IRS written determination 201442067

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.

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
APR 2 9 2014
Uniform Issue List: 664.00-00
XXX XX
xxxxx
XXX XX
XXX XX
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Legend:
Company
C
= XXXXX
Taxpayer A
= XXXXX
Taxpayer B
= XXXXX
Plan X
= XXXXX
Trust T
= XXXXX
Dear XXXXX:
101442061
This is in response to the request for a ruling dated March 27, 2012, as supplemented by letters
dated September 20, 2012, and May 2, 2013,
in which you, through your authorized
representative, request a letter ruling on the application of section 664(g) of the Internal
Revenue Code (the "Code"). The following facts and representations support your ruling
request.
Company C, formed by Taxpayer A
in 1962, established Plan X in 1978. Plan X is an employee
stock ownership plan ("ESOP"), as defined
in section 4975(e)(7) of the Code. The Plan received
its most recent favorable determination letter on September 17, 2011.
In 1987, Taxpayer A established Trust
T, a charitable remainder trust as described in section
664(d)(1) of the Code, for the benefit of his spouse, Taxpayer
B. Trust T provided for payment
of shares of Company C stock to Taxpayer
Bas an income beneficiary, during her life, with the
remainder to be transferred to Plan X upon her death. In a Private Letter Ruling issued
by the
Internal Revenue Service (the "Service") to Company C, it was determined that Trust T met the
requirements of section 664(d)(1).
Upon Taxpayer A's death in 1988, shares of Company
C stock passed from the estate of
Taxpayer A to Trust T. As required under the terms of Trust T, shares of Company C stock held
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in the Trust were transferred to Plan X upon Taxpayer B's death in 2010 (the ''Transfer'') and
held in a suspense account ("CRT Suspense Account"), as described in section 646(g)(3)(E)
and provided for
in Section 7.19 of Plan X. You represent that, at all relevant times, Plan X
contained provisions meeting the requirements of sections 664(g)(3)(A) - (F).
As required under section 664(g)(2)(B) of the Code, at the time of the Transfer, Taxpayer A and
members of the Taxpayer A's family (within the meaning of Code section 2032A(e)(2)) owned
(directly
or through the application of section 318(a)) no more than 10 percent of the value of the
stock of Company C.
As required under section 664(g)(2)(C) of the Code,
immediately after the Transfer, Plan X
owned (after the application of section 318(a)(4)) at least 60 percent
of the
value of the
outstanding Company C stock.
On November
9, 2009, Company C filed with the Service a verified written statement consenting
to the application of sections 4978 and 4979A of the Code as described in section 664(g)(1 )(E)
of the Code.
Section 7.19 of Article VII of Plan X provides that for each plan year, the number of shares
allocated from the CRT Suspense Account to eligible participants have a fair market value equal
to the lesser of (i) 25 percent of the participant's 415 compensation for such plan year, or (ii)
$30,000, as adjusted for increases
in the cost of living in accordance with section 664{g){7){B)
of the Code.
You propose to amend section 7.19 by adding section 1.04(A) to Plan
X. This amendment
provides that for each plan year, the total amount of shares allocated from the CRT Suspense
Account will be determined
by the Board of Directors of Company C in a written resolution
based upon the fair market value of the shares. Amended Section 7.19 further provides that the
annual release formula from the CRT Suspense Account must be at least equal to the greater of
7.5 percent of the aggregate of all eligible Plan X participants' compensation for the plan year as
determined under Code section 415,
or the amount needed so that on a rolling five-year basis
(including the current plan year and the prior four plan years), the average annual allocation
from the CRT Suspense Account is at least 10 percent of the aggregate eligible Plan
participants' compensation. However, the amount released each year, as determined by the
Board of Directors, will be limited by the application of section 664(g)(7) of the Code.
In a Private Letter Ruling issued by the Service to Company C, the Service concluded that for
purposes of sections 664(g)(3)(A) and (E), and 664(g)(7) of the Code, allocations of stock from
the CRT Suspense Account, required by section 664(g)(3)(E) of the Code,
will be valued at the
fair market value of the stock at the time the stock is allocated from the CRT Suspense Account
to the accounts of
affected
Plan X participants.
Based upon the above facts and representations, you, through your authorized representative,
request a
ruling that the above referenced proposed amendment satisfies the requirements of
section 664(g) of the Code.

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201442067
Section 4975(e)(7) of the Code provides that an ESOP is a defined contribution plan which is
(A) a stock bonus
plan which is qualified, or a stock bonus plan and a money purchase plan,
both of which are qualified under Code section
401 (a), and which are designed to invest
primarily in qualifying employer securities; and (B) which is otherwise defined
in regulations
prescribed by the Secretary.
Section 4975(e)(7) of the Code further provides in relevant part that an ESOP must meet the
requirements
of section 664(g) (if applicable).
Section 664(g) of the Code, enacted
in 1997, provides the rules governing qualified gratuitous
transfers of qualified employer securities to an ESOP, as defined
in section 4975(e)(7). Section
664(g)(1 )(A) of the Code provides that such a transfer only applies to securities which had
previously passed from a decedent dying before January 1
, 1999, to a trust described in
paragraph (1)
or (2) of subsection (d).
Section 664(g)(2)(A) of the Code further provides that the transferee
ESOP must have been in
existence on August 1
, 1996.
Section 664(g)(1)(E) of the Code provides that the employer whose employees are covered by
the plan described
in section 664(g) must file with the Secretary a verified written statement
consenting to the application of sections 4978 and 4979A with respect to such employer.
Sections 664(g)(2)(B) and (C) of the Code provides that at the time of the transfer, the decedent
and members of the decedent's family (within the meaning of section 2032A(e)(2)) own (directly
or through the application of section 318(a)) no more than 10 percent of the value of the
employer and immediately after the transfer, such plan owns (after the application of section
318(a)(4)) at least 60 percent
of the
value of the stock of the corporation.
Sections 664(g)(3)(A) - (F) of the Code provide that a plan complies with Code section 664(g)
only if
it provides that
allocations of the transferred stock are consistent with section 401(a)(4),
participants have voting rights with regard to that stock, an independent trustee votes the shares
that are not allocated, such shares are subject to section 409(h), such shares, in general, are
held in a suspense account and are allocated
in the manner so described, and upon plan
termination any unallocated shares are to be transferred to or for the use of an organization
described in section 170(c).
More specifically, section 664(g)(3)(E) of the Code provides that a plan complies with section
664(g) if it provides that such securities are
held
in a suspense account under the plan to be
allocated each year, up to the applicable limitation under paragraph (7), after first allocating all
other annual additions for the limitation year, up to the limitations under section 415(c) and (e).
Section 664(g)(7)(A) of the Code provides that, for the purposes of paragraph (3)(E), the
applicable limitation under this paragraph with respect to a participant is an amount equal to the
lesser of, (i) $30,000, or (ii) 25 percent of the participant's compensation (as defined
in section
415(c)(3)). Section 664(g)(7)(B) provides that this limitation amount shall be adjusted in the
same manner as under section 415(d).

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201442067
Section 664(g) of the Code, as enacted in 1997, is directed to transaction(s) between a plan
established prior to August
1, 1996, Charitable Remainder Trust containing securities that were
passed to it by a decedent dying before January
1, 1999. The Transfer between Plan X and
Trust T met these requirements.
Additionally, the Transfer transaction meets the ownership requirements of sections
664(g)(2)(B) and (C) of the Code. Company C meets the special filing requirements of section
664(g)(1 )(E).
Plan X provides all the particular plan provisions that are required under section 664(g) as part
of the transaction. In light of the narrow application of the section 664(g) requirements, it is not
unreasonable to treat the
allocation amount set forth
in sections 664(g)(3)(E) and (7) as the
maximum amount that may be allocated, rather than the amount required to be allocated.
As a
result of this determination, we also have concluded that, to ensure the yearly release of shares
from the CRT Suspense Account, it is reasonable for Plan X to have a provision that establishes
a minimum amount that must be released from the suspense account every plan year, such as
the one proposed
by Company C.
Accordingly, with respect to your ruling request, we conclude that amendments to sections
1.04A and 7.19 of Plan
X, as described above, are consistent with section 664(g) of the Code.
However, the specific language of those amendments will need to be approved as part of the
Service's Determination Letter process.
This letter assumes that Plan X is otherwise qualified under section
401 (a) of the Code and its
related trust is exempt from tax under section
501 (a).
This
letter is directed only to the taxpayer who requested it. Section
611 O(k)(3) of the Code
provides that it may not be used or cited as precedent.
If you have any questions regarding this letter, please contact XXXXX, at (XXX) XXX-XXXX.
Please reference SE:T:EP:RA:T2.
evine
Plans, Technical Group 2

Enclosures:
Deleted
copy of letter
ruling
Notice of Intention to Disclose
cc:
xxxxx
xxxxx'
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