department of the treasury employer_identification_number person to contact name employee id number tel fax internal_revenue_service appeals_office watt avenue sa7890 sacramento ca release number release date release date date uil code certified mail dear this is a final adverse determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in sec_501 the favorable determination_letter to you dated under sec_501 of the code effective is hereby revoked and you are no longer exempt the adverse determination was made for the following reason s you are not operated exclusively for charitable or other exempt purposes as required under sec_501 of the code your net_earnings inured to the benefit of private shareholders or individuals in addition you operated for substantial non-exempt commercial purposes of operating a dental practice and for substantial benefit of private individuals rather than public interests contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov you have agreed to waive your right to contest this determination under the declaratory_judgment provisions of sec_7428 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you ina separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours tesaph k rap fag joseph k phegley appeals team manager enclosure publication internal_revenue_service - tax_exempt_and_government_entities_division exempt_organizations examinations poydras street stop new orleans la department of the treasury date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager’s name id number manager’s contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal letter rev catalog number 34809f standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't 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 internal_revenue_service office_of_the_taxpayer_advocate 401-w peachtree st nw stop 202-d room atlanta ga phone for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely sez ffor margaret von lienen director eo examinations letter rev catalog number 34809f form 386-a ioe seeing explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx issue whether code whether exemption qualifies for exemption under sec_501 of the internal revenue operates in a substantially commercial manner which would preclude whether payments to 20xx dollar_figure for 20xx and dollar_figure for 20xx constitutes inurement within the meaning of sec_501 credit cards in the amount of dollar_figure for whether payments to substantiation in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for 20xx that appear personal in nature constitutes inurement within the meaning of sec_501 credit cards without business whether payments to substantiation in the amount of dollar_figure for 20xx dollar_figure for 20xx and constitutes inurement within the meaning of r c sec_501 with no business dollar_figure for 20xx whether purchases on dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for 20xx that appear personal in nature constitutes inurement within the meaning of sec_501 credit cards in the amount of whether payments to other financial institutions with no business substantiation in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for 20xx constitutes inurement within the meaning of sec_501 whether payment to that appear personal in nature constitutes inurement within the meaning of sec_501 in the amount of dollar_figure for 20xx and dollar_figure for 20xx of whether direct payments to dollar_figure for 20xx were unreported compensation and constitutes inurement within the meaning of sec_501 in the amount of dollar_figure for 20xx dollar_figure for 20xx and whether direct payments to for 20xx were unreported compensation and constitutes inurement within the meaning of sec_501 in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items tax identification_number year period ended form 886-a chey jammary name of taxpayer december 20xx december 20xx december 20xx whether directs payments to 20xx were unreported compensation that constitutes inurement within the meaning of sec_501 in the amount of dollar_figure for 20xx and dollar_figure for in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for whether payments to 20xx were unreported compensation that constitutes inurement within the meaning of sec_501 in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for whether payments to 20xx were unreported compensation that constitutes inurement within the meaning of sec_501 whether purchases by check or debit card in the amount of dollar_figure for 20xx dollar_figure for 20xx and dollar_figure for 20xx were personal in nature and constitutes inurement within the meaning of sec_501 facts was duly incorporated under the laws of the state of pursuant to the nonprofit corporation code on july 20xx on august 20xx applied for exemption with the internal_revenue_service on october 20xx was granted exemption by the internal_revenue_service according to the articles of incorporation the name and address of the incorporator is owned and operated and until it was sold to in march 20xx with the sale being final as of april 20xx was asked for a fee schedule when provided fee schedule received on august 20xx and attachment c-1 schedule of allowable fees state health plan’ received on august 20xx by agent filed the form_990 for 20xx 20xx and 20xx e form_990 for year ending december 20xx o part iv checklist of required schedules line 25a sec_501 and sec_501 organizations e did the organization engage in an excess_benefit_transaction with a disqualified_person during the year o stated no form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev jaa explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer december 20xx december 20xx december 20xx stated no line 25b is the organization aware that it engaged in an excess_benefit_transaction e line was a loan to or by a current or former officer director trustee key_employee highly_compensated_employee or disqualified_person outstanding as of the end of the organization’s tax_year f yes complete schedule l’ part ii ‘ stated no didn't file a schedule l part vi section a governing body and management line 1a enter the number of voting members of the governing body at the end of the tax_year stated part vii section a officers directors trustees key employees and highest compensated employees as an officer and key_employee included but reported zero dollar_figure compensation didn’t report didn’t include compensation from related_organizations or her compensation part iiiv statement of revenue line 1a- 1f contributions gifts grants and similar amounts is blank e reported zero dollar_figure donations part ix statement of functional expenses line grants and other assistance to individuals in the us is blank line compensation of current officers directors trustees and key employees is blank schedule a public charity status and public support part reason for public charity status e e line a hospital or a cooperative hospital_service_organization described in sec_170 was unchecked line an organization that normally receives a substantial part of its support from a governmental_unit or from the general_public described in sec_170 complete part il was checked part il support schedule for organizations described in sec_170 and sec_170 e e didn't file the form_990-pf didn’t complete part il line private_foundation was the only line completed and checked o o o o o o schedule d supplemental financial statements line 1c leasehold improvements was filed in line 1d equipment was filed in part vi investments - land buildings and equipment e e publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page form 886-a sane schedule number or exhibit explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx o o schedule h hospitals form_4562 depreciation and amortization didn’t file schedule h filed form_4562 but didn’t include a list of assets that were being depreciated e form_990 for the year ending december 20xx filed the form_990 and two amended form_990 o the last amended_return received is considered the return of record the same fact that apply to the 20xx form_990 also apply to the 20xx form_990 except for the following filed the schedule l disclosing the loan to part iv line was reported as yes and form_4562 depreciation and amortization e provided a list of assets but no vehicles were reported e form_990 for the year ending december 20xx o stated stated abandoned received dollar_figure the same facts that apply to the 20xx form_990 also apply to the 20xx form_990 except for the following filed the schedule n stating that the didn’t provide a list of the board members line 1a number of board members line 1b independent board members stated didn’t provide the form_w-2 or form 1099-misc part vi section a e e e part vii schedule n liquidation termination dissolution or significant disposition of assets e according to the form_1023 application see schedule is an outreach program dedicated to health and welfare of men and women and children the program offers cost free dental and medical services to rural residents of the program also offers community prevention services nutrition crises intervention services along with other services that provide holistic approach to health this list of assets didn’t include any vehicles this list of assets didn’t include any new computers after june 20xx filed the form_4562 with an attached list of assets publish no irs gov department of the treasury-internal revenue service form_4562 form 886-a catalog number 20810w page building was e e o form 886-a iat tana explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer december 20xx december 20xx december 20xx e e office however during the touring of the facility the examiner noticed that the organization was a when asked about patients the office manager explained that the organization determines what co-pay to charge o she stated that they check online for insurance the day the appointment is made or at least the day before the appointment to see what insurance will cover and for co-pay ifo insurance or the patient is out of insurance then the patient has to pay full price if the patient can’t pay the cost the organization would create a payment plan but full payment is required before receiving treatment unless the patient is in pain ifthe patient can’t afford the treatment then the organization would refer the patient to agencies so the patients can get insurance or a local organization provides some free services if apatient should have two different insurances the dentist office is required to bill the primary insurance first non-medicaid then secondary insurance o o o o specifically targets at risk according to the form_1023 application individuals the indigent the drop-out welfare mothers and those individuals who have been recently released from incarceration clients who are referred to first undergo an extensive assessment to evaluate their current needs and potential the next step if indicated by the assessment is to offer them access to extensive prevention services with an emphasis on heart disease gum disease and nutrition recognizing that poor educational skills exist for a variety of factors also offers support services such as social skills that are designed to help clients function at their maximum potential these services include but are not limited to individual and group counseling daily living skills classes in positive behavior modification recreational therapy and conflict resolution e however when the examiner toured the facility o regularly and routinely provide noclassrooms were viewed education to their patients as did o provided pamphlets that they didn’t create but pass out to their patients created by the state of the pamphlets that they provided were e e temporary assistance for needy families created by of human services publish no irs gov department of the treasury-internal revenue service county health department form 886-a catalog number 20810w page department e schedule number or exhibit explanations of items tax identification_number year period ended form 886-a rev date name of taxpayer december 20xx december 20xx december 20xx for medicaid for kids created by the state of e according to the form_1023 application the primary goal of dental medical and prevention services to low-income individuals particularly those whose economical status prevents them from otherwise receiving adequate and much needed care to extend their lives we will provide information and prevention services to youth their parents and the public other goals of the program include and educating and training individuals on nutrition life skills health oral hygiene and drug abuse prevention is to provide e e makes the patients pay when the patients’ insurance was at its limit then cash for the services before the services are rendered except in the case that a patients presents themselves as in pain or on an emergencies basis didn’t provide any documentations showing any medical services were provided to their patients beyond services according to the form_1023 application the planned activity since the best way to aid the community is to be responsive to its changing needs we developed an ongoing survey program in place to monitor the success of the program among its clients and to provide viable feedback with which to institute changes in the operation of the program-such as the addition or deletion of particular programs or other modifications in their application a single point-of-entry to social services we plan on as an adjunct to our health program developing a program which encourages young parents to become nutritionally aware and how to prevent disease and health problems related to hygiene since we began this program the regular staff has volunteered time to assist parents with referral services tutoring youth assisting youth and parents on writing a resume dressing for success and how to budget money offers we also plan on developing a program that will assist homeless individuals with dental medical_care and provide services to women that has been victims of domestic violence and require e didn’t provide any documentation to show that they provided however any educational or outreach activities other than that a for-profit provide would care form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rhee anid le name of taxpayer explanations of items tax identification_number year period ended schedule number or exhibit december 20xx december 20xx december 20xx according to the form_1023 application the primary funding sources will come from the state of department of health human services the medical and dental society and the united way of donations and fundraiser additional funding sources are attached to the two year proposed budget includes county the form_1023 application also states that of fundraising including seeking grants and obtaining sponsorships from the community and the state the form_1023 application states that the revenues-projected incomes for the first year will consist of the following plan to pursue several avenues e e however according to the the no donations were viewed received income from patients and patients’ insurance only statements and general ledger according to the made payments to 20xx see schedule a the name of purchases and no substantiation was provide for these payments provided a copy of check stub provided statements and general ledger and a balance the statements didn’t show any business from january 20xx through december dated december 20xx showing credit card statements with the description for these payment to penalties fines and interest - other as cos -- supplies made statements and general ledger provided statements for three different from january 20xx through december 20xx but according to payments to didn’t provide any substantiation showing business_purpose for these payments or that these payments were to a business_credit card see schedule b accounts from 20xx to 20xx in the name of the organization but none of these payments are represented on those credit card statements that they presented when the checks were summons and viewed some of them had the memo line included the checks that were written to publish no irs gov department of the treasury-internal revenue service that didn’t appear on the form 886-a catalog number 20810w page credit cards e form 886-a rev date schedule number or exhibit tax identification_number year period ended name of taxpayer explanations of items december 20xx december 20xx december 20xx credit card statements had other credit card account numbers on them see schedule b memo column statements and general ledger credit card from january 20xx through according to the made payments to december 20xx see schedule c e e the according to general ledger provided one page of one statement for the credit card in the name of provide substantiation that the rest of the payments were to this credit card the cards for personal_use see schedule d1 have stated that they used the organization's that stated the account was closed but didn’t didn’t provide supporting documentation showing that the purchases on credit card had a business_purpose credit statements credit card statements and three credit and made purchases on cards from january 20xx through december 20xx see schedule d e provided some receipts or documentation but the still lacked a business_purpose for these purchases provided receipts for and purchased on november 20xx pincite am black miles from and december 20xx pincite pm for an miles from friday for an when the examiner toured the facility no o were viewed these purchases appear personal in nature due to the fact that take using different software and licensing agreements to run with none being viewed no assets were added to the organization’s depreciation schedule after december 20xx to include these computers or was however o provided emails as business substantiation for travel to the company that purchased and is located where o o o oo o these emails were to no receipts were provided these purchases appear for the benefit of purpose of provided an email for a flight to and not a business asa didn’t provide any other documentation showing the business_purpose of the trip didn’t show that this trip wasn’t a personal trip like the trips to e form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a sew jenmaey explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx e e e e a ’ provided an email from for travel to o o these purchases appear personal as the travel wasn’t for but travel for business business stated that some of the purchases on the credit card were personal purchases in their response to information documentation request and dated february 20xx see schedule d1 with these purchases being included in schedule d o were part of those that they and the trips to stated were personal o o o o o oo o provided an email as receipt for the expenses of the email was to there is no business substantiation that these expenses were for made payments to in 20xx only provided one receipt showing one payment was made provided a copy of website as a receipt as well made two payments to each month owned and operated two offices that could have used this service didn't provide documentation to show that the second monthly payment had a business_purpose see schedule d2 is included in schedule d o payments were made to originate from the o and by making payments to schedule d3 accounts that were viewed credit cards that didn't made partial correction to under i r c section credit card see according to statements and general ledger made payments to additional financial institutions those institutions were schedule e e however provided a receipt showing payment for and see and but didn’t provide the contracts or leases to show what was purchased or where the purchased materials were used o these material could have been used by dual usage provided credit card statements or e and considered o they show the amount owed form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date schedule number or exhibit tax identification_number year period ended name of taxpayer explanations of items december 20xx december 20xx december 20xx o o o didn't provide any receipts showing what was purchased how these purchases were used provided a statement for the name on the bill was to didn't provide any other documentation showing that these payments had a business_purpose according to payments to from may 20xx through december 20xx see schedule f statements and general ledger made hasn't provided receipts for payments to hasn’t provided documentation showing a business_purpose of these payments didn’t provide lease documents or proof of registration showing that the e vehicle was purchases by according to made direct payments to see schedule g e according to the general ledger check fact it was written to check schedule l5 was deposited into the statements and general ledger the from january 20xx through december 20xx was written to but was in personal account see stated that they leased employees from didn’t provide documentation showing the payments to business purposes provided a leasing contract that had was handwritten in its place the contract was unsigned o o o were for name strikethrough and hasn't filed the form_941 since the december 20xx for employees hasn't provided receipts for the payments to according to the made payments to see schedule h e statements and general ledger the from january 20xx through november 20xx for dollar_figure was written to but according to the general ledger check was in fact check check schedule l6 was deposited into the for dollar_figure was written to personal o stated that they leased employees from didn’t provide documentation showing the payments to business purposes account see were for e e e e e form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a yhey seneny explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx o o provided a leasing contract that had was handwritten in its place the contract was unsigned name strikethrough and e hasn't filed the form_941 since the december 20xx for employees hasn't provided receipts for the payments to according to the made payments to schedule from july 20xx through november 20xx see statements and general ledger the didn’t provide documentation showing the payments to were for provided a leasing contract that had was handwritten in its place and the contract business purposes because name was strikethrough and was unsigned stated that they leased employees from didn't provide documentation showing the payments to business purposes provided a leasing contract that had was handwritten in its place the contract was unsigned were for name strikethrough and hasn't filed the form_941 since the december 20xx for employees hasn't provided receipts for the payments to and made partial correction under sec_4958 with payments and from march 20xx through november 20xx see schedule these payments came from and o o o to o e e according to the made payments to schedule j statements and general ledger from march 20xx through march 20xx see provided a signed copy of a promissory note with signing for borrower and showing the date executed o signing for date on the promissory note was february 20xx lender with no witnesses or notary o o o hasn’t provided payment schedule interest_paid and didn’t have the ability to repay the loan per fax received december 20xx from attorney expected to be paid all monies it owes to creditors are with a trustee and has shut down and all monies owed to it are not cpa and power of form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service e schedule number or exhibit explanations of items form 886-a chev jamasry name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx being negotiated was administratively dissolved on september 20xx and provided documentation showing that made partial correction under sec_4958 with payments from february 20xx oe june 20xx see schedule j1 these payments came from to o according to the lender made payments to march 20xx see schedule k e statements and general ledger the borrower from january 20xx through provided a copy of the first page of a promissory note without signatures witnesses or notary showing the date executed e o o o hasn't provided payment schedule interest_paid and didn’t have the ability to repay the loan per fax received december 20xx from attorney the notes started as amounts loaned to the entities similar to a line of credit all of the monies were not collected prior to the companies shutting down closed its doors and all monies secured went to a trustee to negotiate with all creditors owed creditor list but not priority provided documentation showing that dissolved on september 20xx was a for-profit c_corporation was administratively is on the cpa and power of e and made partial correction under sec_4958 with payments to from january 20xx through june 20xx see schedule k71 o these payments came from according to the made check and debit card purchases that appear personal in nature from january 20xx through december 20xx see schedule l e hasn't provided receipts for the purchases shown on schedule l provided some documentation showing a business_purpose for some of statements and general ledger the the expenses but they didn’t provide documentation for most of the expenses that some of the documentation was insufficient to show business_purpose of the expenses paid made from january 20xx through december 20xx made payments to united_states treasury from august 20xx through e e june 20xx see schedule l1 o the internal_revenue_service didn’t receive any payment for employer_identification_number publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page form 886-a riew samunsy explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer december 20xx december 20xx december 20xx o oo o the internal revenue service’s systems don’t show any payments being made by or owed from account didn't file the form_941 for employment_taxes for 20xx 20xx or 20xx didn’t file the form 990-t for unrelated_business_income taxes for 20xx 20xx or 20xx made payments to e and monthly see schedule l2 o o two or three payments were made to sometimes payments to were paid the same months as each month oo oo o e stated that they provided a bill for but no receipt was received didn’t provide any documentation showing that these payments had a business_purpose didn’t provide any documentation showing owned these cellphone accounts made payments to insurance_companies see schedule l3 provided documentation for payments to one one one dentist one statement monthly bill but the account was for annual business insurance building insurance annual medical liability insurance for employee paid but is only a copy of the debit withdraw on the didn’t provide documentation for the rest of insurance paid these payments are included in schedule l made payments to utilities from january 20xx through december 20xx see schedule l4 o the internal_revenue_service received a fax on november 20xx from cpa power_of_attorney poa fax stated during 20xx there were different organizations providing that were controlled by the a combination of the economy job losses and therefore less insurance freezing of state funds etc from 20xx through 20xx caused the various companies to begin declining in 20xx one office closed by march 20xxx only the second location remained after that center demise have caused even further form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a ree jae aes explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer december 20xx december 20xx december 20xx o oo o office closed their office in 20xx office was still operating in 20xx and 20xx at doesn’t service provided one bill for dated october 20xx for service at didn’t provide any bills for 20xx payments provided one bill for utilities for service to didn’t provide any bills for 20xx payments the internal_revenue_service received a fax from january 20xx stating o files lost on computer that crashed we are now compiling what they have on the technology company has restored some of the the a flash drive the files are the closed files but do include transactions it’s all we have been able to get from the corrupted data cpa and poa on all files were restored to our system which is sage 20xxx the 20xx return was completed bases upon the information the client had on file as mentioned the files were corrupt we are still in efforts to re-construct files e e e e and personal personal account see schedule l5 but was in fact it was written to -_ for dollar_figure dated november the expenses listed in schedule l for dollar_figure dated november 20xx but was in fact check and deposited into the corrupt computer files and general ledger proven didn’t provide documentation substantiating the business_purpose for according to the general ledger check -_ for dollar_figure dated december 20xx was written to deposited into the according to the general ledger check was written to 20xx was written to account see schedule l6 due to the facts that inaccurate all expenses need substantiation didn't provide documentation showing the payments to for leasing employees for work provided to provided a leasing contract that had was handwritten in its place the contract states that any additional payments to employees not reported to made direct payments to employees see schedule m stated that they leased employees from publish no irs gov department of the treasury-internal revenue service name strikethrough and form 886-a catalog number 20810w page were o o o schedule number or exhibit explanations of items form 886-a ge seay ae name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx fica and federal_income_tax withholdings fit are the responsibility of the payer the contract was unsigned o e e hasn't filed the form_941 since the december 20xx for employees filed the form 1099-misc for some employees see schedule m71 didn’t pay employment_taxes fica or federal_income_tax withholdings fit to the internal_revenue_service oo appears to have withheld fit from employees checks by the uneven amounts directly paid to the employees stated other documents included which will account for some of the expenses listed as personal are reimbursements made by the taxpayer in their response to information_document_request and dated february 20xx e didn't provide documentation showing that these expenses however meet the reimbursement requirements law sec_1_501_c_3_-1 of the regulations states that an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt_income tax regulation regulation sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals regulation sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in revrul_69_266 1969_1_cb_151 an organization formed and controlled by a doctor of medicine hired to conduct research programs consisting of examining and treating patients who are charged the prevailing fees for services rendered is not exempt under sec_501 of the code under the facts described the operation of the dental practice by the organization does not differ publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page schedule number or exhibit tax identification_number year period ended explanations of items form 886-a ge ay oy name of taxpayer december 20xx december 20xx december 20xx significantly from the private practice of dental for profit organizations the organization's primary function is to serve the private interest of its creator rather than a public interest in revrul_69_545 1969_2_cb_117 to qualify for exemption from federal_income_tax under sec_501 of the code a nonprofit_hospital must be organized and operated exclusively in furtherance of some purpose considered ‘charitable’ in the general accepted legal sense of the term and the hospital may not be operated directly or indirectly for the benefit of private interests in revrul_69_632 1969_2_cb_120 a nonprofit organization composed of members of a particular industry to develop new and improved uses for existing products of the industry is not exempt under sec_501 of the code the association's members select research projects in order to increase their sales by creating new uses and markets for their product the primary purpose of the association's research is to serve the private interests of its creators rather than the public interest in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 70_tc_352 the court found that a corporation organized to provide counseling services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on as a commercial venture organized for profit the corporation's primary purpose was not charitable educational or scientific but rather commercial in nature further the court found that the organization's financing did not resemble that of a typical 501_c_3_organization as it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from the fees for services that it collected those fees were set high enough to recover all projected costs and produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test under sec_501 because of the commercial manner in which the organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for a tax exempt_purpose the case noted that among the major factors form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a he danaty explanations of items tax identification_number year period ended name of taxpayer schedule number or exhibit december 20xx december 20xx december 20xx that courts have considered in assessing commerciality are competition with for-profit entities pricing policies the extent and degree of below cost services provided and the reasonableness of financial reserves additional factors include whether the organization uses commercial promotional methods such as advertising and the extent to which the organization receives charitable donations revproc_2007_52 sec_12 states that where there is a material_change inconsistent with exemption in the character the purpose or the method of operation of an organization revocation or modification will ordinarily take effect as of the date of such material_change sec_3121 of the code states that for purposes of this chapter the term wages means all remuneration for employment including the cash_value of all remuneration including benefits paid in any medium other than cash except that such term shall not include sec_3121 of the code states that in the case of the taxes imposed by sec_3101 and sec_3111 that part of the remuneration which after remuneration other than remuneration referred to in the succeeding paragraphs of this subsection equal to the contribution_and_benefit_base as determined under section of the social_security act with respect to employment has been paid to an individual by an employer during the calendar_year with respect to which such contribution_and_benefit_base is effective is paid to such individual by such employer during such calendar_year if an employer hereinafter referred to as successor employer during any calendar_year acquires substantially_all the property used in a trade_or_business of another employer hereinafter referred to as a predecessor or used in a separate_unit of a trade_or_business of a predecessor and immediately after the acquisition employs in his trade_or_business an individual who immediately prior to the acquisition was employed in the trade_or_business of such predecessor then for the purpose of determining whether the successor employer has paid remuneration other than remuneration referred to in the succeeding paragraphs of this subsection with respect to employment equal to the contribution_and_benefit_base as determined under section of the social_security act to such individual during such calendar_year any remuneration other than remuneration referred to in the succeeding paragraphs of this subsection with respect to employment paid or considered under this paragraph as having been paid to such individual by such predecessor during such calendar_year and prior to such acquisition shall be considered as having been paid_by such successor employer sec_3121 of code defines the term employee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page schedule number or exhibit explanations of items form 886-a a iii name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx sec_31_3121_d_-1 of the regulations provide in general that the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so sec_31_3121_d_-1 of the regulations provides that if the relationship of an employer and employee exists the designation or description of the parties as anything other than that of employer and employee is immaterial thus if such relationship exists it is of no consequence that the employee is designated as a partner coadventurer agent independent_contractor or the like similar language is found in sec_31_3306_i_-1 and sec_31_3401_c_-1 of the regulations sec_4958 of the code states the term excess_benefit_transaction means any transaction in which an economic benefit is provided by an applicable_tax-exempt_organization directly or indirectly to or for_the_use_of any disqualified_person if the value of the economic benefit provided exceeds the value of the consideration including the performance of services received for providing such benefit for purposes of the preceding sentence an economic benefit shall not be treated as consideration for the performance of services unless such organization clearly indicated its intent to so treat such benefit sec_4958 of the code states the term disqualified_person means with respect to any transaction- any person who was at any time during the 5-year period ending on the date of such transaction in a position to exercise substantial influence over the affairs of the organization sec_4958 of the code states the term disqualified_person means with respect to any transaction- a member_of_the_family of an individual described in subparagraph a sec_4958 of the code states that the terms correction and correct mean with respect to any excess_benefit_transaction undoing the excess_benefit to the extent possible and taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified_person were dealing under the highest fiduciary standards except that in the case of any correction of an excess_benefit_transaction described in subsection c no amount repaid in a manner prescribed by the secretary may be held in any donor_advised_fund publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page schedule number or exhibit explanations of items form 886-a ee sboe ep name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx sec_1_62-2 of the code states for purposes of sec_1_62-1 sec_1_62-1t and sec_1_62-2 the phrase reimbursement or other expense allowance arrangement means an arrangement that meets the requirements of paragraphs d business connection e substantiation and f returning amounts in excess of expenses of this section a payor may have more than one arrangement with respect to a particular employee depending on the facts and circumstances see paragraph d of this section payor treated as having two arrangements under certain circumstances sec_1_62-2 of the code states in part except as provided in paragraphs d and d of this section an arrangement meets the requirements of this paragraph d if it provides advances allowances including per_diem allowances allowances only for meals and incidental_expenses and mileage allowances or reimbursements only for business_expenses that are allowable as deductions by part vi sec_161 and the following subchapter_b chapter of the code and that are paid_or_incurred by the employee in_connection_with_the_performance_of_services as an employee of the employer the payment may be actually received from the employer its agent or a third party for whom the employee performs a service as an employee of the employer and may include amounts charged directly or indirectly to the payor through credit card systems or otherwise sec_1_62-2 of the code states an arrangement meets the requirements of this paragraph e if accordance with paragraph e or e of this section whichever is applicable within a reasonable period of time see sec_1_274-5t or sec_1_162-17 it requires each business_expense to be substantiated to the payor in sec_1_62-2 of the code states an arrangement that reimburses travel entertainment use of a passenger_automobile or other listed_property or other business_expenses governed by sec_274 meets the requirements of this paragraph e if information sufficient to satisfy the substantiation requirements of sec_274 and the regulations thereunder is submitted to the payor see sec_1_274-5 under sec_274 information sufficient to substantiate the requisite elements of each expenditure or use must be submitted to the payor for example with respect to travel away from home sec_1_274-5 requires that information sufficient to substantiate the amount time place and business_purpose of the expense must be submitted to the payor similarly with respect to use of a passenger_automobile or other listed_property sec_1_274-5 requires that information sufficient to substantiate the amount time use and business_purpose of the expense must be submitted to the payor see sec_1_274-5 and sec_1 j which grant the commissioner the authority to establish optional methods of substantiating certain expenses substantiation of the amount of a business_expense in accordance with rules prescribed pursuant to the authority granted by sec_1_274-5 or sec_1_274-5 will be treated as substantiation of the amount of such expense for purposes of this section publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page form 886-a rev jamuary schedule number or exhibit tax identification_number year period ended name of taxpayer explanations of items december 20xx december 20xx december 20xx sec_1_274-5 of the code states in general for purposes of this paragraph f an adequate_accounting means the submission to the employer of an account book diary log statement of expense trip sheet or similar record maintained by the employee in which the information as to each element of an expenditure or use described in paragraph b of this section is recorded at or near the time of the expenditure or use together with supporting documentary_evidence in a manner that conforms to all the adequate_records requirements of paragraph c of this section an adequate_accounting requires that the employee account for all amounts received from the employer during the taxable_year as advances reimbursements or allowances including those charged directly or indirectly to the employer through credit cards or otherwise for travel entertainment gifts and the use of listed_property the methods of substantiation allowed under paragraph c or c of this section also will be considered to be an adequate_accounting if the employer accepts an employee's substantiation and establishes that such substantiation meets the requirements of paragraph c or c for purposes of an adequate_accounting the method of substantiation allowed under paragraph c of this section will not be permitted sec_6001 of the code state that every person liable for any_tax imposed by this title or for the collection thereof shall keep such records render such statements make such returns and comply with such rules and regulations as the secretary may from time to time prescribe whenever in the judgment of the secretary it is necessary he may require any person by notice served upon such person or by regulations to make such returns render such statements or keep such records as the secretary deems sufficient to show whether or not such person is liable for tax under this title the only records which an employer shall be required to keep under this section in connection with charged tips shall be charge receipts records necessary to comply with sec_6053 and copies of statements furnished by employees under sec_6053 sec_1_6001-1 of the regulations state except as provided in paragraph b of this section any person subject_to tax under subtitle a of the code including a qualified it were state individual income_tax which is treated pursuant to sec_6361 as if imposed by chapter of subtitle a or any person required to file a return of information with respect to income shall keep such permanent books of account or records including inventories as are sufficient to establish the amount of gross_income deductions credits or other matters required to be shown by such person in any return of such tax or information sec_1_6001-1 of the regulations state in addition to such permanent books_and_records as are required by paragraph a of this section with respect to the tax imposed by sec_511 on unrelated_business_income of certain exempt_organizations every form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev sonmney explanations of items schedule number or exhibit tax identification_number year period ended name of taxpayer december 20xx december 20xx december 20xx organization exempt from tax under sec_501 shall keep such permanent books of account or records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall also keep such books_and_records as are required to substantiate the information required by sec_6033 see sec_6033 and sec_1_6033-1 through current activities e was incorporated by atthe time of incorporation offices called o o also owned and operated were done by and his the majority of the decisions made for wife there was one officer per the form_990 for years ended december 20xx and december 20xx e per the form_990 for years ended december 20xx e e there were five officers no officers were listed besides stated that the during the initial interview services for individuals majority kids with low income families that the majority of the payments received are from individuals on medicare and the medicaid organization later set up an office in of their income from the state for medicare and medicaid patients stated that the organization originated in provides the organization received the most also stated the office manager stated that during the interview with office manager they check online for insurance the day of making the appointment or at least the day before the appointment to see what insurance will cover and for co-pay if no insurance or the patient is out of insurance then the patient has to pay full price if the patient can't pay the cost the organization would create a payment plan but full payment is required before receiving treatment unless the patient is in pain if the patient can’t afford the treatment then the organization would refer the patient to agencies so the patients can get insurance or a local organization provides some free services if a patient should have two different insurances the first non-medicaid then secondary insurance the office manager stated that the organization accepts all insurances and all patients office is required to bill the primary insurance form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date explanations of items tax identification_number year period ended schedule number or exhibit name of taxpayer december 20xx december 20xx december 20xx during the examination it was discussed that the organization had a relationship between the president and founder of for- profit organizations which were owned by the for profit organizations and how it relates to the exempt_purpose during the examination a question was asked about the relationship between and the of the organization e aletter dated december 20xx received from the organization's representative on or around march 19xx his stated that experience with the practice was that many calls came to the office requesting emergency he inquired about the possibility of opening a separate office to service this care was formed july 20xx an population and attorney was found to assist with the incorporation and tax exempt application status to low income youth and the purpose of the corporation was to provide feels that as many as of the patients seen at work for children on public insurance medicare and was the result of this effort were children formed and other specialist were hired to efficiently manage the e e e patient load the letter also stated that the for-profit and not-for-profit corporation had relationships that were limited to the use of practice management and professional on occasion the letter also stated that in 20xx substantially_all the organizations revenue were and paid_by _ third party administrator for the medicaid program in third party administrator for the medicaid program and state for kids in the letter also stated that the organization’s determination of a patient's low income status was based on their enrollment in either medicaid or patient with a nonemergency condition sought the office would refer them to for eligibility and enrollment without public insurance ifanew form_990 for tax years ending december 20xx december 20xx and december 20xx show the following income received gross_receipts medicare pmts dental 20xx 20xx 20xkx after reviewing december 20xx and december 20xx it appears that the following entities also made payments to statements and cancelled checks for the years ended form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items tax identification_number year period ended form 886-a tema oa name of taxpayer december 20xx december 20xx december 20xx there were also payments made by individuals for services provided by didn’t provide a list of charitable care or forgiveness of debt to a charitable_class during the initial interview the question was asked how the activities provided by differ from services provided by which were owned and operated by service for medicare and medicaid patients and the other two for-profits provides services for individuals that has insurance or can afford to pay for the services stated that the difference i is and only provide no documentation was provided to the internal_revenue_service showing how distinguish between the individuals that are considered a charitable_class no documentation was provided showing what type of documentation the individuals had to provide to show they were low income or a charitable_class of individuals requesting detailed explanation as to how a document request was issued to the services provided for payment from the entities listed above relates to the exempt purposes the document request also requested supporting documents such as invoices and receipts showing what services the organization provided for the funds received and provides explanation as to what other funds are received by the organization besides medicaid and medicare no documentation was provided for this request another document request was sent to offers cost free dental and medical services to rural residents of program also offers community prevention services nutrition crises intervention services along with other services that provide holistic approach to health these activities were explained in detail in the application requesting the following the program the form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a eee jenene ro explanations of items tax identification_number year period ended schedule number or exhibit name of taxpayer december 20xx december 20xx december 20xx after reviewing the expense items and the cancelled checks it appears that the aforementioned activities were not provided by the organization during the years of examination please provide supporting documentation showing the organization did provide these activities the documentation could be but not limited to invoices receipts newsletters advertising etc no documentation was provided showing any of these activities were provided by the organization taxpayer’s position stated that they believe that they meet the requirements of charitable care and therefore are exempt under sec_501 believes that payments to are reimbursements for their personal_use of credit card and to itself by assets and hasn't responded about inurement and has thirty days to respond government’s position isn’t operated exclusively for charitable educational or religious purposes consistent with sec_501 of the code nor sec_1_501_c_3_-1 of the income_tax regulations and therefore fails to meet the operational_test specifically the facts above indicate that they didn’t operate exclusively for exempt purposes but were operating in a commercial manner and assets were used to inure to the benefit of and isn’t distinguishable from any other commercial operation in that charged similar fees for all of their products marketed these products to the general_public through advertising and are carrying on similar operations as a for-profit entity when ask for a fee schedule in fact provided the fee schedule isn’t a hospital and their claim of ‘charitable care’ wasn’t documented to show that this charitable care was provided however before ‘charitable care’ can be considered operational_test to show that no part of their earnings inure in whole or in part to the benefit of private shareholders or individuals in fact by stated that the organization’s credit cards were used for personal_use and therefor inurement occurred has to meet the and publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page form 886-a phev jemunaty explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended december 20xx december 20xx december 20xx that and are disqualified persons under sec_4958 made to credit card credit cards credit card without substantiation credit card purchases non- that the payments and purchases e e e e are inurement and and payment to other financial institutions without substantiation payments to direct payments to direct payments to direct paymentto payments to payments to purchases by checks and debit cards were the recipients of the inurement and that made payments to reimbursements made partial correction under sec_4958 when they directly and weren't credit card and to that due to inurement and operating in a commercial manner isn’t exempt from federal_income_tax under sec_501 form_1120 has to be filed by the organization as a personal_service_corporation for year ended december 20xx and all subsequent years that is a personal_service_corporation conclusion allowed the organization’s assets to be used by disqualified persons while running a offices that owned and operated both just like the two additional and personal_use of assets constitutes inurement and is grounds for revocation of exempt status under sec_501 form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date schedule number or exhibit tax identification_number year period ended name of taxpayer explanations of items december 20xx december 20xx december 20xx isa corporation sec_504 office that is operating like any other personal service office and is grounds for revocation of exempt status under i r c form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


tam-105916-98 index numbers internal_revenue_service national_office technical_advice_memorandum aug taxpayers taxpayer's address years involved conference held foreign_country date amount a year amount b year amount a amount o u amount m h amount y year this memorandum is in reply to your request for technical_advice dated date taxpayers husband and wife are u s citizens who have facts lived and worked in foreign_country since date cash_basis calendar_year taxpayers for purposes of foreign taxpayers are y r dollar_figure o country income_tax taxpayers are cash_basis taxpayers and use a fiscal_year that begins on april and ends on the following april taxpayers' foreign_earned_income consists principally of salary received throughout the year in foreign_earned_income in year described as a tax equalization payment was attributable to services performed in foreign_country in year in year taxpayers excluded amount c from income under sec_911 of the internal_revenue_code and paid amount d in foreign_country income taxes income and excluded amount f in year taxpayers received amount e in foreign earned taxpayers received amount -a of that amount amount b the examiner proposes that under sec_1_911-6 l of the income_tax regulations the disallowance of the foreign_tax_credit consists only of amount a total foreign_earned_income received in year less amount b foreign_earned_income attributable to services performed in year because amount b though received in year was earned in year the denominator of the formula for the examiner cites sec_911 a of the code which defines the term foreign_earned_income as amounts received by an individual from sources within a foreign_country attributable to services performed while the individual was a qualified_individual and sec_1_911-3 of the regulations which provides that foreign_earned_income is considered earned in the taxable_year in which the individual performed the services giving rise to the income is not within the definition of foreign_earned_income for purposes of determining the denominator of the sec_911 disallowance fraction in year because amount b to year the examiner proposes that amount b is attributable sec_911 b a of the code is also cited it provides for purposes of determining the limitation on the that exclusion amounts received are considered received in the taxable_year in which the services to which the amounts are attributable are performed requires that amount b must be considered received in year so excluded from the denominator of the disallowance fraction in year is proposed that this rule it and if the numerator of the fraction remains the same then decreasing the amount of the denominator results in a larger fraction and so a larger amount of foreign tax attributable to the excluded income creditable_foreign_tax for year this would reduce the amount of taxpayers' 19991rg6 o g e g t e v issue whether taxpayers correctly included foreign_earned_income earned in year but received in year their foreign_tax_credit disallowance fraction for year in the denominator of discussion law sec_911 of the code provides that a qualified_individual may elect to exclude the individual's foreign_earned_income and the housing_cost_amount from the individual's gross_income for the taxable_year sec_911 a of the code provides that t he term foreign_earned_income with respect to any individual means the amount received by such individual from sources within a foreign_country or countries which constitutes earned_income attributable to services performed by such individual during the period that such individual was a qualified_individual sec_911 a of the code limits the amount of the sec_911 b provides for purposes of exclusion applying subparagraph a amounts received shall be considered received in the taxable_year in which the services to which the amounts are attributable are performed sec_911 of the code provides that no deduction or exclusion_from_gross_income under subtitle a or credit against the tax_imposed_by_chapter_1 including any credit or deduction for taxes paid_or_accrued to a foreign_country or possession_of_the_united_states shall be allowed to the extent the deduction exclusion or credit is properly allocable to or chargeable against amounts excluded from gross_income under sec_911 a sec_1_911-6 of the regulations provides in part to determine the amount of disallowed foreign taxes multiply the foreign tax imposed on foreign_earned_income as defined in sec_1_911-3 received or accrued during the taxable_year by a fraction the numerator of which is amounts excluded under sec_911 in such taxable_year less deductible expenses properly allocated to such amounts see paragraphs a and of this section and the denominator of which is foreign_earned_income as defined in sec_1 a received or accrued during the taxable_year less deductible expenses properly allocated or apportioned thereto b sec_1_911-3 of the regulations restating sec_199 of the code defines foreign_earned_income as earned b a income as defined in sec_1_911-3 of the regulations from sources within a foreign_country that is earned during a period for which the individual qualifies to make an election further elaborates it it is attributable to services performed by an earned_income is from sources within a foreign_country if individual in a foreign_country or countries the place of receipt of earned_income is immaterial in determining whether earned_income is attributable to services performed in a foreign_country or countries sec_911 of the code and sec_1_911-3 of the regulations provide in general that the term earned_income means wages salaries professional fees received as compensation_for_personal_services actually rendered and other_amounts sec_1_911-3 of the regulations provides in part if income is for purposes of determining the foreign_earned_income is considered to be earned in the taxable_year in which the individual performed the services giving rise to the income earned in one taxable_year and received in another taxable_year then amount of foreign_earned_income that the individual may exclude under sec_911 the individual must attribute the income to the taxable_year in which the services giving rise to the income were performed thus any reimbursement would be attributable to the taxable_year in which the services giving rise to the obligation to pay the reimbursement were performed not the taxable_year in which the reimbursement was received for example tax equalization payments are normally received in the year after the year in which the services giving rise to the obligation to pay the tax equalization payment were performed such payments will almost always have to be attributed to the prior year foreign_earned_income attributable to services performed in a preceding_taxable_year shall be excludable from gross_income in the year of receipt only to the extent such amount could have been excluded under paragraph d had such amount been received in the preceding_taxable_year will be determined on the basis of all the facts and circumstances the taxable_year in which income is attributable in the preceding_taxable_year therefore sec_1_911-3 of the regulations provides that foreign_earned_income may be excluded only to the extent of the limitation of sec_1_911-3 which defines the limitation as the amount of foreign_earned_income for a taxable_year which may be excluded under sec_911 of the code sec_1_911-3 of the regulations provides ordering that section provides rules for applying the limitation generally that foreign_earned_income that is earned in one year and received in another year shall be applied to the sec_911 limitation for the year in which it was earned on a year by year basis the individual chooses in any order that sec_1_911-6 i of the regulations provides that the term taxable_year means the individual's taxable_year for u s tax purposes taxable_year within the individual's u s taxable_year and excludes the portion of any foreign taxable_year not within the individual's u s taxable_year such term includes the portion of any foreign sec_1_911-6 ii of the regulations provides that for purposes of determining the amount of foreign taxes disallowed foreign taxes imposed on foreign_earned_income shall be deemed to accrue on a pro_rata basis to income as the income is received or accrued apportioned to the taxable_year during which the income is received or accrued the taxes so accrued shall be sec_1_911-6 iii of the regulations provides that the disallowance of foreign taxes under paragraph c affect the time for claiming any deduction or credit for foreign taxes paid amount of taxes considered paid_or_accrued to the foreign_country rather the disallowance shall affect only the shall not sec_451 of the code provides that the amount of any item_of_gross_income shall be included in gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_901 of the code generally allows a credit against the tax_imposed_by_chapter_1 subject_to the limitation of sec_904 excess profits taxes paid_or_accrued during the taxable_year to any foreign_country or possession_of_the_united_states for the amount of any income war profits and sec_905 of the code provides that the sec_901 credit may method_of_accounting employed in keeping his books be taken in the year in which the foreign taxes accrued at the option of the taxpayer and irrespective of the sec_1_905-1 of the regulations provides in part i i 19e9l8055 the credit for taxes provided in subpart a sec_901 and following part iii subchapter_n chapter of the code may ordinarily be taken either in the return for the year in which the taxes accrued or in which the taxes were paid dependent upon whether the accounts of the taxpayer are kept and his returns are filed using an accrual_method or using the cash receipts and sec_905 allows the disbursements method taxpayer at his option and irrespective of the method_of_accounting employed in keeping his books to take such credit for taxes as may be allowable in the return for the year in which the taxes accrued analysis taxpayers are cash_basis taxpayers it is believed that they also claim their foreign tax_credits on a cash_basis sec_1_911-6 of the regulations by its terms the denominator is foreign_earned_income received during the taxable_year requires a cash_basis taxpayer to include foreign_earned_income in the denominator of the disallowance fraction in the year of receipt sec_911 a of the code by its terms of the code by its terms attributable to services performed by such individual during the period requires in pertinent part that foreign_earned_income be classifiable as compensation_for the performance of personal services in a foreign_country by a qualified_individual sec_911 b applying subparagraph a applies only for purposes of determining the limitation on the amount excludable section changes the taxable_year in which the taxpayer may include or exclude the compensation or claim foreign tax_credits see sec_451 for taxes paid_or_accrued on the compensation sec_1_911-3 of the regulations sec_905 sec_1_905-1 and sec_1_911-6 changes the meaning of received during the taxable_year in the definition of the denominator of the disallowance fraction thus neither section for purposes of neither therefore taxpayers properly included amount b in the denominator of the disallowance fraction in their return for year sec_1 because taxpayers received amount b c of the regulations in year amount b is attributable to personal services performed in foreign_country while taxpayers were qualified individuals sec_911 a regulations services that generated it the income is earned_income b this rule relates the income to the personal this rule also relates the income to the foreign of the code and sec_1_911-3 of the for purposes of determining whether sec_911 and section country where the services were performed for purposes of determining whether the income is foreign_source_income a during which the taxpayers were qualified individuals for purposes of determining whether this specific foreign_earned_income is foreign_earned_income that taxpayers may elect to exclude finally this rule relates the income to the period sec_911 section amount b is considered received in the year in which the sec_911 b is attributable were performed year this rule relates foreign_earned_income of the code and sec_1_911-3 of is received to the year in which it was earned so services to which amount b the regulations whenever it that the limitation for that year is applicable for purposes of determining the limitation on the amount excludable this rule does not specify the year in which the exclusion may be in the taken for u s tax purposes case of taxpayers who are cash_basis taxpayers foreign_earned_income is excludable in the year of receipt e see sec_1_911-3 and sec_1_911-3 sec_911 b it applies only sec_1 the disallowance fraction is used only to determine the amount of foreign tax attributable to the excluded income so as to eliminate the double benefit of applying both the sec_911 exclusion_from_gross_income and the sec_901 foreign_tax_credit to the same income deduction or credit for foreign taxes paid_or_accrued nor does it affect the timing of the income inclusion c iii sec_1_905-1 and sec_451 it does not affect the timing of the of the regulations sec_905 sec_1 of the code although we agree with the taxpayers that amount b is included in the denominator of the disallowance fraction for year we have noted other problems with the taxpayers' computations because neither examination nor the taxpayer have submitted these other issues to us for review these other issues are beyond the scope of this technical_advice_memorandum concluston taxpayers properly included amount b in the denominator of the disallowance fraction in their return for year because taxpayers received amount b the regulations sec_1_911-6 of in year this technical_advice_memorandum is directed only to the taxpayer who requested it provides that it may not be used or cited as precedent sec_6110 of the code -end-


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 psi plr-126594-10 date december company ------------------------------------------------------------------------------------------------- ----------------------- country --------------- date ------------------ dear -------------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts company was formed under the laws of country on date company represents that it is a foreign_entity eligible to elect to be treated as a partnership for federal tax purposes as company was not properly advised regarding the consequences of making or not making an entity election company failed to file form_8832 entity classification election electing to treat company as a partnership effective date law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and 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 plr-126594-10 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in 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 plr-126594-10 conclusion based solely on the information submitted and the representations made we conclude that company has satisfied requirements of sec_301_9100-1 and sec_301_9100-3 consequently company is granted an extension of time of one hundred twenty days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owners of company filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief these returns may include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to company’s authorized representative plr-126594-10 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by s danielle m grimm acting senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes