will be the owner of the copyright and all other proprietary rights in the work the contractor had no claim to any right title or interest in the work based on the terms of the standard independent_contractor agreements the contractors were responsible for the operability of the nontechnical aspects of p according to t’s product specifications accordingly the standard contractor agreements were contracts for the purchase of computer_software case development hazards and other considerations please call if you have any further questions by harve m lewis chief passthroughs special industries branch field service division


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list feb tep na t2 xxxxxxxxxxkxk xxxxxxxxxkxkxxxk xxxxxxxxxkxxxk legend taxpayer a taxpayer b xxxxxxxxkxkkkx xxxxkkxxkkxkx financial_institution a xxxxxxxxxxxxx financial_institution b xxxxxxxkxxkxxx account a form a amount a date ira x year xxxxxxxxxxkxkx xxkxxkxxkxxkxkkkk xxxxxxxxxkxkx xxxxxxxxxxxkx xxxxxxxxxxxxx xxxxxxxxxxxxkx xxooooooook xxxxxxxxxxxxkx dear xxxxxxxxxxxxx this letter is in response to your ruling_request dated date and supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code xxxxxxxxkxxxkx page the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that on date she received a distribution from ira x totaling amount a taxpayer a asserts that her failure to accomplish a rollover of amount a within the 60-day period prescribed by sec_408 was due to an error made by financial_institution b taxpayer a also represents that amount a has not been used for any other purpose taxpayer a represents that she is the owner of ira x which was maintained by financial_institution a on date when ira x matured taxpayer a requested a direct_rollover from financial_institution a and attempted to rollover amount a to a rollover ira with financial_institution b taxpayer a and taxpayer b went to their local branch of financial_institution b where they maintained existing accounts to set up a rollover ira taxpayer a delivered a check from financial_institution a in amount a payable to financial_institution b f b o taxpayer a an employee at financial_institution b completed form a and inadvertently set up the account in taxpayer b’s name instead of taxpayer a’s name form a was processed and financial_institution b deposited amount a into an ira for the benefit of taxpayer b instead of taxpayer a taxpayer a represents further that she did not realize that amount a had been rolled over into the wrong account because taxpayer b also maintains an ira at financial_institution b taxpayer a believed that amount a remained in a qualified account in her name for her benefit as a result taxpayer a was unaware of the incorrect titling error until year when taxpayer b was reviewing the couple’s finances documentation provided shows that an employee at financial_institution b incorrectly deposited amount a into an ira account for the benefit of taxpayer b instead of an ira for taxpayer a documentation also shows that on date ira x issued a check in amount a payable to financial_institution b for the benefit of fbo taxpayer a based on the above facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount a from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if xxxxxxxxkxxkx page i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was caused by an error made by financial_institution b which resulted in amount a being deposited into an ira account for taxpayer b instead of taxpayer a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a from ira x taxpayer a is granted a period of days from the issuance of this ruling xxxxxkxxxxxkxxx page letter to contribute amount a to a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount a will be considered a valid rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of any amounts that are required to be distributed by sec_401 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 letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact xxxxxxxxxxxx id xx- xxxxx at xxx xxx-xxxx please address all correspondence to se t ep ra t2 sincerely daz atlwh donzeltlittlejohn manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


qwhuqdo 5hyhqxh 6huylfh department of the treasury number release date index no legend washington dc person to contact telephone number refer reply to cc ita - plr-126252-00 date date x a b act d e f dollar_figurex dollar_figurey dollar_figurez dear this letter responds to your request for a letter_ruling regarding the taxation of a payment you will receive from x you request a ruling that the payment will not be includible in your gross_income facts the federal republic of germany established x in part for the purpose of compensating individuals who were subjected to a under the b regime x was created by the act which was passed by the german legislature x will be funded with dollar_figurex of which one-half will be contributed by the german government and one-half by private sector companies in germany about dollar_figurez of the funds will be used to make payments to individuals who were subjected to a under the b regime plr-126252-00 all decisions regarding x will be made by a board_of trustees which includes representatives from the german government representatives from the participating companies and other participating governments including the united_states in addition x will be overseen by d you were subjected to a under the b regime and therefore meet the criteria for receiving a payment from x which will be distributed to you by e you will receive approximately dollar_figurey in law and analysis article c of the convention between the united_states of america and the federal republic of germany for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and capital and to certain other taxes signed on date and that entered into force on date the treaty provides that amounts paid_by one of the contracting states or by a juridical person organized under the public laws of that state as compensation_for an injury or damage sustained as a result of hostilities or political persecution shall be exempt from tax by the other state the treasury department’s technical explanation to article c of the treaty provides that the subparagraph provides that amounts paid_by a contracting state or by a juridical person organized under the public laws of that state which are compensation_for injury or damage sustained as a result of hostilities or political persecution are exempt from tax in the other contracting state although the subparagraph is drafted reciprocally it is intended to provide a u s exemption for german war reparation payments revrul_56_518 1956_2_cb_25 concludes that compensation paid_by the german government to citizens or residents of the united_states pursuant to claims made under german law due to persecution does not constitute taxable_income revrul_57_505 1957_2_cb_50 specifies which german laws qualify under revrul_56_518 revrul_57_505 further provides that whether payments made under any other laws would come under the guidelines of revrul_56_518 will be decided on the basis of the facts and circumstances involved in each case the conclusions in revrul_56_518 and revrul_57_505 are not based on a treaty exemption notice_95_31 1995_1_cb_307 addresses application of article c of the treaty to monetary compensation or property received by individuals pursuant to the german act regulating unresolved property claims notice_95_31 provides that pursuant to a competent_authority_agreement between the united_states and germany monetary compensation or property received pursuant to the act would represent payment for damages resulting from hostilities or political persecution therefore any payments plr-126252-00 pursuant to the act are not subject_to taxation in the united_states in accordance with article c of the treaty neither the treaty the senate foreign relations committee report nor the treasury department’s technical explanation defines what is meant by juridical person in article c of the treaty as a result it is necessary to look to u s domestic law article provides that any term not defined in the treaty shall have the meaning it has under the domestic law of the contracting state whose taxes are at issue in the present case u s taxes are in question so we look to u s law for a definition of the term in general the term juridical person is defined as an entity organized under the laws of any given jurisdiction such an entity can include but is not limited to corporations partnerships and joint ventures black’s law dictionary 7th ed refers to a juridical person as an artificial person and the latter as a n entity such as a corporation created by law and given certain rights and duties of a human being similarly webster’s third new international dictionary defines juridical person as a juristic person and the latter as a body of persons a corporation a partnership or other legal entity that is recognized by law as the subject of rights and duties the act passed by the german legislature that established x specified its rights and responsibilities and is in our view a juridical person for purposes of article c of the treaty holding the payments made by x are made by a juridical person for purposes of article c of the treaty accordingly based strictly on the information submitted and representations made the approximately dollar_figurey payment you will receive from x through e is not includible in your income except as expressly provided in the preceding paragraph no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter we expressly reserve making a determination with regard to f pertaining to reimbursements for property loss this ruling is limited to the provisions of x pertaining to compensation_for individuals subjected to a under the b regime a copy of this letter should be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-126252-00 in accordance with the power_of_attorney on file we are sending a copy of this letter to your authorized representative sincerely associate chief_counsel income_tax accounting by michael j montemurro senior technician reviewer branch cc director compliance w cp