number release date id office uilc cca_2009052715074137 ------------- from -------------------- sent wednesday date pm to ------------------- cc ------------------------------------------------------ subject re pal under estate of quick v commissioner the classification and grouping of the passive_activity engaged in by the partnership is a partnership_item determined at the partnership level and reported on the partnership return the schedule_k-1 is part of the partnership return so that it can be reported there the forms k-1 issued to the partners should reflect each partners share of the income loss from each separate grouped activity eg rental_activity other trade_or_business or portfolio activity


department of the treasury internal_revenue_service washington d c l tax_exempt_and_government_entities_division uil no may legend et ep rat company m00 cecceeeeeececeeseeseeseseersaecasessseseeseessees amoune o cc ececcccsesesesecsscceensesseresusaeuevensneasassseasens dear this is in response to a letter dated date as supplemented by correspondence dated date and date in which your authorized representative requests relief under sec_301_9100-3 of the procedure and administration regulations the regulations on your behalf you submitted the following facts and representations in connection with your request in into roth_ira u which was also with company m taxpayer a maintained an individual_retirement_arrangement ira t described in sec_408 of the internal_revenue_code the code with company m taxpayer a converted ira t taxpayer a’s and taxpayer b's modified_adjusted_gross_income as reflected on their federal_income_tax return for the year was less than the dollar_figure limitation in code sec_408a on date taxpayer a's and taxpayer b’s return was selected for examination by the internal_revenue_service the service’ and on date the taxpayers were notified of proposed changes to their return these changes would result in an increase in their modified_adjusted_gross_income for cause them to be ineligible to convert traditional_ira t to a roth_ira the final amount of the adjustments to their return and resulting tax_liability taxpayer a and taxpayer b would like to ascertain whether roth_ira u may be converted back to a traditional_ira and thereby be excluded from gross_income for to an amount that exceeded the dollar_figure limitation which would in determining taxpayer a timely filed a joint federal_income_tax return with his spouse taxpayer b for calendar_year the amount converted from ira t was amount o which was signed by their professional advisor taxpayer a was unaware of the failed roth conversion and the need to recharacterize roth_ira u until date when he spoke with a representative from the service therefore taxpayer a missed the deadlines provided in announcement r b date and announcement 1999_44_irb_555 date which would have allowed taxpayer a to recharacterize the failed roth conversion until date accordingly based on your submission and the above facts and representations you request a ruling that pursuant to sec_301_9100-3 of the regulations taxpayer a be granted a period not to exceed sixty days from the date of this ruling letter to recharacterize roth_ira u back to a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations code sec_408a and sec_1_408a-5 of the federal_income_tax regulations the i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having originally been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira ina recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 q a-6 of the t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides that an individual with an adjusted_gross_income as modified within the meaning of subparagraph c c in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the t regulations provides that an individual with modified_adjusted_gross_income in excess of dollar_figure big_number for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year section 408a-4 q a-2 further provides that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income agi subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple's combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the internal_revenue_service the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section announcement provided that a taxpayer who timely filed his or her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional ra to a roth_ira -announcement provided that a taxpayer who timely filed his or her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira in this case taxpayer a was not eligible to convert his traditional_ira into a roth_ira since the combined modified_adjusted_gross_income of taxpayer a and his spouse taxpayer b exceeded dollar_figure for the year of the conversion taxpayer a timely filed a joint professional advisor thus he was eligible for relief under announcements and however he missed the deadlines provided under these announcements because he was unaware that he was ineligible for the roth_ira_conversion or of the need to recharacterize until the year therefore it is necessary to determine whether he is eligible for relief under the provisions of sec_301_9100-3 of the regulations federal_income_tax return which was signed by his although taxpayer a was ineligible for the roth_ira_conversion he was unaware of his ineligibility or the need to recharacterize until the year when a service representative proposed certain adjustments to taxpayer a’s and taxpayer b’s return which would cause their modified_adjusted_gross_income for exceed the dollar_figure limitation taxpayer a and taxpayer b then requested relief from the service which wouid allow them to recharacterize roth_ira u back to a traditional_ira pursuant to announcements and thus taxpayer a satisfies the requirements of clauses iii and v of sec_301_9100-3 of the regulations accordingly we rule that pursuant to sec_301_9100-3 of the regulations taxpayer a is granted a period not to exceed days from the date of this letter to recharacterize his roth_ira u back to a traditional_ira to this letter assumes that the above iras qualify under code sec_408 at all relevant times this letter is directed only to the taxpayer who requested it code sec_61 k provides that it may not be used or cited as precedent should you have any concerns regarding this ruling please contact sincerely yours cote o jett carlton a watkins manager employee_plans technical group cc enclosures deleted copy of letter notice


