isaiah bongam petitioner v commissioner of internal revenue respondent docket no 20104-14l filed date in an effort to collect p’s unpaid liabilities r issued p a notice_of_federal_tax_lien filing and your right to a hearing nftl notice the nftl notice was sent by cer- tified mail to p at an address in bowie maryland maryland address at all relevant times the maryland address was p’s last_known_address p timely requested a collection_due_process cdp hearing showing as his address an address in washington d c washington address the cdp hearing was held and r determined that p was not entitled to relief r then sent p by certified mail a notice_of_determination notice denying relief the notice was mailed to p at the washington address and was returned to r as undeliverable without changing the date listed on the notice r’s office re- mailed it to p by regular mail to the maryland address p received the notice and petitioned this court within days of the date on which he actually received the notice and also of the date on which the notice was remailed to him t his court’s jurisdiction under i r c sec_6320 and sec_6330 depends on the issuance of a valid notice_of_determination and the filing of a timely petition for review 122_tc_258 r contends that we lack jurisdiction because the notice originally sent to p was not mailed to his last_known_address and was therefore invalid held the notice as originally mailed to p at his wash- ington address which was returned to r as undeliverable bongam v commissioner was invalid and did not start the 30-day period for petitioning this court held further the notice as subsequently remailed to p at his maryland address was valid because it was actually received by p without prejudicial delay that is in time to file a timely petition in this court held further even though the date listed on the notice was earlier than the date of mailing the critical date for the running of the 30-day period is not the date listed on the notice but the subsequent date on which the notice was mailed to or actually received by p isaiah bongam pro_se john d ellis for respondent opinion lauber judge on date the internal rev- enue service irs or respondent moved to dismiss this case for lack of jurisdiction the case was called and recalled from the calendar at the court’s trial session in washington d c on date both parties appeared and an evi- dentiary hearing was held in light of the evidence intro- duced at that hearing we will deny the motion to dismiss background this collection_due_process cdp case involves petitioner’s liability for civil penalties under sec_6672 for various cal- endar quarters from through the irs assessed this liability totaling dollar_figure on date in an effort to collect this unpaid liability the irs issued petitioner on date a notice_of_federal_tax_lien filing and your right to a hearing nftl notice the nftl notice was sent by certified mail to petitioner at an address in bowie maryland maryland address at all relevant times the maryland address was petitioner’s last_known_address as shown in irs records respondent concedes that the mary- land address was petitioner’s last_known_address and peti- tioner in fact received the nftl notice at that address on date petitioner timely filed form request for a collection_due_process or equivalent_hearing all statutory references are to the internal_revenue_code code in ef- fect at all relevant times we round all monetary amounts to the nearest dollar united_states tax_court reports the form showed as petitioner’s address an address in washington d c washington address petitioner testi- fied that this house belonged to his daughter and that he and other relatives also resided there at no time did petitioner file a change-of-address form with the irs or indicate to the irs that he wished to have his last_known_address changed to the washington address see revproc_2010_16 2010_19_irb_664 listing requirements for taxpayer to change his last_known_address petitioner testified that he generally used the maryland address for his tax filings the cdp hearing was held and the settlement officer determined that petitioner was not entitled to relief on date the irs sent petitioner by certified mail a notice_of_determination concerning collection action s notice_of_determination or notice denying relief that letter was mailed to petitioner at the washington address on date the u s postal service attempted to deliver the letter to petitioner’s washington address but was unable to do so on date the letter was returned as undeliverable to the irs office in memphis tennessee irs memphis office on date someone from the irs memphis office remailed the date notice_of_determination including the envelope in which it had originally been posted to petitioner at his maryland address this document was sent to petitioner by regular mail not by certified or reg- istered mail petitioner received the notice_of_determination a few days later and on date mailed to the tax_court a petition seeking review of the notice this petition was filed within days of the date on which petitioner actu- ally received the notice and of date the date on which the notice was remailed to him discussion this court always has jurisdiction to determine whether it has jurisdiction 135_tc_70 the tax_court is a court of limited jurisdiction and we must ascertain whether the case before us is one that congress has authorized us to consider see sec_7442 81_tc_879 in deter- mining whether we have jurisdiction over a given matter bongam v commissioner this court and the courts of appeals have given our jurisdic- tional provisions a broad practical construction rather than a narrow technical one 68_tc_779 when a statutory provision is capable of two interpretations we are inclined to adopt a construction which will permit us to retain jurisdiction without doing violence to the statutory language 61_tc_97 sec_6320 pertaining to federal tax_liens and pertaining to levies establish procedures for administrative and judicial review of certain collection actions the commis- sioner must provide the taxpayer with written notice of lien filing or the proposed levy action and inform the taxpayer of his right to challenge it at an administrative hearing see 115_tc_35 the code requires that such written notice be given in one of three specified ways it must be given in person be left at the taxpayer’s dwelling or usual place of business or be sent by certified or registered mail to the taxpayer’s last_known_address sec_6320 a - c a a - c after receiving the written notice specified above the tax- payer may request a cdp hearing under sec_6320 or sec_6330 if dissatisfied with the outcome of that hearing the taxpayer may within days of a determination under this section appeal such determination to the tax_court and the tax_court shall have jurisdiction with respect to such matter see sec_6330 cross-referenced in sec_6320 we have repeatedly held that this court’s jurisdic- tion under sec_6320 and sec_6330 depends on the issuance of a valid notice_of_determination and the filing of a timely petition for review 122_tc_258 see 117_tc_122 in this case petitioner actually received the notice_of_determination as remailed to him on date and within days he filed a timely petition for review respondent nevertheless contends that we lack jurisdiction because the notice originally sent to petitioner on date was not mailed to his last_known_address respondent argues that the notice was therefore invalid and cannot serve as a basis for jurisdiction in this court united_states tax_court reports sec_6330 does not specify the means by which the irs shall notify the taxpayer of a determination made after a cdp hearing indeed sec_6330 does not explicitly require that the taxpayer be notified at all it simply states that there must be a determination and permits the tax- payer to appeal to this court within days after the deter- mination has been made see 117_tc_159 interpreting the statute to require a determination to be in the form of a written notice in weber t c pincite we reasoned that the method that congress specifically authorized for sending notices of defi- ciency certainly should suffice in the cdp context we accordingly held in weber that a notice_of_determination issued pursuant to sec_6320 and or is sufficient if such notice is sent by certified or registered mail to a tax- payer at the taxpayer’s last_known_address id pincite see sebastian v commissioner tcmemo_2007_138 93_tcm_1302 we had no occasion in weber to decide whether notice to the taxpayer would be effective if delivered in some other way we address that question now again by analogy to