IRS written determination 201516024

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: 201516024
Release Date: 4/17/2015
Index Number: 7701.00-00, 7701.03-00,
7701.03-06
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
-----------------------, ID No. ----------------
Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-126067-14
Date:
December 10, 2014
Legend
Debtor= --------------------------------------
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Trust= -------------------------------------------------------------
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Date1= ------------------
Date2= -----------------------
Date3= -----------------
Date4= ------------------------
Date5= -----------------------
Date6= -----------------------
Date7= ------------------
Date8= -----------------------
Date9= -----------------------
Year1= ------
Year2= ------

PLR-126067-14
2
Year3= ------
a = ---
Dear -----------------:
This responds to a letter dated June 23, 2014, submitted on behalf of Trust, requesting
a ruling under § 301.7701-4(d) of the Procedure and Administration Regulations.
FACTS
The information submitted states that Debtorwas formed on Date1, and filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court on Date2. On Date3, Debtor submitted to the Bankruptcy
Court a Plan of Reorganization. On Date4, the Plan of Reorganization was confirmed
by the Bankruptcy Court. On Date5, Trustwas established and approved by the
Bankruptcy Court to facilitate the liquidation of the estate. The initial term of Trustwas
for three years ending on Date6. On Date7, the Bankruptcy Court extended Trust’s
term until Date8.
Pursuant to the provisions of the trust agreement, Trustwas created for the purpose of
liquidating the assets of Trust, with no objective to continue or engage in the conduct of
a trade or business except to the extent reasonably necessary to, and consistent with,
the liquidating purpose of Trust. Trustshall not receive or retain cash in excess ofa
reasonable amount to meet claims and contingent liabilities (including disputed claims)
or to maintain the value of the assets during liquidation. Cash not available for
distribution and cash pending distribution will be held in demand and time deposits,
such as short term certificates of deposit, in banks or other savings institutions, or other
temporary, liquid assets such as Treasury bills. Such investments must have a maturity
date of six months or less. Trustis required, under the terms of Trust, to distribute to
the beneficiaries of Trustat least annually its net income and all net proceeds from the
sale of Trust’s assets, except that Trustmay retain an amount of net proceeds or net
income reasonably necessary to maintain the value of the property or to meet claims or
contingent liabilities.
Trustprovides that the beneficiaries of Trustwill be treated as the grantors and deemed
owners of Trust. It further provides that the parties will value all assets transferred to
Trustconsistently and use such values for all federal income tax purposes.
Trustprovides that the trustee of Trustshall file tax returns as a grantor trust pursuant to
§ 1.671-4(a) of the Income Tax Regulations. Forms 1041, U.S. Income Tax Return for
Estates and Trusts, have been filed on behalf of Trustfor Year1, Year2and Year3.

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Trust, consistent with the requirements set out in Rev. Proc. 94-45, 1994-2 C.B. 684,
provides that the transfer of Trustassets to Trustwill be treated for all federal tax
purposes as a deemed transfer by Debtorto the beneficiaries followed by a deemed
transfer by the beneficiaries to Trust.
Trustrepresents that, as of the date of its ruling request submission, Trusthas
distributed approximately a% of the assets of Trustto its beneficiaries. Trustfurther
represents that, from its establishment, Trusthas been formed and operated consistent
with the conditions set forth in Rev. Proc. 94-45.
However, the Liquidating Trustee of Trustrecently discovered that fraud was allegedly
perpetrated by the Debtor’s chief restructuring officer through fraudulent invoices,
overpayment of fees, and other expenses. Trustrepresents that a review of the
financials is required to assist in a criminal referral and action to recover the assets
(funds) from Debtor’s chief restructuring officer. A civil lawsuit against Debtor’s chief
restructuring officer in this matter has not been filed because the financial statement
review and fraud investigation is ongoing. The remaining assets of Trustinclude certain
causes of action that are the subject of litigation which are beyond the control of Trustor
the liquidating trustee. Accordingly, Trustrepresents that it is impossible for Trustto
completely liquidate by Date8.
Under Article VII of the trust agreement for Trust, multiple extensions of Trust’s term
may be obtained so long as Bankruptcy Court approval is obtained on a date within the
period three months prior to the expiration of each extended term, and the extension is
necessary to the liquidation of Trust assets in a manner that would maximize the value
of such assets.
LAW AND ANALYSIS
Section 301.7701-4(d) provides that certain organizations which are commonly known
as liquidating trusts are treated as trusts for purposes of the Internal Revenue Code. An
organization will be considered a liquidating trust if it is organized for the primary
purpose of liquidating and distributing the assets transferred to it, and if its activities are
all reasonably necessary to, and consistent with, the accomplishment of that purpose.
A liquidating trust is treated as a trust forpurposes of the Code if it is formed with the
objective if liquidating particular assets and not as an organization having as its
purposes the carrying of a profit-making business which normally would be conducted
through business organizations classifiedas corporations or partnerships. However, if
the liquidation is unreasonably prolonged or if the liquidation purpose becomes so
obscure by business activities that the declared purpose of liquidation can be said to be
lost or abandoned, the status of theorganization will no longer be that of a liquidating
trust.

PLR-126067-14
4
Rev. Proc. 94-45 provides the conditions under which the Service will consider issuing
advance rulings classifying certain trusts as liquidating trusts under § 301.7701-4(d).
Section 3.06 of Rev. Proc. 94-45 provides that the trust instrument must contain a fixed
or determinable termination date that is generally not more than five years from the date
of creation of the trust and that is reasonable based on all the facts and circumstances.
If warranted by the facts and circumstances, provided for in the plan and trust
instrument, and subject to the approval of the Bankruptcy Court with jurisdiction over the
case upon a finding that the extension is necessary to the liquidating purpose of the
trust, the term of the trust may be extended for a finite term based on its particular facts
and circumstances. The trust instrument must require that each extension be approved
by the court within 6 months of the beginning of the extended term.
CONCLUSIONS
Rev. Proc. 94-45 states that the Service will issue a ruling classifying an entity created
pursuant to a bankruptcy plan under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
§ 1101, et seq. (1988), as a liquidating trust under § 301.7701-4(d) if certain specified
conditions are met. Based on the information submitted and the representations made,
we conclude that the conditions of Rev. Proc. 94-45 have been satisfied. Accordingly,
based on the representations made and the information submitted, we rule that Trust
will be classified for federal income tax purposes as a liquidating trust under
§ 301.7701-4(d) of the regulations.
Additionally, based on the facts and circumstances of this case and on the
representations made, we rule that an extension of time of Trust’s term to Date9will not
adversely affect the determination that Trustis a liquidating trust under § 301.7701-4(d).
Except as expressly set forth above, no opinion is expressed or implied concerning the
federal income tax consequences of the facts described above under any other
provision of the Code.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.
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 materials submitted
as part of the ruling request, it is subject to verification on examination.

PLR-126067-14
5
In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to your authorized representative.
Sincerely,
Bradford R. Poston
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes
cc: