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 uilc cc pa apjp postf-153635-01 internal_revenue_service national_office field_service_advice memorandum for associate area_counsel lmsb area natural_resources from assistant chief_counsel administrative provisions judicial practice subject statute_of_limitations under sec_6501 and sec_6511 this responds to your request for assistance in the above captioned case in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend taxpayer year year year year year date a date b date c date d date e date f date g date h date i date j date k date l postf-153635-01 date m date n date o date p amount a amount b amount c amount d amount e issue sec_1 under the circumstances described herein when does the period of limitations on assessment expire with respect to taxpayer’s taxable years year year year and year under the circumstances described herein did taxpayer file a timely refund claim for year conclusion sec_1 under the circumstances described herein the period of limitations on assessment for taxpayer’s taxable years year year year and year will expire on date o under the circumstances described herein taxpayer filed a timely refund claim for year background taxpayer a domestic_corporation timely filed its income_tax return form_1120 for each of the years at issue each return was filed on september of the year following the close of the taxable_year pursuant to an extension under sec_6081 during the service initiated an audit of the year year year and year taxable years to verify the foreign tax_credits claimed by taxpayer the service requested a copy of the computer_software used by taxpayer in the preparation of its year year year and year tax returns taxpayer refused to provide the software to the service on date a the service issued a designated_summons to taxpayer formally requesting the same information it had previously requested informally taxpayer refused to comply with the summons and on date b the service initiated a suit postf-153635-01 seeking enforcement of the designated_summons a magistrate ruled against the government on date d the district_court entered an order adopting the opinion of the magistrate the government had days to appeal the district court’s adverse_ruling to the fifth circuit_court of appeals the government decided not to appeal and the district’s court order became final on date f prior to the filing of the suit to enforce the designated_summons taxpayer executed several consents form sec_872 to extend the assessment_period for all of the years at issue the last of these agreements extended the statute until date c although at that time taxpayer informed the service that it would not consent to additional extensions taxpayer executed additional consents after the conclusion of the summons litigation the first of these consents executed after the summons litigation was signed by taxpayer in april of year and by the service on date g this consent extended the statute_of_limitations for all of the years at issue until date i subsequent consents further extended the assessment_period until date o the service completed examination of taxpayer’s year year year and year in the fall of year although at that time the service proposed deficiencies for two of the four years at issue subsequent adjustments resulted in a deficiency for year only the adjustments to the other three years resulted in overpayments the overpayment for year was primarily due to the shifting_of_income from foreign sources between the various income categories defined in sec_904 of the internal_revenue_code the shifting allowed taxpayer to claim an increased amount of foreign_tax_credit with respect to the year tax_year taxpayer was able to claim an additional dollar_figurea in foreign tax_credits ftcs this additional_amount was composed of the following ftc carryforward from year dollar_figureb ftc carryback from year c d additional year ftc due to these additional credits the service determined an overpayment of dollar_figuree for year the service and taxpayer orally discussed the adjustments in december year and at that time taxpayer agreed to the refund for year on date j the service issued a form 4549-a income_tax examination changes to taxpayer the form reflected deficiencies for year and year and overpayments for year and year this report was superceded by a revised form 4549-a issued on date k which reflected a deficiency only for year and overpayments for year year postf-153635-01 and year both the initial and the revised form 4549-a reflected an overpayment for year of dollar_figuree on date m taxpayer executed a form_870 waiver_of_restrictions_on_assessment_and_collection of deficiency in tax and acceptance of overassessment with the deficiency and overpayment amounts as shown on the march form 4549-a law analysis statute_of_limitations on assessment generally the service ha sec_3 years from the date of the filing of the taxpayer’s return to examine the return and assert a deficiency sec_6501 the taxpayer and the service however may agree to extend the assessment_period beyond the years sec_6501 to be effective the agreement extending the assessment statute must be in writing signed by the taxpayer and an authorized agent of the commissioner and entered into before the expiration of the original period of limitations of assessment or the period previously agreed upon sec_6501 in addition for extension requests made after date i the service is required to inform the taxpayer of the taxpayer’s right to refuse to extend the period or limitations or to limit such extension to particular issues or a particular period of time on each occasion the service requests an extension from the taxpayer sec_6501 in addition to extensions the running of the period of limitations on assessment may also be suspended by operation of law see generally sec_6503 unlike an extension which generally operates to lengthen the period of limitations under the terms of an agreement a suspension tolls or freezes the limitations_period by law until some date or event in the future at which time the limitations_period begins to run again see 22_fsupp_809 ct_cl unexpired portion of the limitations_period begins to run again sixty days after the final tax_court decision 14_fsupp_533 ct_cl unexpired portion of the waiver period is added to the suspension_period as relevant here sec_6503 previously sec_6503 provides for a suspension of the statute_of_limitations on assessment during the judicial_enforcement_period of a designated_summons issued by the service in connection with an examination of a corporate taxpayer under the service’s coordinated_examination_program sec_6501 the term designated_summons describes summonses issued to large corporations that meet the specific requirements of sec_6503 a designated_summons must be issued at least days prior to the expiration of the assessment_period including any extensions and identified as a designated_summons sec_6503 and iii only one designated_summons may be issued with respect to any taxable_year sec_6503 postf-153635-01 the mere issuance of a designated_summons does not suspend the assessment_period rather the period is suspended during the time that the corporation and the service are in court litigating the issue of whether the taxpayer must comply with the summons specifically the statute_of_limitations is suspended for the period that commences when a lawsuit is brought in court either to enforce or quash the designated_summons and ends on the date there is a final resolution of the taxpayer’s response to the summons sec_6503 for this purpose the term final resolution means the same as it does in sec_7609 see h_r rep no in general this means that no court_proceeding remains pending ie the appeal period has expired and that the taxpayer has complied with the designated_summons to the extent required by the court id see also sec_301_7609-5 if the court requires additional compliance with the summons the statute_of_limitations is further suspended for an additional days after the final resolution sec_6503 if additional compliance is not required the assessment_period will in no event expire until the 60th day after the final resolution sec_6503 thus the service will always have at least days after the final resolution of the summons enforcement proceedings to conclude the audit and assert a deficiency against the taxpayer in this case the designated_summons was issued to taxpayer on date a at that time the statute_of_limitations on assessment for the years under audit was due to expire pursuant to an extension under sec_6501 on date c more than days after the issuance of the summons taxpayer did not comply with the summons and the service initiated a proceeding to enforce the summons on date b on date d the district_court entered an order finding that taxpayer did not have to comply with the designated_summons the order became final on date f at the time the service initiated the judicial proceeding to enforce the designated_summons only days remained on the assessment statute as extended under sec_6501 once the judicial proceedings were initiated however the statute was suspended or tolled until the final resolution of the lawsuit see 725_f2d_1183 9th cir sec_6503 operates to suspend an extended limitations_period as well as the normal limitations_period contained in sec_6501 538_f2d_888 ct_cl an extension agreement providing for expiration of the limitations_period on a certain date was held subject_to sec_6503 699_fsupp_279 s d fla sec_6503 suspension of the limitations_period suspends all limitations periods in section 6501--ordinary as well as extended in this case the assessment_period was suspended or tolled from date b until date f when the statute began to run again although the statute was no longer suspended after date f sec_6503 specifically provides that the assessment_period shall in no event expire before the 60th day after the close of postf-153635-01 the suspension therefore at the conclusion of the summons litigation the service had at least until date h to finalize the audit and assert any deficiency against taxpayer prior to date h however taxpayer and the service agreed to further extend the limitations_period which remained unexpired an authorized official of the service countersigned the agreement on date g under the agreement the period of limitations on assessment was due to expire on date i subsequent timely consents further extended the statute until date o thus the service has until date o to assess the agreed upon deficiency for the year tax_year statute_of_limitations on refund claim generally to be timely a claim for credit or refund of an overpayment of any_tax in respect to which the taxpayer is required to file a return must be filed by the taxpayer within years from the time the return was filed or years from the time the tax was paid whichever is later sec_6511 sec_301_6511_a_-1 if however the taxpayer and the service agree to extend the period for making an assessment pursuant to sec_6501 and such agreement is made within the period set forth in sec_6511 the period for filing a claim for credit or refund shall not expire prior to months after the expiration of the period within which an assessment may be made pursuant to the agreement or any extension thereof under sec_6501 sec_6511 in this case taxpayer and the service executed several consents to extend the assessment_period with respect to the year tax_year the first of these agreements was executed on date prior to the expiration of the 3-year period set forth in sec_6501 and within the period prescribed in sec_6511 this agreement extended the period for assessment for the year tax_year until date subsequent agreements between the service and taxpayer further extended the assessment_period until date c on date b the service commenced a lawsuit seeking enforcement of the designated_summons thereby leaving the assessment statute open until the 60th day after the final resolution of the lawsuit sec_6503 at the conclusion of the lawsuit the assessment statute for the year tax_year was due to expire on date h on date g prior to the expiration of the assessment_period the taxpayer and the service executed another agreement pursuant to sec_6501 further extending the assessment_period additional agreements further extended the assessment_period until date o in the prior section of this memorandum we concluded that the statute_of_limitations on assessment as extended under sec_6501 was suspended during the summons litigation by operation of sec_6503 the question that we need to postf-153635-01 address now is whether that suspension also extended the time for filing a timely refund claim pursuant to sec_6511 we believe that it did to determine the applicable_period of limitations on credit or refund under sec_6511 one must consider the provision in its entirety 489_us_235 reading only a portion of the statute leads to inconsistent and often incorrect interpretations 494_us_26 particular phrases must be construed in light of the overall purpose and structure of the whole statutory scheme for instance if one were to read only the phrase i f an agreement under the provisions of sec_6501 is made one would likely conclude that only one of multiple agreements extending the assessment_period counts for purposes of sec_6511 such a reading however would be inconsistent with the reference to the agreement or any extension thereof in sec_6511 likewise the fact that the statute does not refer to a suspension of the assessment_period under sec_6503 does not necessarily mean that the suspension must be ignored when determining the applicable statute_of_limitations for filing a claim_for_refund as stated above sec_6503 operates to suspend the period of limitations on assessment- ordinary as well as extended 699_fsupp_279 s d fla sec_6511 provides that if the taxpayer and the service agree to extend the period of limitations on assessment pursuant to sec_6501 the period for filing claim for credit or refund shall not expire prior to months after the expiration of the period within which an assessment may be made pursuant to the agreement or any extension thereof under sec_6501 in this case taxpayer and the service executed a number of extensions under sec_6501 prior to the summons litigation the assessment_period as extended under sec_6501 was due to expire on date c thus without the sec_6503 suspension of the assessment_period taxpayer had until date months after date c to file a timely claim_for_refund this simplified analysis and conclusion however ignores the fact that the extensions of the assessment_period executed by taxpayer and the service after the conclusion of the summons litigation were executed while the period of limitations under sec_6501 was unexpired in other words the limitations_period previously agreed upon had not expired when a new consent was signed thus pursuant to the plain language of sec_6511 there was a continuous chain of extensions that must be considered when determining the period of limitations on credit or refund for these reasons we conclude that under the facts of this case the period of limitations for filing a claim for credit or refund under sec_6511 is due to expire on date p six months after date o the analysis does not end here postf-153635-01 however because taxpayer’s year overpayment is attributable to foreign tax_credits we must also consider the impact of sec_6511 sec_6511 sets forth a special period of limitations for filing a claim for credit or refund of an overpayment attributable to foreign tax_credits as in effect for the years at issue sec_6511 provided that in lieu of the 3-year period of limitations set forth in sec_6511 the period for filing a claim for such credit or refund is years from the date prescribed by law for filing the return for the year with respect to which the claim is made the 10-year period applies in lieu of the 3-year period prescribed in sec_6511 sec_6511 the period is determined without regard to any extension of time for filing the return sec_301_6511_d_-3 it is the service’s position that the phrase the year with respect to which the claim is made under sec_6511 as in effect for the years at issue refers to the year in which the foreign taxes were actually paid_or_accrued and not to the year to which the foreign taxes were carried under sec_904 see revrul_84_125 1984_2_cb_125 revrul_77_487 1977_2_cb_429 in the instant case taxpayer’s refund claim for year consists of foreign taxes paid_or_accrued in year year and year thus the 10-year period of limitations under sec_6511 for claiming the foreign taxes paid_or_accrued in year is date e years from the due_date of the year return the period of limitations for claiming the foreign taxes paid_or_accrued in year is date l and the period of limitations for claiming the foreign taxes paid_or_accrued by taxpayer in year is date n the question that arises in this case is whether the 10-year period set forth in sec_6511 may be further extended by operation of sec_6511 we believe that it may as in effect for the years at issue sec_6511 provided that in lieu of the 3-year period of limitation prescribed in subsection a the period for filing a refund in 620_f2d_853 ct_cl the u s court of claims held that under sec_6511 as in effect for the years at issue the year limitation period is determined by reference to the year of the overpayment rather than the year in which the foreign taxes are paid_or_accrued here the timeliness of taxpayer’s refund claim under sec_6511 would not be affected if the 10-year limitation period were determined by reference to the year of the overpayment rather than the year in which the applicable foreign taxes are paid_or_accrued in addition we note that the taxpayer_relief_act_of_1997 amended sec_6511 by substituting the year in which such foreign taxes were actually paid_or_accrued for for the year with respect to which the claim is made effective for taxes paid_or_accrued in tax years beginning after date p l sec_1056 postf-153635-01 claim for an overpayment attributable to foreign tax_credits is years from the date prescribed by law for filing the return for the year with respect to which the claim is made determined without regard to extensions sec_301_6511_d_-3 accordingly to the extent a refund claim relates to an overpayment that is attributable to foreign tax_credits sec_6511 modifies sec_6511 by replacing the 3-year period of limitation contained in sec_6511 with a 10-year limitation period measured by reference to the year in which the applicable foreign taxes were paid_or_accrued see revrul_84_125 1984_2_cb_125 revrul_77_487 1977_2_cb_429 the references in sec_6511 to sec_6511 should be read to incorporate the sec_6511 modification of sec_6511 this conclusion is supported by the legislative purpose underlying the enactment of sec_6511 prior to the enactment of sec_6511 congress became aware that taxpayers often could not reach final determinations of their foreign tax_liabilities within the general 3-year period of limitations see eg house hearing on proposed revisions of the internal_revenue_code before the committee on ways and means 80th cong sec_6511 addressed this problem by providing taxpayers with a longer 10-year period in which to resolve their foreign tax_liabilities for a particular year and claim a refund based on such foreign tax_liabilities see 585_f2d_1025 ct_cl there is no indication in the legislative_history that by allowing taxpayers a longer period of time to claim a refund attributable to foreign tax_credits congress intended to override sec_6511 and preclude a taxpayer from extending the period for claiming a refund of an overpayment attributable to foreign tax_credits see s rep no pincite h_r rep no at a415 h_r conf_rep no pincite this conclusion is also compelled by sec_6511 and the reference thereto in sec_6511 sec_6511 requires refund claims to be filed within the period prescribed by sec_6511 therefore unless the reference to sec_6511 in sec_6511 incorporates the modification to sec_6511 made by sec_6511 a taxpayer would be barred from claiming a refund within the 10-year limitation period of sec_6511 if the claim were not also within the period expressly described in sec_6511 this result is clearly inconsistent with sec_6511 thus the reference to sec_6511 in sec_6511 must incorporate the sec_6511 modification to sec_6511 since sec_6511 extends the period provided in subsections a and b the reference to sub sec_6511 must also incorporate the sec_6511 modification to sec_6511 the period for claiming a refund for an overpayment attributable to foreign tax_credits therefore may be extended under sec_6511 if a taxpayer enters into an agreement pursuant to sec_6501 to extend the assessment_period postf-153635-01 for the year of the overpayment within the period prescribed in sec_6511 as modified by sec_6511 in particular in the case of an overpayment attributable to foreign tax_credits if the taxpayer has entered into an agreement pursuant to sec_6501 to extend the assessment_period for the year of the overpayment prior to the expiration of the 10-year period or periods applicable for claiming a refund of such overpayment the period to file the refund claim will not expire prior to months after the expiration of the period within which an assessment may be made pursuant to the agreement or any extension thereof here there is an overpayment for year attributable to foreign tax_credits for foreign taxes paid_or_accrued in year year and year the initial agreement to extend the assessment_period for year was entered into prior to the expiration of each of the applicable 10-year periods of limitation for filing a refund claim attributable to the overpayment further as explained above the initial limitations_period was properly extended by subsequent consents until date o accordingly the period of limitations for filing a timely refund claim under sec_6511 is due to expire on date p six months after date o because the form_870 that taxpayer executed on date m constitutes a claim_for_refund taxpayer has filed a timely claim this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please contact us pincite-4940 if you have any further questions by curtis g wilson ashton p trice senior technician reviewer branch


number release date internal_revenue_service index number ------------------------------- -------------------------------------------- --------------------------- ---------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-111715-06 date date z y x trust date ------------------------------------- -------------------- ------------------------ ---------------------- ------------------------- ------------------------------- ------------------------ legend dear ---------- requesting relief under sec_1362 of the internal_revenue_code -------------------------- ------------------ ----------------- ---------- date date state facts this letter is in response to your letter dated date on behalf of x plr-111715-06 x represents that it did not realize at the time of the transfer that trust was an based on the materials submitted and representations within we understand the relevant facts to be as follows x was incorporated on date under the laws of state y an individual was the sole shareholder of x x elected to be an s_corporation effective date on date x issued shares to trust for the benefit of z ineligible shareholder x represents that the transfer of x stock to trust was not motivated by tax_avoidance or retroactive tax planning on date trust transferred the shares to z an eligible shareholder for all taxable years x’s shareholder’s income was reported consistent with x qualifying as an s_corporation furthermore x and z both treated z as the owner of x stock both x and z agree to make any adjustments consistent with the treatment of x as an s_corporation that the secretary may require law and analysis sec_1362 provides that an election under sec_1362 shall be sec_1361 of the code defines an s_corporation as a small_business revrul_92_73 c b holds that a_trust that qualifies as an individual sec_1361 b provides that a small_business_corporation cannot have corporation for which an election under sec_1362 is in effect for such year as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual_retirement_account under sec_408 is not a permitted shareholders of an s_corporation under sec_1361 terminated whenever at any time on or after the first day of the taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation a termination of an s_corporation_election under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time plr-111715-06 during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusions based solely on the information submitted and representations made we this ruling is contingent upon x treating z during the period from date to date conclude that x’s s_corporation_election was terminated on date when trust an ineligible shareholder acquired x stock we also conclude that this termination was inadvertent within the meaning of sec_1362 of the code we further hold that under the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date to date and thereafter provided that x’s s election was valid and was not otherwise terminated as owning the x shares held by the trust accordingly the shareholders of x in determining their respective income_tax liabilities must include their pro_rata share of the separately_stated and non-separately computed items of x under sec_1366 make any adjustments to basis under sec_1367 and take into account any distributions made by x as provided in sec_1368 federal tax consequences of the transactions described above under any other provisions of the code specifically no opinion is expressed on whether x was otherwise eligible to be treated as an s_corporation of the code provides that it may not be used or cited as precedent be sent to x’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 except as specifically ruled upon above we express no opinion concerning the pursuant to the power_of_attorney on file with this office copies of this letter will sincerely david r haglund senior technician reviewer branch passthroughs special industries enclosures copy of this letter plr-111715-06 copy of this letter for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc dom corp 1-plr-121881-00 date date number release date index number legend distributing controlled fund fund investment banker dear this letter responds to your date request for a supplement to your prior letter_ruling dated date plr-107629-00 the prior letter_ruling the prior letter_ruling addresses certain federal_income_tax consequences of a proposed split-off transaction intended to separate distributing and controlled the split-off was to be conducted by way of a dutch auction whereby tendering distributing shareholders were to exchange shares of distributing for shares of controlled the prior letter_ruling held that the transaction qualified for tax-free treatment under sec_355 of the internal_revenue_code due to unanticipated market conditions the market demand for controlled shares has diminished because there has been an apparent market lack of understanding of controlled’s growth potential a failure by the market to fully understand controlled’s business plan and a significant short position on controlled stock as a result of the limited demand for controlled shares investment banker anticipates that distributing shareholders may be reluctant to participate in the split-off requiring a significant premium to induce distributing shareholders to tender their distributing shares based on the advice of investment banker distributing has decided not to effectuate the separation by means of a split-off contemplated in the prior letter_ruling instead distributing intends to distribute all of the stock of controlled owned by plr-121881-00 distributing to distributing’s shareholders on a pro_rata basis additionally at the time of the prior letter_ruling distributing had one shareholder that owned or more of the outstanding distributing stock namely fund however distributing has now learned that fund also currently own sec_5 or more of the outstanding distributing stock as a result of the changed facts described above the taxpayer has modified the following representations a representation c on page of the prior letter_ruling should be deleted as it is no longer applicable b representation y on page of the prior letter rulilng should be amended to read y the distribution will occur within the later of i the last day of the sixth month beginning after the date of the public offering or ii the last day of the third month beginning after the receipt of this supplemental private_letter_ruling based solely on the information and representations set forth above and in connection with the prior letter_ruling the following rulings are substituted for rulings and on page sec_12 and of the prior letter_ruling no income gain_or_loss will be recognized by distributing upon the distribution of all of its controlled stock to shareholders of distributing in the spin- off sec_361 no gain_or_loss will be recognized by and no amounts will be included in the income of the shareholders of distributing upon their receipt of controlled stock pursuant to the spin-off sec_355 the basis of the distributing stock and the controlled stock in the hands of the shareholders of distributing immediately after the distribution will in the aggregate be the same as the basis of the distributing stock in such shareholder’s hands immediately prior to the distribution and such basis will be allocated between distributing stock and controlled stock in proportion to their relative fair market values at the time of the distribution sec_358 and sec_1_358-2 the holding_period of the controlled stock received by the shareholders of distributing will include the holding_period of the distributing stock retained provided that such distributing stock is held as a capital_asset by the respective shareholder of distributing on the date of the distribution sec_1223 plr-121881-00 if cash is received by a distributing shareholder as a result of a sale of a fractional share of controlled stock by the distribution agent the shareholder will have gain_or_loss measured by the difference between the basis of the fractional share allocated thereto as determined in ruling above and the amount of cash received sec_1001 if the controlled stock is held by the shareholder as a capital_asset the gain_or_loss will be subject_to the provisions of sub-chapter p of chapter sec_1221 and sec_1222 except for the rulings substituted specifically herein all other rulings in the prior letter_ruling shall remain in full force and effect no opinion is expressed about the tax treatment of the above changes under any other provisions of the internal_revenue_code or federal_income_tax regulations this supplemental letter is directed only to the taxpayer who requested it sec_6110 provides that it cannot be used or cited as precedent a copy of this supplemental letter and the prior letter_ruling should be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transaction is completed pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely assistant chief_counsel corporate by christopher schoen assistant to the chief branch


significant index no ‘third party contact - plan participants department of the treasury internal_revenue_service washington d c q i tax_exempt_and_government_entities_division dec wv toe company this letter constitutes notice that your requests for waivers of the minimum fundin standard for the above-named plans for the plan years ending december have been denied the company is engaged in the office and and retrieval equipment and customized and sale of the company also distributes various paper products used in conjunction with its equipment including the current economic hardship began due to the company's relocation from a in and the resulting disruption in business you were notified in a letter dated october br that your requests for funding waivers had been tentatively denied based on concerns that the company's financial hardship was not temporary in_nature during a conversation with of this office on november pursuing a distress termination for both plans and waived its right to a conference to review this decision therefore plan years ending december your requests for funding waivers for the plans for the your representative indicated that the company is are denied you should note that excise_taxes under section a of the internal_revenue_code are currently due on the accumulated funding deficiengies years ending december a and december form_5330 was filed for both plans for the plan years ending december eto report the deficiencies but that the excise_taxes were not paid you should file form the plans for the plan we understand that in to report the deficiencies for the plan years ending december the excise_taxes for the plan years ending december j and december and pay as soon as possible this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in and to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance in this matter please contact sincerely yours carol d gold director employee_plans


internal_revenue_service number info release date index no cor-128468-01 date dear i am responding to your date inquiry to commissioner rossotti concerning a certain technical_advice_memorandum tam that you state was issued to a member of your association sec_6103 of the internal_revenue_code prohibits our addressing particular tams with any person except the taxpayer whose liability is discussed in that tam further we cannot confirm the existence of a tam concerning the application of the air transportation excise_tax at this time however in an attempt to provide you with as much assistance as possible we will treat your letter as a request for general information regarding the air transportation excise_tax and on the limited circumstances in which the irs will generally apply a tam without the normal retroactive effect prior to the taxpayer_relief_act_of_1997 vol c b the act the excise_tax on domestic air transportation of persons was calculated solely as a percentage of the amount_paid for that transportation in addition an international_travel_facilities_tax calculated as a fixed amount was imposed on any amount_paid for air transportation beginning or ending in the united_states under the act this percentage was decreased and a new tax on each segment of taxable_transportation was added the act states that the segment tax is imposed on the amount_paid for each domestic_segment of taxable_transportation the term domestic_segment is defined in sec_4261 as consisting of one takeoff and one landing and which is taxable_transportation described in sec_4262 the international_travel_facilities_tax imposed by sec_4261 is similar to the sec_4261 segment tax inasmuch as it is not calculated as a percentage of the amount_paid but is a fixed amount imposed on an amount_paid for the transportation revrul_72_309 1972_1_cb_348 addresses the calculation of the international_travel_facilities_tax in the context of a single payment for a charter that revenue_ruling concluded that when a single amount is paid for a charter implicit in the charter fee is an amount_paid for the transportation of each passenger actually on the flight the similar language in the sec_4261 segment tax supports a conclusion for the segment tax similar to that reached in the revenue_ruling for the international_travel_facilities_tax thus while there is no guidance by the irs on the segment tax specifically guidance relating to an analogous tax would suggest a per passenger application of the segment tax sec_7805 allows the secretary to prescribe the extent if any to which any ruling shall be applied without retroactive effect the holding of a tam applies retroactively unless the secretary exercises the discretionary authority granted under sec_7805 generally a tam will not apply retroactively where the irs has a contrary regulation or revenue_ruling on point or where the irs has issued an earlier tam or letter_ruling to the taxpayer concerning the same matter under consideration in the tam revproc_2001_2 2001_1_irb_79 the irs has not issued any regulation or revenue_ruling on the segment tax thus unless a letter_ruling had been issued to a taxpayer prior to the issuance of a tam it would generally not be an appropriate exercise of discretion to apply a tam nonretroactively simply because the taxpayer disagrees with the position reached in that tam we recognize that the application of the segment tax to each passenger may be the subject of disagreement we also recognize that a taxpayer has no control_over whether the irs issues regulations or revenue rulings on a particular topic however where a taxpayer is unclear as to the application of a particular tax it has an option other than waiting for published guidance from the irs the irs has a letter_ruling program that provides guidance to taxpayers in situations where the application of the code is unclear the provisions for requesting a letter_ruling are set forth each year in the first revenue_procedure published in the internal_revenue_bulletin provisions applicable this year are found in revproc_2001_1 2001_1_irb_1 copy enclosed if you have any questions please contact either me or sincerely associate chief_counsel passthroughs and special industries by richard a kocak chief branch enclosure


internal_revenue_service department of the treasury number info release date index number washington dc person to contact refer reply to cc psi b1-genin-101491-02 date june dear this responds to your letter of date in which you requested that we revocation of its election to be an s_corporation recognize effective date sec_1362 of the internal_revenue_code states that an election to be an s_corporation for federal tax purposes may be terminated by revocation sec_1_1362-6 provides that revocation occurs when a corporation files a statement that it revokes its election to be an s_corporation with the service_center where the election was originally filed sec_1_1362-6 of the income_tax regulations requires that the revocation statement include the number of shares of stock including non-voting stock issued and outstanding at the time the revocation is made a revocation may be made only with the consent of shareholders who at the time the revocation is made hold more than one-half of the number of issued and outstanding shares of stock including non-voting stock of the corporation sec_1_1362-2 provides that a revocation made during the taxable_year and before the 16th day of the third month of the taxable_year is effective on the first day of the taxable_year and revocation made after the 15th day of the third month of the taxable_year is effective for the following tax_year there are no provisions in the internal_revenue_code authorizing retroactive relief for an untimely revocation of an election to be an s_corporation if you believe that you have already filed a statement revoking the election a certified mail receipt dated prior to the desired effective date of the revocation or a letter from the service_center indicating that the revocation was accepted for the desired effective date will provide sufficient proof we hope that this information is helpful to you if you have additional questions please contact rebekah myers at sincerely dianna k miosi chief branch office of office of the associate chief_counsel passthroughs and special industries


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 ---------------------------------------------------- telephone number ---------------------- refer reply to cc psi b04 plr-131431-12 date date legend husband wife accounting firm trust child child year year year year date dear -------------------- ------------------------------ ------------------------------------------------ ------------------------------------------- ---------------------------------------------------------------- ------------------------------ ----------------------------- ------- ------- ------- ------- ------------------- this letter responds to your authorized representative’s letter dated date requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate wife’s gst_exemption to the year sec_1 through transfers to trust the facts and representations submitted are summarized as follows plr-131431-12 on date husband and wife created trust for the benefit of their children child and child and for the benefit of the children of child every year from year through year husband and wife made contributions to trust husband and wife hired accounting firm and its successors to advise them with respect to their gifts and to prepare their form sec_709 united_states gift and generation-skipping_transfer_tax returns for year sec_1 through accounting firm failed to advise husband and wife to allocate gst_exemption to the transfers to trust husband died in year wife died in year you have requested an extension of time under sec_2642 and sec_301_9100-3 to allocate wife’s gst_exemption to the year sec_1 through transfers to trust law and analysis sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for year sec_1 through provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 as in effect for years and provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_2652 provides that for purposes of the gst tax the term transferor means the decedent in the case of any property subject_to the estate_tax and the donor in the case of any property subject_to the gift_tax plr-131431-12 sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of chapter sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute see notice_2001_50 2001_2_cb_189 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax plr-131431-12 professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore wife is granted an extension of time of days from the date of this letter to allocate her available gst_exemption to the year sec_1 through transfers to trust the allocations will be effective as of the respective dates of the transfers to trust and the value of the transfers to trust as determined for federal gift_tax purposes will be used in determining the amount of gst_exemption to be allocated to trust these allocations should be made on supplemental form sec_709 for year sec_1 through the form sec_709 should be filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form sec_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-131431-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries _________________________ by 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


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom corp plr-107258-99 ate date distributing controlled b o l trust t i this responds to your date request that we supplement our letter_ruling of date the prior letter ruling’ capitalized terms retain the meanings originally assigned them the prior letter_ruling addressed a proposed transaction in which controlled pill plr-107258-99 would offer to sell i percent of its common_stock in an initial_public_offering ipo and distributing would distribute the remaining controlled stock to holders of distributing class c common_stock the proposéd po was completed on date k and resulted in the public buying percent of the controlled common_stock leaving distributing with m percent when the prior letter_ruling was issued distributing intended to distribute all of its post-ipo controlled common_stock to the holders of class c common_stock distributing now proposes to distribute n percent of the controlled stock to these shareholders and contribute percent to trust a voluntary employees’ beneficiary association distributing previously organized trust to provide health care and life_insurance benefits for distributing's retirees and their dependents as a result of this change distributing now wishes to modify step viii of the transaction as originally proposed and add new step ix to read as follows viii distributing will distribute n percent of the controlled common_stock pro_rata to the holders of distributing class c common_stock the distribution’ ix immediately after the distribution and on the same date distributing will contribute o percent of the controlled common_stock to trust the veba contribution’ distributing withdraws representation a from the prior letter_ruling and adds representations q and r as follows q trust is a tax-exempt_entity qualifying under sec_501 of the internal_revenue_code the assets of trust are used solely to provide health care and life_insurance benefits for distributing's retirees and their dependents and distributing has no ownership_interest in such assets r distributing will make the veba contribution immediately after the distribution based solely on the information submitted and the representations set forth above we rule that i the veba contribution will have no effect on the rulings issued in the prior letter_ruling as amended hereinafter by this supplemental ruling and ii the prior letter_ruling as amended remains in full force and effect in addition rulings through of the prior letter_ruling are withdrawn and replaced with rulings and to read as follows the aggregate basis of the distributing stock and the controlled stock held by each shareholder immediately after the distribution will equal the aggregate basis of plr-107258-99 the shareholder's distributing stock held immediately before the distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of controlled stock received by a distributing shareholder in the distribution will include the holding_period of the distributing stock on which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 rulings and of the prior letter_ruling are renumbered as rulings and we express no opinion about the tax treatment of the transaction under other provisions of the code or regulations or the tax effects of any condition existing at the time of or effect resulting from the transaction that is not specifically covered by the above ruling in particular we express no opinion on the treatment of the transaction under the employment retirement income security act of or analogous provisions of the code including without limitation the treatment of the veba contribution under the prohibited_transaction rules and the deductibility of the veba contribution this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in this transaction should attach a copy of the prior letter_ruling and of this supplemental ruling to the taxpayer's federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office the taxpayer and two authorized representatives each will receive a copy of this letter sincerely assistant chief_counsel corporate by wayne j murray wayne t murray senior technician reviewer branch ly


internal_revenue_service number release date index number --------------------------- -------------------------- ------------------------------------------------------------ --------------- department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 - plr-114218-04 date may ------------------------------------------------ ----------------------------------- ---------------------------------- corp ----------------------------------------------------------------------------- --------------------------------------------------------------------- corp ----------------------------------------------------------------------------- --------------------------------------------------------------------- corp ---------------------------------------------------------------------------- --------------------------------------------------------------------- corp ---------------------------------------------------------------------------- --------------------------------------------------------------------- corp ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------- ------------------------ --------------------- ------------------------------------- ----------------------------------------- ------------------------------------------------------- ----------------------------------------------------------------------- ------------------------ ---------------------------------- ---------------------------------- ------------------------------------------- plr-114218-04 sub ----------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub ------------------------------------------------------------------------- --------------------------------------------------------------------- sub ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- ---------------------------------------------------------------- --- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------------------------- sub ------------------------------------------------- ---------------------------------------------- ----------------------------------- ---------------------------------- ---------------------------- ------------------------- ------------------------ ------------ ---------------------------- ----------------------------------------------------------------------- --------------------------------------- -------------------------------------------------- plr-114218-04 ---------------------------------------------------------------------------- -------------------------------------------------------------------- sub ---------------------------------------------------------------------------- --------------------------------------------------------------------- state a busine sec_1 -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ - busine sec_2 x dear ------------------- this letter responds to your date request for rulings regarding the federal_income_tax consequences of certain proposed transactions the information submitted in that request is summarized below submitted by the taxpayer and are accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process federal_income_tax purposes corp owns all of the stock of corp a qualified_subchapter_s_subsidiary within the meaning of sec_1361 corp is involved in busine sec_1 corp also owns all of the outstanding_stock of corp a state a corporation corp is a holding_company and is the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated u s federal_income_tax return the corp group the corp group is structured as follows corp owns all the stock of i corp a state a busine sec_2 corporation ii corp a state a dormant shell corporation and iii sub sub sub sub sub sub sub sub sub sub sub sub sub sub and sub other subsidiaries proposed restructuring of transactions that will be undertaken pursuant to a corporate restructuring plan the the corp group will cease to be a consolidated_group due to a step in a series corp a state a corporation is treated as a subchapter_s_corporation for u s the rulings contained in this letter are based on facts and representations plr-114218-04 proposed restructuring the proposed restructuring will be consummated in order to properly align corp 3’s busine sec_1 and corp 4’s busine sec_2 into a single entity after these transactions are executed all the members of the corp group except for corp and corp which would be both merged out of existence intend to join in the filing of a consolidated_return with corp as the new common parent the corp group each such member is hereinafter referred to as a corp group member the steps in the proposed restructuring are as follows corp will merge into corp with corp surviving in a transaction intended to qualify as a tax-free transaction under either sec_332 or sec_368 after step but on the same day corp will transfer all of the former assets of corp except the stock of corp and corp to corp solely in exchange for additional shares of corp common_stock the corp exchange in a transaction intended to qualify for sec_351 treatment corp will not assume any liabilities or take any assets subject_to liabilities in connection with the corp exchange after step corp will merge with and into corp with corp surviving in a transaction that is intended to qualify as a complete_liquidation under sec_332 step of the above transactions is the point at which the corp group deconsolidates step reaffiliates the previous group absent corp and corp under the new common parent corp the corp group sec_1504 provides that the term affiliated_group means one or more chains of includible corporations connected through stock ownership with a common parent_corporation which is an includible_corporation but only if i the common parent owns directly stock meeting the requirements of sec_1504 in at least one of the other includible corporations and ii stock meeting the requirements of sec_1504 in each of the includible corporations except the common parent is owned directly by or more of the other includible corporations sec_1504 requires ownership of stock of any corporation i that possesses at least percent of the total voting power of the stock of such corporation and ii that has a value equal to at least percent of the total value of the stock of such corporation sec_1504 provides that if a corporation is included or required to be included in a consolidated_return filed by an affiliated_group for a taxable_year that includes any period after date and the corporation ceases to be a member of the group for a taxable_year beginning after then the corporation and any successor of the corporation may not be included in any consolidated_return filed plr-114218-04 by the affiliated_group or by another affiliated_group having the same common parent or successor before the 61st month after the first taxable_year in which it ceased to be a member of such group the following representations have been made in connection with the proposed transaction immediately after the proposed restructuring corp will own directly stock meeting the requirements of sec_1504 in at least one of the other corp group members and stock meeting the requirements of sec_1504 in each of the remaining corp group members except corp will be owned directly by one or more of the other corp group members each corp group member will be an includible_corporation within the meaning of sec_1504 the deconsolidation of the corp group and the reconsolidation of the corp group will not secure the benefit of a reduction in income increase in loss or any other deduction credit or allowance that would not otherwise be secured or have been secured had the disaffiliation and reconsolidation not occurred including but not limited to the use of a net_operating_loss or credit that would have otherwise expired for the corp group or corp and or corp ie the corporations not reconsolidating in the new group there are no planned or anticipated dividend distributions by corp in connection with the proposed restructuring it is expected that any post- restructuring distributions by the corp group will be made out of current or accumulated_earnings_and_profits of the group the transfer of assets from corp to corp will represent less than x of corp based solely on the information submitted and the representations made we rule as follows the corp group will have the privilege of filing a consolidated federal_income_tax return beginning with the first tax_year following the proposed restructuring with corp as the common parent of the group no opinion is expressed about the federal tax treatment of the proposed transactions under any other provision of the code or regulations or the tax treatment of any condition existing at the time of or effect resulting from the proposed transactions that are not specifically covered by the above rulings temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by plr-114218-04 adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusions in the ruling see section dollar_figure of revproc_2004_1 2004_1_irb_1 however when the criteria in section dollar_figure of the revenue_procedure are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the proposed transactions are completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer and to a second taxpayer_representative sincerely yours reginald mombrun __________________________ reginald mombrun assistant branch chief branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury index numbers number release date washington dc person to contact telephone number refer reply to cc dom corp 3-plr-106450-99 date date shareholder parent distributing controlled disregarded_entity operating merger sub country x state y state z plr-106450-99 jurisdiction a year year date date a b c d e f this letter replies to a request for rulings dated date on the federal_income_tax consequences of a proposed transaction concerning sec_355 of the internal_revenue_code we received additional information in letters dated april may june june two letters with that date july august september september and date the information submitted for consideration is summarized below parent is a country x corporation which has one class of common_stock outstanding a percent of its stock is owned by shareholder with the rest of the stock publicly traded shareholder’s stock represents b percent of the vote in parent parent has a number of classes of preferred_stock which are publicly traded parent holds c percent of the common_stock of distributing also a country x corporation the remainder of distributing’s common_stock is held by d shareholders distributing has a number of series of preferred_stock outstanding e percent of the preferred_stock is held by parent the remainder of distributing’s preferred_stock is held by f shareholders plr-106450-99 distributing owns all of the stock of disregarded_entity a single-entity state a corporation distributing has unlimited liability with regard to disregarded_entity which holds cash and all of the stock of a state y holding_company owns all of the stock of operating a state z insurance_company distributing is a provider of insurance plans in country x distributing also has a small branch office that provides insurance in the united_states most of the domestic insurance_business is provided by operating because operating is indirectly owned by distributing a country x insurance_company but conducts its insurance_business in the united_states it is subject_to regulation and minimum capital requirements in both the united_states and country x we have received financial information indicating that distributing’s and operating’s insurance businesses have each had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years to avoid problems that are caused by managing the distributing and operating businesses within a single affiliated_group and to remove the competitive disadvantages that result from operating being subject_to minimum capital and regulatory burdens in both the united_states and country x the following transaction has been proposed i ii iii iv parent will organize merger sub as a country x corporation for nominal consideration parent will offer to acquire distributing common_stock from the remaining public shareholders of distributing minority holders for parent common_stock parent preferred_stock or cash accepting minority holders will have their shares exchanged or redeemed pursuant to the offer if more than percent of the shares held by the minority holders is acquired pursuant to the offer parent will acquire the remaining minority shares for the same consideration provided to the accepting minority holders pursuant to compulsory acquisition provisions of country x insurance law if percent or less of the shares held by the minority holders is acquired pursuant to step iii above distributing will issue one share of distributing new common_stock for each big_number shares of distributing existing common_stock owned only parent will receive whole shares the minority shareholders who would receive fractional shares will have their shares redeemed for cash plr-106450-99 v vi if step iv has occurred distributing will distribute shares of distributing new common_stock to parent which will then be the only holder of distributing new common_stock such that after step xii parent will own the same number of shares of distributing common_stock that it held before the transaction distributing will distribute to parent one share of new non-voting redeemable preferred_stock distributing special preferred_stock for each share of distributing new common_stock held by parent vii merger sub will amalgamate back into parent steps i through v and vii may be referred to as the proposed squeeze out viii parent will organize controlled as a country x corporation and controlled will organize a new subsidiary controlled sub as a country x corporation in each case for nominal consideration ix parent will transfer all of the shares of the distributing special preferred_stock and a fixed percentage of the shares of distributing new common_stock to controlled in exchange for additional shares of common_stock of controlled x xi distributing will transfer all of the stock of disregarded_entity to controlled sub in exchange for a fixed number of shares of redeemable and retractable preferred_stock of controlled sub having an aggregate redemption price set by a formula as equal to the fair_market_value of all of the stock of disregarded_entity controlled sub will redeem from distributing all of the shares of controlled sub redeemable and retractable preferred_stock issued in step x for debt redeemable on demand controlled sub debt xii distributing will redeem its distributing special preferred_stock and the distributing new common_stock held by controlled by transferring the controlled sub debt to controlled in exchange for that stock xiii controlled sub will amalgamate into controlled extinguishing the controlled sub debt steps vi and viii through xiii may be referred to as the proposed spin off xiv in year controlled will offer to sell less than one percent of the stock of to members of the management of and or operating as a performance incentive proposed sale plr-106450-99 on date and on subsequent occasions continuing through year distributing transferred substantially_all of the assets used in its u s insurance branch to operating in transactions intended to qualify under sec_351 for each of the sec_351 transfers operating elected under sec_1_884-2t to increase its earnings_and_profits by an allocable portion of distributing’s effectively_connected_earnings_and_profits ecep and non-previously taxed accumulated ecep distributing agreed that upon the disposition of any of the stock of operating or a successor-in-interest distributing under sec_1_884-2t would treat an appropriate amount as a dividend_equivalent_amount prior to date distributing as a foreign_corporation engaged in an insurance_business in the united_states was required to deposit its assets associated with its u s insurance_business with a state officer in one of the states in which it was doing business the assets were considered trusteed for the protection of the u s policyholders in a date transaction for which a ruling letter has been issued the date transaction ruling a distributing transferred stock to disregarded_entity in exchange for additional disregarded_entity stock b distributing transferred operating’s stock to disregarded_entity in exchange for additional disregarded_entity stock and c disregarded_entity transferred operating’s stock to in exchange for additional stock the date transaction ruling provides that if certain conditions are satisfied a distributing’s transfer of operating’s stock to will not constitute a disposition of operating’s stock for purposes of sec_1_884-2t and b operating’s earnings_and_profits will be reduced by an amount equal to the earnings_and_profits allocated to pursuant to a valid election under sec_1_884-2t the date transaction ruling also rules that if distributing disposes of any of the stock of either or a successor-in-interest or disregarded_entity or a successor-in- interest or if disposes of any of the stock of operating or a successor-in- interest distributing must treat such disposition as a disposition for purposes of sec_1_884-2t included in the date transaction ruling is a ruling that assuming there is no change in distributing’s use of stock stock will not be treated as a u s asset of distributing for branch profits purposes under sec_884 and sec_1_884-1 and will not be treated as an asset used in or held for use in the conduct_of_a_trade_or_business in the united_states for purposes of sec_864 and sec_1_864-4 the taxpayer has made the following representations in connection with the proposed transaction a no part of the consideration to be distributed by distributing will be received by parent as a creditor employee or in any capacity other than that of a shareholder of the corporation plr-106450-99 b c d e f g h i the five years of financial information submitted on behalf of distributing and operating are representative of each corporation’s present operations and there have been no substantial operational changes since the date of the last financial statements submitted immediately after the deemed_distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock of a controlled_corporation immediately after the deemed_distribution at least percent of the fair_market_value of the gross assets of will consist of the stock of a controlled_corporation operating that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 except for a small number of employees of operating who will remain officers of distributing in order to provide services to distributing’s united_states branch pursuant to an administrative services agreement distributing and operating will each continue the active_conduct of their respective businesses independently and with their separate employees following the proposed spin off the deemed_distribution of stock of controlled is being carried out for the following corporate business purposes to avoid problems that are caused by managing the distributing and operating businesses within a single affiliated_group and to remove the competitive disadvantages that result from operating being subject_to minimum capital and regulatory burdens in both the united_states and country x there is no plan or intention by parent to sell exchange transfer by gift or otherwise dispose_of any of its stock in either distributing or controlled after the proposed spin off there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation subsequent to the proposed spin off except for the proposed sale described in step xiv and sales in the ordinary course of business controlled is neither receiving any assets subject_to liabilities nor assuming any liabilities in the proposed spin off plr-106450-99 j k n o p q r s t u no intercorporate debt will exist between distributing and controlled distributing and disregarded_entity or distributing and at the time of or subsequent to the proposed spin off no intercorporate debt will exist between distributing and operating at the time of or subsequent to the proposed spin off other than certain short-term indebtedness that will remain outstanding any such indebtedness will not constitute stock_or_securities within the meaning of sec_355 payments made in connection with all continuing transactions between distributing and either controlled operating or disregarded_entity if any will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's-length no two parties to the proposed spin off are investment companies as defined in sec_368 and iv no party to the proposed spin off is under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled distributing is a qualified_resident of country x within the meaning of sec_1_884-5 if distributing were a domestic company it would qualify as a life_insurance_company under sec_816 operating is a life_insurance_company under sec_816 neither distributing nor operating plans or intends to cease being a life_insurance_company after the proposed spin off although prior to date the operating stock was trusteed as a necessary asset of distributing’s u s branch insurance_business the operating stock is not and will not be carried as an asset on the books of distributing’s u s branch and is not and will not be used in connection with distributing’s u s insurance_business or any other business plr-106450-99 v w x y z the stock held by distributing is not and will not be carried as an asset on the books of distributing’s u s branch and is not and will not be used in connection with distributing’s u s insurance_business or any other business disregarded_entity will not make an election under sec_301_7701-3 to be treated as an association for federal_income_tax purposes because disregarded_entity has not made an election to be classified as an association it will be disregarded as an entity separate from distributing under sec_301_7701-3 sec_301_7701-2 and sec_301_7701-2 disregarded_entity will remain a disregarded_entity of distributing for the month period beginning on date except to the extent necessitated by a change in u s or country x law relating to the classification of disregarded_entity as a disregarded_entity for u s federal_income_tax purposes or an unlimited liability state a corporation for country x purposes will not have been a united_states_real_property_holding_corporation usrphc as defined in sec_897 at any time during the 5-year period ending on the date of the proposed spin off and will not be a usrphc immediately after the proposed spin off aa distributing and controlled are foreign_corporations that will not be passive foreign investment corporations as defined in sec_1296 or controlled_foreign_corporations as defined in sec_957 either before or after the proposed spin off bb to the best of distributing’s knowledge there is no foreign shareholder other than parent that own sec_5 percent or more of the value of the distributing stock either before or after the proposed spin off cc except for certain long-term debt securities issued to third parties and except for distributing’s intent to have the stock of disregarded_entity transferred to controlled in the proposed spin off and disregarded entity’s intent to offer to sell less than one percent of stock in the proposed sale distributing has no plan or intention to have additional investors partners shareholders or owners in operating or disregarded_entity in addition some of the preferred shareholders of distributing may be given an opportunity to a sell their stock to parent for cash b exchange their stock for a new class of parent preferred_stock or c retain their distributing preferred_stock but receive a higher dividend rate dd in effectuating the proposed spin off and the proposed sale distributing does plr-106450-99 not have a principal purpose to achieve different tax results or consequences under foreign or domestic law that are inconsistent with the purposes of u s tax law based solely on the information submitted and on the representations set forth above and provided that for u s federal_income_tax purposes under sec_301 b i c sec_301_7701-2 and sec_301_7701-2 disregarded_entity is not treated as an entity separate from distributing we rule as follows for federal_income_tax purposes the separate steps of vi and viii through xiii proposed spin off will be ignored and those steps will be treated as distributing transferring all of the stock of and cash to controlled solely in exchange for all of the stock of controlled followed by a distribution by distributing of the controlled common_stock to parent the transfer by distributing of all of the stock of and cash to controlled solely in exchange for all of the stock of controlled followed by the distribution of all of the controlled stock to parent will constitute a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of cash and the stock of to controlled in exchange for controlled stock as described above sec_361 controlled will recognize no gain_or_loss on the receipt of cash and stock in exchange for controlled stock sec_1032 the basis of the stock received by controlled will be the same as the basis of the stock in the hands of distributing immediately prior to the transaction sec_362 the holding_period of the stock received by controlled will include the period during which this stock was held by distributing sec_1223 parent will recognize no gain_or_loss and no amount will be included in the income of parent upon the receipt of the controlled stock as described above sec_355 distributing will recognize no gain_or_loss upon the distribution of all of its controlled stock sec_361 proper allocation of and adjustments to earnings_and_profits between plr-106450-99 distributing and controlled will be made in accordance with sec_1_312-10 provided that controlled attaches a statement to its timely filed including extensions federal_income_tax return agreeing that controlled will treat a disposition of part or all of the stock_or_securities of either or a successor-in-interest or disregarded_entity or a successor-in-interest as a disposition for purposes of sec_1_884-2t then distributing’s transfer of the stock to controlled will not be treated as a disposition of stock under sec_1_884-2t if in the future is liquidated into controlled in a liquidation under sec_332 such liquidation of will be treated as a disposition for purposes of sec_1_884-2t notwithstanding sec_1_884-2t because stock will not be treated as a u s asset of distributing for branch profits purposes under sec_884 and sec_1_884-1 and will not be treated as an asset used in or held for use in the conduct_of_a_trade_or_business in the united_states for purposes of sec_864 and sec_1_864-4 controlled’s sale of stock will not result in effectively_connected_income gain for purposes of sec_882 controlled’s sale of stock is a disposition for purposes of sec_1 2t d i and controlled must treat an appropriate amount as a dividend_equivalent_amount in accordance with sec_1_884-2t no opinion is expressed about the tax treatment of any of the transactions described herein under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions not specifically covered by the above rulings in particular no opinion is expressed i whether the operating stock was an asset used in or held for use in the conduct of distributing’s u s trade_or_business immediately prior to the transfer to sec_1_864-4 and ii other tax consequences to distributing and controlled under sec_884 due to the proposed spin off and the proposed sale in addition no opinion has been requested and no opinion is expressed about the tax consequences of the proposed squeeze-out or whether the proposed spin off or the proposed sale constitutes a direct or indirect distribution of distributing’s shareholders’ surplus account policyholders’ surplus account or other accounts within the meaning of sec_815 this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each affected taxpayer must attach a copy of this letter to the taxpayer's federal_income_tax return for the tax_year in which the transaction covered by this ruling letter is plr-106450-99 consummated we are sending a copy of this letter to the authorized representative specified in the power_of_attorney on file in this office sincerely yours assistant chief_counsel corporate by ken cohen senior technician reviewer branch


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa b06 mmahaney posts-145086-07 uilc date date to natasha chevalier attorney dallas group small_business self employed from jason a spitzer senior technician reviewer branch office of associate chief_counsel procedure administration mark j weiss assistant branch chief branch office of associate chief_counsel corporate subject ---------------- this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer --------------------------------------------------- ----------------------------- creditor date date date date ------------------------------------- --------------------------- ----------------------- --------------------- ---------------- posts-145086-07 ------- ------ -------- --------------- ----------------- --------------- --------------- --------------- --------------- --------------- year aa bb mm nn oo pp qq rr ss issue whether a court order when an agreed motion to dismiss with prejudice was issued and signed on date resulted in the discharge of taxpayer’s debts with creditor as of date conclusion the issued and signed court order does not determine the discharge date of taxpayer’s debt with creditor the terms of the settlement agreement determine the timing of the actual discharge of taxpayer’s debt facts the taxpayer is attempting to claim additional basis in its shares of s_corporation stock by relying on 531_us_206 the holding in gitlitz provides that cancellation of debt income excluded from an s corporation’s income may be added to a shareholder’s stock basis gitlitz was subsequently appealed when congress amended sec_108 this amendment became effective on date therefore the holding in gitlitz still applies to any discharge_of_indebtedness that occurred prior to date thus the date on which the debt at issue was cancelled becomes critical in instant case posts-145086-07 on date taxpayer an s_corporation entered into a term_loan agreement with an unrelated third party lender creditor and executed several secured promissory notes in favor of various creditor entities by which taxpayer borrowed dollar_figuremm from creditor at a stated_interest rate of aa per year the notes further provided that in addition to the aa coupon rate of interest the loan to taxpayer would also consist of the conveyance of a royalty adjustment sufficient to yield creditor a bb internal_rate_of_return additionally any overdue interest or principal amounts bore interest at bb during year taxpayer’s partners began experiencing financial difficulties that resulted in taxpayer defaulting on the required_payments to creditor taxpayer sued the partners who failed to make payments on corporate obligations and received a dollar_figurenn jury verdict and judgment on date since the judgment which was later backed by a cash bond in favor of the defendants was a substantial asset of taxpayer creditor decided to await the outcome of the defendants’ appeals before pursuing taxpayer’s collateral on date taxpayer executed in favor of creditor additional security agreements under the notes in ------- the dollar_figurenn judgment was reduced on appeal to dollar_figureoo of that amount creditor ultimately received dollar_figurepp since the judgment was divided among several parties the appellate court suggested that the reduction in the judgment was due in part to malpractice of taxpayer’s attorneys thereafter taxpayer filed a lawsuit against its attorneys creditor filed a plea in intervention in that lawsuit claiming that taxpayer owed creditor principal of dollar_figureqq under the notes plus interest royalties and other_amounts and asserted a right to recover those amounts from any liability adjudged to be due taxpayer from its former attorneys in its plea in intervention creditor claims that it should be permitted to intervene in the malpractice action because it had prior perfected first security_interest in all property proceeds and other collateral owned by taxpayer this security_interest extends to any judgment or settlement proceeds taxpayer may collect in this case creditor argued that it was entitled to intervene in the action because of its interest in the subject matter of the litigation and the disposition of the action in creditor’s absence may have impeded its ability to protect its security_interest creditor specifically stated in the plea that it was seeking to intervene in the action in order to protect its interest in any property owned by taxpayer the prayer for relief contained in the plea stated that creditor sought to recover any an all amounts that taxpayer was entitled to recover from defendants pleas in intervention were also filed by two other parties taxpayer filed motions to strike interventions regarding all three parties that sought to intervene the court’s order on motions to strike interventions divided the action into the main phase which referred to the portion of the action that included claims asserted by the taxpayer against the attorneys and the intervention phase which referred to the portion of the action which included the claims counterclaims and cross-claims asserted by and among any of the intervenors and taxpayers any third-party claims which may have been asserted by any of such parties pertaining to the issues involved posts-145086-07 in the intervention phase and the defenses asserted to such claims counterclaims cross-claims third party claims as such claims counterclaims cross-claims third party claims the order on motions to strike specifically provided that the intervention phase was limited to claims counterclaims cross-claims and third party claims relating to interests in the cause of action asserted by taxpayer against the attorneys in the main phase and or any proceeds thereof which are paid through judgment or settlement the attorneys were not parties to the intervention phase which was to be handled in a trial that was separate from the main phase all of the parties involved in the main phase and or the intervention phase eventually negotiated a settlement amongst themselves which was memorialized in a confidential settlement and release agreement the settlement agreement the settlement agreement states that effective as of the creditor effective date as to the taxpayers only and as to the collateral claims and effective as of the creditor payment_date as to all other taxpayer released parties other than with respect to the collateral claims creditor unconditionally fully and completely released and forever discharged the taxpayers from any and all obligations claims demands actions causes of action suits debts liens deficiencies accounts notes convenants contracts agreements promises liabilities etc whatsoever known or unknown accrued or unaccrued asserted or unasserted contingent or otherwise in law or equity arising prior to the creditor effective date or creditor payment_date respectively the creditor effective date was defined as the date which is five months after the creditor payment_date collateral claims is defined as any obligation claim demand action cause of action lien security_interest contract or agreement which relate to or comprise any real or personal_property collateral or security pledged or encumbered by any taxpayer released party to secure any debt or obligations to any of creditor including without limitation the notes the language in the settlement agreement specifically states that the release was intended to be general and inclusive and therefore the claims to be released shall include any claims in any way related to or in any manner arising out of the previous notes in furtherance of the forgoing release effective as of the creditor effective date the notes shall be deemed cancelled by creditor in furtherance of the settlement agreement on date a date before date the parties filed an agreed motion to dismiss with prejudice wherein it stated that plaintiffs defendant and intervenors no longer wish to prosecute claims among them and that they requested that the action be dismissed with prejudice as to all claims cross-claims or counterclaims brought or that could have been brought herein accordingly the order granting agreed motion to dismiss with prejudice the order states that the cause of action in the present case is hereby dismissed with prejudice towards refilling the same as to all claims cross-claims or posts-145086-07 counterclaims brought or that could have been brought herein including the claims in the intervention phase with each party bearing its own attorneys’ fees costs and expenses at the time of the order taxpayer’s total indebtedness to creditor was approximately dollar_figurerr as a result of the settlement agreement creditor received approximately dollar_figuress analysis the order dismissed the cause of action and barred creditor from pursuing any claims that were brought in the malpractice action or those which could have been brought within the action the consideration for doing so was that each party entered into the settlement agreement which served as a binding contract between them the settlement agreement served as a general release completely releasing taxpayer from any and all debts that were outstanding with regard to its obligations to creditor as of the creditor effective date a date subsequent to the date of the order when all of the parties signed the settlement agreement it created contract rights that could be judicially enforced amongst the parties thus in the event a payment was not received by creditor pursuant to the settlement agreement creditor could seek subsequent judicial assistance in enforcing the settlement agreement if creditor had no further rights with respect to the debt as of the filing of the order then there would be no incentive for a payment to be made to creditor subsequent to the entry of the order as creditor clearly had further rights effective subsequent to the order there was no discharge of taxpayer’s debts to creditor as of the date of the order please call meghan mahaney pincite-6869 or mark weiss pincite-7750 if you have any further questions ____________________ mark j weiss ____________________ jason a spitzer