our deficiency jurisdiction sec_6212 provides that a notice_of_deficiency shall be sufficient if it is mailed to the taxpayer at his last_known_address the language of this section is clearly permissive congress did not create a mandatory address to which a notice_of_deficiency must be mailed but rather pro- vided the commissioner a ‘safe harbor’ address to which he could send the notice 89_tc_1063 aff ’d 886_f2d_1237 9th cir by using this safe_harbor the irs can ensure that a notice of defi- ciency will be valid regardless of whether the taxpayer actu- ally receives it the last_known_address rule thus comes into play when the taxpayer does not receive the notice of the treasury regulations appear to specify notice by certified or reg- istered mail as the preferred form of notice see sec_301_6330-1 q a-e8 proced admin regs taxpayers will be sent a dated notice_of_determination by certified or registered mail respondent does not argue that these regulations limit our jurisdiction see 32_tc_1216 o ne litigant cannot write into the law limitations on the jurisdiction of the court as to the other party by his own regulations bongam v commissioner deficiency or receives it with insufficient time to file a timely petition for redetermination however a notice_of_deficiency need not be sent to the tax- payer’s last_known_address in order to be valid rather the notice will be valid if it is actually received by the taxpayer without prejudicial delay that is generally in time to file a timely petition in this court mckay t c pincite 81_tc_65 73_tc_690 actual notice from the irs to a taxpayer whether transmitted by certified mail ordi- nary mail or hand delivery will suffice see 285_f2d_956 9th cir personal delivery of notice_of_deficiency 241_f2d_670 9th cir mailing of notice_of_deficiency by ordi- nary mail the sec_6330 does not require that the commissioner send a notice_of_determination by certified mail to the tax- payer’s last_known_address or that he deliver it in any par- ticular way in this respect sec_6330 stands in sharp contrast to sec_6320 and sec_6330 which specify three permissible modes of notifying the taxpayer of liens and levies and other code provisions that mandate mailing to sec_6015 sec_6110 sec_6331 sec_7603 if con- gress had intended that a similar restriction would govern our review of cdp cases congress could easily have so speci- fied instead sec_6330 provides that this court shall have jurisdiction if a taxpayer files a petition within days of a determination this language does not limit the manner in which the irs may notify the taxpayer that a determina- tion has been made last_known_address see taxpayer’s we agree with respondent that the notice of determina- tion as originally mailed to petitioner on date was invalid that document was not sent to petitioner’s last_known_address and it was not actually received by him rather it was returned to the irs memphis office as undeliverable see looper t c pincite holding notice of transferee_liability invalid when it was not mailed to tax- payer’s last_known_address and taxpayer was unable to file a timely petition despite the exercise of due diligence the date mailing therefore did not start the clock for petitioning this court united_states tax_court reports however the irs memphis office remailed the notice_of_determination to petitioner on date and he actu- ally received that notice in time to file a timely petition we find that the notice_of_determination as remailed on date was properly mailed and valid and that petitioner’s 30-day period for petitioning this court did not start to run before that date cf 625_f3d_254 5th cir holding that 90-day window for seeking review of irs innocent spouse determination did not begin to run when notice was sent to incorrect address but began to run when notice was remailed to taxpayer’s correct address 137_tc_37 requiring the whistleblower office to provide the whistleblower with notice of the determination is the logical first step to estab- lish the starting date for the period of appeal our conclusion is unaffected by the fact that the date appearing on the notice_of_determination does not match the date on which the notice was successfully mailed to peti- tioner as we have held in analogous situations when the date appearing on a deficiency_notice is earlier than the date of mailing t he critical date is the date the deficiency_notice was ‘mailed ’ 54_tc_1535 after the notice_of_determination was returned as undeliverable the irs memphis office could have crossed out the original date on the letter and replaced it with the cur- rent date or it could have retyped the notice using the re- mailing date the irs’ failure to do one of these things does not deprive us of jurisdiction so long as the notice of deter- mination was actually received by petitioner in time to seek our review compare lundy v commissioner tcmemo_1997_14 73_tcm_1693 the date of mailing is generally the date that the com- missioner actually places the notice_of_deficiency in the mail with loyd v commissioner tcmemo_1984_172 47_tcm_1450 date of mailing deemed to be the date appearing on the notice of defi- ciency when it postdates the date of actual mailing cf sec_301 e q a-e10 proced admin regs the 30-day period within which the taxpayer is permitted to seek judicial review of appeals’ deter- mination commences the day after the date of the notice of determina- tion because petitioner filed his petition within days of the remailing date and also of the date on which he actually received the notice of deter- mination we need not decide which date triggered the start of the 30-day bongam v commissioner we see no reason why the above-described rules governing our deficiency jurisdiction should not also govern our juris- diction in cdp cases thus allowing taxpayers the greatest opportunity consistently with the statutory language to obtain jurisdiction in our court we accordingly hold that the 30-day window prescribed by sec_6330 is calculated by reference to the notice_of_determination that was success- fully sent to petitioner’s maryland address by regular mail on date because petitioner actually received that notice and filed his petition within days we have jurisdic- tion to hear this case see eg 749_f2d_691 11th cir even though notice_of_deficiency was not sent to last_known_address taxpayer was not preju- diced because he received actual notice_of_deficiency in ample time to petition this court 527_f2d_754 9th cir notice_of_deficiency not sent to last_known_address is valid if mailing results in actual notice without prejudicial delay aff ’g 57_tc_102 81_tc_42 s o long as the notice_of_deficiency is timely mailed by the commissioner and is received without prejudicial delay by the taxpayer the notice is effective for all purposes from the time of its mailing to reflect the foregoing an order will be issued denying respond- ent’s motion to dismiss for lack of jurisdic- tion f filing period compare 958_f2d_53 4th cir when notice of a deficiency is not sent to a taxpayer’s last_known_address subsequent actual notice of the deficiency will commence the run- ning of the ninety-day period and 635_f2d_895 d c cir time begins to run on date of receipt with 749_f2d_691 11th cir time begins to run on date of mailing if ample time to file a petition the irs notice_of_determination form typically informs the taxpayer if you want to dispute this determination in court you must file a petition with the united_states tax_court within days from the date of this let- ter we have no occasion in this case to decide whether a notice of deter- mination mailed under circumstances resembling those here would be valid if the taxpayer confused by the erroneous date on the irs letter did not file a petition in this court


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number t'e0 bs tax_exempt_and_government_entities_division uil numbers date feb employer_identification_number legend foundation engineering memorial medical title holding university research center dear sir or madam this is in reference to your ruling_request dated date concerning the proper tax treatment under sections of the internal_revenue_code code of the proposed transaction the foundation engineering memorial and medical are all exempt from federal_income_tax under sec_501 of the code as organizations described in sec_501 c and foundation is a private_foundation within the meaning of sec_509 the foundation’s principal activity is to make distributions annually to a division of the university to fund research programs for the study of parkinson’s disease and other central nervous system disorders engineering’s principal activity is to make distributions annually to a division of the university memorial's principal activity is to make distributions annually to educational cultural community and charitable organizations that qualify as exempt_organizations under sec_501 the foundation is medical’s sole member medical’s principal activity will be to form and operate a medical college located near the university the foundation engineering memorial and title- holding have the same directors and the same foundation_manager foundation has the power to appoint and remove all the directors of medical title holding is exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 title holding is organized for the exclusive purpose of holding title to property collecting income therefrom and turning over the entire amount thereof less expenses to the foundation foundation has the power to appoint and remove title holding’s directors title holding is a newly formed corporation and it has represented that it will file consolidated federal tax returns with the foundation beginning with its first tax_return year in order to provide the residents of the state in which the university is located particularly residents of the largely rural counties of that state with access to quality medical_care medical intends to form and operate a medical college near the university the medical college and to provide graduate medical education as well as research and clinical education to enrolled students the medical college will be a state and nationally accredited institution affiliated with the university the medical college and the university will enter into a collaboration agreement which will provide among other things that the president of the university shall designate one director of the medical college the proposed collaboration agreement was submitted with the private_letter_ruling request pursuant to the bylaws of the medical college the board_of directors will consist of at least five but not more than ten persons all of whom are appointed by the foundation except as noted above title holding will acquire real_property through a ground lease title holding will lease the land from research center a related_entity of the university and a publicly supported exempt foundation described in sec_501 of the code such lease will provide for fair_market_value rental payments including an adjustment based upon the consumer_price_index title holding will in turn lease the property to medical at fair_market_value rates and such property will be used by medical in furtherance of its exempt purposes as stated above title holding has represented that it will distribute its net profits to the foundation title holding will hire an independent corporation whose function will be to construct a building and related improvements necessary to house the medical college and the personal_property ie desks chairs computers necessary to operate the medical college the land and improvements to be constructed thereon are referred to as property title holding will on arm’s length terms borrow funds from one or more banks and the corporation will construct the building and related improvements on the leased land engineering and or the foundation and or memorial will guarantee the loan the loan will also be secured_by a deed_of_trust encumbering the personal_property and the leasehold estate in the real_estate the personal_property necessary to operate medical will be separately acquired by medical medical on arms length terms will borrow the funds necessary to acquire the personal_property from the foundation and or engineering and or memorial the foundation and or engineering and or memorial may advance funds to medical for initial operating or capital expenditures necessary to operate the medical college any such debt will not be secured and may be cancelled in whole or in part title holding has requested the following rulings the property leased by title holding to medical will not be debt-financed_property within the meaning of sec_514 of the code and _ title holding will not have unrelated_trade_or_business taxable_income under sec_514 of the code as a result of the transactions described above sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations otherwise exempt from federal_income_tax under sec_501 a cubt ’ sec_511 of the code provides a special rule for c corporations that section states that if a corporation described in sec_501 - pays any amount of its net_income for a taxable_year to an organization_exempt_from_taxation under sec_501 a or which would pay such an amount but for the fact that the expenses of collecting its income exceed its income and such corporation and such organization file a consolidated_return for the taxable_year such corporation shall be treated for purposes of the tax imposed by subsection a as being organized and operated for the same purposes as such organization in addition to the purposes described in sec_501 sec_512 of the code provides that the term unrelated_business_taxable_income means with certain modifications provided in subsection b the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less allowable deductions sec_512 of the code provides that all rents_from_real_property are excluded from the term unrelated_business_taxable_income except in the case of amounts derived from debt- financed property as defined in sec_514 sec_512 of the code provides that notwithstanding sec_512 in the case of debt-financed_property as defined in sec_514 there shall be included as an item_of_gross_income derived from an unrelated_trade_or_business the amount ascertained under section a and there shall be allowed as a deduction the amount ascertained under sec_514 sec_513 of the code defines the term unrelated_trade_or_business in the case of any organization subject_to the tax imposed by sec_511 as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt functions sec_514 of the code provides for the inclusion in gross_income derived from unrelated_trade_or_business a percentage of the income derived from debt-financed_property sec_514 of the code provides that the term debt financed property does not include any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to the exercise or performance by such organization of its charitable purpose sec_1_513-1 of the income_tax regulations regulations provides that gross _ income of an exempt_organization subject_to the tax imposed by sec_511 of the code is with certain exceptions includable in the computation of unrelated_business_taxable_income if itis income from trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that the term trade_or_business has the same meaning it has in sec_162 of the code and generally includes any activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the regulations provides that gross_income is derived from unrelated_trade_or_business within the meaning of sec_51 a of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities that generate the particular income in question - the activities that is of producing or distributing the goods or performing the service involved - and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of any exempt_purpose and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services for which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_1_514_b_-1 of the regulations states that the principles applicable in determining whether the use of any property is substantially related to the exempt_purpose of the organization are contained in sec_1_513-1 sec_1_514_b_-1 of the regulations provides that if substantially_all of any property is used in a manner described in subdivision i of this subparagraph such property shall not be treated as debt-financed_property in general the preceding sentence shall apply if percent or more of the use of such property is devoted to the organization’s exempt_purpose sec_514 of the code provides that if substantially_all of the use of any property is substantially related to the exercise or performance of an organization’s exempt_purpose such property is not treated as debt-financed_property the extent to which property is used for a particular purpose is determined on the basis of all the facts and circumstances in this instance the property is going to be used by medica to operate a medical college and to provide graduate medical education as well as research and clinical education to enrolled students the rental of the property by title holding to medical will be in furtherance of title holding’s exempt purposes within the meaning of sec_1_513-1 of the regulations pursuant to sec_511 title holding will be treated as having the charitable and