Trust reallocation avoids GST, gift, and income tax

Plain-English summary

A trust created before the generation-skipping transfer tax effective date had been divided into successor trusts under a court-approved settlement. When a beneficiary died without descendants, the agreement required assets and liabilities to be reallocated between two successor trusts so their partition ratios reflected the remaining beneficiaries. Indivisible assets would be placed in a single-member LLC, followed by a split of the LLC interests that would convert it into a partnership. The IRS ruled that the reallocation would not end the trusts' GST exemption, create a taxable gift, or cause gain or loss on the in-kind division. It also ruled that placing indivisible assets in the LLC and dividing its ownership would not create income or recognized gain or loss, although later partnership distributions remained subject to the disguised-sale rules.

Ruling snapshot

• Question: What are the GST, gift, and income tax consequences of reallocating assets between successor trusts and using an LLC for indivisible property?
• Outcome: Approved, with no GST tax, gift, or recognized income from the proposed steps
• Key authorities: IRC §§ 61, 721, 1001, 2501, and 2601; Treas. Reg. §§ 1.1001-1, 25.2511-1, 26.2601-1, and 301.7701-3; Rev. Rul. 99-5

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201628008                                              Third Party Communication: None
Release Date: 7/8/2016                                         Date of Communication: Not Applicable
Index Number: 2601.00-00, 2501.00-00,
              61.00-00, 1001.00-00                             Person To Contact:
                                                               ------------------------------, ID No. ------------
---------------------------------                              ----------------
------------------------------------                           Telephone Number:
-----------------------------------------                      --------------------
-----------------------                                        Refer Reply To:
                                                               CC:PSI:B04
                                                               PLR-132459-15
------------------------------------------------------------   Date:
-----------                                                    March 30, 2016




Legend:

Grantor                                               = --------------------
Son                                                   = -----------------
Trust                                                 = --------------------------------------------------------
                                                        ----------------------------------
Grandson                                              = ----------------------
Grandson’s Family Trust                               = ---------------------------------------
Great-Grandsons’ Trust                                = -------------------
Great-Granddaughters’ Trust                           = -------------------
Great-Grandson                                        = ------------------
Court Order                                           = -------------------------------------------------
Date 1                                                = --------------------------
Date 2                                                = ------------------------
Date 3                                                = -----------------------
Date 4                                                = ------------------------
Date 5                                                = ------------------
Date 6                                                = --------------------------
Date 7                                                = --------------------
A                                                     = ----
B                                                     = ----
C                                                     = ----
D                                                     = ----
E                                                     = ---
F                                                     = ------
G                                                     = ------
PLR-132459-15                                 2

Dear ------------:

      This letter responds to the letter from your authorized representatives dated
September 28, 2015, requesting rulings respecting the federal income, gift, and
generation-skipping transfer (GST) tax consequences of the reallocation of property
from one trust to another trust pursuant to a settlement agreement.

        The facts submitted and the representations made are as follows. On Date 1, a
date prior to September 25, 1985, Grantor and her son (Son) created an irrevocable
trust (Trust) for the benefit of Son, Son’s wife, Son’s children, and the lawful issue of
Son’s children.

       Article IV of Trust provides that during Son’s lifetime, Son is to receive all of the
net income of Trust at least annually. After Son’s death, all of the net income of Trust is
to be distributed in amounts set forth in Trust to Son’s wife and Son’s children. In the
event of the death of a child of Son who is survived by lawful issue, the lawful issue are
to receive the net income allocated to their deceased parent.

       Article VI provides that Trust terminates upon the death of the last to die of a
group of named persons. Article VII provides that upon termination, the trust corpus is
to be distributed among the then living lawful children of Son born after the creation of
Trust, and the then living lawful issue of the lawful children of Son born after the
creation of Trust, per stirpes.

       Trust was partitioned after litigation pursuant to a settlement agreement and
Court Order dated Date 2, a date after September 25, 1985, into six separate successor
family trusts for the benefit of the sons of Son and their respective lawful issue. One of
the successor trusts is for the benefit of Grandson (Grandson’s Family Trust). On
Date 3, the Service issued a private letter ruling that concluded that this partition did not
cause Trust or any of the successor trusts, including Grandson’s Family Trust, to be
subject to income, gift, or GST taxes.

         Grandson has sons and daughters. Litigation ensued regarding whether the
daughters were the lawful issue of Grandson. This litigation ended with Settlement
Agreement dated Date 4 and Court Order dated Date 5. Pursuant to the Date 4
Settlement Agreement and the Date 5 Court Order, Grandson’s Family Trust was
partitioned into two trusts, one for the benefit of Grandson’s sons (Great-Grandsons’
Trust) and one for the benefit of Grandson’s daughters (Great-Granddaughters’ Trust).
On Date 6, the Service issued a private letter ruling that concluded that this partition did
not cause Grandson’s Family Trust or the two successor trusts to be subject to income,
gift, or GST taxes.

       On Date 7, Great-Grandson died without leaving lawful issue. Paragraph 2(b)(1)
of Attachment IX to the Date 4 Settlement Agreement provides that in the event a son or
PLR-132459-15                                 3

daughter dies without leaving lawful issue prior to the termination of the trusts (Great-
Grandsons’ Trust and Great-Granddaughters’ Trust), the assets and liabilities of the
trusts are to be reallocated to reflect new partition ratios between the trusts.

        Pursuant to Paragraph 2(c) of Attachment IX to the Date 4 Settlement
Agreement, it is represented that the adjustment in assets and liabilities will be
accomplished by the reallocation in kind of a proportionate interest in each separate
asset and related liabilities of Great-Grandsons’ Trust, in order to replicate the original
partition process of the assets and liabilities of Grandson’s Family Trust between Great-
Grandsons’ Trust and Great-Granddaughters’ Trust, or to the extent that a reallocation
in kind is not possible, by the reallocation of cash.

       Prior to the death of Great-Grandson, the partition ratios between Great-
Grandsons’ Trust and Great-Granddaughters’ Trust were A and B, respectively. As a
result of the death of Great-Grandson without leaving lawful issue and under the Date 4
Settlement Agreement, Great-Grandsons’ share of the assets and liabilities from Great-
Grandsons’ Trust is to be reallocated to reflect the new partition ratios of C and D.
Great-Grandson’s contingent remainder interest equals E percent of Great-Grandsons’
Trust, one half of which will be transferred to Great-Granddaughters’ Trust..

        In certain cases it may not be possible or feasible to divide an asset in Great-
Grandsons’ Trust as part of the reallocation. Paragraph 1(b) of Attachment IX to the
Date 4 Settlement Agreement provides that the trustees of Great-Grandsons’ Trust will
contribute the reallocated assets that are incapable of being divided to an LLC in
exchange for 100 percent of the interest in the LLC. The LLC will assume or take the
transferred assets subject to any existing liabilities. The LLC will not elect to be
classified as an association and, therefore, as a single member LLC will be disregarded
as an entity separate from its owner for federal tax purposes. Pursuant to the Date 4
Settlement Agreement, the LLC interests will then be partitioned such that Great-
Grandsons’ Trust owns F percent of the total ownership interests in the LLC and Great-
Granddaughters’ Trust owns G percent of the total ownership interests in the LLC. The
LLC’s Operating Agreement will provide that at such time as the LLC assets become
divisible, the LLC will be liquidated and the assets transferred outright to Great-
Grandsons’ Trust and to Great-Granddaughters’ Trust.

       It is represented that no additions, constructive or actual, have been made to
Trust, Grandson’s Trust, Great-Grandsons’ Trust, or Great-Granddaughters’ Trust while
they existed or since their creation.

       The following rulings have been requested.

      1. The reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great-Grandson, including the transfer of certain non-divisible assets by Great-
PLR-132459-15                                4

Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not cause Great-Grandsons’ Trust or
Great-Granddaughters’ Trust to be subject to GST tax under § 2601.

       2. The reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great-Grandson, including the transfer of certain non-divisible assets by Great-
Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not give rise to a gift under § 2501 by
any of the parties to the Date 4 Settlement Agreement.

       3. The reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great- Grandson, not including the transfer of certain non-divisible assets by Great-
Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not cause a taxable sale, exchange or
disposition of an asset, whether or not capital, by any of the parties to the Date 4
Settlement Agreement.

       4. The transfer by Great-Grandsons’ Trust of certain non-divisible assets to an
LLC as a result of the partition of certain assets from Great-Grandsons’ Trust to Great-
Granddaughters’ Trust, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not cause any party to recognize
income under § 61 and will not cause a taxable sale, exchange or disposition of an
asset, whether or not capital, by any of the parties to the Date 4 Settlement Agreement.

         5. No gain or loss will be recognized by Great-Grandsons’ Trust on the transfer
of assets to an LLC in exchange for all of the ownership interest of the LLC and the
assumption by the LLC of, or taking of the transferred assets subject to, any existing
liabilities.

Ruling Request 1

        Section 2601 imposes a tax on every GST made after October 26, 1986. Section
2611(a) defines a GST as (1) a taxable distribution, (2) a taxable termination, and (3) a
direct skip.

       Under section 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of
the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable
to GSTs made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and
§ 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust (as defined in
§ 2652(b)) that was irrevocable on September 25, 1985, but only to the extent that such
transfer is not made out of corpus added to the trust after September 25, 1985 (or out of
income attributable to corpus so added).
PLR-132459-15                                 5


        Section 26.2601-1(b)(4) provides rules for determining when a modification,
judicial construction, settlement agreement, or trustee action with respect to a trust that
is exempt from the GST tax under § 26.2601-1(b)(1), (b)(2), or (b)(3) will not cause the
trust to lose its exempt status. In general, unless specifically provided otherwise, the
rules of § 26.2601-1(b)(4) are applicable only for purposes of determining whether an
exempt trust retains its exempt status for GST tax purposes. They do not apply in
determining, for example, whether the transaction results in a gift subject to gift tax, or
may cause the trust to be included in the gross estate of a beneficiary, or may result in
the realization of capital gain for purposes of § 1001.

        Section 26.2601-1(b)(4)(i)(B) provides that a court-approved settlement of a bona
fide issue regarding the administration of a trust or the construction of terms of the
governing instrument will not cause an exempt trust to be subject to the provisions of
chapter 13, if (1) the settlement is the product of arm’s length negotiations; and (2) the
settlement is within the range of reasonable outcomes under the governing instrument
and applicable state law addressing the issues resolved by the settlement. A settlement
that results in a compromise between the positions of the litigating parties and reflects
the parties’ assessments of the relative strengths of their positions is a settlement that is
within the range of reasonable outcomes.

       In this case, Trust was created and irrevocable before September 25, 1985. It is
represented that no additions, constructive or actual, have been made to Trust,
Grandson’s Family Trust, Great-Grandsons’ Trust, or Great-Granddaughters’ Trust
while they existed or since their creation. Consequently, Great-Grandsons’ Trust and
Great-Granddaughters’ Trust are currently exempt from GST tax.

      In the Date 6 private letter ruling, the Service ruled that the partition of
Grandson’s Family Trust into Great-Grandsons’ Trust and Great-Granddaughters’ Trust
pursuant to the Date 4 Settlement Agreement and the Date 5 Court Order does not
cause Grandson’s Family Trust or the two successor trusts to be subject to income, gift,
or GST taxes. The reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust is made pursuant to the Date 4 Settlement Agreement and
the Date 5 Court Order.

       Accordingly, based upon the facts submitted and the representations made, we
conclude that the reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great-Grandson, including the transfer of certain non-divisible assets by Great-
Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not cause Great-Grandsons’ Trust and
Great-Granddaughters’ Trust to be subject to GST tax under § 2601.
PLR-132459-15                                  6

Ruling Request 2

        Section 2501 imposes a tax for each calendar year on the transfer of property by
gift during such calendar year by any individual.

       Section 2511 provides that the tax imposed by § 2501 applies whether the
transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the
property transferred is real or personal, tangible or intangible.

       Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction
in which an interest in property is gratuitously passed or conferred upon another,
regardless of the means or device employed, constitutes a gift subject to tax.

       Section 2512(a) provides that, if the gift is made in property, the value thereof at
the date of the gift shall be considered the amount of the gift.

       Section 2512(b) provides that where property is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by which
the value of the property exceeded the value of the consideration shall be deemed a
gift.

       Section 25.2512-8 provides that transfers reached by the gift tax are not confined
to those only which, being without a valuable consideration, accord with the common
law concept of gifts, but embrace as well sales, exchanges, and other dispositions of
property for a consideration to the extent that the value of the property transferred by
the donor exceeds the value in money or money’s worth of the consideration given
therefor. However, a sale, exchange, or other transfer of property made in the ordinary
course of business (a transaction which is bona fide, at arm’s length, and free from any
donative intent), will be considered as made for an adequate and full consideration in
money or money’s worth. A consideration not reducible to a value in money or money’s
worth, as love and affection, promise of marriage, etc., is to be wholly disregarded, and
the entire value of the property transferred constitutes the amount of the gift. Similarly,
a relinquishment or promised relinquishment of dower or curtsey, or of a statutory estate
created in lieu of dower or curtsey, or of other marital rights in the spouse’s property or
estate, shall not be considered to any extent a consideration “in money or money’s
worth.”

      On Date 6, the Service issued a private letter ruling that the partition of
Grandson’s Family Trust into Great-Grandsons’ Trust and Great-Granddaughters’ Trust
pursuant to the Date 4 Settlement Agreement and the Date 5 Court Order did not cause
Grandson’s Family Trust, Great-Grandsons’ Trust, or Great-Granddaughters’ Trust to
be subject to income, gift, or GST taxes.
PLR-132459-15                                  7

       In this case, the reallocation of assets and liabilities from Great-Grandsons’ Trust
to Great-Granddaughters’ Trust is made pursuant to the Date 4 Settlement Agreement
and the Date 5 Court Order. After the proposed reallocation of assets and liabilities
from Great-Grandsons’ Trust to Great-Granddaughters’ Trust, including the transfer of
certain non-divisible assets by Great-Grandsons’ Trust to an LLC, each beneficiary of
Great-Grandsons’ Trust and Great-Granddaughters’ Trust will have the same beneficial
interest as he or she had under Trust and the settlement agreement and Court Order
dated Date 2. Because the beneficial interests of the beneficiaries are the same, both
before and after the proposed reallocation, no transfer of property will be deemed to
occur as a result of the reallocation.

       Accordingly, based on the facts submitted and the representations made, we
conclude that the reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great-Grandson, including the transfer of certain non-divisible assets by Great-
Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not give rise to a gift under § 2501 by
any of the parties to the Date 4 Settlement Agreement.

Ruling Request 3

   Section 61(a)(3) provides that gross income includes gains derived from dealings in
property.

   Section 1001(a) provides that the gain from the sale or other disposition of property
shall be the excess of the amount realized therefrom over the adjusted basis provided in
§ 1011 for determining gain, and the loss shall be the excess of the adjusted basis
provided in § 1011 for determining loss over the amount realized.

    Section 1001(b) states that the amount realized from the sale or other disposition of
property shall be the sum of any money received plus the fair market value of the
property (other than money) received. Under § 1001(c), except as otherwise provided
in subtitle A, the entire amount of gain or loss, determined under § 1001, on the sale or
exchange of property shall be recognized.

   Section 1.1001-1(a) of the Income Tax Regulations provides that the gain or loss
realized from the conversion of property into cash, or from the exchange of property for
other property differing materially either in kind or in extent, is treated as income or loss
sustained.

    Section 1.1001-1(h)(1) provides that the severance of a trust (including without
limitation a severance that meets the requirements of § 26.2642-6 or of § 26.2654-1(b)
of this chapter) is not an exchange of property for other property differing materially
either in kind or in extent if – (i) an applicable state statute or the governing instrument
PLR-132459-15                                   8

authorizes or directs the trustee to sever the trust, and (ii) any non-pro rata funding of
the separate trusts resulting from the severance whether mandatory or in the discretion
of the trustee, is authorized by an applicable state statute or governing instrument.

        A pro rata partition of jointly owned property is not a sale or other disposition of
property where the co-owners of the joint property sever their joint interests but do not
acquire a new or additional interest as a result of the transaction. Thus, neither gain nor
loss is realized on a partition. See Rev. Rul. 56-437, 1956-2 C.B. 507.

   Cottage Savings Ass’n v. Commissioner, 499 U.S. 554 (1991), concerns the issue of
when a sale or exchange has taken place that results in the realization of gain or loss
under § 1001. In Cottage Savings, a financial institution exchanged its interests in one
group of residential mortgage loans for another lender’s interests in a different group of
residential mortgage loans. The two groups of mortgages were considered
“substantially identical” by the agency that regulated the financial institution.

    The Supreme Court of the United States in Cottage Savings, 499 U.S. at 560-61,
concluded that § 1.1001-1 reasonably interprets § 1001(a) and stated that an exchange
of property gives rise to a realization event under § 1001(a) if the properties exchanged
are “materially different.” In defining what constitutes a “material difference” for
purposes of § 1001(a), the Court stated that properties are “different” in the sense that
is “material” to the Internal Revenue Code (Code) so long as their respective
possessors enjoy legal entitlements that are different in kind or extent. Cottage
Savings, 499 U.S. at 564-65. The Court held that mortgage loans made to different
obligors and secured by different homes did embody distinct legal entitlements, and that
the taxpayer realized losses when it exchanged interests in the loans. Cottage Savings,
499 U.S. at 566.

        In this case, the reallocation of assets and liabilities from Great-Grandsons’ Trust
to Great-Granddaughters’ Trust is authorized by Paragraph 2(b)(1) and Paragraph 2(c)
of Attachment IX to the Date 4 Settlement Agreement, which the court approved in the
Date 5 Court Order as the governing instrument of the successor trusts. See § 1.1001-
1(h)(1). The reallocation and distribution of assets and liabilities from Great-Grandsons’
Trust to Great-Granddaughters’ Trust, except for certain non-divisible assets, will be
done in kind so that a proportionate interest in each separate asset and related liability
in the reallocating trust, will replicate the original partition process. This is the functional
equivalent of a pro rata division and distribution of assets and liabilities between the two
successive trusts so that the reallocation in this case does not result in a material
difference in kind or extent of the legal entitlements enjoyed by the successor trusts’
beneficiaries within the meaning of Cottage Savings. Consequently, pursuant to Rev.
Rul. 56-437, no gain or loss will be realized or recognized by Great-Grandsons’ Trust or
Great-Granddaughters’ Trusts, or the beneficiaries of any of the successor trusts, from
the pro rata reallocation and distribution of assets and liabilities as a result of this
reallocation under §§ 61(a)(3) and 1001(a).
PLR-132459-15                                 9


       Accordingly, based upon the facts submitted and the representations made, we
conclude that the reallocation of assets and liabilities from Great-Grandsons’ Trust to
Great-Granddaughters’ Trust as a consequence of the death without lawful issue of
Great-Grandson, not including the transfer of certain non-divisible assets by Great-
Grandsons’ Trust to an LLC, in compliance with the Date 4 Settlement Agreement
(Attachment IX) and the Date 5 Court Order, will not result in a sale or exchange, or
other disposition, of any property for purposes of § 1001(a), and thus no gain or loss will
be recognized by Great-Grandsons’ Trust and Great-Granddaughters’ Trusts or the
beneficiaries or these trusts on the division and reallocation of assets and liabilities for
purposes of § 61(a)(3) or § 1001(c).

Ruling Request 4

       Section 61(a)(3) provides that gross income includes gains derived from dealings
in property.

      Section 721(a) provides that, as a general rule, no gain or loss shall be
recognized to a partnership or to any of its partners in the case of a contribution of
property to the partnership in exchange for an interest in the partnership.

       Section 1001(a) provides that the gain from the sale or other disposition of
property shall be the excess of the amount realized therefrom over the adjusted basis
provided in § 1001 for determining gain, and the loss shall be the excess of the adjusted
basis provided in § 1001 for determining loss over the amount realized.

        Section 1.1001-1(a) provides that except as otherwise provided in subtitle A of
the Code, the gain or loss realized from the exchange of property for other property
differing materially either in kind or in extent, is treated as income or as loss sustained.

        In this case, after the partition of Great-Grandsons’ Trust of assets being
contributed to the LLC, Great-Grandsons’ Trust will continue to be subject to the
dispositive provisions of Trust and the Date 4 Settlement Agreement (Attachment IX)
and the Date 5 Court Order. Therefore, under Cottage Savings, the properties
exchanged are not materially different, and there would be no realization of gain or loss.
The distribution of ownership interests in the LLC by Great-Grandsons’ Trust, as part of
the partition of Great-Grandsons’ Trust, and the conversion of the LLC from a
disregarded entity to an entity taxed as a partnership will not give rise to income under
§ 61, and will not cause a capital gain or loss to be realized. Under § 721(a), no gain or
loss is recognized by either of the trusts as a result of the conversion of the disregarded
entity to a partnership. Any distribution of money or other property from the partnership
to either trust is subject to the disguised sale rules under § 707(a)(2)(B).
PLR-132459-15                                 10

       As a result of the partition of assets being contributed to the LLC, Great-
Grandsons’ Trust will receive F percent of the equity interest in the LLC and Great-
Granddaughters’ Trust will receive G percent of the equity interest in the LLC.
Therefore, this partition will cause the LLC to convert from a disregarded entity to a
partnership, as described in Situation 1 in Rev. Rul. 99-5, 1999-1 C.B. 434. Under
Rev. Rul. 99-5, Great-Grandsons’ Trust will be treated as owning an F percent interest
in each of the LLC’s assets and Great-Granddaughters’ Trust will be treated as owning
a G percent interest in each of the LLC’s assets. Both of the trusts will be treated as
contributing the trusts’ respective interests in those assets to a partnership in exchange
for ownership interests in the partnership.

        Accordingly, based upon the facts submitted and the representations made, we
conclude that the transfer of certain non-divisible assets by Great-Grandsons’ Trust to
the LLC, the distribution of ownership interests in the LLC by Great-Grandsons’ Trust to
both Great-Grandsons’ Trust and Great-Granddaughters’ Trust, and the conversion of
the LLC from a disregarded entity to an entity taxed as a partnership in compliance with
the Date 4 Settlement Agreement (Attachment IX) and the Date 5 Court Order, will not
cause any party to the Date 4 Settlement Agreement to realize income under § 61 and
will not constitute a taxable sale, exchange, or disposition of an asset, whether or not
capital, by the parties to the Date 4 Settlement Agreement.

Ruling Request 5

        Section 301.7701-3(a) of the Procedure and Administration Regulations
provides, in part, that a business entity that is not classified as a corporation under
§ 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its
classification for federal tax purposes as provided in § 301.7701-3. An eligible entity
with a single owner can elect to be classified as an association or to be disregarded as
an entity separate from its owner.

        Section 301.7701-3(b)(1)(ii) provides that, except as provided in § 301.7701-
3(b)(3), unless the entity elects otherwise, a domestic eligible entity is disregarded as an
entity separate from its owner if it has a single owner.

       In this case, the contribution of non-divisible assets to the LLC in exchange for
the ownership interest in the LLC will be disregarded for federal tax purposes because it
is represented that the LLC will not elect to be classified as an association, and
therefore, will be disregarded as an entity separate from its owner for federal tax
purposes.

       Accordingly, based upon the facts submitted and the representations made, we
conclude that no gain or loss will be recognized by Great-Grandsons’ Trust upon the
transfer of assets to the LLC in exchange for all of the ownership interest of the LLC and
PLR-132459-15                                  11

the assumption by the LLC of, or taking of the transferred assets subject to, certain
existing liabilities.

       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. Section 6110(k)(3)
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,

                                       Melissa C. Liquerman

                                       Melissa C. Liquerman
                                       Chief, Branch 4
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)


Enclosures: Copy for § 6110 purposes



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