department of the treasury inte rnal reve nue se rvi ce washington d c sin contact person identification_number telephone number date date number info release date employer_identification_number dear sir or madam we have considered your ruling_request dated date we have spoken with your representative on several occasions regarding your proposed transactions because you are unable to state your plans with specificity at this time we cannot rule definitively on whether any of your proposed activities will generate unrelated_business_taxable_income however we are happy to offer you some general information that may be helpful you state that you are exempt under sec_501 of the internal_revenue_code and file form_990 annually you own the stock ownership a carpet cleaning and construction company is a commercial corporation and files form_1120 annually you plan to accept contributions of building materials from and to use those materials in various business activities to generate funds for the support of three orphanages you operate in and various ministries in which you engage in the united_states the tax on unrelated_business_income applies to all organizations exempt from tax under sec_501 except certain u s instrumentalities unrelated_business_income is the income from a trade_or_business that is regularly carried on by an exempt_organization and that is not substantially related to the performance by the organization of its exempt_purpose or function other than the fact that it uses the profits from the activity to fund those exempt purposes the term trade_or_business generally includes any activity carried on for the production_of_income from selling goods or performing services business activities are considered regularly carried on if they are engaged in frequently or continuously and are pursued in a manner similar to comparable commercial activities of nonexempt organizations a business activity is not substantially related to an organization’s exempt_purpose unless it contributes importantly to the accomplishment as opposed simply to the funding of the organization’s exempt purposes the determination of whether a certain activity generates unrelated_business_income must be made by considering all the facts and circumstances your letter presents numerous hypothetical situations in which you ask us to apply a facts and circumstances analysis to determine whether a particular activity would be considered an unrelated_trade_or_business we don’t have sufficient facts about any one activity described in your letter to do this however an activity that is conducted only once or on a limited irregular basis might not be considered unrelated_trade_or_business for instance if or an individual donor made a donation of building supplies or a barn to you and you sold it on a one time basis it would most likely not be considered a trade_or_business and the income would not be taxable the more often an activity is conducted the more likely it will be considered a trade_or_business regularly carried on your hypothetical situations imply that the described activities will be of an ongoing nature rather than a one time deal and that they will be regularly carried on some activities are excluded from the definition of unrelated_trade_or_business even if the activity is a trade_or_business and it is regularly carried on two exclusions may apply to the activities that you are contemplating first the volunteer labor exception applies to a trade_or_business in which substantially_all the work is performed for the organization without compensation_for example a retail store staffed by unpaid volunteers who perform substantially_all the work would not be taxed as unrelated_trade_or_business income the second exception the donated merchandise exception applies to a trade_or_business that consists of selling merchandise substantially_all of which the organization receives as gifts or contributions an example of this would be the operation of a thrift shop selling donated clothes and books these exceptions are independent of each other a business operated entirely by volunteer labor may purchase or manufacture inventory for sale while a business selling only donated goods may hire a paid staff to conduct the business thus in situation might donate miscellaneous building parts to you on a regular basis you could sell the parts as is and use the funds generated to further your exempt purposes the donated merchandise exception would exclude revenue from this source from the tax on unrelated_business_income whether or not you paid a staff to conduct the business if you use the material to manufacture a different product for sale the donated merchandise exception would not apply however if the new products are produced and sold exclusively by volunteers the revenue generated would be excluded from the tax on unrelated_business_income under the volunteer labor exception situation is similar to situation except that the building parts are donated by the building’s owner rather than the donated merchandise exception and volunteer labor exception would operate in the same way if you sell the items as is the donated merchandise exception applies if you alter the property but the business is conducted by workers who receive no compensation the volunteer labor exception applies in situation you indicate that individuals are willing to donate wooden barns to you you would dismantle the barns and sell the beams whether the donated merchandise exception applies depends on all the facts and circumstances without further details we are not able to determine whether the donated merchandise exception would apply if you dismantle the barns transport and store the wood and sell the wood as unfinished beams the activity of taking down the barn and clearing the land is itself a business activity the volunteer labor exception might apply if all the work is done by individuals who receive no compensation please be advised that this letter is advisory only and has no binding effect on the service the information provided here cannot be relied upon as a ruling on the matters discussed because we have not given you a definitive ruling upon which you can rely we will return the user_fee you submitted with your request the processing of this matter may take several additional weeks 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 gerald v sack manager exempt_organizations technical group


internal_revenue_service number info release date ----------------------- ----------------------------- --------------------------------- ------------------------------ 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 b01 plr-122744-09 date date ----------------- uil taxpayer ------------------------------------------- dear ------------ 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 disregarded_entity for federal tax purposes this responds to the letter dated date submitted on behalf of taxpayer on date your representative requested by telephone that the ruling_request be withdrawn therefore we have closed the ruling_request and will take no further action with respect to it the user_fee paid in connection with the ruling_request is being refunded to you faith p colson sincerely faith p colson senior counsel branch office of the associate chief_counsel passthroughs and special industries cc


internal_revenue_service number release date index nos cc p si - plr-124772-00 date x country date dear this is in reply to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling that x be given an extension of time to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes the information submitted states that the interests in x a country unlimited liability company were acquired on date x intended to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes as of date however x inadvertently failed to file the election sec_301_7701-3 of the procedure and administration regulations provides 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 an eligible_entity with a single owner can be classified as either an association and thus a corporation under sec_301_7701-2 or as disregarded as an entity separate from its owner sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the 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 owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides 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 to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time retroactive to date to elect to be treated as an association until days following the date of this letter a copy of this letter should be attached to the form_8832 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code the ruling set forth in this letter is conditioned upon the facts and representations submitted by x accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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 b01 plr-148689-07 date date ------- ------- ---------------- ---------------------- ----------------------------------------------- legend x ------------------------------------------------------------ year year state date a b c dear --------------- requesting a ruling that x’s rental income from its rental activities is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts this letter is in response to your letter on behalf of x dated date ----------- ----------- -- plr-148689-07 the information submitted states that x was incorporated in year in accordance with the laws of state x elected to be an s_corporation effective date x has accumulated_earnings_and_profits from prior years x owns a separate commercial rental properties that are leased to tenants collectively the properties x through its employees or independent contractors provides certain services with respect to the leasing of the properties these services involve maintaining and repairing the buildings appurtenances and grounds of the properties in addition x represents that it advertises for locates and screens all potential tenants and oversees all tenant and leasing issues in year x collected approximately dollar_figureb in gross rents and incurred approximately dollar_figurec in relevant operating_expenses law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides that an s_corporation_election shall be terminated whenever the corporation i has accumulated earning and profits at the close of each of consecutive taxable years and ii has gross_receipts for each of such taxable years more than percent of which are passive_investment_income the termination is effective on and after the first date of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1375 imposes a tax on the income of an s_corporation if the s_corporation has accumulated_earnings_and_profits at the close of such taxable_year and gross_receipts more than percent of which are passive_investment_income sec_1362 provides that except as otherwise provided the term apassive investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 defines arent as amounts received for_the_use_of or right to use property whether real or personal of the corporation sec_1_1362-2 provides that the term arents does not include rents derived in the active trade_or_business of renting property rents are derived in an active trade_or_business of renting property only if based on all the facts and plr-148689-07 circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the rental income that x derives from the properties is not passive_investment_income as described in sec_1362 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 specifically no opinion is expressed concerning whether x is a small_business_corporation eligible to make an s_corporation_election further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 the code provides that it may not be used or cited as precedent be sent to the taxpayer’s representative pursuant to the power_of_attorney on file with this office a copy of this letter will this ruling is directed only to the taxpayer requesting it sec_6110 of sincerely s david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs special industries copy of this letter copy of this letter for sec_6110 purposes enclosures cc


internal_revenue_service department of the treasury washington pe contact person uniform issue list telephone number in reference to date nov employer_identification_number key district legend m n i l i l dear applicant this letter is in reply to the letter as amended from the authorized representative of m requesting certain rulings with respect to a proposed restructuring and the proper tax treatment of income received by m under sec_512 of the internal_revenue_code a professional organization described in section of the code m i sec_501 and implement for its members healthcare public policy through legislation regulation and litigation at the state and federal levels members including education media and public information and legal analysis and representation non-litigation in addition m provides a number of services for its m’s primary exempt_function is to develop m states that its statewide membership is comprised of the code and recognized as exempt under most of m’s members are also members of one predominately of organizations described in sec_170 a sec_501 of three regional associations which serve similar functions on a regional level and which are recognized as exempt under sec_501 services to their members including operational management guidance assistance with grass roots advocacy programs and assistance with other local needs in the healthcare industry several board members of the regional associations are also on m’s board_of directors many of m’s members paid dues both to m and to one or more of the three regional organizations the regional associations provide operational prior to m’s proposed restructuring due to rapid change in the healthcare industry and in response to financial pressures from its membership m states that it and the three regional associations concluded that it would be necessary to restructure their activities to better serve their membership has several aspects m states that this restructuring process n was formed with the three regional associations as its members and was recognized as exempt under sec_501 of the code provide representation and advocacy before state and federal governments on behalf of its members acting as agent for m bill and collect m membership dues in conjunction with its own membership dues billing and collection n’s purpose is to n shall to reduce the total member dues assessment m and the three regional associations consolidated billing and collection of their state and federal and local representation and advocacy activities m under a service_contract with n will provide all of the administrative and professional services for the representation and advocacy functions of n and the three regional associations including state and national public policy management representation and advocacy legal services public relation services and human resource services to streamline the membership dues billing process a billing statement will be issued by each of the three regional associations to assess membership dues for both m and the applicable regional association of the dues allocated to n will in turn be paid to m under the service agreement most m states that the services it performs under the service_contract with n are principally the same educational and legislative activities that it has performed historically in furtherance of its exempt_function and as such the services are uniquely related to its exempt_purpose these services benefit the entire healthcare industry rather than individual members in the industry and that all of the services are ultimately financed by dues collected by the three regional associations and then allocated to n m also states that sec_501 of the code provides for the exemption from federal_income_tax of business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1 c -1 of the income_tax regulations provides its activities should be directed to the improvement of that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit same general class as a chamber of commerce or board_of trade thus business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons in a regular business of a kind ordinarily carried on for a profit even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining is not a business league an organization whose purpose is to engage it is an organization of the sec_511 of the code imposes a tax on the unrelated_business_income of certain exempt_organizations including those exempt under sec_501 sec_512 of the code provides that as a general_rule except as otherwise provided the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it less certain allowable deductions and modifications sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of the functions constituting the basis for its exemption sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1 513-l a of the regulations provides that gross_income of an exempt_organization subject_to tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if trade_or_business carried on by the organization_trade_or_business is not substantially related other than such trade_or_business is regularly the conduct of such it is income from a and through the production of funds to the organization’s performance of its exempt functions sec_1_513-1 of the regulations provides that activities of producing or distributing goods or performing services from which a particular amount of gross_income is derived do not lose identity as trade_or_business merely because they are carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may or may not be related to the exempt purposes of the organization thus for example activities of soliciting selling and publishing commercial advertising do not lose identity as a trade_or_business even though the advertising is published in an exempt_organization periodical which contains editorial matter related to the exempt purposes of the organization sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code of the trade_or_business which produces the income is not - substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question--the activities that is producing or distributing the goods or performing the services involved--and the accomplishment of the organization’s exempt purposes if the conduct of sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is whether granted exemption depends in each case upon the facts and circumstances involved m states that n provides lobbying_activities for the benefit of m’s membership and that m will be reimbursed for the cost of providing these services before income from an activity may be taxed as unrelated_business_income the following three conditions must be satisfied the organization’s exempt_purpose must be regularly carried on the trade_or_business must not be substantially related to the activity must constitute a trade_or_business and the trade_or_business it is evident from the facts presented that m’s activities regarding lobbying services to n are regularly carried on and that the activities may be considered to be trade_or_business however we are persuaded that m’s lobbying_activities are substantially related to its exempt purposes within the meaning of sec_1_513-1 of the regulations because they benefit the common business_interest of m’s membership as a whole and do not benefit any members in their individual capacities based on the application of the above principles to the facts presented in the ruling_request we rule as follows amounts received by m from n for lobbying services under the service_contract will not be considered to be unrelated_business_income taxable under sec_512 of the code the proposed restructuring will not affect m’s status as an organization described in sec_501 of the code the ruling_request as amended contains no request with respect to the treatment of income from billing and other administrative services provided under the service_contract with n these rulings are based on the understanding that there will be no material changes in the facts upon which they are based any such change should be reported to your key district_director because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records district_director we express no opinion as to the consequences of these transactions under the cited provisions or under any other provisions of the code a copy of this ruling is being forwarded to your key except as we have specifically ruled herein this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours 8igned garland a g garland a carter chief exempt_organizations technical branch y e