educational_purposes of the foundation because title holding will distribute its profits to and file consolidated_returns with foundation such purposes will include the advancement of education or science and the instruction or training of individuals for such purposes the rental of the property by title holding to medical to provide graduate medical education as well as research and clinical education will be related to title holding’s purposes the advancement of education or science and the instruction and training of individuals for such purposes within the meaning of sec_501 therefore the property owned by title holding and subject_to an acquisition_indebtedness under sec_514 is exempt from the term debt-financed_property pursuant to sec_514 because all of the use of the property is substantially related to the performance by the foundation and medical both related entities of their exempt purposes income from the rentals does not therefore result in ubti under sec_511 therefore we rule that the property leased by title holding to medical will not be debt-financed_property within the meaning of sec_514 of the code and title holding will not have unrelated_trade_or_business taxable_income under sec_514 of the code as a result the transactions described above we have not been asked and express no opinion on whether payments received by title holding from medical would be subject_to tax by reason of sec_512 of the code this ruling is directed only to the organization that requested it sec_6110 of the code provides that this ruling may not be used or cited by others as precedent this ruling is limited to the applicability of the provisions of the sections of the code as noted above this ruling is based on the understanding that there will be no material changes in the facts upon which it is based if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely teobist m arp a robert c harper jr manager exempt_organizations technical group


internal_revenue_service number release date index number ------------------------------- ------------------------ ------------------------- ------------------------------------------ -------------------------------- in re ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-115972-16 date date legend settlor spouse son trust a_trust date date date date date date individual individual attorney attorney law firm state statute state statute state court x ---------------------------- -------------------------- ----------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------------------ ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ------------------------ -------------------------- -------------------- ---------------------- ----------------- ------------------- ----------------------- ----------------- ------------------------- -------------------- -------------------------------------------------- ---------------------------------------------------- ------------------------------------------------ ---------------------------------------------------------------------------------------- -------- ---- plr-115972-16 dear ------------ this letter responds to your authorized representative’s letter dated date requesting gift estate and generation-skipping_transfer gst tax rulings with respect to the proposed modifications of a_trust the facts and representations submitted are summarized as follows on date settlor created trust a on date trust a was amended and restated at which point it became irrevocable date and date are prior to date pursuant to article iii of trust a three separate trusts have been established with identical terms one for each of settlor's three sons one of those separate trusts trust was established for the benefit of son article iii provides that the trustees other than settlor’s spouse spouse may distribute net_income among the son and his issue at the trustees' discretion any net_income not distributed is to be accumulated and added to principal the trustees other than spouse also have the discretion to distribute principal for the son or his issue for their health maintenance support and education or to assist any of them in the purchase of a home or in a business or profession if the son is living at the death of the survivor of settlor and spouse the trustees are directed to distribute to the son one-tenth of the principal of the trust when he reaches thirty years of age and four-ninths when he reaches thirty-five years of age if at the death of the survivor of settlor or spouse the son has already attained these ages the trustees are at that time to make the required distributions to the son the balance of the trust will continue on the same terms for income and principal distributions upon the death of the son the balance of principal and any undistributed_income is to be distributed to the persons specified by the son in the exercise of a limited_power_of_appointment if the power_of_appointment is not exercised the balance of the trust is to be distributed to the son's issue per stirpes if the son is deceased at the death of the survivor of settlor and spouse the balance of the principal and undistributed_income will be distributed to the son's issue per stirpes if the son and all his issue die the entire balance of his trust shall be added to the trusts for the other sons of settlor article vi paragraph b provides in relevant part that all real_estate decisions are to be made during settlor’s lifetime by spouse while she is trustee all other decisions including real_estate decisions made after settlor’s death or while settlor is plr-115972-16 alive and spouse is not serving as trustee are to be made by a majority of trustees entitled to act in any specific instance under article x paragraph a settlor appoints spouse and attorney as the original trustees upon the death resignation or inability of spouse to serve as trustee settlor appoints individual as successor trustee and upon individual 1’s death resignation or inability to serve the vacancy is to be filled by such individual or series of individuals other than settlor as the last to serve of spouse and individual may designate in writing under article x paragraph b upon settlor’s death spouse individual and attorney are to serve as co-trustees upon the death resignation or inability of either individual or spouse to serve as trustee individual is appointed as trustee as each son attains the age of twenty-five he will become a trustee of his trust article x paragraph c provides that upon the death resignation or inability of attorney to serve as co-trustee the vacancy will be filled by a member of law firm that attorney may designate in his will but in the event that he fails to designate or if his designee dies resigns or is unable to serve said vacancy shall be filled and shall continue to be filled by a member of law firm as shall be designated by that firm from time to time article x paragraph d provides that as each trustee attains the age of x he or she shall resign and be succeeded in accordance with paragraphs a b and c article x paragraph e provides in relevant part that a son or other issue of settlor who is serving as a trustee is prohibited from participating in any decision relating to discretionary distributions of income or principal on date the three sons of settlor signed a statement that acknowledges that each individual trustee other than a son of settlor shall have one vote with respect to all business decisions to be made by the trustees the sons of settlor shall collectively have one vote with respect to all business decisions to be made by the trustees the term business decisions is defined to mean any decision that pertains to or affects an interest in a closely held investment including any decision to acquire additional interests in an existing closely held investment on date state court issued a decree that appointed each son as a co-trustee of his separate trust on date attorney was appointed as a co-trustee of each separate trust law firm delivered a letter dated date to spouse stating that i attorney was serving as co-trustee with attorney ii attorney would serve as successor trustee to attorney upon attorney 1’s resignation iii after the termination of service as trustee by both attorney and attorney law firm would designate as successor trustee a partner of law firm who is acceptable to spouse if she is living or the sons of plr-115972-16 spouse if spouse is not living iv such procedure would be repeated each time a partner of law firm terminated his service as trustee v if such procedure to appoint a successor trustee by law firm did not result in the appointment of a trustee who is acceptable to spouse if she is living or the sons of spouse if spouse is not living then law firm would assist and cooperate with any court_proceeding to appoint a trustee who is not related or subordinate to any of the beneficiaries within the meaning of sec_672 of the internal_revenue_code to fill such vacancy attorney and spouse resigned as trustees when they reached the age of x individual was already more than x years old when spouse resigned so individual never served as trustee currently son and attorney are the only co-trustees of trust state statute provides in relevant part that a noncharitable irrevocable_trust may be modified or terminated upon consent of the settlor and all beneficiaries even if the modification or termination is inconsistent with a material purpose of the trust a settlor's power to consent to a trust's modification or termination may be exercised by a guardian an agent under the settlor's general power_of_attorney or an agent under the settlor's limited power_of_attorney that specifically authorizes that action state statute provides in relevant part that all beneficiaries and trustees of a_trust may enter into a binding nonjudicial settlement agreement with respect to any matter involving the trust a nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this chapter or other applicable law under the authority of state statute the beneficiaries which include son and son’s children and trustees of trust propose to enter into a nonjudicial settlement agreement to amend certain administrative provisions of trust a the settlement agreement will provide for successor trustee provisions in light of the fact that law firm dissolved under the settlement agreement the date statement paragraph b of article vi and article x in its entirety are revoked each son of settlor is to serve as co- trustee of his separate trust with attorney the settlement agreement also provides that a new article x is to be added to trust a the new article x provides in relevant part that at least one independent_trustee is to serve each separate trust each son is to have the right at any time to remove any trustee including an independent_trustee then serving his separate trust and to appoint a substitute trustee who is an independent_trustee each son may appoint an individual or individuals to exercise such powers known as an appointment person to appoint a new independent_trustee in the case of son’s death or disability the settlement further provides that the individual trustees by majority vote may appoint individuals to serve as additional trustees provided that only independent plr-115972-16 trustees are eligible to elect additional trustees who are not independent trustees each individual trustee may appoint one or more individuals to serve concurrently or consecutively as his or her successor if at any time there is no independent_trustee serving the vacancy in the position is to be filled by the son of settlor or if none by a majority of the income beneficiaries of such trust who are of age and able to give or withhold consent no son or other issue of settlor who may at any time be serving as trustee may participate in any decision relating to the discretionary distributions of income or principal an independent_trustee is defined as a trustee who is not a_related_or_subordinate_party as defined in sec_672 to settlor spouse or any of settlor’s issue you have requested the following rulings the proposed modifications to trust will not constitute the grant of a general_power_of_appointment under sec_2041 and sec_2514 and thus the assets of trust will not be includible in son’s gross_estate at death and will not be deemed to be transferred by son for gift_tax purposes the proposed modifications to trust will not constitute a constructive_addition to trust under sec_2601 and will not affect the exempt status of trust for gst tax purposes the proposed modifications to trust will not cause distributions from or the termination of any interest in trust to be subject_to gst tax law and analysis ruling sec_2041 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 his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides in part that a plr-115972-16 donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that a general_power_of_appointment is a power that is exercisable in favor of the individual possessing the power the possessor his estate his creditors or the creditors of his estate however a power to consume invade or appropriate property for the benefit of the posessor that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_25_2514-1 of the gift_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and a has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself a is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment in revrul_95_58 1995_2_cb_191 the service ruled that a decedent grantor's reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee's discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent's gross_estate under sec_2036 or sec_2038 plr-115972-16 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor's spouse if living with the grantor or any one of the following the grantor's father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in this case none of the proposed modifications affect the dispositive provisions of trust at all times both before and after the proposed modifications no son or other issue of settlor who may at any time be serving as trustee may participate in any decision relating to the discretionary distributions of income or principal under the proposed modification at all times there is to be an independent_trustee of each separate trust a son of settlor may remove a trustee and must replace that trustee with an independent_trustee the son of settlor may not participate in any way with the selection of a non-independent trustee furthermore in the case of the son’s death or disability only the appointment person may appoint an independent_trustee son’s power to remove and replace a trustee is equivalent to the power referenced in revrul_95_58 where a replacement trustee may not be related or subordinate to the powerholder within the meaning of sec_672 accordingly based on the facts submitted and the representations made we conclude that the proposed modifications to trust will not constitute the grant of a general_power_of_appointment under sec_2041 and sec_2514 and thus the assets of trust will not be includible in son’s gross_estate at death and will not be deemed to be transferred by son for gift_tax purposes ruling sec_2 and sec_2601 imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest in property held in a_trust unless a immediately after such termination a non-skip_person has an interest in such property or b at no time after such termination may a distribution including distributions on termination be made from such trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the gst tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was plr-115972-16 irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides in relevant part that for purposes of chapter a constructive_addition under sec_26_2601-1 is treated as an addition to a_trust sec_26_2601-1 provides in relevant part 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 in relevant part 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 the power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under paragraph b or of this section hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held plr-115972-16 the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in sec_26_2601-1 example considers the following situation in settlor established an irrevocable_trust for the benefit of settlor's issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case trust was created funded and became irrevocable prior to date it is represented that there have been no additions actual or constructive since that date son’s rights under the proposed modification to remove any trustee and to appoint a successor to such trustee provided that any trustee so appointed shall be an independent_trustee should not be considered a constructive_addition to any trust because such rights do not constitute a general_power_of_appointment within the meaning of sec_2041 and sec_2514 the changes are administrative in nature under sec_26_2601-1 and will not be considered to shift a beneficial_interest to a lower generation in the trust see example of sec_26_2601-1 the changes will not result in a shift in any beneficial_interest to a lower generation nor do the changes extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and the representations made we conclude that the proposed modifications to trust will not constitute a constructive_addition to trust under sec_2601 and will not affect the exempt status of plr-115972-16 trust for gst tax purposes we also conclude that the proposed modifications to trust will not cause distributions from or the termination of any interest in trust to be subject_to gst tax in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


eus tax_exempt_and_government_entities_division department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas date date number taxpayer_identification_number release date person to contact uil certified mail dear employee identification_number employee telephone number this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated january 19xx is hereby revoked and you are no longer exempt under sec_501 of the code the revocation of your exempt status was made for the following reason s around 20xx you developed a new strategic initiative that constituted particular services to members and was a business activity unrelated to your exempt purposes this activity was expanded in or around 20xx and in later years further expanded to include new services resulting in your organization providing substantial services to members as such you are not an organization described in sec_501 c in or you are required to file income_tax returns on form_1120 you should file these income_tax returns with the appropriate service_center for all future tax years in accordance with the instructions on the forms you may also be eligible for help from the taxpayer_advocate_service tas tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely margaret a von lienen director exempt_organizations examinations enclosure publication


internal_revenue_service number release date index number ------------------------ -------------------------------------------------- ---------------------------------- ------------------------------------ in re ------------------------------------------------------------ ------------------------------------------- ---------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc intl plr-152180-05 date february ty ------- ------------------------------------------------------------ ein ---------------- ------------------------------ ein ---------------- ---------------------- ----------------------------------- ------------------------------------------------------------------------ legend taxpayer parent co country a country a co country a group --------------------------------------------------------------------------------------------------------------- country a holding co u s co country b country b entity country b entity country b entity country b entity business x contract state amount c amount d amount e amount f amount g number h ---------------- ---------------------------------------------- ------------------------ ein ---------------- ------------ -------------------------------------------------- ------------------------------------------------ ---------------------------------- ------------------------------------------ --------------------------------------------------- --------------------- ------------- ----------------- ------------------ ------------------------------- ------------------------------- ----------------------------- ----- ------------- ------------- -------- ----------------- --------------- ---------------- --------- ------------- -------------------------- -------------------------- ------- ------- ------- ------- plr-152180-05 number i amount j number k amount l number m amount n number o amount p date date year year year year dear ----------------- this responds to your letter dated date requesting rulings concerning article ------- limitation_on_benefits of the united states-country a income_tax treaty the treaty 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 facts taxpayer a taxpayer is a corporation organized in country a taxpayer represents that it is a resident of country a for purposes of country a income_tax law taxpayer is a wholly owned subsidiary of parent co a publicly traded country b corporation that is engaged in business x a service business and other business activities related thereto through its direct and indirect subsidiaries taxpayer represents that parent co is entitled to the benefits of the united states-country b income_tax treaty taxpayer is not itself directly engaged in the active_conduct_of_a_trade_or_business within the meaning of article ------- of the treaty taxpayer’s principal business_purpose is to finance the activities of ------------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- plr-152180-05 parent co and its worldwide affiliates including u s co and u s co’s u s subsidiaries taxpayer currently has loans outstanding to the country a group of approximately amount c taxpayer was also indirectly involved in providing funds for the acquisition of country a co taxpayer currently has loans outstanding to the u s group of approximately amount d which represents less than percent of taxpayer’s total assets the members of the u s group have utilized the loan proceeds for capital expenditures and business operations taxpayer has raised funding by issuing notes to the public in u s and international capital markets and by the issuance of medium-term notes taxpayer has also borrowed relatively small amounts from banks as of date taxpayer had notes outstanding with an aggregate principal_amount of approximately amount e approximately amount f of the notes were issued in bearer form as eurobonds and medium-term notes since at least year taxpayer issued bearer notes under procedures that complied with the rules of sec_163 and other requirements of the u s portfolio_interest exemption under sec_871 and sec_881 the remaining approximately amount g of the notes were issued under the shelf registration_statement that taxpayer filed with the securities_and_exchange_commission taxpayer receives interest payments from the members of the u s group these interest payments are the income of taxpayer at issue in the present ruling b country a co is a corporation organized in country a taxpayer represents that country a co is a resident of country a for purposes of country a income_tax law country a co is a wholly owned indirect subsidiary of parent co parent co acquired a significant interest in country a co in year also in year parent co entered into a contract to acquire certain country a co shares in year parent co entered into another contract to acquire the balance of the country a co shares parent co completed its purchase of percent of country a co in year the acquisition of country a co was accomplished by purchasing shares of country a holding co a country a corporation that wholly owns country a co country a co and taxpayer are wholly owned by parent co directly in the case of taxpayer and indirectly3 in the case of country a co country a co u s co is the common parent of an affiliated_group_of_corporations making a consolidated_return for u s federal_income_tax purposes this group is hereinafter referred to as the u s group taxpayer represents that in the tax_year at issue country a co was indirectly wholly owned by parent co through a series of wholly owned country b entities parent co wholly owned country b entity which wholly owned country b entity and country b entity country b entity and country b entity wholly owned country b entity which wholly owned country a holding co plr-152180-05 country a co has number h wholly owned country a subsidiaries that support its activities in country a country a co and its number h country a subsidiaries collectively form the country a group the country a group’s activities in country a consist solely of business x and activities related to business x the country a group ranks as the third largest participant in business x in country a with approximately number i customers and approximately amount j in revenues in year the country a group had about number k employees on date and its gross assets on date were approximately amount l taxpayer represents that the officers and employees of the companies comprising the country a group exercise substantial managerial and operational control_over business x activities of the country a group c u s co is a domestic_corporation incorporated in state u s co is a wholly owned indirect subsidiary of parent co and the common parent of the u s group the u s group operates business x in the united_states the u s group’s activities in the united_states consist solely of business x and activities related to business x the u s group ranks as the fourth largest participant in business x in the united_states with approximately