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-121908-98 date date company shareholders properties state type a b plr-121908-98 c d e f g h dear this letter responds to your letter dated date and received date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from the properties is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code company represents the following facts company and its shareholders elected under sec_1362 to be an s_corporation effective a it has subchapter_c_earnings_and_profits company also elected under sec_1361 effective the same date to treat its subsidiaries as qualified subchapter_s subsidiaries qssss company constructs type buildings for sale to customers as well as constructing such buildings on its own land for rental all within state company employs b persons in this business all but one of whom are full-time approximately half of the employees' time is spent on each activity construction and real_estate rental through its own employees as well as through independent contractors company provides various services with respect to the leasing of most of the properties these services include maintenance and repair of building exteriors structural_components and systems including roofs walls and floors electrical wiring plumbing sprinklers and elevators common area maintenance routine periodic maintenance such as pavement resurfacing and striping painting patching and replacement or refurbishment of exterior lights locks windows and doors handling of tenant complaints construction of tenant improvements assistance with space design and utilization landscaping pest control trash collection and the monitoring plr-121908-98 of security services in addition to the services provided to tenants company handles the usual marketing leasing and administrative functions involved in managing real_estate company received or accrued approximately c in rents and paid_or_incurred approximately d in relevant expenses for e on the properties the comparable figures for f are g and h company represents that its rental income and expenses for the current and future years are expected to be consistent with the figures above except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation sec_1_1362-2 provides that rents does not include compensation however designated for_the_use_of or right to use any real or tangible_personal_property developed plr-121908-98 manufactured or produced_by_the_taxpayer if during the tax_year the taxpayer is engaged in substantial development manufacturing or production of real or tangible_personal_property of the same type after applying the applicable law and regulations to the facts as presented in this ruling_request we conclude that the rents company receives from the properties are not passive_investment_income under sec_1362 except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding the validity of company's election to be an s_corporation as well as its elections to treat its subsidiaries as qssss further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending you the original of this letter and a copy to the taxpayer this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely jeff erickson assistant to the chief branch office of assistant chief_counsel passthroughs and special industries encl copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date cc ebeo br2 tl-n-6930-98 uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel from chief branch cc ebeo subject request for field_service_advice 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 a issues i whether the excess of the fair_market_value of espp stock on the exercise date over the option_price is wages under the fica ii if this amount is wages under the fica whether the exercise of an espp option constitutes a payment of wages iii whether a is excused from its obligations under the fica based upon the notice principles of central illinois and general elevator conclusions i the amount in which the fair_market_value of espp stock on the exercise date exceeds the option_price is wages under the fica ii the exercise of an espp option constitutes a payment of wages iii a is not excused from its obligations under the fica based upon the principles of central illinois and general elevator facts the periods at issue are through a maintains an employee_stock_purchase_plan espp meeting the requirements under sec_423 of the code a’s essp established sequential offerings each lasting months an the first day of which being the each generally consists of four six-month the last day of which being the the option_price of a share is generally of the lesser_of the fair_market_value of a share of a common_stock on the or the upon exercise the espp stock is nonforfeitable a’s eligible employees may participate in the espp by providing a with a subscription agreement authorizing payroll deductions from percent of the participant’s_compensation these payroll deductions do not reduce a participant’s taxable wages with respect to disqualifying dispositions of espp stock a treats as ordinary_income in the year of disposition the amount equal to the excess of the fair_market_value of the shares on the over the this amount is reported in box of the employee’s form_w-2 as gross wages with respect to qualifying dispositions a treats as ordinary_income in the year of disposition the lesser_of a the discount calculated on the or b any excess of the fair_market_value of the shares on the disposition date over the purchase_price these amounts are also reported on the employee’s w-2 as gross wages employment_taxes are not paid or withheld with respect to the income reported on the employee’s form_w-2 law and analysis sec_421 provides that if the requirements under sec_423 are met no income shall result at the time of such transfer of such share upon the employee’s exercise of the option with respect to such share sec_423 provides in part that sec_421 shall apply with respect to the transfer of a share of stock to an individual pursuant to his exercise of an option granted under an employee_stock_purchase_plan if no disposition of such share is made by the individual within years after the date of the granting of the option nor within year after the transfer of such share to the individual sec_83 provides that sec_83 does not apply to a transaction to which sec_421 applies but if the requirements under sec_423 are not met then sec_421 does not apply and the income_taxation of the transaction is governed by sec_83 sec_83 generally provides that the excess of the fair_market_value of property transferred in connection with performance of services over the amount_paid for the property is included in gross_income at the first time the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture sec_421 provides that if there is a failure to meet the holding_period requirement of sec_423 any increase in the income of such individual or deduction from the income of his employer_corporation for the taxable_year in which such exercise occurred attributable to such disposition shall be treated as an increase in income or a deduction from income in the taxable_year of such individual or of such employer_corporation in which such disposition occurred thus sec_421 provides a necessary accommodation to sec_83 which would otherwise require that the income resulting from the disqualifying_disposition be included in the year in which the option was exercised sec_3121 sec_3306 and sec_3401 of the code define the term wages with certain exceptions as all remuneration for services performed as an employee sec_31_3121_a_-1 sec_31_3306_b_-1 and sec_31_3401_a_-1 of the employment_tax regulations provide that remuneration may be paid in cash or something other than cash and generally the medium in which the remuneration is paid is not material sec_31_3121_a_-1 further provides the remuneration paid in other than cash shall be computed on the basis of the fair value of such items at the time of payment gains realized upon the disposition of stock purchased pursuant to employer-granted stock_options can include a component which is compensatory in nature and a component which is proprietary in nature the amount which is compensatory is equal to the fair_market_value of the stock on the exercise date less the amount_paid for the stock pursuant to the option hereinafter referred to as the compensatory_amount of course upon disposition of the stock any amount of the sale price exceeding the fair_market_value of the stock on the exercise date is proprietary in nature and will receive capital_gain treatment at issue in this case is the fica tax treatment of the compensatory_amount the following discusses whether the compensatory_amount is wages for employment_tax purposes and whether the compensatory_amount is subject fica tax upon the exercise of an espp option issue i whether the excess of the fair_market_value of espp stock on the exercise date over the option_price is wages under the fica for nonstatutory stock_options the income and employment_tax treatments of the compensatory_amount are well-established in 324_us_177 and 351_us_243 the court held that the difference between the fair_market_value of the stock and the amount_paid pursuant to an employer-granted stock_option is compensatory and includible in income when the option is exercised the income_tax treatment under sec_83 of employer-granted stock_options is in substance a codification of smith and lobue sec_1_83-7 of the regulations provides that in the case of an option that does not have a readily_ascertainable_fair_market_value at the time of grant the rules under sec_83 shall apply at the time the option is exercised thus with respect to a nonstatutory stock_options the compensatory_amount is includible in income when the option is exercised in revrul_78_185 1978_1_cb_304 the service addressed the employment_tax treatment of the compensatory_amount in the context of nonstatutory employer-granted stock_options the ruling holds that the compensatory_amount is wages for fica futa and income_tax_withholding purposes when the option is exercised see also revrul_67_257 1967_2_cb_359 the compensatory_amount is includible in the employee’s gross_income on the exercise date and as such is wages subject_to income_tax_withholding on that date revrul_79_305 1979_2_cb_350 the value of stock transferred in trust for 1although the ruling was issued before sec_83 it remains valid because it is consistent with the provisions of sec_83 an employee’s benefit is wages for employment_tax purposes at the time the risk of forfeiture lapsed the service has not issued guidance addressing the employment_tax treatment of espp options however the service issued revrul_71_52 c b which addressed the income and employment_tax treatment of qualified_stock_options the ruling holds that a taxpayer does not make a payment of wages for purposes of the fica the futa or the collection of income_tax at source on wages at the time of the exercise of options granted to its employees participating in its qualified_stock_option plan under sec_422 the ruling also holds that the disposition of shares of stock purchased by eligible employees under a plan does not result in the receipt of additional wages by them or in the payment of wages by the employer for income_tax_withholding purposes rev_rul 71-52's holding with respect to income_tax_withholding was at issue in notice_87_49 1987_2_cb_278 the service issued notice_87_49 to reconcile inconsistencies among the proposed_regulations under sec_422a sec_83 and revrul_71_52 the proposed_regulations under sec_422a involving incentive_stock_option iso plans provide that the income_tax effects of a disqualifying_disposition of stock are determined by reference to sec_83 and the regulations thereunder sec_1_83-6 of the regulations prior to revision provided that a deduction is allowable only if the employer withholds upon the amount includible in income in accordance with sec_3402 the notice provides that to the extent the proposed_regulations and the regulations under sec_83 require withholding as a condition to deductibility which is inconsistent with revrul_71_52 the proposed_regulations will not become final the notice added that revrul_71_52 is being reconsidered but in the meantime the notice will apply to incentive stock_options notice_87_49 does not discuss whether the compensatory_amount is wages for employment_tax purposes rather it discusses only whether the deduction provided under sec_421 is conditioned upon withholding income 2see infra note 3former code sec_422 provided rules for qualified_stock_options the omnibus budget reconciliation act of pub_l_no repealed former sec_422 as of date and redesignated former code sec_422a which provided rules for incentive stock_options as sec_422 sec_1_83-6 as amended by t d 1995_2_cb_12 applicable to years beginning on or after date provides that the service provider is deemed to have included the amount as compensation if the service_recipient satisfies all the requirements of sec_6041 forms and w-2 reporting tax from the compensatory_amount therefore notice_87_49 is not an affirmation of rev_rul 71-52's holding regarding the fica taxation of the compensatory_amount in sun microsystems inc v commissioner tcmemo_1995_69 tannenwald j acq aod cc-1997-010 date the court considered whether the term wages for purposes of the research_credit provided under sec_41 included the income realized from the disqualifying_disposition of stock purchased through the petitioner’s qualified iso plan sec_41 provides that the term wages has the same meaning given such term under sec_3401 as an initial matter the court agreed with the petitioner that in determining whether the compensatory_amount in a disqualifying_disposition is wages under sec_3401 the analysis in 98_tc_232 acq 1992_2_cb_1 which involved the same issue in the context of nonqualified_stock_options was equally applicable in the context of incentive stock_options under sec_422 the service’s sole argument in sun microsystems was that based upon revrul_71_52 and notice_87_49 the compensatory_amount realized upon the disqualifying_disposition of iso stock is not wages the service conceded that the compensatory_amount with respect to stock purchased under an espp or under a nonqualified_plan was wages under sec_3401 but argued that based upon revrul_71_52 the compensatory_amount with respect to isos was not wages the court commented that it was unable to understand the service’s distinction between isos and espps the court explained that a ruling or notice is only as persuasive as the reasoning and precedents upon which it relies and because these pronouncements were issued only for administrative convenience without any basis in law they are totally unpersuasive because there is no statutory provision excluding the compensatory_amount from the definition of wages the court concluded that the compensatory_amount in a disqualifying_disposition of iso stock is wages for purposes of income_tax_withholding the court made three points which are instructive in determining the correct employment_tax treatment of espp options first the court’s analogy to apple computer is significant because apple computer involved the employment_tax treatment of nonstatutory stock_options as stated the compensatory_amount with respect to nonstatutory stock_options is subject_to employment_taxes upon exercise revrul_78_185 revrul_67_257 second the court completely discredited revrul_71_52 therefore even assuming for the sake of argument that this ruling applies to espps the opinion nullifies any affect the ruling had third the court found isos and espps to be indistinguishable with respect to whether the compensatory_amount is wages therefore given the court’s holding that the compensatory_amount with respect to isos is wages it follows that the compensatory_amount with respect to espp options is wages for employment_tax purposes in conclusion it is our position that the compensatory_amount is subject_to fica tax we base our conclusion on sec_31_3121_a_-1 which provides that wages may be paid in the form of property and sun microsystems which held that the compensatory_amount with respect to statutory_stock_options is wages for employment_tax purposes in addition based upon sun microsystems which applied the apple computer court’s reasoning it is our position that in determining whether the compensatory_amount in the context of statutory_stock_options is subject_to fica tax it is appropriate to apply the reasoning used by the authorities addressing nonstatutory stock_options for example lobue in which the court held that the compensatory_amount was compensation_for services and rev rulings and which conclude that the compensatory_amount is wages subject_to fica issue ii if the compensatory_amount is wages under the fica whether the exercise of an espp option constitutes a payment of wages because the compensatory_amount is not gross_income upon exercise of the espp option under sec_421 and therefore is not then subject_to income_tax_withholding an issue arises as to the relationship between the income_tax_withholding requirements and the fica tax requirements the legislative_history of the social_security amendments of p l no 1983_2_cb_322 which amended sec_3121 discusses the relationship between the fica and income_tax_withholding the senate report states the social_security program aims to replace the income of beneficiaries when that income is reduced on account of retirement and disability thus the_amount_of_wages is the measure used both to define income which should be replaced and to compute fica tax_liability since the social_security system has objectives which are significantly different from the objectives underlying the income_tax_withholding rules your committee believes that amounts exempt from income_tax_withholding should not be exempt from fica unless congress provides an explicit fica tax exclusion s rep no 98th cong 1st sess reprinted in u s c c a n the legislative_history to sec_3121 supports the position that the 5the change to sec_3121 came in response to rowan companies inc v united_states 425_us_247 in which the court invalidated fica regulations compensatory_amount receives bifurcated treatment with respect to fica tax and income_tax_withholding thus in determining the correct fica tax treatment the income_tax_withholding treatment is irrelevant instead the principles that have developed regarding the employment_tax treatment of property received in_connection_with_the_performance_of_services and more specifically the employment_tax treatment with respect to stock_options received in_connection_with_the_performance_of_services control in determining when the compensatory_amount is subject_to fica tax as discussed above rev rulings and hold that a payment of wages is made when the option is exercised these rulings in substance apply the principles of sec_83 which provides that the compensatory_amount is gross_income when the property is transferrable or not subject_to a substantial_risk_of_forfeiture the separation of the fica and income_tax_withholding requirements finds support in other sections of the code involving deferred_compensation for example under sec_3121 with respect to nonqualified_deferred_compensation_plans an amount is subject_to fica taxation as of the later of the date when the services giving rise to the wages are performed or when there is no substantial_risk_of_forfeiture of the rights to the wages consequently an employee who defers income under a nonqualified_deferred_compensation arrangement may be subject_to fica_taxes on that income prior to when that income is includible in gross_income this section is another example of congress’s recognition that the requirements with respect to income_tax_withholding are distinct from the fica tax requirements in conclusion the deferred income_tax treatment provided with respect to espp stock_options under sec_421 and sec_423 is irrelevant in determining when the compensatory_amount is subject_to fica tax there are no fica provisions that exclude the compensatory_amount or defer recognition of the compensatory_amount until the disposition of the espp stock therefore the principles that have developed through case law and service pronouncements regarding the income and employment taxation of the compensatory_amount in the nonstatutory option context are controlling in determining the correct fica taxation of espp options service pronouncements applying in substance the sec_83 principles have concluded that the compensatory_amount is subject_to fica tax when the option is which held that the value of employer-provided meals were includible in fica wages notwithstanding that these amounts may be excluded from wages for purposes of income_tax_withholding exercised accordingly we conclude that the exercise of an espp constitutes a payment of wages under the fica issue iii whether a is excused from its obligations under the fica based upon central illinois and general elevator advice has also been requested on whether 435_us_21 and general elevator corp v united_states cl_ct provide a with a defense against the service’s assertion that it had a duty to withhold and pay fica tax upon the exercise of espp options central illinois considered whether an employer was required to withhold income_tax from reimbursements for lunch expenses paid to employees who were on nonovernight company travel the court held that withholding was not required based primarily on the existence of repealed sec_31_3401_a_-1 of the regulations which excluded from wages amounts paid specifically for traveling or other bona_fide ordinary_and_necessary_expense incurred in the business of the employer in deciding the issue the court noted that whether the reimbursements were even income had not been established at the time when there was a putative obligation to withhold the court stated that b ecause the employer is in a secondary position as to liability for any_tax of the employee it is a matter of obvious concern that the employer’s obligation to withhold be precise and not speculative u s pincite certain facts distinguish the present case from central illinois in central illinois there was an employment_tax regulation that explicitly excluded expenses such as lunch reimbursements from wages in the present case a claims it was misled by revrul_71_52 and notice_87_49 a’s purported reliance on these pronouncements is unreasonable however in light of the sun microsystems opinion which was issued in february of well before the exercise of options in and subsequent years under a’s espp in addition notice_87_49 cannot reasonably be relied upon because it does not address whether fica tax is owed upon the exercise of an employer-granted stock_option but rather addresses only whether the compensatory_amount is deductible by the employer moreover in central illinois the court found persuasive that courts had been finding that these types of meal allowances were not even income and that this exacerbated the lack of notice problem u s pincite whereas with respect to espp options there is no question that the compensatory_amount is income sec_421 and sec_423 only affect the timing of the income inclusion in addition the applicability of central illinois is limited in cases involving the application of fica tax in 35_fedclaims_447 a fica tax case the court held that the principles of central illinois apply only to an employer’s obligations for which it is in a secondary position of liability ie those obligations for which it has a duty to withhold therefore central illinois is inapplicable with respect to the employer’s portion of fica for which it is primarily liable fed cl pincite accordingly the principles of central illinois are inapplicable with respect to a’s portion of the fica in general elevator the taxpayer claimed a refund of employment and income taxes assessed against per_diem allowances paid to construction workers who traveled to temporary job sites the service had published revrul_76_453 1976_2_cb_86 requiring withholding from reimbursements of transportation costs to and from the job site this modified an earlier service position however the service suspended the ruling due to a moratorium imposed by congress on the position advanced by the ruling in addition an industry trade_association of which the taxpayer was a member obtained a letter from a service agent stating the agent’s opinion that the per_diem allowances were not subject_to_withholding based upon this letter the association issued a memorandum advising its members that withholding was not required under these facts the court concluded that the amounts were wages but that there was inadequate notice concerning the duty to withhold cl_ct pincite in the present case there was no modification of authority sufficient to create ambiguity concerning a’s duty to withhold in sun microsystems the service stipulated that the compensatory_amount in the context of espp options is wages therefore despite the loss in sun microsystems the service’s position with respect to espps was clear assuming for the sake of argument that the service’s position prior to sun microsystems was ambiguous based upon revrul_71_52 as a result of sun microsystems a was put on notice regarding its duty to withhold fica tax moreover the service’s letter rulings involving espps do not reveal an inconsistent_position indeed private_letter_ruling affirmatively states that upon the exercise of an option under an espp plan fica tax is owing on the difference between the option_price and the fmv of the stock numerous other rulings on sec_423 plans explicitly state that no inferences should be drawn regarding the application of fica tax upon the exercise of an option under an 6but see ltr which states that no employment_tax liability under the fica attaches with respect to the exercise of an option under an espp espp based upon the numerous rulings issued in recent years it cannot argued that the service has changed its position with respect to espps in conclusion based upon sun microsystems it was not reasonable for a to rely on revrul_71_52 moreover the service’s position in sun microsystems as well as the letter rulings issued by the service demonstrate that the service’s position on espps has remained consistent case development hazards and other considerations 7ltrs 8although technical_advice memoranda and private letter rulings are not precedential authority sec_6110 they nonetheless provide persuasive evidence as to the service’s interpretation of its rulings see eg rowan cos v united_states 453_us_247 99_tc_223 n 97_tc_74 n if you have any further questions or need additional assistance please contact my office at sincerely jerry e holmes chief branch associate chief_counsel employee_benefits and exempt_organizations


t c memo united_states tax_court marcus j hampers petitioner v commissioner of internal revenue respondent docket nos filed date john m zaremba for petitioner janet f appel and carlton w king for respondent memorandum opinion cohen judge in these consolidated cases respondent determined deficiencies in and penalties on petitioner’s federal_income_tax as follows year - - deficiency dollar_figure big_number big_number penalty sec_6662 dollar_figure dollar_figure dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the sole issue remaining for decision is whether petitioner is entitled to additional alimony paid deductions of dollar_figure dollar_figure and dollar_figure for and respectively background these cases were submitted fully stipulated under rule the stipulated facts are incorporated as our findings by this reference at the time the petitions were filed petitioner resided in new hampshire in petitioner and his wife kristin c hampers nee carney carney were in the process of a lengthy divorce the terms of the divorce were to be governed by a final decree dated date and issued by the superior court of sullivan county new hampshire over the next few years the final decree would be modified three times by either court orders or stipulations of the parties paragraph a of the definitive version of the final decree provided other requests a attorney’s fees-present and future marcus shall pay all kristin’s attorneys sic fees and disbursements including expert and other witness costs depositions transcript fees and any other expenses_incurred in this case within days of receipt of a statement from kristin’s attorney in the event of an appeal the order relative to payment of kristin’s legal fees and costs which shall include any transcript costs shall continue to be paid_by marcus as set forth in the court’s current temporary orders marcus shall pay all of kristin’s reasonable attorney sic fees and disbursements costs including expert or other witness costs depositions transcripts or other costs for any proceeding or any other matter relating to any term of this decree and any amendment thereto or to the marital child in this matter in the future and shall pay any such statements within days of receipt in the event that the parties use a third-party for decisional or mediation purposes to resolve a dispute between them marcus shall pay all costs unless the mediator rules otherwise this order is necessary to prevent abuse of this justice system and shall not be subject_to modification except upon a finding of bad faith the divorce was finalized on date pursuant to paragraph a of the final decree petitioner paid legal fees incurred by carney of dollar_figure dollar_figure and dollar_figure in and respectively petitioner filed form sec_1040 u s individual_income_tax_return for and on the returns he claimed alimony paid deductions of dollar_figure dollar_figure and dollar_figure for and respectively the internal_revenue_service subsequently disallowed dollar_figure of the alimony paid deduction for and the total alimony paid deductions for and discussion respondent concedes the sec_6662 penalties and also concedes that petitioner paid dollar_figure of deductible_alimony in both and petitioner does not raise any issue as to respondent’s adjustments to itemized_deductions for and and to exemptions for as a result all issues affecting the deficiencies other than the alimony paid deductions for the years in issue are deemed conceded by petitioner see rule b the parties agree that the remaining amounts in dispute are from future attorney’s fees that arose under paragraph a of the final decree the parties dispute whether the future attorney’s fees meet the requirements of alimony under sec_71 amounts received as alimony are includible in the gross_income of the recipient sec_71 see also sec_61 correspondingly a taxpayer who made alimony payments during a tax_year is entitled to deduct them if they meet the requirements of sec_71 sec_215 the taxpayer has the burden of proving entitlement to the deduction claimed rule a 292_us_435 512_f2d_882 9th cir aff’g tcmemo_1972_133 sec_71 defines alimony as a payment in cash if the payment is received by a spouse under_a_divorce_or_separation_instrument the divorce_or_separation_instrument does not designate the payment as not allowable as a deduction and or not includible in gross_income in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the spouses are not members of the same household when the payment is made and there is no liability to make any payment for any period after the death of the payee spouse the court focuses on the divorce instrument in determining whether payments meet the criteria of alimony as defined by sec_71 see rosenthal v commissioner tcmemo_1995_603 70_tcm_1614 a divorce instrument can be a decree of divorce or a written instrument incident to such a decree sec_71 the parties agree that the first three requirements of the sec_71 alimony definition are satisfied their only contention is whether petitioner after the death of carney could be liable to make a payment of future attorney’s fees pursuant to the final decree under sec_71 the payor must have no liability to continue payments after the payee’s death otherwise the payor may not deduct any required related payments see 541_f3d_973 9th cir aff’g tcmemo_2006_105 if the payor is liable for even one otherwise qualifying payment after the payee’s death none of the related payments required before death will qualify as alimony sec_1_71-1t q a-10 temporary income_tax regs fed reg date if the divorce instrument is silent as to the existence of a postdeath obligation the requirements of sec_71 may still be satisfied if the payments terminate upon the payee’s death by operation of state law johanson v commissioner f 3d pincite if state law is ambiguous in this regard however a federal court will not engage in complex subjective inquiries under state law rather the court will read the divorce instrument and make its own determination based on the language of the document 102_f3d_842 6th cir aff’g tcmemo_1995_183 the parties agree as does the court that the final decree is silent as to whether payments made under paragraph a would terminate after the death of carney in considering state law petitioner first posits that as long as all payments of future attorney’s fees relate to the period prior to the death of the payee spouse and the payor has no liability to make such payments to the period following the death of the payee spouse the requirements of section b d will be met he then argues that under new hampshire law divorce proceedings and actions related to such proceedings including the enforcement of provisions of a final order will abate upon the death of a party petitioner thus concludes that if the legal action giving rise to his obligation to pay future attorney’s fees to carney will abate upon her death it is impossible for those future attorney’s fees to relate to the period following her death for authority petitioner cites a new hampshire supreme court case leclerc v leclerc a n h in leclerc the court observed a general_rule that divorce proceedings abate upon the death of either of the parties ‘and this effect must extend to whatever is identified with those proceedings ’ id pincite citations omitted quoting mccurley v mccurley md the principle behind this general_rule is that because the main objective of a suit for divorce is to dissolve the marriage there is no reason to render a divorce decree once the marital relationship has already been ended by death coulter v coulter a 2d n h kimball v kimball n h in leclerc a sister of a deceased former spouse tried to obtain custody of the marital children against the living former spouse by raising the matter through the original divorce proceeding leclerc v leclerc a pincite the court in leclerc clearly instructed that in no way can a divorce proceeding be kept alive after the death of one party for the purpose of dealing with a new situation brought about solely by such death id nevertheless the court in leclerc considered that the general_rule could be subject_to limitations and exceptions even noting that under new hampshire law a petition for an additional allowance of alimony might be maintained by the payee former spouse after the death of the payor id since new hampshire law has recognized other exceptions to this general_rule see eg hazen v hazen a 2d n h permitting divorce to take effect notwithstanding the wife’s death during the pendency of the husband’s appeal related to property rights stritch v stritch a 2d n h determining that a decree for weekly alimony payments over a fixed period was binding on the estate of the former spouse upon his death and was within the jurisdiction of the divorce court bussey v bussey a 2d n h deciding that a petition to vacate a decree of divorce because of fraud of the deceased former spouse is a continuation of the original litigation and not the commencement of a new action tuttle v tuttle a n h w here property rights are involved a divorce action does not abate on the death of one of the parties pending an appeal new hampshire law has also recognized that jurisdiction in divorce proceedings is a continuing one with respect to ‘all subsequent proceedings which arise out of the original cause of action ’ stritch v stritch a 2d pincite quoting madsen v madsen a 2d and citing n h rev stat ann sec_556 which provides that a ll other actions and causes of action existing in favor of or against a deceased person except those for the recovery_of penalties and forfeitures of money under penal statutes shall survive and may be prosecuted or defended by his administrator petitioner does not sufficiently address the possibility of exception or discuss the above-referenced statute that runs contrary to the general_rule stated in leclerc petitioner’s reliance on this general rule--to show the impossibility of future attorney’s fees being incurred from subsequent divorce proceedings--is unconvincing moreover respondent proffers two examples of petitioner’s possible liability for future attorney’s fees being incurred after carney’s death an action for collection of accrued arrears and gosselin proceedings if she died after the initial legal fees were incurred but prior to those proceedings focusing on the latter example it appears that in new hampshire gosselin requirements are effected to determine the reasonableness of documented attorney’s fees claimed by a former spouse who was awarded those fees by the trial_court see gosselin v gosselin a 2d n h if the trial_court fails to make a determination as to the reasonableness of the fees then a party could appeal for such an accounting to the new hampshire supreme court which may remand the case so that the lower court can comply with the gosselin requirements id proceedings involving gosselin requirements could be anticipated here and the state of new hampshire has already addressed this particular issue in petitioner’s own divorce proceedings see in re hampers a 2d n h we further hold that the gosselin procedure applies to any attorney’s fees carney incurs in the future see also in re hampers a 3d n h we explained in in re hampers no n h date that ‘fees incurred after the date of the final divorce decree could not have been part of the property settlement ’ and therefore were required to be reviewed under gosselin as respondent argues it may well be possible for liability for litigation fees to arise after the death of carney if she were to die after future attorney’s fees were incurred but before a proceeding regarding gosselin requirements could take place considering the parties’ arguments made with respect to state law we conclude that new hampshire law does not plainly show that petitioner’s liability for future attorney’s fees of carney would terminate upon her death as the final decree is silent and no state law resolves the issue we independently review the divorce instrument itself to make our own determination as to the satisfaction of the sec_71 requirement see hoover v commissioner f 3d pincite nothing in the final decree indicates that petitioner’s obligation to pay carney’s future attorney’s fees would terminate upon her death petitioner carries the burden_of_proof and has not presented sufficient evidence or reason to conclude otherwise accordingly the payments do not satisfy the requirements of sec_71 and petitioner is not entitled to additional alimony paid deductions for the years in issue with respect to his payments of future attorney’s fees we have considered the other arguments of the parties but they are irrelevant unsupported by the record or by authority or without merit to reflect the foregoing decision will be entered for respondent in docket no and decision will be entered under rule in docket no


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc intl tl-n-1655-01 uilc internal_revenue_service national_office field_service_advice memorandum for special trial attorney cc lm nr sldal from elizabeth g beck branch chief cc intl subject this chief_counsel_advice responds in part to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend country a country b country c fcorpa-1 fcorpa-2 fptnrshipa fptnrshipa b project a uscorpa tl-n-1655-01 uscorpb year year year year a b c d e issue sec_1 whether the partnership anti-abuse regulation sec_1_701-2 is applicable to treat transactions between uscorpa and fptnrshipa b as transactions between uscorpa and fptnrshipa b’s foreign partners whether and how sec_482 of the internal_revenue_code applies to allocate income to uscorpa from fptnrshipa b in connection with uscorpa’s project a development activities conclusion sec_1 the partnership anti-abuse regulation does not apply to fptnrshipa b because the partnership form has not been interposed to create the alleged abuse we are continuing to review the sec_482 issue and will respond shortly by supplementing this advice facts the issues in this case relate to uscorpa’s activities in developing project a in country a with unrelated uscorpb as a co-developer uscorpa and uscorpb both u s_corporations used their resources and skills to identify the opportunity for project a to design project a and to develop negotiate and obtain a complete package of authorizations and contracts for project a including project financing tl-n-1655-01 uscorpa and uscorpb placed all of the project a contractual rights and obligations in fptnrshipa b a country b limited_partnership in which uscorpa and uscorpb each held through other foreign entities a interest in profits and losses the specifics of the transaction are as follows in year uscorpb a corporation unrelated to uscorpa began to compete for the rights to develop project a in country a in year after uscorpb had developed valuable relationships with country a authorities and had submitted a formal project a proposal to country a authorities uscorpb approached uscorpa to discuss a possible joint_venture according to a uscorpa employee involved in the negotiations uscorpb needed uscorpa’s manpower and expertise in order to complete project a after negotiations uscorpa and uscorpb agreed to pursue project a through a joint_venture in year fptnrshipa b was formed as a joint_venture to hold the ownership rights with respect to project a uscorpa and uscorpb each owned through foreign affiliates a interest in fptnrshipa b in the initial ownership structure the foreign affiliates of uscorpa that held direct interests in fptnrshipa b were fptnrshipa a country c limited_partnership that held a limited_partnership_interest in fptnrshipa b and fcorpa-1 a country c_corporation that held a general_partnership interest in fptnrshipa b the foreign affiliates of uscorpa that held direct interests in fptnrshipa were fcorpa-2 a country c_corporation that held a limited_partnership_interest in fptnrshipa and fcorpa-1 which held a general_partnership interest in fptnrshipa fcorpa-1 was owned by fcorpa-2 and fcorpa-2 was owned by uscorpa the identity of the foreign affiliates of uscorpa that held direct interests in fptnrshipa b changed over time but the ratio of ownership between uscorpa and uscorpb remained the same in their joint_venture agreement uscorpa and uscorpb agreed that they would share equally the costs of developing project a and that if they were successful in obtaining nonrecourse_financing for project a they would each be reimbursed for their costs out of the proceeds of such financing they also agreed that each would receive a development fee which was also contingent on the availability of sufficient financing proceeds uscorpa agreed that uscorpb would be entitled to receive a development fee substantially greater than that which uscorpa would receive to compensate uscorpb for the value of the development activities that it performed before agreeing to pursue project a as a joint_venture with uscorpa in year as a result of the combined project development activities of uscorpa and uscorpb financial closing on project a was reached and uscorpa was reimbursed by fptnrshipa b out of the financing proceeds for its project development costs plus interest the amount of the reimbursement was dollar_figurea uscorpb also received reimbursement for its project development costs plus interest uscorpa and uscorpb also received subordinated promissory notes from tl-n-1655-01 fptnrshipa b as payment of their respective development fees uscorpa received a note for dollar_figureb and uscorpb received a note for dollar_figurec at the date of the financial closing the projected net present_value of uscorpa’s interest in project a was dollar_figured based on this projected net present_value uscorpa’s employees and managers involved in the development of project a earned bonuses of approximately dollar_figuree with one-half of that amount payable at the financial closing date and the other one-half payable when project a begins commercial operation the cost of these bonuses was not reimbursed by fptnrshipa b law and analysis examination proposes an allocation of income to uscorpa from fptnrshipa b under sec_482 of the internal_revenue_code in order to prevent evasion of taxes or clearly to reflect the income of uscorpa with respect to its project a development activities examination believes that the lack of adequate compensation to uscorpa with respect to its project development activities and the fact that the benefits of those activities is largely realized by uscorpa’s foreign affiliates would result in a distortion of taxable_income to uscorpa that sec_482 was intended to prevent accordingly area_counsel requests field_service_advice on whether income may be allocated to uscorpa under sec_482 this request will be addressed in supplemental advice area_counsel also asks whether the partnership anti-abuse rule sec_1_701-2 may apply specifically area_counsel states with respect to sec_1_701-2 that assuming sec_482 does apply the ultimate tax results of the transactions are not clearly contemplated by sec_482 area_counsel asks whether sec_1_701-2 may be applied to consider the transaction to involve the performance of development services by uscorpa for fptnrshipa b’s foreign partners rather than for fptnrshipa b subchapter_k sec_701 through of the internal_revenue_code provides rules regarding taxation of partners and partnerships sec_1_701-2 provides that the commissioner can treat a partnership as an aggregate of its partners in whole or in part as appropriate to carry out any provision of the internal_revenue_code this regulation does not apply to the extent that a provision of the code prescribes the treatment of a partnership as an entity and that treatment and the ultimate tax results considering all facts and circumstances are clearly contemplated by that provision from the incoming documents it appears that uscorpa and uscorpb had a valid reason to join together in a partnership form uscorpb had valuable rights in its pre-negotiations with country a officials and uscorpa had the manpower and tl-n-1655-01 expertise to develop a project a accordingly we believe that fptnrshipa b had substance while the alleged distortion_of_income may have been taken place through a partnership form it was not strictly dependent on that form it is conceivable that if uscorpa had been developing the project alone it could have under-billed its own related entities accordingly it is not appropriate to apply the anti-abuse rule in this context because we do not believe that the partnership form was interposed in order to effectuate the claimed abuse please call our branch at if you have any further questions elizabeth g beck office of associate chief_counsel international branch chief cc intl examination has not inquired about the potential application of sec_1_701-2 to fptnrshipa nor has it given any facts to guide such an analysis accordingly we offer no opinion on sec_1_701-2’s potential application to fptnrshipa


internal_revenue_service number release date index numbers ----------------------------------------------------- -------------------------------------------- ----------------------------- ---------------------------------- ------------------------------------------------------ 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 corp plr-128140-18 date date legend parent --------------------------------------------------------------- ------------------------------------------------------ corp x --------------------------------------------------------------- -------------------------------------------------- sub --------------------------------------------------------------- ---------------------------------------- sub --------------------------------------------------------------- ------------------------------- sub ----------------------- --------------------------------------------------------------- year year date ------- ------------------------------------------------------- -------------------------- company officials --------------------------------------------------------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- plr-128140-18 ----------------------------------------------------------------------------------------- tax professional ---------------------------------------------------------- ------------------------------ dear ------------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election the extension is being requested for parent group as defined below to make an election under sec_1 a of the income_tax regulations to file a consolidated federal_income_tax return for year the election the material information submitted in this letter and subsequent correspondence is summarized below parent is a domestic_corporation which was formed in year for the purpose of acquiring a consolidated_group consisting of corp x the common parent and its subsidiaries sub sub and sub corp x group on date parent acquired of the stock of corp x for cash terminating the corp x group sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 of the regulations to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s return an election for parent group consisting of parent corp x sub sub and sub to file a consolidated_income_tax_return with parent as the common parent for year was due on the due_date for filing parent's federal_income_tax return for year however for various reasons a valid election ie the filing of the consolidated_return was not made after discovery of the missed election parent submitted this request for an extension of time under sec_301_9100-3 to file a valid election the period of limitations on assessment under sec_6501 has not expired for year or any subsequent taxable_year for parent corp x sub sub or sub parent group has represented that it is not attempting to alter a return position taken for which an accuracy-related_penalty has been or could be imposed under sec_6662 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-128140-18 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent group to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company officials and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided that parent group qualifies substantively to file a consolidated_return for year an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election parent group must attach a copy of this letter to the return or if parent group files its returns electronically parent group may satisfy this requirement by attaching a statement to its return that provides the date on and the control number plr-128140- of this letter_ruling the above extension of time is conditioned on parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved we express no opinion as to the tax effects or consequences of filing the election or the return late under the provisions of any other section of the code and regulations or as plr-128140-18 to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company officials and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in the office copies of this letter are being sent to your authorized representatives sincerely __________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc