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 ita b07 plr-123255-16 date date re --------------------------------------------------------------------------------------------- ----------------------------------------------- legend p sec_1 sec_2 sec_3 sec_4 a b date1 date2 date3 date4 date5 -------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------- --------------------------------------------------- -------------- --------------------- --------------------------- ----------------------- -------------------- ------------------- dear --------------- this letter_ruling responds to a letter dated date and supplemental correspondence submitted by p on behalf of itself and sec_1 sec_2 sec_3 and sec_4 hereinafter p sec_1 sec_2 sec_3 and sec_4 will be collectively referred to as taxpayer requesting an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 of the internal_revenue_code for all classes of qualified_property placed_in_service by taxpayer during the taxable_year ended date1 and to file a safe_harbor election under revproc_2011_29 2011_18_irb_746 for success-based fees incurred by p during the taxable_year ended date1 plr-123255-16 all references in this letter_ruling to sec_168 are treated as a reference to sec_168 as in effect prior to amendment by sec_143 of the protecting americans from tax hikes act of path act enacted as part of the consolidated appropriations act division q publaw_114_113 129_stat_2242 date p represents that the facts are as follows facts p was the common parent of an affiliated_group_of_corporations including wholly- owned subsidiaries sec_1 sec_2 sec_3 and sec_4 that filed consolidated federal_income_tax returns on a calendar_year basis taxpayer was primarily engaged in the retail and commercial banking business providing a variety of financial services to complement its banking operations including insurance investment advisory and leasing services taxpayer’s overall_method_of_accounting was the accrual_method on date1 p merged with and into a with a as the surviving corporation in the merger in connection with this transaction p incurred success-based fees in the total amount of dollar_figureb during the taxable_year ended date1 as a result of this transaction p and p’s subsidiaries were required to file a consolidated federal_income_tax return for the short taxable_year ended date1 taxpayer placed_in_service qualified_property as defined in sec_168 before the application of sec_168 during the taxable_year ended date1 for such property taxpayer decided before the due_date without extensions of p’s consolidated federal_income_tax return for such taxable_year to make the election not to deduct the additional_first-year_depreciation p’s consolidated federal_income_tax returns are prepared in house the due_date without extensions for p’s consolidated federal_income_tax return for the taxable_year ended date1 was date2 a member of p’s tax department incorrectly determined that such due_date for such return was date3 instead of date2 based on this erroneous determination p did not file the form_7004 application_for automatic_extension of time to file certain tax information and other returns for the taxable_year ended date1 this failure_to_file the form_7004 which was not discovered until date4 resulted in p’s consolidated federal_income_tax return for the taxable_year ended date1 not being timely filed p filed its consolidated federal_income_tax return for the taxable_year ended date1 on date5 on this return taxpayer represents that it did not deduct the additional first year depreciation for all classes of qualified_property placed_in_service during the taxable_year ended date1 and p represents that it treated percent of the success-based fees that were incurred in connection with the merger with a as plr-123255-16 deductible amounts that do not facilitate that transaction to this return taxpayer represents that it attached a statement stating that taxpayer is making the election under sec_168 not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service during the taxable_year ended date1 and the statement required by sec_4 of revproc_2011_29 with respect to the success-based fees incurred in connection with the merger with a because p did not timely file its consolidated federal_income_tax return for the taxable_year ended date1 taxpayer failed to make the election not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service during the taxable_year ended date1 however with respect to the success-based fees incurred during the taxable_year ended date1 in connection with the merger with a p represents in additional information submitted on date that the statement required by sec_4 of revproc_2011_29 was attached to p’s original consolidated federal_income_tax return for the taxable_year ended date1 sec_4 of revproc_2011_29 requires the statement to be attached to the original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred therefore since the safe_harbor election has been properly filed p does not need relief under sec_301_9100-1 and sec_301_9100-3 ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 to make the election not to deduct the additional first year depreciation under sec_168 for all classes of qualified_property that were placed_in_service by taxpayer during the taxable_year ended date1 law and analysis sec_168 provides a 50-percent additional first year depreciation deduction for the placed-in-service year for qualified_property i acquired by a taxpayer after date and before date or after date or date for qualified_property described in sec_168 or c and before date and ii placed_in_service by the taxpayer before date or after date or date for qualified_property described in sec_168 or c and before date or date for qualified_property described in sec_168 or c sec_168 provides that a taxpayer may elect not to deduct the additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 as meaning in general each class of property described in sec_168 for example 5-year_property see section dollar_figure of revproc_2008_54 2008_2_cb_722 rules similar to the rules in plr-123255-16 sec_1_168_k_-1 for qualified_property or for 30-percent additional first year depreciation deduction apply for purposes of sec_168 as currently in effect sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the taxable_year ended date1 provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer’s timely filed tax_return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election 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 evidence 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 conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted an extension to and including date5 to make the election not to deduct the additional first year depreciation under sec_168 for all classes of property placed_in_service by taxpayer during the taxable_year ended date1 that qualify for the additional first year depreciation deduction in this regard we will consider this election made by taxpayer on p’s consolidated federal_income_tax return for the taxable_year ended date1 filed on date5 to be timely made except as specifically ruled upon above no opinion is expressed or implied concerning the tax consequences of the facts described above under any other provisions of the code including other subsections of sec_168 specifically no opinion is plr-123255-16 expressed or implied on whether any item of depreciable_property placed_in_service by taxpayer in the taxable_year ended on date1 is eligible for the additional first year depreciation deduction under sec_168 further no opinion is expressed or implied as to whether taxpayer properly included the correct costs as its success-based fees for which the safe_harbor election under revproc_2011_29 was filed or whether taxpayer’s transaction was within the scope of revproc_2011_29 further this letter_ruling does not grant an extension of time for filing p’s consolidated federal_income_tax return for the taxable_year ended date1 this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter_ruling to taxpayer’s authorized representatives we are also sending a copy of this letter_ruling to the appropriate operating division director sincerely kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purpose-s


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si br 7-plr-107866-99 date date legend decedent personal representative estate charity date date dear we received your representative’s letter of date seeking a ruling to determine if a bequest from the decedent to charity qualifies for an estate_tax charitable deduction under sec_2055 of the internal_revenue_code this letter responds to your request the represented facts are as follows decedent created her last will and testament on date decedent died on date article vi of decedent’s last will and testament provides that the decedent gives devises and bequeaths all the rest residue and remainder of decedent’s property and estate real personal including securities stocks mutual_fund monies etc or mixed with which decedent may die seized and possessed wheresoever located and situated as follows to charity to be used in furtherance of its charitable and benevolent work article vi further provides that should charity not exist at the date of decedent’s death or should a bequest to charity no longer qualify for an estate_tax charitable deduction under the internal_revenue_code as then amended decedent gives the rest residue and remainder herein bequeathed to such one or more organizations that qualify for an estate_tax charitable deduction under the internal_revenue_code as then amended as decedent’s personal representative shall select in its sole discretion from date through the present charity has been listed as a charitable_organization in successive annual editions of internal_revenue_service publication no decedent’s personal representative requests a ruling that the bequest from the decedent to charity qualifies for the estate_tax charitable deduction under sec_2055 sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2055 provides in part that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises or transfers to or for_the_use_of any corporation organized and operated exclusively for religious charitable scientific literary or educational_purposes including the encouragement of art or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment and the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private stockholder or individual which is not disqualified for tax exemption under sec_501 by reason of attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office revproc_82_39 1982_2_cb_759 provides the extent to which contributors may rely on the listing of an organization in publication no cumulative list of organizations described in sec_170 of the internal_revenue_code for purposes of deduction contributions under sec_170 of the code and for making grants under sec_4945 revproc_82_39 also provides that sec_170 of the code with certain limitations allows deductions for federal_income_tax purposes of contributions or gifts made to or for_the_use_of an organization that qualifies as an organization described in sec_170 in order for contributions by donors to be deductible the organization must qualify at the time of the contribution revproc_82_39 further provides that once an organization has received a final ruling and determination_letter classifying it as an organization described in sec_509 or the status of contributors and grantors to such organizations under sec_170 sec_545 sec_556 sec_642 sec_4942 sec_4945 sec_2055 sec_2106 and sec_2522 will not be affected by reason of a subsequent revocation by the service of the organization's classification as described in sec_509 or until the date on which notice of change_of status is made to the public in this case charity has been listed in pub no as a tax exempt charitable_organization from date to the present the decedent died on date based on revproc_82_39 the decedent’s estate is entitled to rely on the information in pub no revproc_82_39 does not specifically address the deductibility under sec_2055 of contributions to charities other than private_foundations however contributions to public_charities are as protected as contributions to private_foundations and the good_faith rule protects the estate_tax deductibility of contributions to a charity if the charity is listed in pub no at the time the transfer is made therefore we conclude that the property the decedent bequeathed to charity is includible in the estate of the decedent under sec_2033 and qualifies for a charitable deduction under sec_2055 except as ruled above no opinion is expressed or implied as to the federal tax consequences of this transaction under any other provision of the code the ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling should be attached to the taxpayer’s tax_return filed for the year in which the transaction referred to in this ruling is completed sincerely christine e ellison branch chief branch office of the assistant chief_counsel passthroughs and special industries


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-100953-00 cc tege eoeg teb district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference date legend issuer borrower bonds prior owner league state city affiliate dollar_figurea dollar_figureb c d tam-100953-00 e f g h i date year issues whether use of the borrower’s minor league franchise by the affiliate constitutes private_business_use under sec_141 of the internal_revenue_code if the affiliate’s use of the borrower’s minor league franchise constitutes private_business_use what is the amount of private_business_use that results from that use whether the affiliate’s use of the stadium hereinafter defined constitutes private business under sec_141 if the affiliate’s use of the stadium constitutes private_business_use what is the amount of private_business_use that results from that use whether the method of payment of debt service on the bonds constitutes private payments under sec_141 whether the lease payment-contribution hereinafter defined and the reimbursement payment-contribution hereinafter defined are properly characterized as an equity contribution by the city to the stadium if the lease payment-contribution and the reimbursement payment-contribution are properly characterized as an equity contribution by the city whether the concession area private seat area private use events and skyboxes are discrete areas to which that equity contribution may be allocated if the lease payment-contribution and the reimbursement payment-contribution are properly characterized as an equity contribution by the city whether stadium use days which are reserved for various private organizations event private uses are discrete areas to which that equity contribution may be allocated tam-100953-00 conclusions use of the borrower’s minor league franchise by the affiliate constitutes private_business_use under sec_141 of the internal_revenue_code the amount of private_business_use of the bond proceeds used to acquire the minor league franchise is use of the stadium by the affiliate constitutes private business under sec_141 the amount of private_business_use of the bond proceeds used to construct the minor league stadium by the affiliate i sec_76 percent it is not necessary to address this issue because the issuer concedes that the method of payment of debt service on the bonds constitutes private payments under sec_141 the lease payment-contribution and the reimbursement payment-contribution are not properly characterized as an equity contribution by the city to the stadium because the lease payment-contribution and the reimbursement payment- contribution are not properly characterized as an equity contribution by the city it is not necessary to address whether the concession area private seat area private use events and skyboxes are discrete areas to which the equity contribution may be allocated because the lease payment-contribution and the reimbursement payment- contribution are not properly characterized as an equity contribution by the city it is not necessary to address whether the event private uses are discrete areas to which the equity contribution may be allocated facts the issuer is a public not-for-profit corporation of the state and is equally controlled by the city and the county the issuer issued the bonds on date and loaned the proceeds to the borrower a 501_c_3_organization the borrower used the proceeds of the bonds to acquire a triple-a minor league baseball franchise the franchise to pay certain costs associated with the construction of a minor league baseball stadium the stadium to fund a debt service reserve fund for the bonds and to pay certain costs of issuance relating to the bonds tam-100953-00 the borrower used dollar_figurea of bond proceeds to acquire the franchise from the prior owner ownership of the franchise conveys membership in the league and the right to operate a minor league baseball club in a protected territory the team the protected territory is a specific geographic area in which no other minor league or major league team may be located the franchise has no termination_date the league is a voluntary association composed of the triple-a minor league baseball clubs within the league’s designated geographic territory the league is one of the various leagues that collectively make up minor league professional baseball the minor leagues through its articles of incorporation and bylaws the league regulates its member baseball clubs including the team the league is a member of the national association the national association is a voluntary association composed of the minor leagues and currently consists of classes of membership triple-a double-a single-a short-season a and rookie the national association is a party to the professional baseball agreement the pba with the national league of professional baseball clubs and the american league of professional baseball clubs together the major leagues the pba establishes the relationship between the major leagues and the minor leagues all national association members including the league and each of its member baseball clubs have the rights and obligations set forth in the pba and the rules adopted pursuant to the pba the pba incorporates the major league rules the mlrs as if they were part of the pba the mlrs govern professional baseball and include rules with respect to player selection player contracts major and minor league territorial rights minor league expansion regulation of minor league franchises and minor league playing facilities unless otherwise noted subsequent references to the pba are to the pba and the mlrs collectively ownership of the franchise includes the affiliation with a major league baseball club this affiliation is established under the terms of a player development contract which incorporates the pba prior to the purchase of the franchise by the borrower the prior owner entered into a player development contract the pdc with the affiliate the prior owner assigned its rights in the pdc to the borrower when the borrower acquired the franchise the pdc is for a term of c years and expires in year if the pdc is not terminated in year the pdc is automatically renewed if the pdc is terminated the borrower is permitted to enter into a player development contract with another major league club if one is available if no other major league clubs are available because their player development contracts have not been terminated the borrower must renew the player development contract with the affiliate under the pba as described in the offering circular for the franchise the circular a minor league club may use only players managers coaches instructors and trainers the standard player development contract is the only form of working agreement or contract permitted between major and minor league clubs tam-100953-00 provided to the minor league club by the major league club that enters into a player development contract with the minor league club and the minor league club may use only umpires that are provided by the league under the pba the players managers coaches instructors and trainers are under exclusive contract to the major league club and are compensated only by the major league club the major league club has exclusive authority and control_over the selection and supervision of the players managers coaches instructors and trainers the major league club has the sole right to assign direct designate or otherwise transfer any player to any other major league club or minor league club the minor league club that is a party to the player development contract cannot interfere with limit or restrict this right under the pba the purchaser of a franchise is required to provide a playing facility that meets the specified playing facility standards the application_for purchase must identify the proposed site of the facility the site is a factor that is reviewed in the application process and is approved or disapproved as part of the application if the proposed location is unsatisfactory an application will not be approved under the pba if there is a failure to comply with the playing facility standards following the acquisition of a franchise and the failure is not corrected in a timely fashion the president of the league may order the player development contract voidable at the option of the major league club that is a party to the player development contract and may require the minor league club to divest its interest in the franchise the pba requires a minor league club to obtain the major league club’s approval to relocate or to change league affiliation the major league club is entitled to terminate the player development contract if the minor league club fails to seek the requisite approval or if the minor league club takes action that is not in accord with the major league club’s decision the minor league club is further required to notify the commissioner of the major leagues and the president of the national association in writing at least months before the opening day of the season in which the new location will be used and receive approval of such relocation by the president of the national association in order for a relocation to be approved the minor league club must establish that improved business operations taking into account the quality of the the pba prohibits the team from using umpires other than those provided by the league the major leagues collectively pay umpire salaries and expenses and are entitled to select the contracts of those umpires some factors considered in evaluating a proposed location include compliance with the facility standards outlined in the pba seating capacity of the proposed facility availability of the proposed facility for playing dates from april through september location of the proposed site relative to the league’s geographic boundaries location of the proposed site relative to the existing territories of other minor league clubs attitude of local_government and community lease terms and the size and other attributes of the market in which the proposed site is located tam-100953-00 playing facility and the classification of play involved and or improved player development will be achieved at the new location the pba requires each major league club to support through a player development contract or ownership at least one triple-a minor league club under the pba expansions of the minor leagues occur only when a corresponding major league club is available to purchase the expansion club or to enter into a player development contract with the expansion club ie when the major leagues expand as described in the pba the purpose of the relationship between the major leagues and the minor leagues is to a b c d provide an environment for athletes to develop their potential as major league players provide an opportunity for baseball managers umpires trainers and administrators to enhance the professional skills needed for major league organizations create locally-owned and or managed sports franchises that grow while stressing customer satisfaction and the well-being of the local community provide quality entertainment at affordable prices to a geographically diverse audience complementing those markets served by major league baseball the circular describes the minor leagues including the league as a farm system and a source of future baseball players for the major leagues according to the director of player development for the affiliate minor league teams are a necessity in baseball for the players to develop to their fullest potential spectators help to develop the players collegiate teams do not fully develop baseball players and if the major leagues did not develop players in the minor leagues more players would have to be obtained through free-agency a more costly and ineffective method the borrower used proceeds of the bonds to pay costs of construction for the stadium the stadium satisfies the playing facility standards set forth in the pba the stadium is the only stadium within the borrower’s protected territory that satisfies the pba playing facility standards there is no stadium lease between the borrower and the affiliate the affiliate does not compensate the borrower for use of the stadium the borrower is entitled to retain revenues generated from the team games and does not share those revenues with the affiliate tam-100953-00 the stadium is expected to be used for team baseball games on d days for e games the borrower expects that the stadium will be used f days per year for various activities including minor league baseball games the team receives priority in its use of the stadium for its games for example the borrower would not allow a person to schedule use of the stadium in advance of the proposed date of use if that date falls within the team’s season and the schedule of games had not yet been established for the season the city owns the land on which the stadium is located the stadium site and leased that site to the issuer for a nominal amount the issuer lease the issuer lease_term is g years with one h-year renewal the issuer in turn leased the stadium site to the borrower the borrower lease under a lease that is identical in all material respects to the issuer lease the issuer lease and the borrower lease provide that the stadium site will be developed and maintained as a baseball park for use by a triple-a baseball team in addition during the term of the issuer lease and the borrower lease the borrower must maintain ownership of the team and the team must play its home games in the stadium the issuer characterized an amount equal to dollar_figureb as an equity contribution by the city to the stadium the issuer allocated this equity contribution to the costs of issuance in excess of percent of the bond proceeds and costs not otherwise permitted to be financed with bond proceeds such as privately used concession areas private seat areas private use events skyboxes and event private uses there was no actual contribution of dollar_figureb by the city the basis for the city’s equity contribution is two deemed payments of bond proceeds to the city and deemed contributions of those payments by the city to the issuer as described in a certificate of the issuer on the issue_date of the bonds the first deemed contribution results from the city’s purchase of the stadium site the city’s lease of the stadium site to the issuer for a nominal amount pursuant to the issuer lease and the issuer’s lease of the stadium site to the borrower pursuant to the borrower lease also for a nominal amount the borrower lease was valued and an amount equal to a portion of the difference between the fair_market_value of the borrower lease and the actual payments thereunder was deemed paid_by the borrower using bond proceeds to the city as a payment to compensate the city for leasing the stadium site for a nominal amount the city was deemed to have contributed that same amount back to the borrower the lease payment-contribution the second deemed contribution results from city’s expenditure of funds for certain costs with respect to the stadium site the borrower was deemed to have reimbursed the city for these costs using bond proceeds and the city was deemed to have contributed that same amount back to the borrower the reimbursement payment-contribution based on the lease payment-contribution and the reimbursement payment-contribution the issuer states that the bond proceeds that were the subject of these deemed payments were allocated to expenditures and thus the deemed contributions by the city are not bond proceeds tam-100953-00 law sec_103 generally provides that gross_income does not include interest on any state_or_local_bond sec_103 provides that this exclusion does not apply to any private_activity_bond unless it is a qualified_bond as such terms are defined under sec_141 under sec_145 the term qualified_bond means any private_activity_bond if such bond is a qualified_501_c_3_bond sec_145 provides that the term qualified_501_c_3_bond means any private_activity_bond issued as part of an issue if- all property which is to be provided by the net_proceeds of the issue is to be owned by a 501_c_3_organization or a governmental_unit and such bond would not be a private_activity_bond if- a c organizations were treated as governmental units with respect to their activities which do not constitute unrelated trades_or_businesses determined by applying sec_513 and b paragraphs and of sec_141 are applied by substituting percent for percent each place it appears and by substituting net_proceeds for proceeds each place it appears under sec_1_145-2 with exceptions that are not material here sec_1_141-0 through apply to sec_145 for example an issue ceases to be an issue of qualified c bonds if the issuer or a conduit borrower 501_c_3_organization takes a deliberate action subsequent to the issue_date that causes the issue to fail to comply with the requirements of sec_141 and sec_145 such as an action that results in revocation of exempt status of the 501_c_3_organization sec_141 provides that a bond is a private_activity_bond if the bond satisfies the private_business_use_test and the private_security_or_payment_test of sec_141 or the private_loan_financing_test of sec_141 under sec_141 an issue meets the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use under sec_141 the term private_business_use means use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit for this purpose use as a member of the general_public shall not be taken into account under sec_141 any activity carried on by a person other than a natural_person is treated as a trade_or_business sec_1_141-2 provides in part that an issue is an issue of private_activity_bonds if the issuer reasonably expects as of the issue_date that the issue will meet either the private business test or the private_loan_financing_test sec_1_141-2 provides that in general the reasonable expectations test must take into account reasonable expectations about events and actions over the entire stated term of an issue under sec_1_141-3 the percent private_business_use_test of sec_141 is met if more than percent of the proceeds of an issue is used in a trade_or_business of a tam-100953-00 nongovernmental person for this purpose the use of financed property is treated as the direct use of proceeds under sec_1_141-3 in determining whether an issue meets the private_business_use_test it is necessary to look to both the indirect and direct uses of proceeds under sec_1_141-3 both actual and beneficial use by a nongovernmental person may be treated as private_business_use in most cases the private_business_use_test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer in general a nongovernmental person is treated as a private business user of proceeds and financed property as a result of ownership actual or beneficial use of property pursuant to a lease or a management or incentive payment contract or certain other arrangements such as a take or pay or other output-type contract under sec_1_141-3 any other arrangement that conveys special legal entitlements for beneficial use of bond proceeds or of financed property that are comparable to ownership leases management contracts output contracts or research agreements results in private_business_use for example an arrangement that conveys priority rights to the use or capacity of a facility generally results in private_business_use under sec_1_141-3 in general the private_business_use of proceeds is allocated to property under sec_1_141-6 the amount of private_business_use of that property is determined according to the average percentage of private_business_use of that property during the measurement_period sec_1_141-3 provides in pertinent part that the measurement_period of property financed by an issue begins on the later of the issue_date of that issue or the date the property is placed_in_service and ends on the earlier of the last date of the reasonably expected economic life of the property or the latest maturity_date of any bond of the issue financing the property determined without regard to any optional redemption dates under sec_1_141-3 the average percentage of private_business_use is the average of the percentages of private_business_use during the 1-year period within the measurement_period appropriate adjustments must be made for beginning and ending periods of less than year under sec_1_141-3 the percentage of private_business_use of property for any year period is the average private_business_use during that year this average is determined by comparing the amount of private_business_use during the year to the total amount of private_business_use and use that is not private_business_use government_use during that year sec_1_141-3 through g v apply to determine the average amount of private_business_use for a 1-year period tam-100953-00 under sec_1_141-3 for a facility in which actual government_use and private_business_use occur at different times eg different days the average amount of private_business_use generally is based on the amount of time that the facility is used for private_business_use as a percentage of the total time for all actual use in determining the total amount of actual use periods during which the facility is not in use are disregarded under sec_1_141-3 for a facility in which government_use and private_business_use occur simultaneously the entire facility is treated as having private_business_use for example a governmentally owned facility that is leased or managed by a nongovernmental person in a manner that results in private_business_use is treated as entirely used for a private_business_use if however there is also private_business_use and actual government_use on the same basis the average amount of private_business_use may be determined on a reasonable basis that properly reflects the proportionate benefit to be derived by the various users of the facility eg reasonably expected fair_market_value of use for example the average amount of private_business_use of a garage with unassigned spaces that is used for government_use and private buiness use is generally based on the number of spaces used for private_business_use as a percentage of the total number of spaces under sec_141 the private_security_or_payment_test is satisfied if payment of the principal of or the interest on more than percent of the proceeds of the issue is directly or indirectly secured_by any interest in property used or to be used for a private_business_use or payments in respect of such property or to be derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use sec_1_141-6 provides that for purposes of sec_1_141-1 through the provisions of sec_1_148-6 apply for purposes of allocating proceeds for expenditures allocations generally may be made using any reasonable consistently applied accounting_method and allocations under sec_141 and sec_148 must be consistent with each other sec_1_148-6 provides that reasonable accounting methods for allocating funds from different sources to expenditures_for the same governmental purpose include any of the following methods if consistently applied a specific tracing method a gross_proceeds spent first method a first-in_first-out method or a ratable allocation method sec_1_148-6 requires that an allocation of gross_proceeds of an issue to an expenditure must involve a current outlay of cash for a governmental purpose of the issue sec_1_148-6 states that if an issuer fails to maintain books_and_records sufficient to establish the accounting_method for an issue and the allocation of the proceeds of that issue the rules of sec_1_148-6 are applied using the specific tracing method tam-100953-00 analysis issue one the affiliate has priority rights to use the franchise to develop its players managers coaches instructors and trainers the affiliate is the only nongovernmental person that enjoys these rights the franchise provides the right to operate a team in the league and requires the borrower to maintain an affiliation with a major league club for the duration of the borrower’s ownership of the franchise the franchise has no termination_date the player development contract is the exclusive mechanism by which the major league club affiliation is established and it is the exclusive mechanism by which the major league affiliate personnel are provided hence through the operation of the pdc only players managers coaches instructors and trainers provided by the affiliate make up the team accordingly it is the affiliate that has the right to field the team that plays games in the league the affiliate’s rights with respect to the team go beyond simply fielding a team under the pba the players managers coaches instructors and trainers are under the exclusive contract to the affiliate and are compensated only by the affiliate the affiliate has exclusive authority and control_over the selection and supervision of these persons the affiliate has the sole right to assign direct designate or otherwise transfer any player to any other major league club or minor league club the borrower is prohibited from restricting any of the affiliate’s rights with respect to these persons under the franchise the borrower must provide a stadium that meets certain playing facility standards through the pdc the affiliate is entitled to play its games in such a facility if the borrower fails to provide a facility for the team’s games that meet the playing facility standards and this failure is not corrected as provided in the pba the borrower is subject_to certain sanctions including the affiliate’s termination of the pdc and the borrower’s divestiture of its interest in the franchise it can be reasonably inferred from the facts that as of the issue_date of the bonds the borrower reasonably expected to be a party to a player development contract with the affiliate or another major league club during the term of the bonds for the borrower to use the franchise to operate a baseball club in the league it must enter into a player development contract with a major league affiliate and therefore it use players managers coaches instructors and trainers provided by a major league club the issuer argues that the affiliate is not a private business user of the franchise because the borrower not the affiliate is the ultimate beneficiary of the franchise and that the benefits flowing to the affiliate should be disregarded as incidental to the tam-100953-00 benefits derived by the borrower the issuer also argues that the affiliate received nothing as a result of the borrower’s acquisition of the franchise because the affiliate was guaranteed an affiliation with a triple-a minor league team and a playing facility long before the affiliate entered into the pdc with the borrower it notes that the affiliate does not receive profits revenues or gains from the franchise or its operation by the borrower the issuer further notes that according to the director of player development for the affiliate the value of the affiliate would be unaffected by its relationship with the borrower these arguments do not recognize the significance of the franchise to the affiliate while the borrower is a beneficiary of the franchise this does not prohibit the affiliate from also being a beneficiary functionally the franchise through the team serves as a farm system for the affiliate the purpose of which is in part to enable athletes to develop their potential as major league players and to provide an opportunity for managers coaches instructors and trainers to enhance the skills needed to work for the affiliate the affiliate’s player development occurs as a direct result of competition in league baseball games ie the rights flowing from the franchise as characterized by the director of player development for the affiliate the affiliate’s use of the franchise permits it to develop future major league team personnel for its own benefit and to do so in a manner that avoids not only the costs borne by the borrower but also reduces the costs of obtaining players by the free-agency method these avoided costs are a no less important right to the affiliate than the right to receive or share in the profits revenues or gains of the franchise that the affiliate was assured of being able to enter into a player development contract with an unspecified minor league team does not mean the use by the affiliate as a result of the pdc should be ignored finally the issuer argues that the affiliate is merely providing contractual services under the pdc which enable the borrower to present entertainment and thereby fulfill its purposes of providing baseball in the city the issuer analogizes its facts to a governmental entity’s purchase of a computer as described in the joint_committee on taxation general explanation of the tax_reform_act_of_1986 pincite we disagree the distinction between use that satisfies the private_business_use_test and use that is characterized as merely providing products or services as illustrated by the joint_committee computer example turns on the type of benefit derived by the nongovernmental person when a person purchases a computer the benefit received from its use arises from the ongoing functions provided to the user of the computer eg word processing spreadsheets internet as long as it owns the computer the governmental purchaser receives all of these benefits and may exclude other persons from using the computer the provider may earn a profit on the sale but it may not use the functions of the computer in its trade_or_business any ongoing relationship between the governmental purchaser and the computer provider is in furtherance of the governmental purchaser’s primary function s the affiliate’s use of the franchise is distinctly different unlike a computer provider who does not actually use the computer tam-100953-00 it sells the affiliate uses the franchise to field a team and thereby develop its players managers coaches instructors and trainers accordingly we conclude that under sec_1_141-3 the affiliate has a special legal entitlement to use the franchise and therefore is a private business user of the franchise issue two during the term of the pdc the borrower and the affiliate use the franchise at the same time the borrower uses the franchise as its owner and the affiliate uses the franchise to develop its players managers coaches instructors and trainers whether or not use occurs on the same basis depends on the form of use by the governmental user and the private business user for example in the management_contract example in sec_1_141-3 the facility is not used on the same basis where the governmental user owns a building and the private business user manages the building however in the parking garage example in that section the facility is used on the same basis where the use by the governmental user and the private business user takes the same form parking cars in the garage here use by the borrower and the affiliate is not on the same basis the borrower uses the franchise as its owner and the affiliate uses the franchise as a tool to develop its players managers coaches instructors and trainers thus the use of the franchise is simultaneous use that is not on the same basis for each 1-year period during the term of the pdc the entire franchise is used by the affiliate for a private_business_use the pdc between the borrower and the affiliate expires in year notwithstanding as described above it can be reasonably inferred from the facts that as of the issue_date of the bonds the borrower reasonably expected to be a party to a player development contract with the affiliate or another major league club throughout the measurement_period any player development contract like the pdc will result in private_business_use accordingly we conclude that the average amount percentage of private_business_use of the franchise over the measurement_period is percent and thus percent of the proceeds of the bonds used to purchase the franchise are used for a private_business_use issue three the affiliate and only the affiliate is entitled to have its players managers coaches instructors and trainers play in a stadium that meets the playing facility standards set forth in the pba the stadium is currently the only playing facility within the protected territory covered by the franchise that satisfies the playing facility standards if the tam-100953-00 borrower fails to provide a facility for the team’s games that meet the playing facility standards and this failure is not corrected as provided in the pba the borrower is subject_to certain sanctions including the affiliate’s termination of the pdc and the borrower’s divesture of its interest in the franchise in the operation of the stadium the team is given priority for use of the stadium for its games over other uses of the facility for example the borrower will not allow a person to schedule use of the stadium in advance of the proposed date of use if that date falls within the team’s season and the schedule of games had not yet been established for the season the issuer lease and the borrower lease provide that the stadium will be used developed and maintained as a baseball park for use predominantly by a triple-a club whether with the affiliate or another major league club in addition during the term of the issuer lease and the borrower lease the borrower must maintain ownership of the team and the team must play its home games in the stadium the term of the issuer lease and the borrower lease excluding any extensions is coterminous with the term of the bonds thus as of the issue_date of the bonds the borrower expected to use the stadium and not another facility for the team’s baseball games during the term of the bonds any relocation by the borrower is subject_to a number of limitations in particular the borrower must obtain the approval of the affiliate or any subsequent major league club before relocating in addition the borrower must also notify the commissioner of the major leagues and the president of the national association in writing at least months before the opening day of the season in which the new location will be used and receive approval of such relocation by the president of the national association in order for the relocation to be approved the borrower must establish that improved business operations taking into account the quality of the playing facility and the classification of play involved and or improved player development will be achieved at the new location the issuer argues that the affiliate has no enforceable right to use the stadium in particular the issuer argues that the affiliate does not have a right to use a particular stadium and thus the affiliate cannot have special legal entitlements to use the stadium this argument does not accurately reflect the facts in order to meet the scheduling needs of the team arising from playing games in the league the team must receive priority rights to play its games in a stadium the affiliate through its personnel which compose the team is entitled to a stadium that meets certain playing facility standards the only stadium in the franchise’s protected territory that meets these standards is the stadium thus through the team the affiliate has priority rights to use the stadium any other conclusion ignores the borrower’s obligation under the franchise and the pdc as well as the necessities of league operation the issuer further argues that the affiliate does not have special legal entitlements because it has no rights to control the operation of the stadium practically the tam-100953-00 affiliate requires no control_over the stadium the borrower as owner of the franchise and the stadium gives the team preference in scheduling games thus the affiliate is assured that it will be able to develop its players managers coaches instructors and trainers by playing baseball games in the stadium finally the issuer argues that even if the affiliate is a private business user of the playing field and clubhouse areas at the stadium they are not a private business user of the remaining part of the stadium eg the seating area this argument fails to recognize the inseparable nature of these portions of the stadium the pba require a stadium facility that meets certain minimum standards these standards go beyond providing specifications for the playing field and the clubhouse areas but rather specify the size of the overall facility including recommendations regarding seating public comfort stations concession areas novelty stands and ticket windows given that the requirements for the stadium originate in the pba it is inappropriate to view the different portions of the facility separately moreover according to the director of player development for the affiliate spectators help to develop the players which indicates that the affiliate perceives its use as coming not just from the playing field and clubhouse areas of the stadium but rather from the entire facility accordingly we conclude that the affiliate has a special legal entitlement to use the stadium and therefore is a private business user of the stadium while there is no single agreement that conveys to the affiliate a special legal entitlement to use the stadium such entitlement can be established viewing the facts and circumstances as a whole issue four the use of the stadium occurs in two situations -- team games and other events based on the facts provided the stadium is expected to be used approximately d days per year for team games and i days per year for other uses during the i days of other use no facts have been presented indicating there is private_business_use of the stadium by the affiliate thus the expected amount of private_business_use by the affiliate for any 1-year period is equal to d divided by f or percent multiplied by the amount of private_business_use during the d days as described below during team games the borrower and the affiliate use the stadium at the same time as described above whether or not use occurs on the same basis depends on the form of use by the governmental user and the private business user here use by the borrower and the affiliate is not on the same basis the borrower uses the stadium as its owner and the affiliate uses the stadium as a tool to develop its players managers coaches instructors and trainers hence the use of the stadium is simultaneous use that is not on the same basis for each 1-year period during the affiliate’s use of the stadium the entire stadium is used for a private_business_use based on the other uses of the stadium this results in the average private_business_use by the affiliate of the stadium during any 1-year period being equal to percent tam-100953-00 as described above it can be reasonably inferred from the facts that as of the issue_date of the bonds the borrower reasonably expected the stadium to be for team games over the entire measurement_period therefore a major league club whether the affiliate or otherwise will be as a private business user of percent of the stadium during each year of the measurement_period accordingly we conclude that the average percentage of private_business_use of the stadium over the measurement_period i sec_76 percent and thus percent of the proceeds of the bonds used to construct the stadium are used for a private_business_use issue five the issuer has conceded that the method of payment of debt service on the bonds constitutes private payments under sec_141 issue six the issuer has not maintained sufficient books_and_records to support its assertion that the city intended to make an equity contribution with the lease payment-contribution and the reimbursement payment-contribution accordingly we conclude that the specific tracing method must be used to account for the bond proceeds that were the subject of such deemed payments and receipts thus any expenditures made with the city’s equity contribution shall be treated as made with bond proceeds the issuer has provided no contemporaneous evidence that the city intended to make an equity contribution rather the contemporaneous city documents eg the issuer lease and the city’s related resolutions provided to us are silent as to the receipts under the lease payment-contribution and the reimbursement payment-contribution and the intent to contribute those receipts to the stadium while the issuer purporting to act on behalf of the city did execute a certificate at the time of issuance of the bonds which described the lease payment-contribution and the reimbursement payment-contribution the issuer is not related to the city no facts have been presented to suggest that the issuer is authorized to act on behalf of the city it was only after we pointed out to the issuer that there was no record of the city’s intent to make an equity contribution that the city executed and provided a certificate similar to the issuer’s certificate given the context in which this certificate was provided it is inappropriate to give weight to the city’s certificate thus from the record all that can be inferred is that the city intended to purchase the stadium site ultimately lease it to the borrower and expend its funds for certain costs relating to the stadium site caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service department of the treasury number release date index number 664-dollar_figure washington dc person to contact telephone number refer reply to cc psi plr-116243-00 date february re legend donors charitable_trust charity charity foundation co-trustee co-trustee custodian custodian corporation date date date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured - - - - - - - - - - - - - - - - - - - - dear this is in response to your letter dated date and subsequent submissions in which you requested rulings under sec_664 of the internal_revenue_code regarding the rescission of a charitable_remainder_trust the facts are represented to be as follows prior to date charity a qualified charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 of the internal_revenue_code solicited donors to participate in extensive charitable giving primarily for the benefit of charity plr-116243-00 the solicitation by charity included representations concerning the income_tax consequences for donors of the proposed transfer to charity pursuant to the solicitation and under the guidance of charity 1’s estate design office donors executed an intervivos irrevocable_trust charitable_trust on date at the time it was executed charitable_trust satisfied the requirements for a charitable_remainder_unitrust under sec_664 charity is the primary charitable_remainder beneficiary and charity is the other charitable_remainder beneficiary the initial co-trustees of charitable_trust co-trustee were charity and an individual who was not related to donors because charity was both the charitable_beneficiary and co-trustee of charitable_trust custodian was hired to manage the account for charitable_trust charitable_trust is governed by the laws of the state of california article i of charitable_trust sets forth the provisions for payment of the unitrust_amount as follows in each taxable_year of the trust the trustee shall pay to the donors hereinafter collectively referred to as the recipients in equal shares during their lifetimes a unitrust_amount equal to eight percent of the net fair_market_value of the assets of the trust valued as of the first day of each taxable_year of the trust the valuation_date each recipient reserves the right to revoke the income_interest due from the first recipient’s share to the other recipient by notifying all trustees in writing of said intention prior to the death of the first recipient upon the death of the first recipient to die and unless the first recipient has revoked the survivor recipient’s right to receive the first recipient’s income share the survivor recipient shall be entitled to receive the entire unitrust_amount the unitrust_amount shall be paid in equal quarterly amounts from income and to the extent that income is not sufficient from principal any income of the trust for a taxable_year in excess of the unitrust_amount shall be added to principal the obligation to pay the unitrust_amount in the trust’s first taxable_year shall begin on the commencement_date of this trust article i provides that upon the death of the surviving donor the trustee shall distribute percent of the principal and accumulated income to charity and the remaining percent to charity provided such organizations satisfy the requirements as qualified charitable organizations described in sec_170 sec_170 sec_2055 and sec_2522 if those organizations are not qualified charitable organizations described in sec_170 sec_170 sec_2055 and sec_2522 at the time the distributions are to be made the trustee will distribute the principal and accumulated income to charitable organizations that are described in sec_170 sec_170 sec_2055 and sec_2522 donors funded charitable_trust with percent of the issued and outstanding_stock in corporation all of the shares of which were owned by donors at the time of funding corporation stock was the only asset of charitable_trust plr-116243-00 on date donors timely filed their united_states individual_income_tax_return form_1040 for the year of the creation and funding of charitable_trust reporting adjusted_gross_income of dollar_figurea and claiming a charitable deduction of dollar_figureb for the present_value of the remainder_interest in stock of corporation transferred to charitable_trust because of the charitable deduction limitation on the value of the stock in the year of the transfer on date donors timely filed their united_states individual_income_tax_return form_1040 for the year following the year of the creation and funding of charitable_trust reporting adjusted_gross_income of dollar_figurec and claiming a charitable deduction of dollar_figured for the present_value of the remainder_interest in stock of corporation transferred to charitable_trust that was not reported on the prior year’s return donors represent that at the time charitable_trust was created they were informed by charity that distributions deemed or otherwise were not required to be made from the charitable_trust until the stock in corporation was sold charitable_trust was unable to sell the stock in corporation accordingly the annual unitrust_amount was never paid to donors it is further represented that corporation never paid dividends and charitable_trust had no income capital_gain or otherwise from any source after the transfer to charitable_trust the shares lost value and were never sold by charitable_trust the donors contend that prior to and subsequent to formation of charitable_trust they were informed by charity serving in the capacity as the co-trustee that no income_tax would be imposed on donors if the stock contributed to charitable_trust by donors was sold the donors also contend that custodian informed donors after creation of charitable_trust that if there was to be a distribution of the stock to donors such distribution would not be a taxable_event no stock was ever distributed to donors after the creation of charitable_trust foundation which is a charitable_organization described in sec_501 contributions to which are deductible under sec_170 sec_170 sec_2055 and sec_2522 became the successor-in-interest to charity as the successor-in-interest to charity foundation and an individual unrelated to donors became the successor co-trustees co-trustee and foundation became the primary charitable_remainder beneficiary of charitable_trust on date co-trustee sec_2 designated custodian as successor custodian to charitable_trust under the custodian agreement custodian was to hold cash securities and other_property transferred to charitable_trust by donors maintain the records of charitable_trust and serve as charitable trust’s investment manager custodian and foundation subsequently determined that charitable_trust should have made distributions in_kind or otherwise to donors in satisfaction of the unitrust_amount and that such distributions if made in_kind would have been characterized as distributions of capital_gain includible in donors’ gross_income see sec_1_664-1 although no distributions had been made form k-1s were sent to donors for the years dating from the creation of charitable_trust reporting deemed taxable_distributions to plr-116243-00 donors the position taken by foundation and custodian regarding the income_tax treatment of distributions from charitable_trust conflicted with the prior advice that donors had received from charity and custodian and prior to receiving the form k-1s donors were unaware of the different position pursuant to several discussions among the interested parties to resolve their positions donors filed a petition for rescission in the appropriate local court based on a substantial mistake of law and fact in the execution of charitable_trust donors and foundation were represented at the hearing the attorney general’s office for the state of california was notified of the hearing and by its absence elected not to oppose the hearing although charity did not appear at the hearing it consented to the hearing and filed its consent with the local court in the pleading donors alleged inter alia that prior to creating charitable_trust donor’s were incorrectly advised that a no distribution from charitable_trust was required to be made until the stock in corporation was sold by charitable_trust and b neither the transfer of corporation stock to charitable_trust nor the actual distribution of stock to donors in satisfaction of the unitrust payment would generate capital_gain includible in donors’ gross_income donors also alleged that they were unaware of any requirement that a deemed_distribution of stock to them would generate capital_gain includible in their gross_income donors also alleged that if they had been fully informed that distributions from charitable_trust had to commence immediately and that in-kind distributions of corporation stock to them would result in recognition of capital_gain income they would not have created charitable_trust on date the court issued an order rescinding charitable_trust and directing that the remaining assets of charitable_trust be returned to donors and that the trustees be discharged from any further administrative duties on date donors subsequently filed amended income_tax returns for the years in which they claimed charitable deductions for the transfer of the corporation stock to the charitable_trust the amended returns reversed the income_tax charitable deductions claimed by the donors on the original returns the resulting additional tax was paid with these returns however because the amended income_tax return for the year in which charitable_trust was created and funded was filed and the additional tax was paid more than three years after date the date that the original return was timely filed the donors made a statutory overpayment for that year the donors are entitled to a refund for the additional tax paid for that year if they file a timely claim the amended income_tax return filed for the year following the year of the transfer in which the excess charitable deduction was claimed and additional tax was paid was filed within three years after date the date of the original return you request a ruling that the court order issued on date will be effective for tax purposes such that plr-116243-00 the court order rescinding charitable_trust will be effective for tax purposes as of date the date charitable_trust was created and charitable_trust is not required to report taxable_distributions to donors for years through and donors are not required to include any such amounts in gross_income because either a no distributions were actually made by charitable_trust and charitable_trust did not realize any capital_gain dividend or other income during that period or b as a result of the court order the trust is deemed not to have existed during the period for tax purposes law and analysis sec_2501 imposes for each calendar_year a tax on the transfer of property by gift during the calendar_year by any individual resident or nonresident sec_2522 provides in part that in computing taxable_gifts for the calendar_year there is allowed a deduction for all gifts to or for_the_use_of a corporation or trust operated exclusively for religious charitable scientific literary or educational_purposes and for certain other purposes sec_2522 provides in part that where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use described in sec_2522 above and an interest in the same property is retained by the donor or transferred by the donor to another person or for a use not described in sec_2522 no deduction is allowed unless - a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly sec_664 provides definitions general rules governing the creation and administration of a charitable_remainder_trust and rules governing the taxation of the trust and its beneficiaries sec_664 defines a charitable_remainder_unitrust generally as a_trust - a from which a fixed percentage which is not less than percent of the plr-116243-00 net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in subparagraph a and other than qualified gratuitous transfers described in subparagraph c may be paid to or for_the_use_of any person other than an organization described in sec_170 sec_664 provides an exception to paragraphs a and b for a_trust that provides for payment to the income_beneficiary for any year of - a the amount of the trust income if such income is less than the amount required to be distributed under paragraph a and b any amount of the trust income which is in excess of the amount required to be distributed under paragraph a to the extent that by reason of subparagraph a the aggregate of the amounts paid in prior years was less than the aggregate of such required_payments the law of california governing contracts between parties provides at cal civ code west a consent which is not free is nevertheless not absolutely void but may be rescinded by the parties in the manner prescribed by the chapter on rescission cal civ code west states that an apparent consent is not real or free when obtained through duress menace fraud undue influence or mistake cal civ code states that mistake of law constitutes a mistake only when it arises from a misapprehension of the law by all parties all supposing that they knew and understood it and all making substantially the same mistake as to the law or a misapprehension of the law by one party of which the others are aware at the time of contracting but which they do not rectify in walton v bank of california national association cal app 2d cal rptr trustor attempted to rescind an irrevocable_trust on the basis of mistake of fact as to the irrevocability of the trust and the gift_tax liability of the transfer the court found that there was substantial evidence that the trustor was informed of the gift_tax liability resulting from the transfer and thus a mistake did not occur that would be sufficient to rescind the contract the court noted that where a_trust is created solely plr-116243-00 or principally for a tax purpose the mistake as to the tax consequences is a material one indicating that such a material mistake would be sufficient to rescind the contract in taking this position the court pincite cal rptr cited reid v landon p 2d cal app and stone v stone n w 2d mich under california law the rescission of a contract means the annulling or abrogation of it and the placing of the parties to it in status quo sessions v meadows p 2d cal 4th dist ct app in the instant case based on the representations made and statements contained in the pleadings submitted to the court the donors were misinformed regarding the operation of charitable_trust as drafted and the requirement that the unitrust_amount became payable immediately upon execution of charitable_trust in view of the nature of the assets transferred to charitable_trust non-income producing stock and donor’s understanding that no unitrust payment would be made until the stock was sold it appears that the scrivener intended to draft and the donors intended to execute a charitable_remainder_trust described in sec_664 rather than one described in sec_664 further donors were incorrectly informed regarding the tax consequences if charitable_trust distributed assets in_kind in satisfaction of the unitrust_amount as noted above in an attempt to reverse the income_tax charitable deductions claimed by the donors on the original income_tax returns donors filed amended income_tax returns on date and paid the additional tax due however also as noted above because the period of limitations on assessment for donors’ income_tax return filed on date has expired the donors made a statutory overpayment for the year in which charitable_trust was created and funded and the donors may make a claim for a refund of the additional tax paid for that year the remaining assets of charitable_trust were returned to donors pursuant to the court order issued on date traditionally the tax_benefit_rule requires taxpayers to recognize income when the taxpayers recover an item or amount deducted in a previous tax_year 460_us_370 the rule is also applicable in cases involving charitable deductions and provides that if a taxpayer receives a deduction for a charitable_contribution in one taxable_year and recoups that donation in a later year the value of the contribution up to the amount of the charitable_contribution previously taken is treated as income in the year in which it was recouped 611_f2d_942 1st cir aff’g 71_tc_226 it is irrelevant that the deduction taken in the prior year may have been improper or that the period of limitations on assessment has expired for the year in which the deduction was claimed 656_f2d_483 9th cir thus the amount of the charitable deduction dollar_figureb claimed by donors on their income_tax return filed on date for the present_value of the remainder_interest in the stock of corporation transferred to charitable_trust will be includible in the donors income for the year in which the remaining assets of charitable_trust were returned to the donors donors have represented that they will timely file an amended united_states individual income_tax plr-116243-00 return form 1040x for that year reporting the value of the stock up to dollar_figureb the value of the contribution claimed by donors on their income_tax return filed on date however the amended income_tax return filed for the year following the year of the transfer in which the excess charitable deduction was claimed and the additional tax was paid was filed within three years after date the date of the original return thus the additional tax was paid for that year which negated the charitable deduction claimed in that year for the transfer to charitable_trust and as to that year the parties are in the same position that they would have been in if charitable_trust had never been created because of the application of the tax_benefit_rule for the year in which the transfer was made to charitable_trust the filing of the amended tax income return and payment of additional tax for the year following the transfer to charitable_trust and the fact that charitable_trust had no income either ordinary or capital_gains and the corporation paid no dividends from date until the date of the court order granting rescission all parties are in the same position that they would have been in if charitable_trust had never been created further the court order rescinding charitable_trust is consistent with applicable state law accordingly we conclude that the rescission will be recognized for federal tax purposes as effective as of the date charitable_trust was created the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled above no opinion is expressed or implied as to the federal tax consequences of this transaction described above under the cited provisions or any other provisions of the code or regulations a copy of this letter should be attached to any_tax returns that you may file relating to these matters this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours george masnik chief branch associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c summary opinion united_states tax_court david c choe petitioner v commissioner of internal revenue respondent docket no 6569-07s filed date david c choe pro_se michael k park for respondent gerber judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure this opinion shall not be cited as precedent for any other case respondent determined a dollar_figure income_tax deficiency and a dollar_figure penalty under sec_6662 for petitioner’s tax_year the income_tax deficiency is attributable to respondent’s disallowance of legal and professional expenses depreciation and automobile expenses petitioner claimed in connection with his business activity the issues we consider are whether petitioner has substantiated these expenses and or whether they are ordinary and necessary business_expenses we also consider whether petitioner is liable for the sec_6662 penalty petitioner david c choe resided in california at the time the petition was filed he was employed as a loan officer until sometime in date in march he left that employment and began his own business as a loan consultant in connection with starting this new business petitioner purchased a laptop computer that allowed him to perform his services in various locations on date petitioner purchased a toshiba satellite notebook computer for dollar_figure at the time of purchase petitioner already owned a desktop computer for personal_use on his schedule c profit or loss from business he elected under sec_179 to deduct dollar_figure as an expense for his tax_year sec_162 allows a deduction for ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business respondent questioned the business use of the laptop computer and did not question the sec_179 election petitioner has substantiated the cost of the laptop and its business use has been clearly established accordingly we hold that petitioner is entitled to the dollar_figure deduction for in order to perform services as a loan consultant petitioner acquired access to various professional data bases that assisted him in the conduct of his business activity he also attended educational courses that were intended to maintain and improve his skills in addition he acquired prepaid legal representation at dollar_figure per month in case he was sued by a client for petitioner deducted dollar_figure as professional and prepaid legal expenses respondent disallowed the entire amount for lack of substantiation and because it had not been shown that the claimed deductions were ordinary and necessary business_expenses at trial petitioner provided testimony and documentary_evidence showing that he spent dollar_figure during for professional and prepaid legal expenses petitioner sufficiently explained the business_purpose of these items and we hold that no controversy exists in this case as to the burden_of_proof or the burden of production petitioner bears the burden_of_proof as to all adjustments sec_7491 and respondent met his burden of production with respect to the sec_6662 penalty sec_7491 he is entitled to a dollar_figure deduction for professional and prepaid legal expenses for his tax_year petitioner deducted dollar_figure of expense in connection with his use of an automobile for his consulting business respondent contends that petitioner did not maintain adequate_records so as to be able to claim the transportation_expenses sec_274 provides for a higher standard of substantiation for certain business_expense deductions generally a taxpayer must substantiate expenditures by adequate_records or by sufficient evidence corroborating his own statement sec_1_274-5t temporary income_tax regs fed reg date petitioner fell short of that standard and was able to present testimony but no logs or documentation of his business transportation_expenses therefore we hold that petitioner is not entitled to the dollar_figure deduction for expenses in connection with his use of an automobile during date petitioner’s automobile was totaled and the insurance_company paid him dollar_figure the fair_market_value of the automobile petitioner entered the gross amount received into his turbo tax preparation program because petitioner had claimed business use of the automobile for turbo tax automatically deducted the amount of depreciation allowed_or_allowable and thereby calculated a dollar_figure gain which was automatically reported as income on page one of petitioner’s return during the trial however petitioner testified that he did not use his car for business before and that he had not claimed depreciation_deductions with respect to it the turbo tax treatment of petitioner’s automobile was incorrect and accordingly we hold that petitioner did not have dollar_figure of reportable gain from the insurance_company recovery on his automobile finally we consider whether petitioner is liable for a sec_6662 accuracy-related_penalty for negligence or disregard of rules or regulations and or a substantial_understatement_of_income_tax under sec_6662 for a taxpayer may be liable for a 20-percent penalty on any underpayment_of_tax attributable to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and b negligence is any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and disregard means any careless reckless or intentional disregard sec_6662 an underpayment is not attributable to negligence or disregard to the extent that the taxpayer shows that the underpayment is due to reasonable_cause or good_faith sec_6664 115_tc_43 affd 299_f3d_221 3d cir see also sec_1_6662-3 sec_1 a income_tax regs a substantial_understatement_of_income_tax is an understatement that exceeds the greater of percent of the tax required to be shown on the tax_return or dollar_figure sec_6662 we have held that petitioner is entitled to the deductions for depreciation and professional and legal expenses we have also held that petitioner is not entitled to the claimed automobile expenses but that he should not have reported income from the insurance recovery on the automobile petitioner did not provide any argument or evidence that would have shown that his failure to maintain or produce adequate substantiation under the provisions of sec_274 was not negligent and or was reasonable accordingly to the extent that there is a resulting underpayment attributable to the claimed automobile expenses petitioner is liable for a sec_6662 penalty to reflect the foregoing decision will be entered under rule