department of the treasury internal_revenue_service washington d c date apr contact person id number telephone number sin op e ea t f u p w_i u u employer_identification_number dear sir or madam this is in reply to a ruling_request dated date with respect to setting aside additional funds to complete the construction of b and that such set-aside will satisfy the suitability test or sec_4942 of the internal_revenue_code you are exempt under sec_501 of the code and classified as a private_foundation your organization and its creator have pledged dollar_figurex toward the planning and construction of b by a you have paid dollar_figurex against that pledge in and your creator has personally paid dollar_figurex against the same pledge the balance of dollar_figurex has been set_aside by your organization for payment by in or sale of securities by the trustees of your organization the amount set_aside will most appropriately be paid_by your organization to a after the project has been fully approved by the required authorities the trustees do not deem it prudent to pay over the funds prior to that time the facility is in the early permitting stage and it is not contemplated that construction will begin before the spring or summer of the dollar_figurex has been raised through the the facility will include two state-of-the art marine science teaching and research classrooms and lab dedicated to research into the culture and propagation of marine organisms this facility will also house a marine mammal rehabilitation center with seal tanks and diagnostic and medical_care labs in addition the facility will incorporate a number of new sustainable design concepts such as solar heating water recycling and material insulation the lab will support a number of university programs it will also support a new masters program in marine science and enterprise as well as a baccalaureate program in aqua culture and aquarium studies psychobiology environmental studies and environmental sciences and programs such as chemistry and biology it is also planned that students in programs such as physical therapy and occupational therapy will be involved in some degree in the rehabilitation of the seals sec_4942 of the internal_revenue_code imposes a tax on the undistributed_income of private_foundations sec_4942 of the code defines undistributed_income to mean the amount by which the distributable_amount for a taxable_year exceeds the qualifying distributions for that year sec_4942 of the code provides in relevant part that the term qualifying_distribution means a any amount including that potion of reasonable and necessary administration_expenses paid to accomplish one or more purposes described in sec_170 sec_4942 of the code permits a private_foundation to treat as qualifying_distribution amounts set-aside for a specific charitable educational religious or similar project in the year of the set-aside even though actual payment of such amounts will not be made until a later taxable_year or years but only if at the time of the set-aside the private_foundation establishes to the satisfaction of the secretary or_his_delegate that the amount will be paid for the specific project within five years and the project is one which can be better accomplished by such set-aside than by immediate payment of funds sec_53 a -3 b of the foundation and similar excise_taxes regulations provides that an amount set-aside for a specific project that is for one or more of the purpose described in sec_170 or b may be treated as a qualifying_distribution in the year in which set-aside but not in the year in which actually paid if the requirements of sec_4942 and this paragraph are satisfied the requirements of paragraph b are satisfied if the private_foundation establishes to the satisfaction of the commissioner that the amount set- aside will be paid for the specific project within months after it is set-aside and i the set- aside satisfies the suitability test or ii the foundation satisfies the cash distribution test sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the private_foundation establishes that the specific project is one that can be better accomplished by the set-aside than by the immediate payment of funds the set-aside in this case of dollar_figurex is being made for a specific project and no further additionally the set-aside will be paid within a additions to the set-aside are contemplated period ending not more than twenty-four months after the date of your request for a ruling the construction of the facility is one in which expenditures must be made over a long period of time in order to assure the completion of the project based on the information submitted and assuming the facts to be as stated we rule that olf the set-aside meets the requirements of sec_4942 of the code and sec_53_4942_a_-3 of the regulations we are informing your key district_director of this ruling because this ruling could help resolve future questions about your federal_income_tax status you should keep it in your permanent records please note that sec_53_4942_a_-3 of the regulations requires the set-aside to be evidenced by the entry of a dollar amount on your books_and_records as a pledge or obligation to be paid at a future date any amount which is set-aside shall be taken into account for purposes of determining your minimum_investment_return under sec_53_4942_a_-2 and any income attributable to the set-aside shall be taken into account in computing adjusted_net_income under sec_53 a -2 d this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed hgden co hatesh oh robert c harper jr manager exempt_organizations technical group


t c summary opinion united_states tax_court marvin morris bartosovsky petitioner v commissioner of internal revenue respondent docket no 4587-12s l filed date marvin morris bartosovsky pro_se kimberly l clark for respondent summary opinion gerber judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure and this opinion shall not be treated as precedent for any other case this matter is before the court on respondent’s motion for summary_judgment under rule respondent contends that no genuine issue exists as to any material fact and that the determination to collect petitioner’s income_tax_liability by levy should be sustained petitioner has not responded to the motion despite an order from this court instructing him to do so background at the time the petition was filed petitioner resided in idaho after petitioner filed his joint federal_income_tax return respondent on date mailed to petitioner a statutory_notice_of_deficiency which he received in that notice respondent had determined that petitioner had a dollar_figure income_tax deficiency and a dollar_figure accuracy-related_penalty for petitioner failed to file a petition with this court and respondent assessed the income_tax deficiency and penalty against petitioner although petitioner did not petition this court he did send certain documentation to respondent concerning the income_tax deficiency on the basis of the new information respondent conducted an audit_reconsideration proceeding and concluded that the income_tax deficiency should be reduced to dollar_figure by abating dollar_figure and that the dollar_figure penalty should also be abated on date respondent sent a letter final notice--notice of intent to levy and notice of your right to a hearing to petitioner on date respondent received a form request for a collection_due_process or equivalent_hearing from petitioner in that request petitioner alleged that the income attributed to him for was actually the income of his mother and his sister also in his form petitioner requested a collection_due_process cdp hearing however he requested a hearing in regard to a notice_of_federal_tax_lien as opposed to a notice of proposed levy in response respondent’s service_center contacted petitioner and advised him that his request for a hearing with respect to a notice of lien was premature and explained that respondent was contemplating a levy and not a lien filing however the service_center employee advised petitioner that respondent would consider his hearing request regarding a notice_of_intent_to_levy as timely filed on date and on date respondent sent petitioner letters advising him that he would be contacted for the scheduling of a hearing by a letter dated date respondent informed petitioner that a telephone conference was scheduled for date to discuss respondent’s intent to take collection action the conference took place as scheduled and petitioner attempted to challenge the underlying assessed tax_liability the settlement officer explained to petitioner that pursuant to sec_6330 he could not challenge the underlying tax_liability because he had had a prior opportunity to do so petitioner responded that he wished to proceed to court to resolve his concerns respondent’s determination to proceed with collection by levy was sustained in a letter dated date from which petitioner timely petitioned this court discussion summary_judgment is intended to expedite litigation and to avoid unnecessary and expensive trials 61_tc_861 summary_judgment may be granted where the pleadings and other materials show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule b see schlosser v commissioner tcmemo_2007_298 tax ct memo lexis at aff’d 287_fedappx_169 3d cir the burden is on the moving party to demonstrate that no genuine dispute as to any material fact remains and that he is entitled to judgment as a matter of law 116_tc_73 in deciding whether to grant summary_judgment the evidence is viewed in the light most favorable to the nonmoving party 100_tc_32 however the nonmoving party is required to go beyond the pleadings and by his own affidavits or by the ‘depositions answers to interrogatories and admissions on file ’ designate ‘specific facts showing that there is a genuine issue for trial ’ 477_us_317 see also 119_tc_157 115_tc_554 petitioner failed to respond to respondent’s motion and has failed to indicate that there is a genuine dispute for trial consequently we conclude that there is no dispute as to any material fact and that a decision may be rendered as a matter of law sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment then the secretary is authorized to collect such tax by levy upon the person’s property sec_6331 provides that at least days before enforcing collection by way of a levy on the person’s property the secretary is obliged to provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person 2by failing to respond to the assertions in the motion petitioner has waived his right to contest them see rule d 117_tc_183 akonji v commissioner tcmemo_2012_56 tax ct memo lexi sec_49 at if a taxpayer requests a cdp hearing in response to a notice_of_federal_tax_lien or a notice_of_intent_to_levy he may raise at that hearing any relevant issue relating to the unpaid tax proposed levy or lien sec_6330 relevant issues include possible alternative means of collection such as an installment_agreement sec_6330 in his petition petitioner assigned error to respondent’s determination and sought review of his adjusted_gross_income in addition petitioner provided the amounts of income_tax that he believed should have been due for in effect petitioner’s only challenge was to his underlying income_tax_liability however petitioner is not entitled to question that liability because he had already had the opportunity to do so within the meaning of sec_6330 see also sec_301_6330-1 q a-e2 proced admin regs the court reviews administrative determinations by the commissioner’s office of appeals regarding nonliability issues for abuse_of_discretion 131_tc_197 114_tc_176 the determination of the office of appeals must take into consideration the verification that the requirements of applicable law and administrative procedure have been met issues raised by the taxpayer and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection be no more intrusive than necessary sec_6330 see 117_tc_183 petitioner has offered no alternatives to collection and has not questioned whether respondent’s settlement officer followed prescribed procedures or whether he gave petitioner the opportunity to pursue this matter respondent’s motion for summary_judgment and the declaration filed by the settlement officer contain clear_and_convincing evidence that the settlement officer properly based the determination on the factors required by sec_6330 we accordingly hold that the determination to proceed with collection was not an abuse of the settlement officer’s discretion and the proposed collection action is sustained to reflect the foregoing an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c cc dom fs it a tl-n-3709-98 date uilc number release date internal_revenue_service national_office field_service_advice memorandum for associate district_counsel cleveland district cc ner ohi cle attn christopher a fisher from deborah a butler assistant chief_counsel field service cc dom fs subject this field_service_advice responds to your request of date it is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend year year year year issue whether certain expenses are specified liability losses within the meaning of sec_172 and therefore eligible for a ten-year net_operating_loss_carryback period rather than the generally applicable three-year period conclusion the two categories of taxpayer’s expenses in issue do not qualify for the ten- year carryback for specified liability losses under sec_172 facts taxpayer is the parent company of a consolidated_group of corporations the examination of its tax years year and year resulted in a large consolidated_net_operating_loss nol for year since taxpayer had no taxable_income for the three years immediately preceding the loss_year it could not use the nol_carryback under the general three-year_rule instead the taxpayer purported to carry back the nol as a specified_liability_loss under sec_172 to even earlier year sec_1 and year law and analysis sec_172 presents a more narrow exception to the general three-year carryback rule than has been asserted by this taxpayer as well as others the specified_liability_loss exception is much more severely limited than that which would be extant under a supposed plain meaning reading of the section’s elements the correct narrower reading is based upon our interpretation of the scant legislative_history as well as the statutory and practical context within which this relief provision was adopted by congress given that backdrop the service recently sought and has now obtained a congressional clarification of the scope of the section prospectively at least see tax and trade relief extension act of reprinted in cong rec h11287 daily ed date yet the statute is only effective for tax years ending after enactment thus we are still confronted by the problem of application in any earlier years under examination as you note the only tax_court opinion to consider sec_172 to date is 107_tc_177 appeal docketed no et seq 9th cir date sealy set out a very narrow reading of the section nevertheless the opinion did not address all aspects of numerous current arguments in this area the case does however provide a service-favorable starting point for any analysis of litigation risk another tax_court case has also been briefed and we await an opinion that case is of particular relevance here see intermet corp v commissioner dkt no as presented on your facts as well intermet involves whether state taxes and interest on state and federal taxes qualify as specified liability losses we have taken the position therein that those expenditures are not eligible for the ten- year carryback under sec_172 in adhering to the principles argued and upheld in sealy and consistent with our framework for analysis in intermet and other cases we have reviewed our position as to the expenses you have questioned follows settlement of strike fund payment it is unclear to us whether this category represents ultimate payment for a tort liability at all ie whether the unfair trade practices complained of and settled are actually torts in a strict legal sense if so it is also uncertain whether such acts were merely so-called single act tort liabilities or instead were multiple act torts requiring a series of actions or failures to act over an extended period of time a substantial portion of which occurred before the three-year period prior to the taxable_year in issue see sec_172 notwithstanding this uncertainty while specific further factual development might be welcome on the basis of what we do know we would hold this category to be excluded from sec_172 in either event single act torts are not covered by the statute and are thus excluded from ten-year treatment to similar result even if the liabilities in question were multiple act torts arising from a series of actions or failures to act it is certainly not clear that these acts or failures occurred over an extended period of time therefore under either view-single or multiple--the payments are not qualified as specified liability losses under sec_172 state tax deficiencies in year as a result of state_income_tax examinations of year through year of some members of the consolidated_group taxpayer made certain tax_payments to two states it now claims specified_liability_loss treatment for these state tax_payments it is unclear whether those liabilities were contested regardless you would advise allowing sec_172 treatment while we agree that the contested v uncontested aspect is of no moment in our determination we disagree that delayed payment is adequate to support sec_172 applicability that portion of sec_172 that provides for a ten-year carryback for deferred statutory or tort liability losses was added to the code in when the economic_performance rules under sec_461 were enacted deficit_reduction_act_of_1984 publaw_98_369 the statutory context as well as the limited legislative_history indicate that congress intended the ten-year carryback to apply to only a narrow class of liabilities the distinguishing feature of those liabilities within the eligible narrow class is an element of delay in the timing of the deduction that is inherent in the nature of the deduction itself for example arguably land used for mining purposes cannot be reclaimed environmentally during the time which it is actually being mined accordingly there is an inherent delay of the deduction for reclamation expenses to later years similarly there is often a substantial time lag between selling a defective product and an injury caused by the product the state tax_liabilities at issue here do not have that inherent delay nature in intermet supra we argued our position that taxes are not within that narrow class of expenses that are eligible for the ten-year carryback there is no inherent delay in the nature of the liability as stated in our brief congress clearly did not intend the special carryback rule to apply to all liabilities for which a deduction is delayed by the economic_performance rules if merely routine costs-which surely includes state income taxes-were within the eligible class then nonpayment of current liabilities for more than three years would qualify a taxpayer for a ten-year carryback upon the payment of those costs thus the tax_payments of the subject taxpayer are likewise ineligible for the ten-year carryback case development hazards and other considerations there are obviously known litigation hazards in our current position given the paucity of cases and legislative_history addressing sec_172 in the case of united_states v balsam corp lexis 8th cir date for example the bankruptcy district and appellate courts--simply put-just would not venture past the taxpayer’s broad assertion that all its losses resulted from a fraud liability there was no analysis of the origin and nature of each of the myriad deductions or whether inherent delay was involved as to any that made up the nol involved in sum on the basis of the foregoing as to the two described expenses in issue we conclude that the expenses are not qualified specified liability losses we encourage you to seek our help in any way you need during any factual development process on the other expenses should you have any questions please call deborah a butler by s clifford m harbourt senior technician reviewer income_tax accounting branch field service division


internal_revenue_service department of the treasury number release date index number re washington dc person to contact telephone number refer reply to cc psi 4-plr-112613-00 date date legend decedent daughter daughter trust grandchild great grandchild great grandchild grandchild great grandchild great grandchild local court corporation corporation this is in response to your letter of date in which your authorized representative requested a ruling concerning the generation-skipping_transfer_tax consequences of a proposed division of trust decedent died testate in survived by his two children daughter and daughter section iv of decedent’s will provides that all of the rest residue and remainder of his property is to be held in trust section v provides that the trustee is to pay the trust’s entire net_income to decedent’s spouse upon the spouse’s death the trust is to be divided into two equal parts one part for daughter and her children and the other for daughter and her children section v further provides that the income from daughter 1’s share is to be distributed to her quarterly during her life after daughter 1’s death the income from her share is to be used for the support education and maintenance of the children of daughter share and share alike the share maintained for daughter and her children is to terminate years after the death of daughter at that time all of the plr-112613-00 property of her share is to be distributed in fee simple absolute share and share alike to the children of daughter except for the beneficiaries and the termination_date the share for daughter and her children has the same terms section vi authorizes the trustee to invade trust corpus during the lifetime of decedent’s daughters to provide for their reasonable care and comfort decedent’s spouse had predeceased him and therefore when decedent died the trust was divided into two separate trusts one for daughter and one for daughter the trust for daughter trust and her children is the subject of this ruling_request in local court construed trust to provide that upon the death of daughter and during the subsequent existence of trust all of the net_income of the trust is to be distributed by the trustee at convenient intervals to or for the benefit of the then living children of daughter and on a per stirpes basis to or for the benefit of the descendants ie heirs in the descending line who are from time to time living of any such children who are then deceased should a child of daughter survive daughter but die prior to the termination of trust leaving one or more descendants such descendant or descendants who are from time to time living shall be entitled to receive that share of the net_income allocable to their deceased parent in equal shares on a per stirpes basis if however a deceased child of daughter shall leave no descendants or having left a descendant or descendants surviving him or her all such descendants shall have died prior to termination of trust then and in either of such events the share which would have gone to such deceased child and or such descendant or descendants shall be distributed to the other living children of daughter share and share alike and on a per stripes basis to the descendants of any deceased child of daughter who are living from time to time in addition pursuant to the court order construing the trust if daughter is survived by one or more of her children and or descendants of a deceased child or children and any one or more of the children or descendants of a deceased child should be living on the 20th anniversary of daughter 1’s death then the trust shall terminate on the 20th anniversary of daughter 1’s death and the corpus is to be paid equally to the then living children of daughter and on a per stirpes basis to the living descendants of any deceased child or children of daughter daughter had two children grandchild and grandchild both of whom are now deceased grandchild had two children great grandchild and great grandchild grandchild had two children great grandchild and great grandchild daughter died on date and therefore trust will terminate on date when trust terminates the assets will be distributed outright to great grandchildren or to their descendants per stirpes if any of them should die plr-112613-00 before date since daughter 1’s death income from trust has been distributed to great grandchildren on a per stirpital basis corporation was designated as the trustee of trust currently corporation serves as the trustee of trust the trustee and each of the great grandchildren propose to petition the local court to divide trust into four equal separate trusts one for the benefit of each of great grandchildren and his or her descendants as proposed the terms of trust will continue to govern the new trusts except that the trust income from each new trust will be payable as provided in trust as construed by the court order to the great grandchild for whom the trust is established and his or her descendants each new trust will terminate as provided in trust and on termination the trust corpus will be distributed as provided in trust as construed by the court order the trustee has represented that there have been no additions to trust after the death of decedent in the trustee has requested a ruling that the proposed division of trust will not constitute an addition to trust or otherwise subject the four new trusts resulting from the division of trust to the generation-skipping_transfer_tax provisions of chapter of the internal_revenue_code and will not cause the corpus of any of the four new trusts to be treated as if it had been added after date to any of the trusts sec_2601 imposes a tax on every generation-skipping_transfer made by the transferor to a skip_person sec_2611 defines a generation-skipping_transfer as a taxable_termination a taxable_distribution or a direct_skip section b a of the tax_reform_act_of_1986 the act vol c b and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax shall not apply to any generation- skipping transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c which relate to property includible in a grantor's gross_estate under sec_2038 and sec_2042 in the present case the trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 apply a modification of a_trust that is otherwise exempt from the generation-skipping_transfer_tax under the act will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust plr-112613-00 in the present case it has been represented that no additions have been made to trust after date after the division of the trust into four separate trusts the interests of the beneficiaries will remain the same and the timing of the termination of the resulting trusts will remain the same accordingly the proposed division of trust into four separate trusts one each for great grandchild and his family great grandchild and his family great grandchild and her family and great grandchild and his family will not change the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the original trust based on the information submitted and representations made we conclude that the division of trust into four separate trusts pursuant to the local court order as proposed will not constitute an addition to trust or otherwise subject the four trusts resulting from the division of trust to the generation-skipping_transfer_tax provisions of chapter of the code further the proposed division will not cause the corpus of any of the four new trusts to be treated as if it had been added after date to any of the trusts this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely yours associate chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc tege eoeg teb-plr-122352-03 date date number release date index number legend issuer holding_company sec_1 sec_2 electric company bonds facilities plr-122352-03 state authority service area a date date date year new electric company u city x power supply agreement power purchase agreement commission act plr-122352-03 cite dear this letter is in response to a request on behalf of the issuer and the holding_company for rulings that a sec_1 a subsidiary of the holding_company is a successor_in_interest to electric company for purposes of sec_142 of the internal_revenue_code_of_1986 the code and b the facilities as described below will serve or are available on a regular basis for general_public use within the meaning of sec_1_103-8 and sec_1_103-8 of the income_tax regulations facts and representations issuer an agency of the state is authorized under state law to issue bonds for financing certain manufacturing industrial and commercial facilities issuer proposes to issue bonds the bonds and loan the proceeds to the holding_company and its subsidiaries to reimburse certain construction costs of facilities located in the state the facilities were placed in commercial operation on date the issuer adopted on date a resolution taking official action towards the issuance of the bonds for the facilities the issuer represents that it expects to reimburse certain expenditures made by the holding_company with respect to the facilities with the bond proceeds in compliance with sec_1_150-2 the facilities are owned and operated by sec_1 the holding_company represents that the facilities will be property of a character subject_to the allowance for depreciation provided in sec_167 electric company was a corporation organized under the laws of the state and a regulated_public_utility within the meaning of sec_7701 electric company operated an integrated system of generating transmission and distribution facilities for electric energy the local electric system that provided electric energy to customers the customers within the service area it is represented that as of date electric company continued to be engaged in the local furnishing of electric energy electric company also operated a natural_gas distribution business within the service area unless otherwise specified references to the internal_revenue_code are to the internal_revenue_code_of_1986 plr-122352-03 electric company’s assets consisted of various electric utility assets including fossil fuel generating plants an interest in nuclear generating property an electric transmission and distribution system a gas distribution system and other assets related to its electric and gas businesses electric company received two private letter rulings that its facilities at the time were facilities for the local furnishing of electric energy within sec_142 and in one of those rulings electric company’s local system was found to be a system providing service to the general populace of the geographical service area as required under sec_142 ltr date and ltr date u was a regulated_public_utility that distributed gas to customers in city x authority is a political_subdivision of the state created by the state legislature restructuring sometime in or before year u electric company and authority entered into negotiations to restructure so that authority would acquire certain electric utility assets owned by electric company and u would combine with electric company under a single holding_company referred to herein as the holding_company in connection with the combination of u with electric company and as a result of the restructuring electric company pre-transaction shareholders owned a percent of the holding_company transfer of non-nuclear electric generating assets electric company transferred its gas utility assets non-nuclear electric generating assets and its common plant to holding_company which in turn transferred the assets to its subsidiaries the non-nuclear electric generating assets are referred to below as the transferred generating assets electric company retained its electric transmission and distribution system and its ownership_interest in a nuclear generating facility the retained transmission and distribution assets transfer of retained transmission and distribution assets a newly formed subsidiary of authority merged with electric company with electric company as the surviving corporation referred to as new electric company new electric company became the wholly owned subsidiary of authority following the merger new electric company’s assets consisted of the retained transmission and distribution assets the restructuring was completed on date holding_company and its subsidiaries agreed to supply authority and new electric company with electricity from the transferred generating assets under the power supply agreement so that authority and new electric company could provide electricity to the customers in the service area the power supply agreement was plr-122352-03 subject_to the approval of the commission and the federal energy regulatory commission ferc operation since the restructuring sec_1 currently owns and operates the transferred generating assets formerly owned by electric company and transferred to holding_company new electric company owns the retained transmission and distribution assets sec_1 provides all of the output from the transferred generating assets to authority and new electric company under the power supply agreement it is represented that the area served by the retained transmission and distribution assets and the transferred generating assets is the same as the service area and that authority and new electric company provide service only to the customers within the service area the holding_company represents that sec_2 will be a wholly-owned subsidiary of sec_1 sec_2 will sell all of the output generated at the facilities to new electric company and authority pursuant to the power purchase agreement during the term of the agreement the agreement states the legal maximum capacity at which the facilities must be run and provides that during its term new electric company will have exclusive rights to the output the agreement also provides that all metering devices required for measuring the output of the facilities will be installed on new electric company’s side of the delivery point and will be owned and operated by new electric company the term of the power purchase agreement i sec_25 years from date law and analysis sec_142 provides that exempt_facility_bond means any bond issued as part of an issue percent or more of the net_proceeds of which are to be used to provide facilities_for_the_local_furnishing_of_electric_energy_or_gas for purposes of sec_142 sec_142 provides that the local furnishing of electric energy or gas shall consist of furnishing solely within an area consisting of a city and one contiguous county or two contiguous counties sec_1_103-8 provides in part that in order to qualify as an exempt facility for purposes of sec_103 and thus sec_142 a facility must serve or be available on a regular basis for general_public use or be a part of a facility so used as contrasted with similar types of facilities which are constructed for the exclusive use of a limited number plr-122352-03 of nonexempt persons in their trades_or_businesses sec_1_103-8 states the standard that a facility for the local furnishing of electric energy must meet in order to satisfy the public use test of sec_1_103-8 sec_1_103-8 provides that a facility for the local furnishing of electric energy or gas will satisfy the public use requirement of sec_1_103-8 only if such facility or the output thereof is available for use by members of the general_public sec_1_103-8 provides one way that a facility will be deemed to have met the public use requirement of sec_1_103-8 sec_1_103-8 states that a facility for the local furnishing of electric energy or gas is available for use by the general_public if a the owner or operator of the facility is obligated by a legislative enactment local ordinance regulation or the equivalent thereof to furnish electric energy or gas to all persons who desire such services and who are within the service area of the owner or operator of such facility and b it is reasonably expected that such facility will serve or be available to a large segment of the general_public in such service area sec_1_103-8 provides that the term facilities_for_the_local_furnishing_of_electric_energy_or_gas means property which - a is either property of a character subject_to the allowance for depreciation provided in sec_167 or land b is used to produce collect generate transmit store distribute or convey electric energy or gas c is used_in_the_trade_or_business of furnishing electric energy or gas and d is a part of a system providing service to the general populace of one or more communities or municipalities but in no event more than two contiguous counties or a political equivalent whether or not such counties are located in one state a facility for the generation of electric energy otherwise qualifying under this subdivision will not be disqualified because it is connected to a system for interconnection with other utility systems for the emergency transfer of electric energy successor_in_interest to the extent not amended congress intended that principles of law under the code continue to apply under the code h_r conf_rep no at ii-686 vol c b plr-122352-03 sec_142 provides that no bond may be issued as part of an issue with respect to a facility for the local furnishing of electric energy or gas unless - a the facility will - i be used by a person who is engaged in the local furnishing of that energy source on date and ii be used to provide services within the area served by such person on date or within a county or city any portion of which is within such area or b the facility will be used by a successor_in_interest to such person for the same use and within the same service area as described in subparagraph a sec_142 was added by a of the small_business job protection act of the act 1996_3_cb_155 the version of the act passed by the house of representatives did not contain a provision relating to sec_142 the senate report contains the following explanation of the successor_in_interest concept in sec_142 to facilitate compliance with electric and gas industry restructuring now in progress the provision further permits continued qualification of successor entities under a step-in-the shoes rule without regard to common ownership if the service provided remains unchanged and the area served after the facilities are transferred does not exceed the area served before the transfer for example if facilities of a person engaged in local furnishing are sold to another person the purchaser when it engages in otherwise qualified local furnishing activities is eligible for continued tax-exempt_financing to the same extent that the seller would have been had the sale not occurred if the service provided and the area served do not change s rep no pincite the conference_report further provides as follows the conferees also wish to clarify several questions that have arisen since the passage of the senate amendment with respect to the limitation on future eligibility under the local furnishing exception first because the conference agreement precludes issuance of tax-exempt_bonds except for local furnishers engaged in that activity on date and successors in interest the statutory wording of the provision differs from the traditional focus of the local furnishing exception on a two county or city and contiguous county area without plr-122352-03 regard to the entity providing the service the statutory references to persons engaged in local furnishing of electricity or gas contained in the conference agreement are intended to prevent new entities other than successors in interest from qualifying for tax-exempt_financing under the local furnishing exception they are not to be construed in a manner affecting the tax-exempt status of interest on any outstanding bonds or the receipt of additional tax- exempt financing by an existing local furnisher provided that the facilities financed with those bonds are used at all times in qualified local furnishing activities defined under present law as modified by the conference agreement and the bonds comply otherwise with the internal revenue code’s requirements for tax-exemption h_r conf_rep no pincite 1986_3_cb_741 the conference committee report contains two examples which provide some insight into what is meant by the term successor_in_interest for purposes of sec_142 of the code in example an existing local furnishing utility as part of a reorganization sells a portion of its service area to a third party the report explains that the retained portion of the utility’s service territory continues to qualify for tax- exempt financing under the local furnishing exception provided no violations of that exception occur such as an impermissible interconnection with facilities outside the area the example in the report explains that the determination of whether the portion of the service territory that is sold to a third party continues to qualify depends on the manner in which the purchaser provides service in the area it acquires the report states that if the purchaser operates in the area which it purchases in a manner that otherwise qualifies under the local furnishing exception the purchaser is treated as a successor_in_interest to the seller and facilities for the area that is sold continue to be treated as used in local furnishing h_r conf_rep no pincite 1986_3_cb_741 in example of the conference_report a local furnishing utility decided to contract with a newly-formed independent power generating venture to construct a generating plant that will sell electricity to it exclusively for use in its service area the report concludes that tax-exempt_bonds may not be issued under the local furnishing exception for construction of the generating plant since the independent power producer was neither engaged in the local furnishing of electricity to the service area involved on the effective date of the conference agreement’s restriction nor is it a successor_in_interest under the agreement h_r conf_rep no pincite 1986_3_cb_741 in this case sec_1 is a successor_in_interest to electric company within the meaning of sec_142 first electric company was a local furnishing utility that operated its local electric system and provided electric energy using the transferred plr-122352-03 generating assets to its customers in the service area on date electric company received two private letter rulings that its facilities at the time were facilities for the local furnishing of electric energy within sec_142 and in one of the rulings electric company’s local system was found to be a system providing service to the general populace of the geographical service area as required under sec_142 these activities continued on date the date of restructuring second electric company transferred the electric generating assets to holding_company and sec_1 received the transferred generating assets from the holding_company third sec_1 will use the transferred generating assets in the same qualified local furnishing activity as electric company because the area served by the transferred generating assets will be the same as the service area served by electric company on date sec_1 will sell all of the output from the transferred generating assets to authority and new electric company under the power supply agreement and authority and new electric company will provide electric service only to the customers in the service area fourth the restructuring resulted in electric company’s pre-transaction shareholders owning a percent of the holding_company accordingly sec_1 is a successor_in_interest to electric company for purposes of sec_142 service to the general_public sec_2 is required under the power purchase agreement to sell all of the output generated from the facilities to new electric company and authority and both authority and new electric company are required to serve only the customers in the service area moreover sec_1 as the owner and operator of the facilities is obligated under the power supply agreement to supply authority and new electric company with electricity from the transferred generating assets formerly owned by electric company for service to the customers in the service area since the power supply agreement was subject_to the approval of the commission and ferc and sec_1's obligation to provide electricity is subject_to ongoing oversight by ferc the agreement is the equivalent of the legislative or regulatory obligation described in sec_1_103-8 accordingly the facilities will serve or be available on a regular basis for general_public use within the meaning of sec_1_103-8 and sec_1_103-8 conclusions based upon the facts and representations set forth above we conclude that sec_1 is a successor_in_interest to electric company for purposes of sec_142 of the code and the facilities will serve or be available on a regular basis for general_public use within the meaning of sec_1_103-8 and sec_1_103-8 no opinion is expressed concerning whether the interest on the bonds to be issued by the issuer will be exempt from tax under sec_103 the rulings contained in this letter are based upon information and plr-122352-03 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel exempt_organizations employment_tax government entities by timothy l jones senior counsel tax exempt bond branch cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file with their instructions and do not send them to this office result in a penalty_failure_to_file the returns timely may file the returns in accordance we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice action if you agree with our deletions you do not need to take any further lf you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses irs customer service number for people with hearing impairments is the sincerely director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c government entities division date date uniform issue list contact person identification_number contact number fax number employer_identification_number legend you r applicant date date state state city ity e e dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below i facts you were organized on date as a nonprofit corporation under the laws of state you are organized for three purposes to bring the ethiopian community together for mutual help to operate according to the ethiopian idir tradition and to build strong relations that will foster mutual assistance among the members of the associations you filed form_1024 application_for recognition of exemption under sec_501 on date seeking recognition as an sec_501 benevolent life_insurance association or like organization you are a burial association practicing the ethiopian idir tradition an idir is a popular social organization in ethiopian sic across all cities and towns the core mission of the typical ethiopian idir is for a given group of people to come together to help each other in the event of death services rendered include notifying members about the loss so they would pay their respects by visiting the grieving person and family preparing meals for the family and their guests taking care of burial arrangements and making financial contributions idir is counted on to fill in to ease the burden on the grieving member of the association and his her family during such difficult times burial-associated expenses are easily covered by the lidir in accordance with this tradition you provide monetary assistance and emotional support to your members you are not a funeral home and you do not manufacture funeral supplies or provide funeral home services a member is an individual who satisfies the requirements set forth by your bylaws your membership is limited to any ethiopian or ethiopian american who is years or older resides in the greater city area including city and agrees to abide by your bylaws specifically you accept applications from eight contiguous counties five in state and three in state hereinafter specified geographic area you are currently accepting membership from city and its surrounding suburbs you reject membership applications from any individual not residing within the specified geographic area however any member who originally resided within the specified geographic area may retain his membership if he moves away you or the member may cancel his membership upon resignation or termination the member may elect to receive his pro-rata share of your assets as of the date of termination you do not advertise your services each of your policies covers multiple individuals the member the member’s spouse the member's children under the age of or children between the ages of and who are students and dependents of the member and both the member's and the spouse’s parents collectively covered individual upon the death of a member or a covered individual the member or the member's family receives a fixed monetary distribution in cash to help defray funeral costs each member receives the same amount the distribution amount is set and voted upon by the general assembly of members additionally non-bereaved members have the duty as sic to attend funerals at the designated time or if the funeral is going to be held in ethiopia to accompany the bereaved to the airport according to the directions of the board_of directors members are excused from this requirement if they were unaware of the death you currently have members three of which live in suburbs of city and cover a total of individuals you also conduct a biannual picnic for your members and moderate an e-mail group that lets members share news of sickness births and deaths you state that s uch occasions provide opportunities for families to know each other and to establish connections none of your funds are used for these events members make voluntary contributions to cover any expenses your funds are held for the use and benefit of your members currently your sole source_of_income is membership fees and dues members pay a dollar_figurex registration fee upon joining and then make monthly contributions of dollar_figurex you may receive gifts from donors or other income but you have not received any such income to date any funds collected in excess of expenses are held to meet future losses specifically you are authorized to hold excess funds sufficient to cover three deaths the board is authorized to make periodic returns of premiums to members your day-to-day operations are performed by a six-person board_of directors composed of a chairman a vice-chairman a secretary a controller a treasurer and an auditor collectively directors directors are elected by and serve at the pleasure of the general assembly of members for two-year terms board meetings are valid only if attended by more than haif of its members ll law sec_501 provides for the exemption of benevolent life_insurance_companies of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations but only if percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses_and_expenses sec_1_501_c_12_-1 provides that an organization described in sec_501 must receive at least percent of its income from amounts collected from members for the sole purposes of meeting losses_and_expenses if an organization issues policies for stipulated cash premiums or if maintains investments from which more than percent of its income is derived it is not entitled to exemption on the other hand an organization may be entitled to exemption although it makes advance assessments for the sole purpose of meeting future losses_and_expenses provided that the balance of such assessments remaining on hand at the end of the year is retained to meet losses_and_expenses or is returned to members it requires advance deposits to cover the cost of the insurance and sec_1_501_c_12_-1 provides that the phrase of a purely local character applies to benevolent_life_insurance_associations and not to other organizations specified in sec_501 it also applies to any organization seeking exemption on the ground that it is an organization similar to a benevolent life_insurance association an organization of a purely local character is one whose business activities are confined to a particular community place or district irrespective however of political subdivisions if the activities of an organization are limited only by the borders of a state it cannot be considered to be purely local in character revrul_64_193 1964_2_cb_151 held that a benevolent life_insurance_company empowered by a state permit to operate in any county within miles of its home_office but also issued policies to residents outside that area did not qualify under r c sec_501 in determining whether a benevolent life_insurance_company is of a purely local character the important criterion is that the business be transacted and be authorized to be transacted in a single community place or district and not several different localities an area which includes two or more large trade centers cannot be called purely local in character the instant organization was authorized to transact business in one of the most populous areas of the state and the authorized counties included three distantly separated large metropolitan trade center areas and rural areas revrul_65_201 1965_1_cb_170 held that like organizations as used in the statute is limited by the types of organizations specified in the statute revrul_72_36 1972_1_cb_121 describes certain requirements that cooperative companies must meet for exemption under sec_501 the interests of members in the savings of an organization should be determined in proportion to their business with the organization the interests of members in the savings of the organization may be determined in proportion to either the value or the quantity of the services purchased from the organization provided such basis is realistic in terms of actual cost of the services to the organization the organization may retain funds in excess of those needed to meet current losses_and_expenses for such purposes as retiring indebtedness incurred in acquiring assets expanding the services of the organization or maintaining reserves for necessary purposes but such funds may not be accumulated beyond the reasonable needs of the organization’s business whether there is an improper accumulation of funds depends upon the particular circumstances of each case to maintain its mutual or cooperative character an organization must keep such records as are necessary to determine at any time each member’s rights and interest in the assets of the organization lf under the bylaws a member's rights and interests have been forfeited the organization has not operated on a mutual or cooperative basis and is therefore not exempt upon dissolution gains from the sale of an appreciated asset should be distributed to all persons who were members during the period which the asset was owned by the organization in proportion to the amount of business done by such members during that period insofar as practicable 178_f2d_954 8th cir determined that organizations providing burial and funeral benefits are engaged in activities similar to benevolent life_insurance and therefore are like organizations within the meaning of ilr c sec_501 327_fsupp_1209 w d va held that that a benevolent life_insurance association that solicited business via television advertisement in four states and never rejected business from outside the authorized area was not of a purely local character hardware underwriters v united_states ct_cl held that a benevolent life_insurance association that operated in states was not of a purely local character within the meaning of sec_501 the court determined that such an organization must confine its operations to a single identifiable location ul rationale an organization seeking exemption under sec_501 must satisfy three requirements first it must be organized and operated as a cooperative the organizational and operational tests second it must conduct activities described in r c sec_501 the activities test’ finally it must derive at least percent of its income from members for the sole purpose of meeting losses_and_expenses the income source test the materials you submitted state that you are seeking recognition as an sec_501 benevolent life_insurance association or like organization based upon a review of your application you are not described in r c sec_501 as explained below organizational and operational_test you are neither organized nor operated as an r c sec_501 organization in order to be organized as an sec_501 organization your articles must include the five statements required by revrul_72_36 1972_1_cb_121 your articles state that you are organized for three purposes to bring the ethiopian community together for mutual help to operate according to the ethiopian idir tradition and to build strong relations that will foster mutual assistance among the members of the associations none of these purposes are recognized as an ilr c sec_501 purpose furthermore your articles do not contain the five statements required by revrul_72_36 thus you are not organized as an sec_501 organization even if you were organized as an sec_501 organization you are not operated as such among other things revrul_72_36 requires an ilr c sec_501 organization to determine the rights and interests of the members in the savings of an organization in proportion to their business with the organization and to maintain such records as are necessary to determine at any time each member's rights and interest in the assets of the organization you define member as an individual who became a member of the association satisfying the criteria of membership in these bylaws membership is available to a limited portion of the population in city and city in the event of a death a member's policy may cover multiple individuals however members pay a fixed monthly membership fee regardless of the number individuals covered thus if a member receives a pro-rata distribution of the organization’s savings that distribution is not made proportion to the amount of business done with you furthermore you failed to show that you keep adequate_records as required by the ruling activities test you are a like organization within the meaning of r c sec_501 this section provides for the exemption of benevolent_life_insurance_associations of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations as long as certain conditions are met the term like organizations’ is limited by the types of organization specified in sec_501 and is therefore applicable only to those cooperative or mutual organizations engaged in activities similar to in this case a benevolent life_insurance association revrul_65_201 1965_1_cb_170 organizations providing burial and funeral benefits are engaged in activities similar to benevolent life_insurance and therefore are like organizations within the meaning of sec_501 178_f2d_954 8th cir you provide burial and funeral benefits to your members upon the death of the member or a covered individual therefore you are a like organization within the meaning of sec_501 however you are not of a purely local character the phrase of a purely local character applies both to benevolent_life_insurance_associations and any organization seeking exemption on the ground that it is an organization similar to a benevolent life_insurance association sec_1_501_c_12_-1 an organization is of a purely local character’ if its business activities are confined to a particular community place or district irrespective however of political_subdivision sec_1_501_c_12_-1 in revrul_64_193 1964_2_cb_151 the service noted that the word purely intensified and limited local indicating the intention of congress to limit exemption as an ilr c sec_501 benevolent life_insurance association and like organizations that are entirely and unqualifiedly ‘local’ in their operations therefore the conduct of any activity outside of a local area prevents the association from being purely local in character the service then specifically stated that any association operating in two or more large trade centers was not of a purely local character revrul_64_193 see eg 327_fsupp_1209 w d va hardware underwriters v united_states ct_cl you are not of a purely local character’ because you transact business in two large metropolitan trade centers in state and state ie city and city furthermore your members are spread over eight contiguous counties in state and state income source test although you receive percent of your income from your members you fail the percent income source test the regulations provide that i f an organization issues policies for stipulated cash premiums it is not entitled to exemption sec_1_501_c_12_-1 you pay a fixed amount upon the death of a member or a covered individual this amount is set and voted upon by the general assembly thus you pay a stipulated cash premium in violation of r c sec_501 conclusion based the foregoing you do not qualify as an sec_501 benevolent insurance association or like organization you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete this declaration must be signed by an elected officer a member of the board_of directors or a trustee rather than an attorney or accountant you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications for more information about representation see publication practice_before_the_irs if you if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service te_ge se t eo ra t3 constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely director exempt_organizations


internal_revenue_service department of the treasury 00-00r89 number release date index number washington dc person to contact telephone number refer reply to cc psi b09-plr-154512-02 date date re legend decedent date state family limited_partnership co-executors attorney date dear this is in response to your letter of date requesting an extension of time under sec_301 of the procedure and administration regulations to make a qualified family-owned business election under sec_2057 of the internal_revenue_code the facts submitted and representations made are as follows decedent died on date decedent's gross_estate included a farming operation in state which was held in family limited_partnership all of the assets of family limited_partnership were included in determining the value of decedent’s gross_estate co-executors relied upon attorney to advise them on the filing of the form_706 attorney incorrectly advised co-executors that the estate could make the sec_2032a plr-154512-02 special valuation election or the sec_2057 election qualified_family-owned_business_interest qfobi deduction but not both the estate made an election under sec_2032a and did not make an election under sec_2057 attorney later discovered that an election may be made under both sec_2032a and sec_2057 co-executors filed a supplemental form_706 which attempted to make an election under sec_2057 on date in a letter dated date decedent's_estate requested an extension of time under sec_301 -1 and of the procedure and administration regulations to make an election under sec_2057 to deduct the adjusted_value of the qualified family-owned business interests under sec_2057 sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2057 provides that for purposes of the tax imposed by sec_2001 in the case of an estate of a decedent to which this section applies the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the adjusted_value of the qualified family-owned business interests of the decedent sec_2057 provides that the deduction allowed by sec_2057 shall not exceed dollar_figure sec_2057 provides generally that sec_2057 shall apply to an estate if a the decedent was at the date of the decedent’s death a citizen or resident_of_the_united_states b the executor elects the application of this section and files the agreement referred to in sec_2057 c the sum of the adjusted_value of the qualified family-owned business interests described in sec_2057 plus the amount of the gifts of such interests determined under sec_2057 exceed sec_50 percent of the adjusted_gross_estate and d during the 8-year period ending on the date of the decedent’s death there have been periods aggregating years or more during which such interests were owned by the decedent or a member_of_the_decedent’s_family and there was material_participation within the meaning of sec_2032a by the decedent or a member_of_the_decedent’s_family in the operation of the business to which such interests relate sec_2057 provides that the qualified family-owned business interests described in this paragraph are the interests which are included in determining the value of the gross_estate and are acquired by any qualified_heir from or passed to any qualified_heir from the decedent within the meaning of sec_2032a sec_2057 provides generally that for purposes of sec_2057 the term qualified_family-owned_business_interest means an interest as a proprietor in a trade_or_business carried on as a proprietorship or an interest in an entity carrying on a trade plr-154512-02 or business if at least percent of such entity is owned directly or indirectly by the decedent and members of the decedent’s family at least percent of such entity is so owned by members of families and at least percent of such entity is so owned by the decedent and members of the decedent’s family or at least percent of such entity is so owned by members of families and for subclause and of sec_2057 at least percent of such entity is so owned by the decedent and members of the decedent’s family sec_2057 provides that for purposes of making the election and filing the agreement under sec_2057 rules similar to the rules under sec_2032a and regarding the election of special_use_valuation of farm and other qualified_real_property shall apply sec_2032a provides that the election under sec_2032a shall be made on the return of tax imposed by sec_2001 in a manner consistent with the regulations prescribed by the secretary the election once made is irrevocable under sec_301_9100-1 of the procedure and administration regulations the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute 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 the grant of 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 failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election 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 professional failed to make or advise the taxpayer to make the election section c ii provides that the interests of the government are normally prejudiced if the taxable_year in which the regulatory election should have plr-154512-02 been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section based on the facts submitted and the representations made we conclude that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government therefore an extension of time is granted until days from the date of this letter for making an election under sec_2057 this election should be made on a supplemental form_706 united_states estate and generation- skipping transfer_tax return and filed with the cincinnati service_center a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose the ruling contained in this letter is 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 in particular the burden is on the estate to establish to the service’s satisfaction that all of the requirements of sec_2057 are met except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express or imply no opinion on whether the estate qualifies for the deduction under sec_2057 in addition we express or imply no opinion regarding the value of the property held in the family limited_partnership this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number -------------------------- ------------------------ ------------------------- in re ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- telephone number --------------------- refer reply to cc tege eb ec plr-147863-05 date date ------------------------------------------------------------------------------------------ --------------------- ------------ --------------- ----------- ---- ------------------------------------------ -------------------------- ------------------------------------------------------------------------------------------ legend taxpayer date plan --------------------------------------------------------------------------------------------------------------- plan --------------------------------------------------------------------------------------------------------- target parent x y z dear -------------------- behalf of taxpayer on date requesting a ruling regarding an adjustment in the number of shares and employee stock_options these options were granted over a period of years with various exercise prices but were always granted with an exercise price equal to the fair_market_value of the underlying stock these options were issued under two plans plan and plan collectively the plans each plan provides that the compensation committee of taxpayer’s board_of directors may adjust the exercise price and number of options to reflect the impact of certain corporate transactions or a change in capitalization that the committee determines in its sole discretion are necessary or desirable to reflect such event as of date taxpayer has x nonqualifed employee stock_options outstanding this letter_ruling is a response to a request for a private_letter_ruling filed on plr-147863-05 taxpayer represents that the stock_options issued under the plans meet the requirements of performance based compensation under sec_162 of the internal_revenue_code taxpayer has reached an agreement to acquire all of the stock of target a subsidiary of parent in exchange for stock of taxpayer plus y cash in connection with this transaction taxpayer is contemplating making a one-time extraordinary_dividend of z per share holders of taxpayer’s non-qualified employee stock_options will not be entitled to receive this extraordinary_dividend in order to prevent the economic value of the options from being adversely affected taxpayer proposes to adjust the exercise price and number of options issued under the plans the adjustments to the outstanding nonqualified options will be made in accordance with the methodology of sec_424 of the code and the regulations thereunder so as to equalize the economic value of the options before and after the extraordinary_dividend other than small differences due to rounding the aggregate value of the adjusted options will equal the aggregate value of the original options taxpayer intends to equalize the value of the pre- and post-adjustment options utilizing an intrinsic value approach producing adjustments that will meet the ratio_test and the spread test as described in sec_1_424-1 of the regulations taxpayer will adjust all outstanding non-qualified options including those held by rank-and-file employees as well as top executives of taxpayer taxpayer has requested rulings that options granted under the plans will continue to meet the requirements under sec_162 of the code for qualified_performance-based_compensation if they are adjusted to reflect the extraordinary_dividend and such adjustment is consistent with the methodology prescribed in sec_424 and that such an adjustment will not be considered a cancellation and grant of a new option under sec_1_162-27 sec_162 allows as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business including a reasonable allowance for salaries or other compensation_for_personal_services actually rendered sec_162 provides that in the case of any publicly-held corporation no deduction is allowed for applicable_employee_remuneration with respect to any covered_employee to the extent that the amount of the remuneration for the taxable_year exceeds dollar_figure sec_162 provides that applicable_employee_remuneration does not include any remuneration payable solely on account of the attainment of one or more performance goals but only if i the performance goals are determined by a compensation committee of the board_of directors of the taxpayer which is comprised solely of or more outside directors ii the material terms under which the remuneration is to be paid including the performance goals are disclosed to the shareholders and approved by a majority of the vote in a separate shareholder vote plr-147863-05 before the payment of such remuneration and iii before any payment of such remuneration the compensation committee referred to in clause i certifies that the performance goals and any other material terms were in fact certified under sec_1_162-27 of the regulations compensation attributable to a stock_option is deemed to satisfy the performance_goal requirement of sec_1 e if the grant is made by the compensation committee the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to any employee and under the terms of the option the amount of compensation the employee could receive is based solely on an increase in the value of the stock after the date of the grant under sec_1_162-27 of the regulations if an option is canceled the canceled option continues to be counted against the maximum number of shares for which options may be granted to the employee under the plan if after grant the exercise price of an option is reduced the transaction is treated as a cancellation of the option and a grant of a new option in such case both the option that is deemed to be canceled and the option that is deemed to be granted reduce the maximum number of shares for which options may be granted to the employee under the plan sec_1_162-27 provides that compensation attributable to a stock_option stock_appreciation_right or other stock-based compensation does not cease to be treated as performance-based compensation to the extent that a change in the grant or award is made to reflect a change in corporate capitalization such as a stock split or dividend or a corporate transaction such as any merger of a corporation into another corporation any consolidation of two or more corporations into another corporation any separation of a corporation including a spinoff or other distribution of stock or property by a corporation any reorganization of a corporation whether or not such reorganization comes within the definition of such term in sec_368 or any partial or complete_liquidation by a corporation rule as follows based on the information submitted and on taxpayer’s representations we stock_options granted under the plans will continue to meet the requirements of sec_162 for qualified_performance-based_compensation if the stock_options are adjusted to reflect the extraordinary_dividend and that adjustment is made consistent with the methodology provided in sec_424 such an adjustment will not be considered the cancellation and grant of a new option under sec_1_162-27 of the regulations the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-147863-05 by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant enclosure copy for purposes sincerely _______________________________ robert b misner senior technician reviewer executive compensation branch office of the division counsel associate chief_counsel tax exempt government entities