IRS written determination 201436006

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201436006
Release Date: 9/5/2014
Index Number: 1361.03-03
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B2
PLR-122964-13
Date:
April 22, 2014
Legend
X=-------------------------------------------------------------------------------------------------------------
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TRUST 1=-----------
TRUST 2=----------------------
D1=------------------------
Dear ----------
This responds to the letter dated May 3, 2013, and subsequent correspondence
submitted on behalf of X by X’s authorized representative, requesting a ruling under
§ 1361(e) of the Internal Revenue Code.
The rulings contained in this letter are based upon facts and representations
submitted by the taxpayer and 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.
The information submitted states that X created Trust 1on D1. TRUST 1is a
grantor trust wholly owned by X. X proposes to create Trust 2which will be a grantor
trust wholly owned by X. X proposes to contribute S corporation stock to TRUST 2and
sell the TRUST 2remainder interest to TRUST 1. TRUST 2will elect to be an electing
small business trust (ESBT) under 1361(e) upon creation.

PLR-122964-13
2
X requests a ruling that the sale of the TRUST 2 remainder interest to TRUST 1
will not disqualify TRUST 2from being an ESBT under §1361(e) during the period
when TRUST 1is a grantor trust as to X because the sale of the remainder interest is
not a purchase within the meaning of §1361(e). X requests an additional ruling that
TRUST 2will not cease to be or fail to qualify as an ESBT after any termination of
TRUST 1’s grantor trust status because TRUST 1’s acquisition of the remainder is not a
purchase within the meaning of §1361(e).
Section 1361(e)(1)(A)(ii) requires that an ESBT must have no interest in the trust
acquired by purchase.
Section 1.1361-1(m)(1)(iii) provides that a trust does not qualify as an ESBT if
any interest in the trust has been acquired by purchase.
Section 1361(e)(1)(C) provides that the term “purchase” means any acquisition if
the basis of the property acquired is determined under §1012.
Section 1.1361-1(m)(1)(iii) provides that if any portion of the basis in the acquired
interest in the trust is determined under §1012, such interest has been acquired by
purchase.
Rev. Rul. 85-13, 1985-1 C.B. 184, concludes that a grantor’s purchase of the
corpus of his grantor trust is not a sale because the grantor is considered to own the
assets before and after the sale.
Section1012(a) provides that the basis of property shall be the cost of such
property, except as otherwise provided in this subchapter and subchapters C (relating to
corporate distributions and adjustments), K (related to partners and partnerships, and P
(relating to capital gains and losses).
Section 1015(a) provides that the basis of property acquired by gift after
December 31, 1920, shall be the same as it would be in the hands of the donor or the
last preceding owner by whom it was not acquired by gift, except that if such basis
(adjusted for the period before the date of the gift as provided in §1016) is greater than
the fair market value of the property at the time of the gift, then for the purpose of
determining loss the basis shall be such fair market value.
Section 1015(b) provides that property acquired after December 31, 1920, by a
transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis
shall be the same as it would be in the hands of the grantor increased in theamount of
gain or decreased in the amount of loss recognized to the grantor on such transfer
under the law applicable to the year in which the transfer was made.

PLR-122964-13
3
Based solely on the facts and the representations submitted, we conclude that
the sale of the TRUST 2remainder interest to TRUST 1will not disqualify TRUST 2
from being an ESBT under §1361(e) during the period when TRUST 1is a grantor trust
as to X because the sale of the remainder interest is not a purchase within the meaning
of § 1361(e). The sale of the remainder interest is not a purchase within the meaning of
1361(e) because the sale is not governed by §1012(a). However, to the extent that the
sale is treated as a gift, the sale will be covered by §1015(a). In addition, we conclude
that TRUST 2will not cease to be or fail to qualify as an ESBT after the termination of
TRUST 1’s grantor trust status because TRUST 1’s acquisition of the remainder is not a
purchase within the meaning of §1361(e).
Except as specifically set forth above,no opinion is expressed concerning the
federal tax consequences of the facts described above under any other provision of the
Code, including whether the S corporation issuing the stock transferred to TRUST 2
was or is a small business corporation under §1361(b). Specifically, we express no
opinion regarding the identity of the transferor of the remainder interest in the S
corporation stock to TRUST 2for purposes of §§ 2511 and 2652 or the tax
consequences of that transfer. In addition, we express no opinion on whether the S
corporation stock will be includible in the gross estate of any transferor under § 2036 or
any other provision of the Code.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to X’s authorized representatives.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 2
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2)
Copy of this letter
Copy for § 6110 purposes