number m customers and approximately amount n of revenues in year the u s group had about number o employees on date and its gross assets as set forth in the u s group’s consolidated financial statements as of date were approximately amount p taxpayer represents that the officers and employees of the companies comprising the u s group exercise substantial managerial control_over business x activities of the u s group u s co issues presented can a country b corporation be the indirect common owner for purposes of determining whether taxpayer and the members of the country a group are connected for purposes of article ---------- of the treaty assuming i that taxpayer is a resident of country a for purposes of the treaty and ii that taxpayer is not itself directly engaged in the active_conduct_of_a_trade_or_business in country a within the meaning of article ------- of the treaty will taxpayer be viewed as engaged in the active_conduct of the trade_or_business of connected country a resident corporations within the meaning of article ---------- ------------------------------------------------------------------------------------------------------------ plr-152180-05 of the treaty to the extent such country a resident connected corporations are engaged in the active_conduct_of_a_trade_or_business in country a for purposes of article ------- of the treaty assuming taxpayer is engaged in the active_conduct of a country a trade_or_business based on the activities of connected country a resident corporations how should taxpayer determine whether the interest it derives from the u s group is derived in connection with the active_conduct of a country a trade_or_business for purposes of article ------- of the treaty how should taxpayer determine whether taxpayer’s country a trade_or_business is substantial in relation to the u s trade_or_business that gives rise to an item of u s source interest_income law and analysis sec_881 of the internal_revenue_code the code generally imposes a percent tax on the amount received by a foreign_corporation as interest from sources within the united_states to the extent that the interest is not effectively connected with the conduct_of_a_trade_or_business within the united_states sec_894 of the code provides that the provisions of the code shall be applied to any taxpayer with due regard to any treaty obligation of the united_states that applies to such taxpayer sec_1_871-12 provides that with respect to items of income the tax on which is limited by a tax_convention the tax is determined upon the gross amount of each separate item_of_income at the reduced_rate applicable to that item under the convention article ------- interest of the treaty provides that interest arising in the united_states and beneficially owned by a resident of country a shall be taxable only in country a to be entitled to the exemption from u s withholding provided by article ------- the recipient of interest generally must be a qualified_person within the meaning of article - ------- limitation_on_benefits of the treaty or if not a qualified_person must meet the requirements of either article ------- article ------- or article ------- with respect to the interest_income based on taxpayer’s representations taxpayer is not an article ------- qualified_person and fails to meet the specific criteria of article ------- or article ------- article ------- of the treaty sets forth a test under which a resident of a contracting state that is not an article ------- qualified_person may receive treaty benefits with respect to certain items of income that are connected to an active trade_or_business article -------- ----------- provides that a resident of a contracting state shall be entitled to treaty benefits with respect to an item_of_income derived from the other contracting state if plr-152180-05 the resident is engaged in the active_conduct_of_a_trade_or_business in its state of residence other than the activities of making or managing investments for the resident’s own account unless these activities are banking insurance or securities dealing carried on by a bank insurance_company or registered securities_dealer the income derived from the other state is derived in connection with or is incidental to that trade_or_business and the resident satisfies any other specified conditions to obtain such benefits ruling article ----------- of the treaty provides that a resident of a contracting state must be engaged in the active_conduct_of_a_trade_or_business in its state of residence other than the activities of making or managing investments for the resident’s own account unless these activities are banking insurance or securities dealing carried on by a bank insurance_company or registered securities_dealer to be entitled to treaty benefits with respect to an item_of_income derived from the other contracting state for purposes of article ----------- article ---------- provides that in determining whether a resident of a contracting state is engaged in the active_conduct_of_a_trade_or_business in that contracting state activities conducted by a partnership in which that person is a partner and activities conducted by persons connected to that person shall be deemed to be conducted by such person as represented taxpayer is not itself directly engaged in the active_conduct_of_a_trade_or_business within the meaning of article ------- of the treaty taxpayer would accordingly rely on article ---------- to satisfy the active_conduct_of_a_trade_or_business requirement in article ----------- article ---------- provides that for purposes of article ----- ----------- a resident of a contracting state will be considered to conduct activities conducted by persons connected to that resident article ---------- further provides that sister corporations will be connected for purposes of that sub-paragraph if another person possesses directly or indirectly shares representing at least percent of the aggregate voting power and value of each corporation or of the beneficial equity_interest in each corporation as represented taxpayer is a wholly owned subsidiary of parent co parent co indirectly wholly owns country a co and country a co’s wholly owned country a subsidiaries through a chain of wholly owned country b entities there is nothing in the treaty that requires the article ---------- common owner to be a resident of country a accordingly based solely on the information submitted and the representations made a country b corporation can be the indirect common owner for purposes of determining plr-152180-05 whether taxpayer and the members of the country a group are connected for purposes of article ----------- ruling article ---------- of the treaty provides that in determining whether a person is engaged in the active_conduct_of_a_trade_or_business in a contracting state activities conducted by persons connected to that person will be deemed to be conducted by such person based solely on the information submitted and the representations made and assuming that i taxpayer is a resident of country a for purposes of the treaty and ii taxpayer is not itself directly engaged in the active_conduct_of_a_trade_or_business in country a within the meaning of article ----------- of the treaty taxpayer would be deemed to conduct the activities conducted by connected country a corporations and to the extent the activities of the connected country a corporations constitute the active_conduct_of_a_trade_or_business in country a taxpayer would be considered engaged in the active_conduct_of_a_trade_or_business in country a for purposes of article ------- of the treaty ruling to qualify for treaty benefits with respect to an item_of_income under article ------- of the treaty article ----------- requires that an item_of_income be derived in connection with or incidental to an active trade_or_business conducted by the taxpayer in its state of residence paragraph ----- of the mou4 provides that an item_of_income is to be considered as derived in connection with an active trade_or_business in the residence state if the source state activity generating the income is a line_of_business that forms a part of or is complementary to the trade_or_business conducted in the residence state the technical explanation to article ------- states that a residence-state business activity generally will be considered to form part of a source-state business activity if the two activities involve the design manufacture or sale of the same products or type of products or the provision of similar services to determine whether an item of interest_income is considered to be derived in connection with an active trade_or_business in the residence state it is necessary to identify the source state trade_or_business to which the interest_income is attributable ------------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- plr-152180-05 accordingly based solely on the information submitted and the representations made and assuming the members of the country a group are connected to taxpayer whether interest received by taxpayer from members of the u s group is derived in connection with the trade_or_business of taxpayer depends on whether such interest is attributable to income producing activities of a member of the u s group whose line_of_business forms part of or is complementary to a trade_or_business treated as conducted by taxpayer through the activities of the members of the country a group in country a ruling article ----------- of the treaty provides that a country a resident is entitled to treaty benefits under article ----------- with respect to any item of u s source income only if the country a resident’s country a trade_or_business is substantial in relation to the u s trade_or_business that gives rise to the item of u s source income paragraph ------ of the mou states that the substantiality requirement is intended to prevent a narrow case of treaty-shopping abuses in which a company attempts to qualify for the benefits of the treaty by engaging in de_minimis connected business activities that have little economic cost or effect with respect to the company’s business the mou provides that the determination whether a trade_or_business is substantial for purposes of article ----------- will be based on all the facts and circumstances the mou states that this determination will take into account the comparative sizes of the trades_or_businesses in each contracting state measured by reference to asset values income and payroll expenses the nature of the activities performed in each contracting state and the relative contributions made to that trade_or_business in each contracting state in making each determination or comparison due regard will be given to the relative sizes of the u s and country a economies accordingly based solely on the information submitted and the representations made and assuming that the income producing activities of the members of the u s group form a part of or are complementary to a trade_or_business considered to be conducted by taxpayer based on the activities of the members of the country a group we conclude that whether taxpayer’s country a trade_or_business is substantial in relation to the u s trade_or_business that gives rise to the interest_income must be determined by comparing the size and nature of the trade_or_business conducted by the members of the country a group in country a with the trade_or_business conducted in the united_states by the member or members of the u s group that gives rise to the item_of_income for example the relative asset values income and payroll expenses of the members of the country a group and the members of the u s group and the relative contributions made to those trades_or_businesses in country a and the united_states in making this comparison the asset values income and payroll expenses of taxpayer are not taken into account because under article ------- taxpayer’s own activities do not constitute the active_conduct_of_a_trade_or_business plr-152180-05 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 in particular no opinion is expressed as to whether members of the country a group are engaged in the active_conduct of a country a trade_or_business whether taxpayer’s u s source interest_income is derived in connection with a country a trade_or_business or whether a country a trade_or_business conducted by the members of the country a group is substantial in relation to a u s trade_or_business conducted by a member or members of the u s group no opinion is expressed as to whether any of the assumptions set forth in the rulings are correct in addition no opinion is expressed as to whether the information or representations submitted by taxpayer are correct this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer a copy of this letter must be attached to any income_tax return to which it is relevant sincerely elizabeth u karzon chief branch office of associate chief_counsel international cc


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 corp plr-102872-19 date date parent date year ----------------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------- ------- company official ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- ----------------------------- tax professional ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- --------------------- 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 file an election parent is requesting an extension of time for the consolidated_group of which parent is the common parent to make a closing-of-the-books election under sec_1_382-6 of the income_tax regulations the election with respect to an ownership_change within the plr-102872-19 meaning of sec_382 of the internal_revenue_code the code additional information was submitted subsequently the material information provided is summarized below parent is the common parent of a consolidated_group the parent group on date parent group experienced an ownership_change as defined in sec_382 the ownership_change and consequently sec_382 limited its ability to offset post- change taxable_income and liabilities by pre-change losses an election under sec_1_382-6 to close its books with respect to the ownership_change was due by the due_date including extensions of the parent group’s tax_return for the year taxable_year but for various reasons parent did not make the election subsequently parent submitted this request under sec_301_9100-3 for an extension of time to file the election parent has represented that parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time of the request for relief sec_1_382-6 allows a loss_corporation to elect to allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period as if the loss corporation’s books were closed on the change_date sec_1_382-6 provides that a loss_corporation makes the closing-of-the-books election by including the following statement on the information statement required by sec_1_382-11 for the change year the closing-of-the-books election under sec_1_382-6 is hereby made with respect to the ownership_change occurring on insert date the election must be made on or before the due_date including extensions of the loss corporation’s income_tax return for the change year sec_1_382-6 provides that if an election under sec_1_382-6 is made with respect to an ownership_change occurring in a consolidated_return_year all allocations under this section with respect to that ownership_change must be consistent with the election 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 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 plr-102872-19 the taxpayer provides evidence that it acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 b i therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided that parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official tax professional and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the affidavits submitted and representations made we conclude that parent has shown it 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 we grant an extension of time under sec_301_9100-3 for sixty days from the date of this letter for parent to file the election 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 parent group’s tax_liability for the years involved a determination thereof will be made by the applicable director's office upon audit of the federal_income_tax returns involved parent should file the election in accordance with sec_1_382-6 the parent group’s return must be amended to attach the election statement required by sec_1_382-6 a copy of this letter should be attached to the election statement alternatively if parent group files its amended_return electronically parent group may satisfy this latter requirement by attaching to the return a statement that provides the date of this letter and control number plr-102872-19 of this letter_ruling 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 for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official tax professional and tax professional however the director should verify all essential facts in addition plr-102872-19 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 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 sincerely t ian russell branch chief branch office of associate chief_counsel corporate