department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date april ' ood contact person uil identification_number contact number t g0 b employer_identification_number legend w_i n o o i n o s p o k i m o o k n i dear sir or madam this is in response to a ruling_request submitted on your behalf by your authorized representatives you are seeking rulings on the effects under sec_507 and chapter of the internal_revenue_code of a proposed transaction as more fully set forth below you have represented that x is a foundation created by w a for-profit corporation w contributed all or substantially_all of the funds received by x and is a substantial_contributor to x x has been recognized as exempt from federal_income_tax under section sec_501 of the code as an organization described in sec_501 and is a private_foundation described in sec_509 the current members of x's board_of directors are a president b vice president and c secretary and treasurer ‘st a was the controlling shareholder of w who sold its operating_assets to a third party and changed its name to y it is not anticipated that y will provide additional funding to x further as a result of the sale of the operating_assets of w there is no longer a corporate need for a foundation making distributions in the community formerly served by w z is a foundation that has also been recognized as an exempt_organization described in sec_501 c of the code and is classified as a private_foundation under sec_509 a and b who are husband and wife are substantial contributors to z the current directors of z are a president and b secretary and treasurer to facilitate charitable objectives and to reduce administrative costs x proposes to transfer all of its net assets to z you further represent that x does not intend that this request constitute notice of its intention to terminate its status as a private_foundation under sec_507 of the code and intends to continue in existence for a short_period of time following the proposed transfer of assets toz after the transfer of its assets to z x will have no assets at some time after the transfers its x expects to dissolve and to provide voluntary notice to the internal_revenue_service of intention to terminate its private_foundation_status under sec_507of the code x has never received notice that its status as a private_foundation has been terminated nor has x committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability under chapter of the code x currently has no grants outstanding that require the exercise of expenditure_responsibility under sec_4945 however should such grants be made the responsibility for such grants will be transferred to z x will pay all foundation excise_taxes if any imposed by sec_4940 that it will owe as of the date of the transfer to z y will function separately from x and y will not use the name of x sec_507 of the code provides that the status of an organization as a private_foundation shall be terminated if the organization notifies the secretary or_his_delegate in the manner prescribed in the income_tax regulations of its intent to accomplish such termination and the organization pays the tax imposed by sec_507 or the tax is abated under sec_507 sec_507 of the code provides that in the case of termination of an organization's private_foundation_status where there is a transfer of assets of any private_foundation pursuant to any or reorganization the transferee private_foundation shall a newly created organization other adjustment as merger redemption recapitalization organization be treated liquidation not or sec_507 of the code imposes a tax on each organization described in sec_507 go equal to the lower_of the amount which the private_foundation substantiates by adequate_records or other corroborating evidence as the aggregate tax_benefit resulting from the sec_501 status of such foundation or the value of the net assets of the foundation sec_1_507-1 and of the income_tax regulations state that a transfer of all or part of a private foundation's assets to one or more other private_foundations pursuant to sec_507 of the code will not result in the termination of the transferor foundation's status as a private_foundation unless the transferor elected to terminate under sec_507 or sec_507 if applicable sec_1_507-3 of the regulations provides that a sec_507 transfer results in a carryover of certain tax_attributes and characteristics of the transferor foundation to the transferee foundation sec_1_507-3 of the regulations provides that a transferee private_foundation succeeds to the part of the transferor's aggregate tax_benefit that is attributable to the assets transferred based on the transferor's assets held just before the transfer however the fair_market_value of assets held and transferred is determined at the time of transfer sec_1_507-3 of the regulations provides that for purposes of sec_507 of the code in the event of a transfer of assets described in sec_507 any person who is a substantial_contributor with respect to the transferor foundation shall be treated as such with respect to the transferee foundation regardless of whether the person meets the dollar_figure - two percent limit with respect to the transferee organization at any time sec_1_507-3 of the regulations provides if a private_foundation incurs liability for one or more of the taxes imposed under chapter or any penalty resulting therefrom prior to or as a result of making a transfer of assets described in sec_507 to one or more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as receiving the transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability sec_1_507-3 a of the regulations provides that except as provided in subparagraph a a private_foundation is required to meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation such transfer shall itself be counted toward satisfaction of the requirements to the extent the amount transferred meets the requirements of sec_4942 sec_1_507-3 of the regulations provides that except as provided in subparagraph a where the transferor had disposed of all of its assets sec_4945 and h shall not apply to the transferee or the transferor with respect to any expenditure_responsibility grants made by the transferor sec_1_507-3 of the regulations provides that the provisions enumerated in subparagraphs a through g apply to a transferee foundation to the same extent and in the same manner that they would have applied to the transferor foundation had the transfer described in sec_507 not been effected sec_1_507-3 of the regulations provides that if a private_foundation transfers all its net assets to one or more private_foundations which are effectively controlled within the meaning of sec_1_482-1 directly or indirectly by the same person or persons which effectively controlled the transferor private_foundation then for purposes of chapter sec_4940 et seq and part il of subchapter_f of chapter of the code sec_507 through such a transferee foundation will be treated as if it were the transferor sec_1_507-3 example of the regulations indicates that a transferee private_foundation will be permitted to take advantage of any special rules or savings provisions with respect to chapter to the same extent as the transferor could have if the transferor had continued its existence sec_1_507-3iii example of the regulations indicates that when all net assets are transferred from one private_foundation to a controlled foundation or foundations there are no expenditure_responsibility requirements which must be exercised under sec_4945 and h with respect to the transfer the example further indicates that where the transferor foundation has outstanding grants for which it is required to exercise expenditure_responsibility under sec_4945 and h absent a specific provision for exercising expenditure_responsibility by one of the transferees all be required to exercise expenditure_responsibility with respect to such outstanding grants of the transferee foundations shall sec_1_507-3 of the regulations provides that for purposes of sec_507 the terms other adjustment organization or reorganization shall include a significant disposition of assets sec_1_507-3 provides that the term significant disposition of assets includes any disposition by a foundation in a taxable_year to one or more other private_foundations which i sec_25 percent or more of the fair_market_value of the net assets of the distributing foundation at the beginning of the taxable_year sec_1_507-3 of the regulations provides that unless a private_foundation gives notice under sec_507 of the code a transfer of assets described in sec_507 will not constitute a termination of the transferor's private_foundation_status sec_1_507-4 of the regulations provides that private_foundations that make transfers described in sec_507 or of the code are not subject_to the tax imposed under sec_507 with respect to such transfers unless the provisions of sec_507 become applicable sec_1_507-6 of the regulations provides that for purposes of the self-dealing provisions of sec_4941 of the code the term substantial_contributor shall not include any organization which is described in sec_501 sec_4940 of the code imposes a tax of percent each year on the net investment income of each private_foundation net_investment_income is determined by subtracting expenses and modifications from the sum of gross_investment_income and capital_gain_net_income sec_4941 of the code provides for the imposition of taxes on acts of self-dealing between a private_foundation and disqualified_person sec_4941 of the code states that the term self-dealing means any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation sec_4942 defines undistributed_income as the amount by which the distributable_amount exceeds the qualifying distributions of the foundation sec_4942 provides that the term qualifying_distribution means any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the transferor foundation or by one or more disqualified persons with respect to the foundation except as provided in sec_4942 or ii any private_foundation that is not an operating_foundation under sec_4942 except as provided in sec_4942 sec_4944 of the code imposes a tax on a private_foundation if it invests any amount in such a manner as to jeopardize the carrying out of its exempt_purpose sec_4945 of the code imposes an excise_tax on the taxable_expenditures made by a private_foundation sec_4945 provides in part that the term taxable_expenditure means any amount_paid or incurred as a grant to an organization other than a public charity described in sec_509 or unless the private_foundation exercises expenditure_responsibility in accordance with sec_4945 sec_4945 of the code provides that the term taxable_expenditure includes any amount_paid by a private_foundation as a grant to an organization other than an organization described in sec_509 or unless the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 sec_4945 of the code provides that expenditure_responsibility means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary or_his_delegate sec_6033 of the code provides that every organization_exempt_from_taxation under sec_501 shall file an annual return except any organization other than a private_foundation as defined in sec_509 the gross_receipts of which in each taxable_year are normally not more than dollar_figure c u a s sec_53_4941_d_-3 of the foundation and similar excise_taxes regulations provides in general that except in the case of a government_official as defined in sec_4946 the payment of compensation and the payment or reimbursement of expenses including reasonable advances for expenses anticipated in the immediate future by a private_foundation to a disqualified_person for the performance of personal services which are reasonable and necessary to carry out the exempt_purpose of the private_foundation shall not be an act of self-dealing if such compensation or payment or reimbursement is not excessive example of subsection provides that the payment of compensation by a private_foundation to a disqualified_person shall not constitute an act of self-dealing if the services performed are reasonable and necessary for the carrying out of the private foundation's exempt purposes and the amount_paid by the private_foundation for such services is not excessive sec_53_4945-5 of the regulations provides that for rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 and h and this section relate a a ii f and a of the regulations of assets described b transfers sections section see to in sec_53_4945-6 of the regulations provides that any expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services rendered will ordinarily be taxable_expenditures under sec_4945 unless the foundation can demonstrate that such expenses were paid_or_incurred in the good_faith belief that they were reasonable and that the payment or incurrance of such expenses in such amounts was consistent with ordinary business care and prudence sec_53_4945-6 of the regulations provides that a transfer of assets of a private_foundation under sec_507 of the code is not a taxable_expenditure if such transfer is to an organization described in sec_501 sec_53_4946-1 of the regulations provides that for the purposes of sec_4941 of the code the term disqualified_person does not include any organization described in sec_501 revrul_78_387 1978_2_cb_270 holds that when a transferee foundation is treated as the transferor under sec_1_507-3 a of the regulations the transferee is entitled to reduce its distributable_amount under sec_4942 by the amount of the transferor’s excess qualifying_distribution carryover the transfer to z will be of ail of x's assets x will not receive any consideration for the transfer since z is classified as an organization described in sec_501 and as a private_foundation the transfer is described in sec_507 in addition since transfers described in sec_507 will not cause a termination of an organization's status as a private_foundation the transfer of ail of x's assets will not terminate x's status as a private_foundation furthermore since x has not notified the service of its intention to accomplish a termination at the time of the transfer and because there is no evidence that x has either been notified of any involuntary termination or has committed any acts which could trigger an involuntary termination the transfer oy of its assets to z will not cause the imposition of the termination_tax under sec_507 because z has been recognized by the service as exempt from tax under sec_501 of the code the transfer of x's assets to z will not constitute a payment for a non-charitable purpose and will be described within sec_53_4945-6 of the regulations sec_1_507-3 of the regulations provides that when all assets are transferred to transferees that are not controlled by the same persons who control the transferor neither the transferor or the transferee will be required to exercise expenditure_responsibility therefore z will not have to exercise expenditure_responsibility over grants made by x prior to the transfer sec_53_4946-1 of the regulations indicates that for purposes of sec_4941 the term disqualified_person does not include any organization described in sec_501 of the code since z is described in sec_501 of the code it will not be treated as a disqualified_person for purposes of sec_4941 thus the transfer of assets by x to z will not constitute an act of self-dealing under sec_4941 of the code sec_1_507-3 of the reguiations provides that a transferee private_foundation succeeds to the part of the transferor's aggregate tax_benefit that is attributable to the assets transferred based on the transferor’s assets held just before the transfer thus because z is an organization described in sec_501 of the code and is classified as a private_foundation z will succeed to x's aggregate tax_benefit sec_1_507-3 contains highly technical rules that apply to transferee foundations these rules would apply to z since it is an organization described in sec_501 of the code and is classified as a private_foundation x's transfer closely resembles example in sec_1_507-3 of the regulations since in order to facilitate accomplishment of diverse charitable purposes x a private_foundation intends to transfer all of its assets to z who would be treated as if it were x in the proportion the fair_market_value of the assets transferred bears to the fair_market_value of the assets of x immediately before the transfer since z the recipient of expenditure_responsibility no expenditure_responsibility requirements which must be exercised under sec_4945 and h of the code with respect to the transfers of assets to zz x rather than there are is treated grants as as the transfer by x of one hundred percent of its assets to z does not constitute an act of self-dealing because it is not to or for_the_use_of a disqualified_person since z has been recognized as exempt under sec_501 of the code the transfer of assets to it will not be considered a taxable_expenditure based on the information submitted and the representations made therein we rule as follows the proposed transfer of x's assets to z will qualify as a transfer described in os sec_507 of the code will foundation status under sec_507 not constitute a termination of x's private the proposed transfer of x's assets to z will not result in any_tax under sec_507 of the code the transfer by x to z will not be treated as a transfer to a newly created organization x's aggregate tax_benefit will be treated as having been transferred to z x's proposed transfer to z will be treated as a transfer of its assets subject_to the amount of liability x may have incurred under chapter of the code to the extent not satisfied by x as a result of the proposed transfer to z x's excess qualifying distributions carryovers for prior years as defined in sec_4942 if any will be transferred to zz the proposed transfer to z will not constitute an act of self-dealing and will not subject x's foundation managers and disqualified persons with respect to x to any_tax under sec_4941 or of the code the proposed transfer to z will not give rise to net_investment_income and therefore will not result in the imposition of tax under sec_4940 of the code the proposed transfer to z will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the proposed transfer to z will therefore will not subject x to tax under sec_4945 of the code not constitute a taxable_expenditure and the proposed transfer to z will not subject x to any_tax under sec_4942 of the code for failure distribution_requirements under sec_4942 distribute income x must still meet its to x will proposed transfer of assets to z as long as x disposes of all of its assets not have to exercise expenditure_responsibility with respect to the x will not be subject_to tax under sec_507 of the code if x informs the internal_revenue_service of its intention to terminate its private_foundation_status in a later taxable_year when it has no assets x will not be required to comply with the recordkeeping requirements of sec_4942 of the code with respect to the proposed transfer of all of its assets this ruling is directed only to the organization which requested it sec_6110 of the code provides that it may not be used or cited as precedent because this ruling may help resolve future questions about your exempt status you should keep a copy of this ruting in your permanent records sincerely teohecte hava pr robert c harper jr manager exempt_organizations technical group io


t c memo united_states tax_court paul t carolyn jackson petitioners v commissioner of internal revenue respondent docket no filed date robert t bennett for respondent memorandum opinion foley judge by notice dated date respondent determined a dollar_figure deficiency and a dollar_figure sec_6663 penalty relating to petitioners' federal_income_tax 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 at trial petitioners failed to appear respondent made an oral motion to dismiss for lack of prosecution the issues upon which petitioners bore the burden_of_proof and the court granted respondent's motion see rule respondent concedes that petitioners are entitled to a dollar_figure deduction relating to an individual_retirement_account contribution the remaining issue for decision is whether petitioners are liable for a fraud_penalty background petitioners husband and wife resided in raritan new jersey at the time their petition was filed during the year in issue mr jackson received taxable_income of dollar_figure from seton hall university and dollar_figure from berkeley college of new jersey but did not give either school his correct social_security_number petitioners failed to report this income on their federal_income_tax return in their petition petitioners claimed that respondent had accepted their return as filed and that a refund was due to them petitioners included with their petition a purported internal_revenue_service irs letter supporting this claim the letter was not written or sent by an irs employee discussion respondent determined that petitioners are liable pursuant to sec_6663 for a fraud_penalty respondent must establish by clear_and_convincing evidence that for the year in issue an underpayment_of_tax exists and that some portion of the underpayment is due to fraud see 92_tc_661 a taxpayer's attempts to conceal income mislead the irs or prevent the collection of income_tax may establish the regquisite fraudulent intent see 80_tc_1111 respondent has established that for the year in issue the underpayment_of_tax was attributable to mr jackson's fraud mr jackson received but failed to report on petitioners' tax_return dollar_figure of taxable_income resulting in an underpayment_of_tax mr jackson attempted to prevent the irs from collecting his income_tax_liability on this unreported income by providing incorrect social_security numbers to his employers see hand v commissioner tcmemo_1982_457 holding that the use of false social_security numbers is evidence of fraudulent intent in addition mr jackson persisted in his attempt to conceal income by submitting to respondent and the court a counterfeit letter accordingly mr jackson is liable for the fraud_penalty respondent however has not established that mrs jackson acted with fraudulent intent accordingly mrs jackson is not liable for the fraud_penalty see sec_6663 to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c government entities sep uniform issue list cetera tz xxxxxxxxxxxkk xxkxkkxxxkakaakk xxkkxxxxaaxka legend taxpayer a company a xxxxxxxxkxk xxxxxxxxxaxx financial_institution b xxxxxxxxaxk xxxxxxxxxxk xxxxxxxxxk xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxaxxxk xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxx financial advisor g account amount a amount b amount c amount d amount e form a form b date date date date xxxxxxxaxxk_ page date plan x year m year n year o year p year q xxxxkxxxkk xxxxxxxxxx xxxxxxxxxk xxxxxxxxxx xxxxxkxxkx xxxxxxxxxx xxxxxxxxkx dear xxxxxxxxx this etter is in response to your request dated date submitted on your behalf by your authorized representative in which you requested a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that he received a series of four distributions totaling amount e taxpayer a asserts that his failure to accomplish a from plan x rollover of each distribution within the 60-day period prescribed by sec_402 c was due to an error made by financial advisor g of financial_institution b taxpayer a also represents that amount e has not been used for any other purpose taxpayer a represents that he participated in plan x an employee_stock_ownership_plan esop which was maintained by company a taxpayer a states that he was notified by plan x that he was eligible to make a diversification election on date taxpayer a signed form a and elected to move some of the funds currently invested in esop_stock into an individual_retirement_account ira part that the distribution will be reported to the irs as a rollover into an ira making the election taxpayer a consulted with financial advisor g institution b regarding setting up an appropriate ira account and was given an account number account z however account z was not an ira but a money market non-ira account form a states in prior to of financial on date amount a was deposited by financial_institution b into account z on date amount b which was made payable to financial_institution b for the benefit of fbo taxpayer a was also deposited into account z in year m plan x issued xxxxxxkakk page form 1099-r showing code g indicating direct rollovers of amount a and amount b on date amount c the final distribution under the diversification election was made payable to financial_institution b fbo taxpayer a and deposited into account z in year n plan x issued form 1099-r showing code g indicating that it was a direct roliover of amount c during year p taxpayer a became eligible for the plan x age distribution and elected pursuant to form b to rollover a partial amount of this distribution amount d into an ira amount d was made payable to financial_institution b fbo taxpayer a and on date was deposited in account z showing code g indicating a direct_rollover from a qualified_plan plan x again issued a form 1099-r taxpayer a represents that each distribution was intended to be directly transferred into an ira account and that he instructed financial advisor g to open an ira account with financial_institution b however instead of establishing an ira financial advisor g incorrectly deposited each amount inte account z taxpayer a represents further that he was unaware of the incorrect deposit errors until year q when his accountant questioned the form 1099-r reflecting earnings on account z for year p because he had elected direct transfers and the checks which were distributed by plan x were made payable to financial_institution b fbo taxpayer a taxpayer a also represents that pian x issued forms 1099-r to taxpayer a showing that direct rollovers had occurred in addition taxpayer a represents that because he believed that account z was an ira there was no investment activity during the years at issue r reflecting eamings on account z were issued for years m or n that would have alerted him to account z's non-ira status taxpayer a’s accountant did not question the form_1099 issued for year o because he assumed that taxpayer a had taken money from some of his other savings and investment accounts and moved it to financial_institution b he further represents that no forms documentation provided indicates that financial advisor g incorrectly deposited amount e to account z a non-ira account specifically financial advisor g has provided a statement under penalty of perjury admitting that he made a mistake in establishing account z even though taxpayer a had informed him that he intended to establish an ira for the purpose of rolling over distributions from plan x based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_402of the code with respect to the distribution of amount e from plan x sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then xxkxxxxkxk page such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 c a states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account ira constitutes one form of eligible_retirement_plan sec_402 c b of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 where the fallure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement are eligible for the waiver under sec_402 of the code only distributions that occurred after date sec_401 provides the rules for governing direct transfers of eligible rollover distributions sec_1_401_a_31_-1 q a-3 of the regulations provides in relevant part that a direct_rollover may be accomplished by any reasonable means of direct payment including mailing of a check to the trustee or custodian of the eligible_retirement_plan or ira to which the rollover is being made sec_1_401_a_31_-1 q a-15 of the regulations provides in relevant part that an eligible_rollover_distribution that is paid to an eligible_retirement_plan in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities revproc_2003_16 i r date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish timely rollovers was caused by errors made by financial advisor g of financial_institution b which resulted in each distribution being deposited into account z a non-ira account therefore pursuant to sec_402 cx3 b of the code the service hereby waives the 60-day rollover requirement with respect to the distributions of amounts a b c and d from plan x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount e to a rollover ira provided all other requirements of sec_402 of the code except the 60-day requirement are met valid rollover with respect to such contribution amount e will be considered contribution within the meaning of sec_402 of the code xkkxxxkkkk page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it of the code provides that it may not be used or cited as precedent sec_6110 kx3 a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact xxxxxxxxxx id xx- xxxx at xxx-xxxxxxx please address all correspondence to se t ep ra t2 sincerely denzel littlejohn manager employee_plans technical group enclosures deleted copy of ruling fetter notice of intention to disclose


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date --------------------- ---------------------- number release date conex-124905-16 uil the honorable al franken united_states senator west first street suite duluth mn attention dear senator franken i apologize for the delay in responding to your inquiry dated date on behalf of your constituent reporting requirements under the affordable_care_act aca and the process for complying with those requirements ---------------- to a number of counties in the state of developing software to enable its members to transmit electronically the information returns required to be filed with the internal_revenue_service irs to report on health_insurance_coverage pursuant to sec_6055 and sec_6056 of the internal_revenue_code the code requirements near the filing deadline for these returns the time and expense needed to modify systems to comply with changes made to the irs electronic transmission system and the exposure to penalties if the information returns were not filed in a timely manner for the tax_year following consultation with stakeholders treasury and the irs determined that some employers insurers and other health care providers needed additional time to implement systems and procedures to report the information required to be submitted on the information reporting returns in notice_2016_04 irb published on date treasury and the irs extended the due dates for electronic_filing of the following forms from date to date explained that he works for a company that provides software development also offered several suggestions to improve the filing process raised concerns about changes made to the irs systems wrote about the employer information his company is responsible for ----------------- ---------------- ---------------- ------------- form 1094-b transmittal of health coverage information returns conex-124905-16 form 1095-b health coverage form 1094-c transmittal of employer-provided health insurance offer and coverage information returns form 1095-c employer-provided health insurance offer and coverage in the notice treasury and irs also addressed the potential application of penalties under sec_6721 and sec_6722 of the code if employers or other coverage providers did not file the information reporting forms in a timely manner treasury and irs announced that in determining whether to abate the penalties they would consider whether an employer made reasonable efforts to prepare for reporting the required information to the irs and the extent to which the employer took steps to comply with the reporting requirements for additionally to assist software developers and electronic filers in complying with the electronic reporting requirements for the irs took the following actions provided extensive information about the affordable_care_act information returns air program on the irs website www irs gov held monthly webinars beginning in date about the electronic reporting process for stakeholders and regularly updated the information on the irs gov website established an email subscription service allowing stakeholders to get alerts about current information on events affecting the air program throughout the year the last months of these alerts are on the irs gov website to improve the information_return filing process for tax_year the irs has already provided information about compliance to stakeholders earlier in the filing process the irs recently released the xml schema business rules and related publications with the electronic_filing requirements for the tax_year on the tax_year schemas and business rules for affordable_care_act information returns air webpage https www irs gov for-tax-pros software-developers information-returns tax-year-2016- schemas-and-business-rules-for-affordable-care-act-information-returns-air the draft forms and instructions used for aca information reporting also are available in an early release format on the irs gov website https apps irs gov app picklist list drafttaxforms html the irs will continue to hold monthly webinars for stakeholders add audio webinars post extensive information on the irs gov website and provide the online service for alerts about current information on events affecting the air program conex-124905-16 or ------------------ i hope this information is helpful if you have questions please contact me at -------------- ------ -------------------- at sincerely christine ellison acting branch chief health and welfare branch office of associate chief_counsel tax exempt and government entities


internal_revenue_service number release date index number ----------------- ------------- ----------- --------------------- -------------- ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc intl b03 plr-148890-04 date december tys ------------------------- tys ------------------------- legend corp a -------------------------------------------------------------------------- corp b -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- drc ------------------ drc ------------------ individual m ---------------- individual n -------------------- cpa firm -------------------------- date v ----------------------- date w ----------------------- date x ----------------------- tax_year y ------- tax_year z ------- dear ---------- plr-148890-04 this replies to a letter dated date in which corp a and corp b request an extension of time under sec_301_9100-3 to file annual certifications under sec_1_1503-2 as in effect for transactions occurring before date for tax_year y through tax_year z relating to dual consolidated losses as defined in sec_1_1503-2 incurred by drc and drc the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayers 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 prior to date v corp a was the common parent of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return on date w corp b ceased to be a member to the corp a group as a result of a plan or reorganization filed under chapter of the bankruptcy code with corp b becoming the parent of the corp b group for tax_year y through tax_year z corp a filed elections and agreements described in sec_1_1503-2 but did not file annual certifications under sec_1_1503-2 with respect to drc and drc on date x corp a’s and corp b’s tax advisor cpa firm discovered that although elections statements pursuant to sec_1_1503-2 for drc and drc losses were included with the prepared and filed income_tax returns of corp a the annual certifications pursuant to sec_1_1503-2 for such losses were not filed affidavits of individual m an employee of corp b and individual n a partner of cpa firm and the facts submitted state that when cpa firm was preparing a request for a closing_agreement with respect to the transaction that took place on date w it discovered that the annual certifications required by sec_1_1503-2 inadvertently were not attached to the corp a federal_income_tax returns for tax_year y through tax_year z cpa firm immediately notified corp a and corp b and this request for relief under sec_301 was initiated sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles in the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in plr-148890-04 sec_301_9100-3 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 in the present situation the annual certification statement described in sec_1_1503-2 is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has the discretionary authority under sec_301_9100-1 to grant an extension of time provided that the taxpayer satisfies the rules set forth in sec_301_9100-3 based upon the facts and circumstances submitted we conclude that corp a and corp b satisfy sec_301_9100-3 accordingly corp b is granted an extension of time of days from the date of this ruling letter to file the annual certifications described in sec_1_1503-2 for tax_year y through tax_year z the granting of an extension of time is not a determination that corp b is otherwise eligible to file the annual certifications see sec_301_9100-1 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 sincerely thomas d beem senior technical reviewer branch office of the chief_counsel international cc


department of the treasury internal_revenue_service tege eo examinations date date tax_exempt_and_government_entities_division number release date legend org name of organization address address of organization year xx uil taxpayer identification person to contact telephone number fax number certified mail - return receipt requested dear in a determination_letter dated november 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective october 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on february 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code you have filed taxable returns on form s for the year s ended september 20xx 20xx 20xx with us for future periods you are required to file form_1120 with the appropriate service_center indicated in the instructions for the return you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate_service if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely sunita b lough director eo examinations department of the treasury internal_revenue_service tax_exempt_and_government_entities_division date taxpayer_identification_number legend org name of organization address address of organization year xx form tax_year s ended person to contact id number contact numbers telephone fax certified mail -- return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice ifa if we do not hear from you within days from the date of this letter we if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status will process your case on the basis of the recommendations shown in the report of in that event you will be required to file examination and this letter will become final federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely enclosures publication publication form_6018 report of examination envelope renee b wells acting director eo examinations letter catalog number 34801v form 886-a i schedule no years period ended explanation of items name of taxpayer org legend org name of organization year xx issue org continue to meet the qualifications of an does the organization described in internal_revenue_code sec_501 c facts in 19xx an organization described in irc the records available for the organization org received exemption a sec_501 for the periods ending september examined it was found that the club is not in compliance with rev the year the organization receives nonmember revenue for use of its golf course golf cart rental_pool and tennis court and from food and beverage sales to nonmembers the exempt_organization failed to file form 990t to report their nonmember income nonmember events are carried on throughout 20xx and 20xx were proc inspection of the returns filed by the club for the prior years shows that the organization has not reported their nonmember income in excess of on form 990t since 20xx based on the amounts reported on the organizations income statement for tax_year ending september gross_receipts estimated from nonmember use of facilities information regarding nonmember exceeds the allowed portion of proceeds for tax_year ending september solicited but not provided 20xx 20xx was the percent of department of the treasury - internal_revenue_service form 886-a page schedule no form 886-a name of taxpayer org explanation of items years period ended law and discussion sec_501 states internal_revenue_code sec_501 provides for the exemption from federal income taxes for social clubs with these specifying attributes for exemption clubs organized for pleasure recreation and other non profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_501 sec_1 c a the exemption provided by sec_501 for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other non profitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues exemption will not be disqualified because it raises revenue from members through the use of club facilities or club activities and assessments however a club otherwise entitled to in connection with b a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other non profitable purposes and is not exempt under sec_501 solicitation by advertisement or otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure recreation or social purposes however an incidental sale of property will not deprive a club of its exemption revrul_58_589 1958_2_cb_266 provides that operational costs covered by nonmember patronage would be an indicator of inurement provided the club’s assets are distributable to club members upon dissolution this ruling is that a club can overall experience a loss in any the effect of department of the treasury - internal_revenue_service form 886-a page form 886-a name of taxpayer org explanation of items schedule no years period ended given business year of nonmember receipts over direct costs covering expenses that the members of the club would have to bare if income provided by nonmember patronage but inurement can take the form of any excess it were not for the revrul_1960_324 1960_2_cb_173 weighed the following factors in its findings that a club that makes its facilities available to the general_public on a regular recurring basis should no longer be recognized under sec_501 percentage of nonmember gross_receipts ranged from in this case gross_profit from the unrelated activities net profit overall and the number of outside unrelated functions it was also indicated compared to total functions of the club that internal analysis of the club showed that if these outside activities were discontinued a substantial increase in the amount of annual dues from club members would be necessary revproc_1971_17 cb sets forth the guidelines for determining the gross_receipts from the the use of a social club’s facilities by the general_public revenue_procedure also provides that in situations where a club makes its facilities available to the general_public to a substantial degree the club is not operated exclusively for the pleasure recreation or other non profitable purposes definition of items includable in the gross_receipts tests is established in this revenue_procedure revenue_procedure are the rules under which the host-guest relationship will be established also contained in this u s court_of_appeals 536_f2d_572 case stated there are factors to be considered when considering the effects of a social club’s nonmember receipts including the percentage of gross_receipts from nonmembers profit from non- member receipts the purpose for which a social club’s facilities are made available to nonmember groups and the frequency of use of club facilities made by nonmembers public law -pl date this public law defines limitations of nonmember gross_receipts a sec_15 of total gross_receipts department of the treasury - internal_revenue_service form 886-a page form 886-a explanation of items name of taxpayer org schedule no years period ended the following are important facts and circumstances to take into account to determine whether a club may maintain its exemption under sec_501 c e e e frequency of use of the club facilities or services by nonmembers an unusual or single event nonrecurring on a year to year basis the nonmember income is viewed more favorably than nonmember income arising from frequent use by nonmembers that generates all that is record of nonmember use over a period of years a high percentage in one year by nonmembers with the other years being within permitted levels is viewed more favorably than a consistent pattern of exceeding the limits even by see s rept 2d sess relatively small amounts c b big_number purposes for which the club’s facilities were made available to nonmembers whether the nonmember income generates net profits for the organization taxpayer's position the taxpayer has indicated that they are in agreement with this decision however i do not have a signed form_6018 government's position social clubs are required to follow revproc_1971_17 this procedure provides guidelines social clubs should follow when one of the requirements they engage in business with non-members that this procedure mandates is that social clubs document their levels of non-member income in various situations did not follow this required procedure which is why the analysis had to be performed based on organization’s own partial is unclear whether or not the organization has the estimation records available to provide an estimation of non-member receipts social_club it department of the treasury - internal_revenue_service form 886-a page form 886-a name of taxpayer org explanation of items schedule no years period ended the limitation is however a threshold circumstances are also required to be examined when reviewing the exempt status of an organization exempt under sec_501 the facts and in the terms of the facts and circumstances tests described in usa revenue rulings and pittsburgh press club v organization exceeding the gross_receipts tests by either percentage is unfavorable in that case only exceeded the percentage by two percent at the most club described in revrul_1960_324 had their exemption revoked of nonmember income over several years in revrul_1960_324 the club the the social based on the data that has been provided the green fees and cart rentals are an on-going activities and the organization has been operating without deficit for the years in question analysis shows that the gross_receipts from non-members subsidizes and has helped the organization cover expenditures that the club the members would have to bear alone the overall neither the facts and circumstances nor the gross_receipts_test fall to the benefit of the social_club is the gross_receipts_test fact that there are other areas that would make this percentage higher is far outside the range that was intended for even the facts and circumstances to come into play the percentage coupled with the the primary factor a substantial degree on a continuous basis the nonmember org has exceeded the permissible levels of non-member income to there was no one single receipts are earned throughout the year or unusual event that caused the club to exceed the threshold social clubs receiving more then of their receipts per pl and revproc_1971_17 facilities are not operating in an exempt fashion per the rules and regulations governing organizations exempt under sec_501 with limited exceptions no precedent was noted that discussed facts and circumstances of exemption where nonmember patronage was not within a few percentage points of organization has not met the requirements for continued exemption it has thus been determined that the a social club’s continued from nonmember usage of department of the treasury - internal_revenue_service form 886-a page schedule no form 886-a name of taxpayer org ' explanation of items years period ended a 50l c organization theses rules are provided to social as clubs when they received their exemption as evidenced by the social club’s determination_letter which was issued to them revocation of its tax-exempt status is warranted effective october 20xx as on a taxable entity the organization is required to file form u s_corporation income_tax return the tax periods ending or after september 20xx and all subsequent years additionally the organization is reminded of the provisions of sec_277 concerning membership organizations which are not exempt_organizations department of the treasury - internal_revenue_service form 886-a page


department of the treasury internal_revenue_service washington d c contact person id number telephone number lik gol ys oo s0fdollar_figure 0g gy date mar op e e0 t b significant index number third party contacts none legend x y z a b c d e fe employer_identification_number dear sir or madam we have considered your ruling_request with regard to the federal_income_tax consequences of the proposed transfer of assets from x to y x originally formed as a was recognized as exempt under sec_501 and classified as a private_foundation a was initially funded with a cash gift from z for the purpose of operating a charitable foundation exclusively for charitable scientific literary and educational_purposes its original program goal was to provide computers and internet access to public libraries serving low-income communities in the united_states initially a made grants to b an organization recognized as exempt under sec_501 and that was classified as a private_operating_foundation at that time b had a staff who helped install computer systems and train librarians expenditure_responsibility over the grants to b in accordance with sec_4945 of the a exercised code subsequently a merged with and into b in a statutory merger although b was the surviving entity in the merger it changed its name to a its sole director resigned and was replaced by the board_of directors of the a its officers resigned and were replaced by the officers of the a its articles of incorporation were amended and restated to be consistent with those of a and it adopted in their entirety the bylaws of a athen changed its name to x x is classified as a private_operating_foundation x currently conducts three dominant programs the first program is x's ongoing effort to implement its initial program goal of providing computers and internet access to public libraries serving low income communities the goal of x is to provide grants to domestic libraries as well as to make the program international in scope awarded grants to libraries to bring internet access to their patrons as well as to provide technical assistance and training for library staffs x had the second program is designed to address the imbalance in access to technology in schools by supporting and training classroom teachers in the use of computers and the internet in the educational environment x received advance approval of grant- making procedures for its program of individual grants the third program is designed to provide access to technology throughout a particular geographic area of the united_states as well as to native american reservations throughout the country this program supports x’s grant recipients through logistical support technical support training and curriculum development research_and_development and network services components x is governed by a board_of directors consisting of x's substantial_contributor z his wife c d and several independent directors d is the president and treasurer of xx and chair of the board x has an established operating structure and has its own office space and employee benefit plans z has given a number of separate gifts of stock as of the date of the ruling x holds no shares of e common_stock and it is anticipated that no additional gifts of such stock will be made fo x at no time has x held more than of the issued and outstanding_stock of e y a charitable_trust was formed by z to operate a charitable foundation exclusively for charitable religious scientific literary and educational_purposes within the meaning of sec_501 the purposes of y include providing access to technology worid health and population solutions and education and charitable giving in a particular part of the united_states the trust has been recognized as exempt from federal_income_tax under sec_501 and classified as a private_foundation within the meaning of sec_509 z the trustor is the sole trustee of y z's father f and d the president and chair of the board_of x are foundation managers to date y has operated with the services of two independent contractors and fewer than three employees it has not leased office space and it has operated with minimal management and administrative support y's primary activity is making grants to publicly supported organizations in addition to the initial gifts the trustor has given shares of e stock in a series of gifts as of the date of this ruling y holds no shares of e stock y ‘does not now hold nor has it ever held more than of the issued and outstanding_stock of e a substantial overlap in the charitable objectives of x and y has developed as the organizations have grown and developed their charitable activities and their potential grant recipients this overlap in objective and different management structures has created confusion among potential grant recipients and raised internal approval and implementation issues it is anticipated that consolidation of the two foundations into a single entity will eliminate these issues and streamline the conduct of the organizations’ common charitable objectives the combined foundation will continue to conduct all of the activities of x and y in addition as the assets of the private_foundations have grown the need for management administrative legal and accounting services has grown as well it is anticipated that if the foundations continue to operate as separate entities needless extra expenses will be incurred y which has very little formal structure to date is now beginning to hire staff and develop a management structure if the two foundations are combined y will gain a fully trained staff and the need to administer duplicative employee benefit plans will be eliminated the consolidation will also eliminate duplicative tax and administrative requirements to achieve these and other_benefits of consolidation the board_of x and the it i sec_5 anticipated that x will transfer all of its assets and liabilities including all trustee of y have decided to combine the activities and operations of xa and y into one entity grant obligations to y to minimize expenses x_and y propose to make the transfer at midnight between date and date it is intended that the transfer take place in the first moment of the new tax_year so as to permit the filing of complete year returns for both x and y for calendar tax_year to insure that y will have ownership of all transferred assets for the complete new tax_year and to avoid questions about the status of any parties to the transfer during any intermediate period dollar_figure law sec_501 of the internal_revenue_code provides in part for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable and educational_purposes sec_507 of the internal_revenue_code provides in part that for purposes of this part in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a newly created organization sec_507 of the code and sec_1_507-1 of the income_tax regulations provide that a private_foundation may voluntarily terminate its private_foundation_status by submitting to the internal_revenue_service a statement of its intent to terminate its private_foundation_status and by paying the termination_tax under sec_507 of the code sec_509 of the code defines organizations exempt from federal_income_tax under sec_501 of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code sec_1_507-1 of the regulations provides in part that if a private_foundation transfers all or part of its assets to one or more other private_foundations or one or more private_foundations and one or more sec_509 or organizations pursuant to a transfer described in sec_507 and sec_1_507-3 such transferor foundation will not have terminated its private_foundation_status under sec_507 sec_1_507-3 of the regulations provides in part that in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee organization shall not be treated as a newly created organization thus in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this section the transferee organization shall not be treated as a newly created organization a transferee organization to which this paragraph applies shall be treated as possessing those attributes and characteristics of the transferor organization which are described in subparagraphs and of this paragraph sec_1_507-3 of the regulations provides in part that a transferee organization to which this paragraph applies shall succeed to the aggregate tax_benefit of the transferor organization in an amount determined as follows such amount shall -- be an amount equal to the amount of such aggregate tax_benefit multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances immediately before the transfer and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances fair market vaiue shall be determined as of the time of the transfer sec_1_507-3 of the regulations provides that notwithstanding subdivision i of this subparagraph a transferee organization which is not effectively controlled within the meaning of sec_1_482-1 of the regulations directly or indirectly by the same person or persons who effectively control the transferor organization shall not succeed to an aggregate tax_benefit in excess of the fair_market_value of the assets transferred at the time of the transfer sec_1_507-3 of the regulations provides in part that in the event of a transfer of assets described in sec_507 any person who is a substantial_contributor with respect to the transferor foundation shall be treated as a substantial_contributor with respect to the transferee foundation regardless of whether such person meets the dollar_figure-two percent test with respect to the transferee organization at any time sec_1_507-3 of the regulations provides in part that if a private_foundation incurs liability for one or more of the taxes imposed under chapter prior to or as a result of making a transfer of assets described in sec_507 to one or more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as receiving the transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability sec_1_507-3 of the regulations provides in part that if a private_foundation transfers all of its net assets to one or more private_foundations which are effectively controlled within the meaning of sec_1_482-1 directly or indirectly by the same person or persons which effectively controlled the transferor for purposes of chapter and sec_507 through such a transferee private_foundation shall be treated as if it were the transferor sec_1_507-1 has been revised and the term controlled is now defined in sec_1_482-1a of the regulations sec_1_482-1a defines the term controlled for purposes of the allocation of income and deductions as including any kind of control direct or indirect whether legally enforceable and however exercisable or exercised it is the reality of the control which is decisive not its form or the mode of its exercise sec_1_507-3 of the income_tax regulations provides in part that since a transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization to an organization not described in sec_501 other than an organization described in sec_509 or is a taxable_expenditure under sec_4945 in order for such a transfer of assets not to be a taxable_expenditure it must be to an organization described in sec_501 other than an organization described in sec_509 or treated as described in sec_501 under sec_4947 see sec_53_4945-6 of this chapter sec_1_507-3 of the regulations provides in part that a transfer of assets is described in sec_507 if it is made by a private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization sec_1_507-3 of the regulations provides in part that the term significant disposition of assets to one or more private_foundations shall include any disposition for a taxable_year where the aggregate of i the dispositions to one or more private_foundations for the taxable_year and ii where any disposition to one or more private_foundations for the taxable_year is part of a series of related dispositions made prior to the tax_year is part of a series of related dispositions made during such prior tax years the total of the related dispositions made during such prior taxable years i sec_25 percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year in the case of subdivision i of this subparagraph or at the beginning of the first taxable_year in which any of the series of related dispositions was made in the case of subdivision ii of the this subparagraph sec_1_507-3 of the regulations provides that unless a private_foundation voluntarily gives notice pursuant to sec_507 a transfer of assets described in sec_507 will not constitute a termination of the transferor’s private_foundation_status under sec_507 such transfer must nevertheless satisfy the requirements of any pertinent provisions of chapter constitutes an act or failure to act which is described in sec_507 a then such transfer will be subject_to the provisions of sec_507 rather than sec_507 however if such transfer sec_4942 of the code provides that a transferor private_foundation in order to make a qualifying_distribution for its grant to another private_foundation must have adequate_records as required by sec_4942 of the code to show that the transferee private_foundation in fact subsequently made qualifying distributions that were equal to the amount of the transfer received and that were paid out of the transferee's own corpus within the meaning of sec_4942 such transferee foundation's qualifying distributions must be expended before the close of the transferee's first tax_year after the transferee's tax_year in which it received the transfer revrul_78_387 1978_2_cb_270 describes the carryover of a transferor private -7- foundation's excess qualifying distributions under sec_4942 of the code where the same persons control the transferor and the transferee foundations under sec_1_507-3 of the regulations the transferee is treated as the transferor so that the transferee can reduce its own distributable_amount under sec_4942 of the code by the amount if any of its transferor's qualifying distributions under sec_4942 of the code sec_4943 of the code imposes an excise_tax on any private_foundation's_excess_business_holdings as defined in that section sec_4944 of the code imposes an excise_tax on a private foundation's making of any investment that jeopardizes its exempt purposes sec_4945 of the code imposes an excise_tax upon a private foundation's making of a taxable_expenditure under sec_4945 of the code sec_4945 of the code requires that to avoid making a taxable_expenditure a transferor private_foundation must exercise expenditure_responsibility under sec_4945 of the code on its transfers to another private_foundation sec_4945 of the code defines expenditure_responsibility in terms of a grantor private_foundation requiring proper pre-grant and post-grant reports from its grantee private_foundation on the grantees’ uses of the grant sec_4945 of the code provides that a taxable_expenditure includes any amount expended by a private_foundation for any purpose other than one specified in sec_170 sec_53_4945-6 of the regulations allows a private_foundation to make transfers of its assets pursuant to sec_507 of the code to organizations exempt from federal_income_tax under sec_501 of the code including private_foundations without the transfers being taxable_expenditures under sec_4945 of the code the proposed transfer of ail of the assets of x to y will result in a significant disposition of the assets of x under sec_1_507-3 of the regulations accordingly the proposed transfer will constitute an other adjustment organization or reorganization within the meaning of sec_1_507-3 of the regulations therefore the transfer of all the assets of x to y will constitute a transfer described in sec_507 of the code as a transfer described in sec_507 of the code under sec_1 b and d the proposed transfer will not result in a termination of x's -8- private_foundation_status under sec_507 of the code foundation status will not be terminated as a result of the proposed transfer the tax imposed by sec_507 of the code will not apply to the proposed transfer and y will not be treated as a newly created organization because x's private the proposed transfer of assets from x to y will be a single act that will not be voluntarily consciously and knowingly committed in violation of any provision of chapter of the code nor will it be or appear to a reasonable person to be a gross violation of any of the provisions of chapter accordingly the proposed transaction will not constitute a willful and flagrant act or failure to act within the meaning of sec_1_507-1 of the regulations giving rise to liability for tax under chapter of the code both x and y have been recognized as exempt under sec_501 of the as reflected in their respective governing code and are classified as private_foundations within the meaning of sec_509 of the code the purposes of x and y documents are to operate charitable programs exclusively for charitable scientific literary and educational_purposes the transfer of the assets of x to y will not involve a change in x's purposes furthermore x's foundation status will not be terminated as a result of the transfer continue to be organized and operated exclusively for c purposes accordingly after the proposed transfer y will continue to be described in sec_501 of the code in addition after the transfer of assets from x to y will a transfer under sec_507 of the code results in the carryover of certain attributes and characteristics of the transferor organization to the transferee organization pursuant to sec_1_507-3 of the regulations the transferee foundation succeeds to the portion of the transferor’s aggregate tax_benefit as defined in sec_501 of the code in this case because x will transfer all of its assets to y in a transfer described in sec_507 of the code y will succeed to x's entire aggregate tax_benefit pursuant to sec_1_507-3 of the regulations for purposes of sec_507 of the code any person who is a substantial_contributor within the meaning of sec_507 of the code with respect to the transferor will be treated as a substantial_contributor to the transferee foundation regardless of whether such person meets the dollar_figure two percent test with respect to the transferee organization at any time accordingly the substantial contributors to x will be treated as substantial contributors to y sec_1_507-3 of the regulations provides in part that if a private_foundation incurs liability for taxes imposed under chapter of the code prior to or as a result of making a transfer of assets described in sec_507 to one or more private_foundations in any case where transferee_liability applies the transferee foundation s 271e -- shall be treated as receiving the transferred assets subject_to such liability to the extent the transferor foundation does not satisfy the liability accordingly on the transfer of x's assets to y y will be responsible for ail liabilities under chapter if any to the extent that x does not satisfy such liabilities if a private_foundation transfers all of its net assets to one or more private_foundations that are effectively controlled within the meaning of sec_1_482-1a of the regulation directly or indirectly by the same person or persons that effectively controlled the transferor private_foundation then for purposes of chapter of the code and sec_507 through of the code such transferee private_foundation shall be treated as if it were the transferor sec_1_482-1a of the regulations defines the term controlled to include any kind of control direct or indirect whether legally enforceable and however exercisable or exercised it is the reality of the control that is decisive y is effectively controlled by its sole trustee and substantial_contributor z and its managers f the father of z and _d x is effectively controlled by its board_of directors and its officers x's board consists of x's substantial_contributor z d and c and several independent directors pursuant to the bylaws of x the act of a majority of the board at a meeting at which there is a quorum is an act of the board and a quorum exists if one third of the directors any two directors are present z and his family along with a key_employee exercise effective_control over both y and x therefore there is a substantial continuity of control between the two foundations since y and x are effectively controlled by the same persons the proposed transfer of all of the assets of x to y will be a transfer described in sec_1 a i of the regulations and for purposes of chapter and sections of the code y will be treated as x and will succeed to x's tax_attributes under such sections of the code in the case of a transfer under sec_507 the transferee private_foundation is not treated as a newly created organization because y will not be treated as a newly created organization the transfer will not constitute a sale_or_other_disposition of property or other realizable event within the meaning of sec_4940 of the code and the transfer will not give rise to net_investment_income to either x or y and therefore the transfer will not give rise to tax under sec_4940 of the code generally because y will be treated as if it is x for purposes of sec_4940 of the code the net_investment_income of x for the taxable_year of the proposed transfer will be includible in the computation of the net_investment_income of y for the taxable_year of the proposed transfer if as anticipated the proposed transfer occurs in the first moment of the year the taxable_year of the proposed transfer will be calendar_year any excise_tax payable by x under sec_4940 of the code for the dollar_figure calendar_year will remain the obligation of x and will not be included in the computation of the net_investment_income of y for either calendar years or y is an organization described in sec_501 and is not described in sec_509 accordingly it is not a disqualified_person for purposes of sec_4941 of the code therefore the transfer of assets from x to y will not be considered to be a transfer between a private_foundation and a disqualified_person and the transfer wil not constitute an act of self-dealing subject_to the excise_tax under sec_4941 of the code because y will be treated as if it were x for purposes of sec_4942 of the code y will succeed to x's qualifying_distribution requirement in the taxable_year of the transfer of all of its assets to y if the proposed transfer takes place at midnight between date and date ie in the first moment of the year the taxable_year of the proposed transfer will be calendar_year accordingly x will not be required to meet the distribution_requirements of sec_4942 of the code for the year of the transfer provided that y ‘s distributable_amount is increased by x’s distributable_amount for the year of the transfer if any and any excess qualifying_distribution carryover of x under sec_4942 of the code if any will be carried over to y and may be used b by y to meet its distribution_requirements under sec_4942 of the code as of the date of this ruling_request neither x nor y hold any e common_stock and disqualified persons with regard to x and y do not hold in the aggregate more than of the voting_stock of e therefore the asset transfer would not cause xor y to be in the position of having excess_business_holdings within the scope of sec_4943 of the code because y is an organization described in sec_501 of the code the primary purpose of the proposed transfer will be to accomplish one or more of the purposes under sec_501 of the code constitutes an adjustment organization or reorganization within the meaning of sec_1_507-3 of the regulations the production_of_income or appreciation of property will not be a significant purpose of the transfer within the meaning of sec_4944 of the code and sec_53_4944-2 of the regulations accordingly the transfer will not be considered to be an investment jeopardizing the charitable purposes of x and y within the meaning of sec_4944 of the code in addition since the proposed transfer under sec_1_507-3 of the regulations expenditure_responsibility over transferred assets need not be exercised if the transferor organization transfers all of its assets to controlled organizations as defined in sec_1_482-1 of the regulations when all net assets are transferred from one private_foundation to one or more controlled private_foundations the transferee foundation is treated as if it is the uu transferor foundation rather than as the recipient of an expenditure_responsibility grant therefore there are no expenditure_responsibility requirements that must be exercised under sec_4945 and sec_4945 of the code with respect to the transfer of assets to the transferee foundation furthermore since x will transfer all of its net assets to a controlled private_foundation within the meaning of sec_1_507-3 i of the regulations y will be treated as if it is x for purposes of sec_4945 of the code and y will expressly assume x's duties with respect to any grants for which it must exercise expenditure_responsibility accordingly since x has received advance approval of its individual grant program and y will be treated as if it were x for purposes of sec_4945 the ruling that x received from the service with regard to the grant-making program will continue in effect with respect to y reasonable and necessary administrative expenses paid to accomplish the transfer of all of x's net assets to y will result in a more efficient use of charitable resources accordingly the expenses related to the transfer if reasonable in amount will be considered as amounts used exclusively for purposes described in sec_170 of the code since this is a transfer under sec_507 y will be treated as if it were x rather than a recipient of a contribution from a controlled_corporation accordingly the legal accounting and other expenses paid_by x and y that relate to the proposed transfer will be qualifying distributions under sec_4942 and will not constitute taxable_expenditures under sec_4945 since the proposed transfer is described in sec_507 of the code y will be entitled to the benefit of the savings provisions and provisional rules applicable to x with respect to the transferred assets as set forth in sec_1_507-3 of the regulations finally if after the proposed transfer x properly notifies the service that it intends to terminate its private_foundation_status then such notice will be effective to terminate the private_foundation_status of x if at such time x has no assets x will not be liable for any termination_tax under sec_507 of the code accordingly we conclude as follows the proposed transfer of all of the assets of x to y will constitute a transfer described in sec_507 of the code and as such will not result in a termination of x's private_foundation_status under sec_507 of the code will not cause the imposition of the termination_tax described in sec_507 of the code and will not cause x to be treated as a newly created organization the proposed transfer from x to y will not constitute a willful and flagrant act or failure to act giving rise to liability for tax under chapter of the code the proposed transfer of assets from x to y will not adversely affect the tax- exempt status of either x or y under sec_501 of the code y will possess the attributes and characteristics of x specified in sec_1 a of the regulations will succeed to the entire aggregate tax_benefit of x under sec_507 of the code substantial contributors to x under sec_507 of the code will be treated as substantial contributors to y and y will be responsible for any liabilities under chapter to the extent that x does not satisfy such liabilities if any x and y are effectively controlled within the meaning of sec_1_482-1 of the regulations directly or indirectly by the same persons and pursuant to sec_1_507-3 of the code for purposes of the private_foundation_excise_taxes imposed under chapter of the internal_revenue_code and sec_507 through of the code y will be treated as if it is x a the transfer by x to y will not result in any liability for tax under sec_4940 of the code since the transfer will not constitute a sale_or_other_disposition of property or other realizable event within the meaning of sec_4940 of the code because y will be treated as if it is x under sec_1_507-3 a i of the regulations for purposes of sec_4940 any investment_income of x for the taxable_year of the transfer will be includible in the computation of the net_investment_income of y for the taxable_year of the transfer b the transfer by x to y will not constitute self-dealing under sec_4941 of the code because for purposes of sec_4941 of the code the term disqualified_person does not include an organization described in sec_501 other than an organization described in sec_509 in addition such transfer will not subject x or y to tax under sec_4941 of the code c because y will be treated as if it is x under sec_1_507-3 of the regulations for purposes of sec_4942 of the code x will not be required to meet the qualifying_distribution requirements under sec_4942 of the code for the taxable_year of the transfer provided that y's distributable_amount for the year of the transfer if any is increased by x’s distributable_amount for the year of transfer if any and any excess qualifying_distribution carryover of x under sec_4942 of the code if any will be carried over to y and may be used by y to meet its distribution_requirements under sec_4942 of the code d the proposed transfer will not result in the application of sec_4943 of the code with regard to excess_business_holdings provided that none of the assets transferred would place y in the position of having excess_business_holdings e the transfer by x to y will not constitute a jeopardizing investment within the meaning of sec_4944 of the code f the transfer by x to y will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and x will not be required to exercise expenditure_responsibility with respect to the assets transferred to y y will be required to exercise expenditure_responsibility with respect to any expenditure_responsibility grants of x the advance approval that x received from the service with regard to its grant-making program will apply to y and ‘will continue in full force and effect after the transfer of such program to y the legal accounting and other expenses_incurred by x and y in connection with this ruling_request and effectuating the proposed transfer will be considered qualifying distributions under sec_4942 of the code and will not constitute taxable_expenditures pursuant to sec_4945 of the code y will be entitled to the benefit of the savings provisions and provisional rules applicable to x with respect to the assets as set forth in sec_1_507-3 of the regulations if after the transfer of all of its assets to y x properly notifies the service of its intent to terminate the private_foundation_status of x such notice will be effective to terminate the private_foundation_status of x net assets at the time it gives notice and terminates its private_foundation_status is zero then x will not be liable for any termination_tax under sec_507 of the code if the ‘value of x's because this letter could help to resolve any questions please keep a copy of it in your permanent records this ruling letter is directed only to the organizations that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper jr robert c harper jr manager exempt_organizations technical group