department of the treasury internal_revenue_service washington d c tax exempt and government entities u i l feb -3 se stibp k alt rrr ee rekekkkeee attn krekkkkeee legend employer a tee erect eens eee state c plan x plan y dear kkrekkerkeek this is in response to a request for a private_letter_ruling dated date as supplemented by correspondence dated date which was submitted on your behalf by your authorized representative concerning the tax treatment of certain proposed trustee-to-trustee transfer of funds from plan y to plan x the following facts and representations were made in support of your ruling requests employer a a political_subdivision of state c maintains plan x and plan y for the benefit of its employees plan x is a governmental defined_benefit_plan which you represent is qualified under sec_401 of the internal_revenue_code the code you represent that plan y is an eligible_deferred_compensation_plan as described in code sec_457 plan x provides its eligible participants with retirement benefits based upon years_of_service and certain specified percentages of a participant's_compensation since plan x has offered two benefit formula the pre-amended plan formula and the amended plan formula’ prior to through contributions made by employer a benefits under plan x were solely provided rrkkrrarkk page employer a amended plan x to allow then-current participants to make a one- in time election to either remain under plan x’s pre-amended plan formula with benefits funded solely from employer a contributions or make a contribution and receive the amended plan formula’ including a rule_of retirement option the pre-amended plan formula calculates retirement benefits as follows total years_of_service from date of hire until date multiplied by one percent of a participant’s average_annual_compensation up to dollar_figure plus two percent of a participant's average_annual_compensation above dollar_figure plus dollar_figure plus years_of_service from date up to multiplied by percent of the participant's average_annual_compensation up to dollar_figure plus two percent of the participant's average_annual_compensation above dollar_figure plus dollar_figure the amended plan formula’ calculates retirement benefits as follows years_of_service multiplied by two percent of a participant's average_annual_compensation plus dollar_figure the rule_of retirement option allows for a participant who has attained age and whose age plus years_of_service equal to receive an unreduced pension benefit all eligible employees hired after date and prior to the establishment of participated in plan x under the employer a’s defined_contribution_plan in amended plan formula employees of employer a who continue to participant in plan y and those eligible employees hired after date are required to contribute to plan x an amount determined by plan x to meet its funding obligations but in no event more than six percent of their compensation the actual contribution amount is determined each april and may increase percent per year you represent that these amounts are picked up by employer a pursuant to sec_414 of the code employer a intends to amend plan x in order to provide for an enhanced formula by replacing the two formula currently used by plan x with a third formula the new proposed benefit formula would calculate retirement benefits as follows dollar_figure percent of also intends compensation multiplied by the participant’s years_of_service employer a to offer an optional enhanced benefit under which plan x benefits would be calculated using a factor of percent the new enhanced formula’ you represent that the actuary for plan x has determined that this new enhanced formula requires a participant to make contributions of approximately dollar_figure percent of compensation_for at least three years the new enhanced formula will require a participant to contribute the difference between dollar_figure percent for example and the amount he or she contributed to plan x over the prior three years during an election_period plan x will allow participants who choose the new enhanced formula to elect to make the required contributions by authorizing an additional withholding from current compensation making an after-tax contribution or authorizing the transfer of money from their plan y accounts for participants who remain employed this penunaes page oo 2vv0ugl7u38 contribution for the prior three years will be made by the participant over the subsequent three years and in such case will be picked up by employer a pursuant to sec_414 of the code for participants who elect to make this contribution over the subsequent three years but terminate employment or otherwise cease participating in plan x before the completion of this three year period may have their retirement benefit calculated using the amended plan formula in which case plan x would refund to them the additional contributions they made to supplement the contributions needed under the formula they had previously elected either the amended plan formula or the new amended plan formula plus earnings employer a also proposes to amend plan x to allow participants who elect the new enhanced formula and who are eligible for retirement and who terminate employment before completing the required three years from the date of their election to pay a lump sum that plan x’s actuary will determine is necessary to purchase the new enhanced formula employer a intends to amend plan x to allow such participants to pay this additional_contribution either by making an after-tax contribution or by making an elective trustee to trustee transfer of all or a portion of their plan y account to plan x furthermore employer a also intends to amend plan x to allow participants to purchase up to five years_of_service credit for time spent working for any employer other than employer a by transferring funds from their plan y account to plan x the amount required to purchase additional years_of_service will be determined by the actuary for plan x and will be an amount needed to fund these additional years_of_service this service_credit would apply to any formula available under plan x the pre- amended plan formula the amended plan formula or the new enhanced plan formula whichever is applicable based upon the aforementioned facts and representations you request the following rulings participant’s purchase of a new enhanced benefit formula under plan that a _ x which would require additional contributions to supplement the prior three years’ contributions by authorizing a trustee-to-trustee transfer of money from their plan y account to plan x meets the requirements of code sec_457 because the supplemental contributions are for the purchase of permissive_service_credit such that the amount transferred is not included in the participants’ gross_income under code sec_61 and sec_72 at the time of the transfer that an elective purchase by participants in plan x in the form of a transfer from their plan y account of up to five years_of_service the participant worked with any employer other than employer a meets the requirements of code sec_457 because it is for the purchase of permissive_service_credit so that a trustee-to-trustee transfer of amounts needed to fund this krkkkekekeee page 2unu617u38 additional service_credit is not included in participants’ gross_income pursuant to code sec_61 or sec_72 sec_72 of the code provides that except as otherwise provided gross_income as defined in sec_61 of the code includes any amount_received_as_an_annuity an endowment or a life_insurance_contract sec_72 provides for the imposition of an additional percent tax on early distributions from qualified_plans including iras the additional tax is imposed on that portion of the distribution that is includible in gross_income sec_72 of the code provides that sec_72 shall not apply to distributions that are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or joint lives or joint life expectancies of such employee and his designated_beneficiary sec_457 of the code provides that no amount shall be includible in gross_income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental_plan as defined in sec_414 of the code if such transfer is for the purchase of permissive_service_credit as defined in sec_415 of the code sec_415 of the code provides special rules relating to the purchase of permissive_service_credit sec_415 of the code provides that if the employee makes one or more contributions to a defined benefit governmental_plan within the meaning of sec_414 to purchase permissive_service_credit under such plan then the requirements of this section shall be treated as met only if- a the requirements of such subsection b are met determined by treating the accrued_benefit derived from all such contributions as an annual_benefit for --_the-purposes of subsection b or b the requirements of subsection c are met determined by treating all such contributions as annual_additions for the purpose of subsection c sec_415 provides that the term permissive_service_credit means service credit- i recognized by the governmental_plan for purposes of calculating a participant's benefit under the plan and contribution in an amount determined under such governmental_plan iii which such participant may receive only by making a voluntary additional ii which such participant has not received under such governmental_plan cenunnues page an zvuvugl eus which does not exceed the amount necessary to fund the benefit attributable to such service_credit sec_415 of the code provides the limitation of nonqualified service sec_415 provides that a plan shall fail to meet the requirements of this section if-- i ii more than years of permissive_service_credit attributable to nonqualified service are taken into account for purposes of this subsection or any permissive_service_credit attributable to nonqualified service is taken into account under this subsection before the employee has at least years of participation in the plan sec_415 of the code generally defines the term nonqualified service as service other than i service as an employee of the federal government any state or political_subdivision or agency_or_instrumentality thereof ii service as an employee of certain educational organizations who are described in sec_170 of the code iii service as an employee of an association of employees who are described in i or iv military service sec_415 further provides that in the case of such ii and iii such service will be nonqualified service _ service previously described in i if recognition of such service would cause a participant to receive a retirement benefit for the same service under more than one plan in this case employer a intends to amend plan x to offer participants an opportunity to elect to have their benefits calculated under the new enhanced formula under which benefits are based on a factor of percent of compensation you also represent that the actuary for plan x has determined that in order for a participant to accrue this benefit calculated using a factor of percent of compensation he or she would have to contribute to plan x for three years subsequent to the election an amount equal to the difference between the rate determined by the actuary and the amount the participant actually contributed to plan x over the prior three years_of_service employer a proposes to allow participants who elect to have their benefits calculated under the new enhanced-fermula the ability to pay the cost of such enhanced-benefit by transferring assets from their plan y account directly to plan x the new enhanced formula allows participants in plan x to make additional voluntary contributions to plan x that will increase the percentage of annual compensation that is used to calculate their retirement benefits thereby satisfying clauses i and iii of code sec_415 however code sec_415 provides that permissive_service_credit does not include service for which the participant has already received in this case the amount that each participant credit for under the governmental_plan will contribute to plan x is the difference between the amount determined by the actuary for plan x and the amount the participant contributed to plan x for his or her prior three years_of_service service for which he or she has already received credit for under the terms and provisions of plan x as such these additional contributions will purchase additional benefits with respect to service that has already been recognized by plan x because the additional_member contributions proposed to be made to plan x are not ‘sawnewnses page -- contributions that meet the requirements of code sec_415 we conclude with respect to your first ruling_request that a participant's purchase of the new enhanced formula’ under plan x which would require additional contributions to supplement the three prior years’ contributions by authorizing a trustee-to-trustee transfer of money from a member's plan y account to plan x will be included in the participants’ gross_income under code sec_61 and code sec_72 at the time of transfer because the transfer is not for the purchase of permissive_service_credit as described in code sec_457 and code sec_415 with respect to your second ruling_request employer a intends to amend plan x to allow participants to purchase up to five years_of_service credit for time worked with another employer other than employer a by transferring funds from their plan y account to plan x sec_415 of the code provides special rules relating to the purchase of permissive_service_credit and subsection b specifically limits the purchase of nonqualified service to no more than five years of permissive_service_credit attributable to nonqualified service permissive_service_credit relates to an actual period_of_service or period of employment for which the employee has not yet been credited with performing service for an employer under the terms and provisions of a plan and for which the employee would be credited with performing under the terms and provisions of a plan once payment is made in this case the additional service that a plan x participant can purchase is linked to a period of employment with any other employer other than employer a for which the participant has not previously received credit for under the terms of plan x the participant has not received credit with performing service for employer a for these periods of prior employment but would be credited with performing service once payment is made the additional service that would be purchased under the proposed amendment to pldn x is recognizable by plan x for purposes of calculating a member's benefit as one of the criteria used to calculate the retirement benefit under plan x is the participant’s years_of_service since the prior employment with any employer other than employer a relates to an actual period of employment for which the participant has-net received credit under the terms of plan x and sueh-- additional service can only be purchased by a member making an additional voluntary contribution to plan x we conclude that such service that is purchasable under proposed amendment to plan x is permissive_service_credit under code sec_415 having concluded that such service is permissive_service_credit we conclude with respect to your second ruling_request that an elective purchase by participants in plan x in the form of a transfer from their plan y account to plan x of up to five years_of_service the participant worked with any employer other than employer a meets the requirements of code sec_457 because it is for the purchase of permissive_service_credit and the trustee-to-trustee transfer of amounts from plan x to plan x to fund this additional service_credit will not be includable in the participants’ gross_income pursuant to code sec_61 or code sec_72 eeeeeeeeee page ‘ zu this ruling is based on the assumption that plan x meets the qualification requirements of sec_401 of the code and qualifies as a governmental_plan as the term is defined in sec_414 this ruling is based on the assumption that plan y meets the qualification requirements of code sec_457 no opinion is expressed as to the tax consequences of purchasing service_credit under the enhanced benefit formula by making additional withholdings from current compensation or with after-tax contributions no opinion is expressed as to the validity of the pick up of the participants’ required contributions made to plan x pursuant to code sec_414 further no opinion is expressed as to the validity of the proposed pick up of contributions made to plan x under the new enhanced formula of plan x pursuant to code sec_414 no opinion is expressed as to whether the proposed transfer of assets as contemplated in this ruling meets the requirements of revrul_67_213 1967_2_cb_149 this letter_ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions please contact se t ep ra‘t2 sincerely yours signe solon b floyd -doeycee-e floyd manager employee pians technical group a enclosures deleted copy of ruling letter notice of intention to disclose


fay department of the treasury internal_revenue_service cincinnati oh number release date date date employer id number contact person id number contact telephone number form you must file tax years uil dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 letter rev catalog number 47635z sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 a other t han c redacted letter final adverse determination under sec_501 a other than c - no protest letter rev catalog number 47635z department of the treasury internal_revenue_service cincinnati oh legend b state c date d number e number f number x dollars amount dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 a of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts several years ago you began with just a few members who decided to meet weekly to network and share business tips and trends within their particular line_of_business you grew over the years and consequently decided to incorporate under b’s nonprofit statute as the group expanded and evolved the mission changed to more of an educational focus with emphasis on enhancing the professionalism of each member’s business on c in b you reincorporated to reflect these changes per your articles of incorporation your purpose is to operate exclusively as a not-for-profit organization of business persons within the community to gather together to further the education of your members as to professional development communication and networking every member has been unanimously voted into your network based upon their expertise and excellence furthermore any member may sponsor a prospective member and present him to your membership as a guest your entire membership must then decide unanimously whether this prospective member will fill a vacant profession or business category that is advantageous to you your activities consist of members meeting weekly for breakfast at the same location and the same time your members have the responsibility when scheduled to provide the program which involves a thirty minute presentation for the scheduled meeting and therefore must e e attend the meeting and either speak or arrange for a guest speaker who provides the presentation on recent developments in their profession or business invite members to visit the member’s place of business your bylaws indicate your mission is to provide education and professional development to your exclusive network of professionals who excel in their field of practice business professionals dedicated to cultivating long-term relationships through the sharing of ideas experiences resources and business referrals they also state you are a community of diverse your membership provisions listed in your bylaws are as follows membership shall be limited to d persons however this limitation may be modified by the affirmative vote of percent of the membership in good standing excluding affiliate members one representative shall be allowed as a recognized member for each business or profession category if the community the members shall be committed exclusively to you and shall not become a member or affiliate directly or all businesses and respective members must be based within the state of b and provide a location and serve one member representing a business or profession is desirous of allowing an affiliate member to also attend your scheduled meetings and other affairs said member is entitled to do so upon approval by the board_of directors the member shall ensure that you receive adequate compensation_for the additional expenses_incurred by virtue of the affiliate member’s attendance at your meetings and or events the affiliate member shall not be entitled to vote unless the recognized member is not present at the time of the vote should the affiliate member eventually replace the existing member they must apply to be voted on as a new member if one member representing a business or profession changes their profession to one which is represented by another member such existing member in that category shall be the only representative of the common profession no member shall represent more than one category in the event certain members represent overlapping professions a majority of the general membership may vote to suspend the application of provision above the provisions of this section shall apply only upon the approval of all the members of the overlapping professions indirectly with any other networking organization said prohibition excludes charitable and or civic organizations or chambers_of_commerce your board_of directors per your bylaws is composed of your officers and e additional board members elected by a majority of a quorum of your general membership your officers consist of the president vice- president secretary treasurer sergeant at arms and your past president the main duties of the officers are as follows the president will preside at all your meetings and guide your affairs the president also has the specific authority to appoint individuals to serve and or lead committees the vice president will record attendance and the number of weekly business referrals leads and keep an active role of all your members the vice president presents at any regularly or specially scheduled board meeting the report of the membership additionally the vice president shall act in the president’s absence at all duly scheduled meetings and or events the secretary will record and report the minutes of each meeting and maintain records letter rev catalog number 47628k e the treasurer shall collect and maintain a record of all dues paid and or owing by your membership maintain and prepare a proper accounting of all income and expenditures relative to the business affairs and activities present a monthly financial report to the president for review and affirmation by the board_of directors and perform such other and further duties as requested by the president the sergeant at arms shall have the responsibility to ensure that the location for your meetings or other scheduled events is available and suitable for its intended purpose and act as a liaison with any vendor to ensure that your needs are met additionally the sergeant at arms shall assist the president at all meetings in performing the normal duties of the sergeant at arms including but not limited to maintaining a record of the number and extent of weekly business referrals tips leads and the appropriateness of same further the sergeant at arms is responsible for enforcing the collection of these fines you are supported by dues from members which are currently x dollars per quarter per member in addition you impose fines for those members who do not give a business lead to another member at your weekly meetings sergeant at arms also has the discretion to challenge any member whose tip lead is deemed inappropriate and not consistent with the spirit and intent of providing business leads to your members your bylaws indicate before the conclusion of any business meeting the sergeant at arms shall collect all fines and deposit them with the treasurer with the spirit and intent of providing business leads to members the finally you indicated that it is not your aim to exchange business between members if your members wish to conduct business among themselves that is their decision however membership within you imposes no such responsibility upon the individual members law sec_501 of the internal_revenue_code_of_1986 provides exemption from federal_income_tax for business_leagues not organized for profit and no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 states 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 chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons an organization whose purpose is to engage in a regular business of a kind ordinarily carried on for 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 it is an organization of the same general class as a revrul_59_391 1959_2_cb_151 held that an organization composed of individuals firms associations and corporations each representing a different trade business occupation or profession whose purpose is to exchange information on business prospects has no common business_interest other than a mutual desire to increase their individual sales the activities are not directed to the improvement of one or more lines of business but rather to the promotion of the private interests of its members and is not exempt under sec_501 of the code letter rev catalog number 47628k revrul_73_411 1973_2_cb_180 describes an organization that was not structured along industry or business lines but was composed of various types of businesses and commercial endeavors comprising a shopping center therefore its right to right to exemption if any had to rest on its characterization as a chamber of commerce or board_of trade or similar organization the revenue_ruling further indicates that chambers_of_commerce and boards_of_trade direct their efforts at promoting the common economic interests of all the commercial enterprises in a given trade community in the case of a chamber of commerce or similar organizations the common business_interest is usually the general economic welfare of a community membership is voluntary and open generally to all business and professionals in the community application of law you are not described in sec_501 and sec_1_501_c_6_-1 because the facts show you are not formed to promote the common business interests of a particular industry or trade but rather you are formed to benefit your members’ business interests your membership is restricted to d noncompeting members and just one representative from each type of business or profession the exception in your bylaws allowing members with overlapping professions only with the approval of all the members of the overlapping provisions also indicates you are operating for member’s interests in addition the restriction in your bylaws that reads the member shall be committed exclusively to you and shall not become a member or affiliate directly or indirectly with any other networking organization said prohibition excludes charitable and or civic organizations or chambers_of_commerce indicates you are operating for non c purposes you are like the organization described in revrul_59_391 your membership consists of vetted professionals from different types of businesses which are not in competition with one another in addition the provision in your bylaws that requires your sergeant at arms as one of his duties to maintain a record of the number and extent of weekly business referrals leads and the appropriateness of same and the fact members are fined if they do not provide a lead at your meetings illustrates you have no common business_interest other than a desire to increase business prospects of your members like the organization in the revenue_ruling revrul_73_411 you are not structured along any particular industry or business lines you are composed of various types of businesses therefore to meet exemption under sec_501 you must depend on being characterized as a chamber of commerce because your membership is not open to all businesses in your community but only to one business per category you do not meet the definition of a chamber of commerce within the meaning of sec_501as explained in this revenue_ruling your position you wrote that that your membership is limited to one representative of f separate business industry lines selected by design to represent a cross section of businesses industries in the geographic area your programs are structured to educate members on community trends best practices ethical professionalism and most of the members in turn take this information back to their specific industry group for example the attorney takes this back to his local bar the cpa back to the sub groups with various specialties in the accounting area the financial investment adviser takes information back to the financial planning community and so on in this manner you have the potential to impact thousands in the community thanks to the different business industry representatives by restricting the group to f members the members give voice to f different business industry representatives and are not constrained by one group dominating another due to their large underlying membership numbers they have found that this business model allows for much better goal attainment and dissemination of information throughout the community and of course your members make referrals to each letter rev catalog number 47628k other however the purpose for setting up this group is to enhance the competence ethics professionalism of members and the business lines they represent our response to your position you failed to provide any additional information from which it can be concluded that you are primarily organized and operated in accordance with sec_501 even though you claim your programs are structured to educate members on community trends best practices ethical professionalism and most of the members in turn take this information back to their specific industry group the facts show you are restricting membership to one member per individual category which benefits individual members by giving them leads and a competitive advantage this is primary and excludes you from exemption under sec_501 conclusion your membership constraints show that your primary purpose is to further the private interests of your individual members and not the improvement of business conditions of one or more lines of business you have no common business_interest other than a mutual desire to increase member’s business prospects your activities are not primarily directed to the improvement of business conditions of one or more lines of business nor for the common economic interests of all the businesses in a given trade community as in the case of a chamber of commerce but rather to the promotion of the private interests of your members as illustrated by the restrictive nature of your membership therefore you not meet the requirements for exemption under sec_501 if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives letter rev catalog number 47628k under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47628k you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47628k


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-116256-98 date date corporation a corporation b shareholder a shareholder b shareholder c shareholder d shareholder e shareholder f shareholder g shareholder h shareholder i shareholder j w business x business y state a m shares n shares p shares q shares r shares s shares dear this responds to your authorized representatives’ letter dated date requesting rulings concerning the federal_income_tax consequences of a proposed transaction in response to our requests you submitted additional information in letters dated date date date date and date the information submitted for consideration is summarized below corporation a an accrual_method taxpayer is incorporated in state a and engaged in business x corporation a has outstanding two classes of stock class a voting and class b non-voting shareholders a b c d e f g h i plan to have all their shares in corporation a redeemed a owns m shares of class a voting and n shares of class b non-voting b and g each own p shares of class a voting and q shares of class b non-voting c d h and i own r shares of class b non-voting and e and f own s shares of class b non-voting a is the father of b and g the remaining redeeming shareholders are the children and spouses of b and g the non-redeeming shareholders are also either the children of a or their children and spouses the non- redeeming children of a actively participate in corporation a’s activities while those redeeming their shares do not the redeeming shareholders will have no continuing involvement with corporation a a’s wife w is employed by corporation a and has significant responsibility for its computer systems and operations but does not own any corporation a stock shareholder a and his wife w will enter into a property agreement whereby all consideration paid to w in her capacity as a corporation a employee will constitute her sole and separate_property all shareholders received shares as gifts from a within the past ten years as part of a’s plan to share the corporation with his children and their families a also has a majority interest in corporation b which is engaged in business y corporation b provides services exclusively to corporation a and derives all of its revenue from corporation a shareholders b c d e f g h i will redeem all of their shares in corporation a in exchange for cash a will receive a note note from corporation a in exchange for his corporation a shares a will sell his interest in corporation b to shareholder j who is a’s son and a continuing shareholder in corporation a and will receive a note note from j in return the taxpayers have made the following representations concerning the proposed transaction all references below to corporation denote corporation a unless otherwise indicated a b c d e there are no outstanding options or warrants to purchase corporation stock nor are there any outstanding debentures or other obligations that are convertible into corporation stock or would be considered corporation stock in no event will the last payment on note note or other obligations be made more than years after the date_of_issuance of the notes or other obligations none of the consideration from corporation or shareholder j with respect to note including interest consists entirely or partly of a promise to pay an amount that is based on or contingent on future earnings_of corporation a or b with respect to note an amount that is contingent on working_capital being maintained at a certain level or any other similar contingency neither the notes nor other obligation to be issued to shareholder a will be subordinated to the claims of general creditors of the corporations a and w have entered into a written_agreement that provides that any amount_paid by corporation to w in exchange for her services will be her sole and separate_property and shareholder a w’s husband will have no community_property interest in such amounts such agreement will remain in effect for at least years form the date of a’s redemption f g h i j k l m n o in the event of default on the notes or other obligations no shares of stock will revert to or be received by a redeemed shareholder nor will any redeemed shareholder be permitted to purchase the stock at public or private sale no shareholder of corporation has been or will be obligated to purchase any of the stock to be redeemed except to the extent that the remaining shareholders those who are not redeemed enter into any form of agreement providing for the purchase or redemption of their shares in the event of death disability or termination of employment there have been no redemptions issuances or exchanges by corporation of its stock in the past five years corporation has no plan or intention to issue redeem or exchange additional shares of its stock after the redemption no redeemed shareholder will have any interest in corporation a or b including an interest as officer director or employee other than an interest as a creditor as described in sec_1_302-4 of the income_tax regulations and constructive_ownership under sec_318 of the code each redeemed shareholder will execute and file the agreement required by sec_302 of the code with respect to the acquisition of any interest in corporation within ten years from the date of the redemption none of the stock to be redeemed is sec_306 stock within the meaning of sec_306 of the code there are no declared but unpaid dividends or funds set apart for dividends on any of the stock to be redeemed at the time of the exchange the fair_market_value of the consideration to be received by the redeemed shareholders will be approximately equal to the fair_market_value of corporation’s stock to be exchanged therefor the price to be paid for corporation’s stock to be redeemed will not result in a loss with respect to those shares of stock based solely on the information submitted and on the representations set forth above we hereby rule as follows the gifts of shares from a to his non-redeeming children and their spouses and children did not have as one of its principal purposes the avoidance of federal_income_tax within the meaning of sec_302 rev_rul 1957_2_cb_225 and revrul_77_293 c b provided shareholder a files the agreement described in sec_302 in accordance with sec_1_302-4 of the regulations the redemption of all a’s stock and that of b c d e f g h and i will be a complete redemption of their interest in the company within the meaning of sec_302 the amount distributed in the redemption will be treated as a distribution in full payment in exchange for the stock surrendered as provided in sec_302 pursuant to sec_302 the family attribution rule_of sec_318 will not apply to the proposed transaction this ruling however is subject_to the conditions stated in sec_302 and sec_302 and is also subject_to the continued validity of the property agreement between shareholder a and w his wife wherein it is provided that all earnings from corporation a by w will be her sole and separate_property as provided in sec_1001 gain will be realized and recognized by shareholders a b c d e f g h and i measured by the difference between the redemption price and the adjusted_basis of the shares of corporation stock surrendered as determined under sec_1011 provided that sec_341 relating to collapsible_corporations is not applicable and corporation stock is a capital_asset in the hands of shareholders the gain if any will constitute capital_gain subject_to the conditions and limitations of subchapter_p of chapter pursuant to sec_267 no loss will be allowable provided the redemption of the corporation stock held by shareholders a b c d e f g h and i is not performed in satisfaction of a primary and unconditional obligation of a nonredeemed shareholder to acquire the corporation stock held by said shareholders see revrul_69_608 c b the redemption will not cause any dividend income to be realized or constructively received by any nonredeemed shareholder see 258_f2d_865 3rd cir acq revrul_58_614 c b corporation will not recognize gain_or_loss on the distribution of cash and note in redemption of its stock sec_311 we express no opinion on the tax treatment of the transaction under other provisions of the code and regulations including the gift_tax provisions or the treatment of any conditions existing at the time of or the effects resulting from the transaction not specifically covered by the above rulings in particular no opinion is expressed as to whether the gain if any recognized by shareholder a may be reported under the installment_method we note that if the gain is initially reportable under the installment_method and the notes subsequently become unenforceable sec_453b provides that the notes which are from related parties will be treated as being disposed of by shareholder a which may produce gain under sec_453b and the fair_market_value of the obligation will be treated as not less than its face_amount we also express no opinion about whether the notes are debt or equity because the determination is primarily one of fact sec_4 of revproc_99_3 1999_1_irb_103 the above rulings will be considered void if the notes are found to be equity and not debt the above rulings are effective to the extent that the amount distributed to shareholders a b c d e f g h and i equals the fair_market_value of corporation stock redeemed from the shareholders we express no opinion about the tax effect of the amount if any by which the distribution by corporation to shareholders exceeds or is less than the fair_market_value of the stock redeemed a determination of the fair_market_value of the stock redeemed is reserved until the federal_income_tax returns of the taxpayers concerned reporting any part of the proposed transaction have been filed this ruling is addressed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax returns of the taxpayers involved for the taxable years in which the transaction covered by this letter is consummated pursuant to a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative sincerely yours assistant chief_counsel corporate by debra carlisle chief branch


t c memo united_states tax_court eric test and odelia braun petitioners v commissioner of internal revenue respondent docket no filed date karen l hawkins for petitioners g michelle ferreira for respondent memorandum findings_of_fact and opinion gerber judge respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure accuracy- related penalty pursuant to sec_6662 the issues for our consideration are whether legal fees incurred by unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure - - petitioners are deductible as schedule c business_expenses or as schedule a miscellaneous_itemized_deductions and whether petitioners are liable for the accuracy-related_penalty under sec_6662 findings_of_fact petitioners resided in redwood city california at the time they filed their petition petitioners filed a joint federal_income_tax return for the tax_year odelia braun petitioner is a medical doctor who in was hired as an associate physician diplomate and assistant clinical professor of medicine at the university of california san francisco ucsf when petitioner began working at ucsf she was responsible for patient care in the emergency room and for training residents and medical students petitioner acquired an interest in the aspect of emergency medicine that was provided before the patient arrived at the hospital ie the care that was rendered by paramedics and firefighters from through petitioner undertook a study of cardiac arrest emergency response systems in san francisco california and around the united_states petitioner with the assistance of paramedics and firefighters collected medical data on all patients who suffered cardiac arrest in san francisco and the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference learned that only percent survived petitioner traveled around the country and visited other emergency medical services ems to determine whether improvements in the san francisco ems systems could be made after undertaking these studies petitioner put together a proposal for the city of san francisco to revamp the ems system one specific part of the proposal focused on the need to get defibrillators to the people suffering from cardiac arrest sooner for example by putting defibrillators on firetrucks after petitioner’s plan was approved by the board_of supervisors the department of public health and the san francisco fire department petitioner approached her supervisors at ucsf the university created the center for prehospital research and training cprt as a structure for petitioner to work in and continue her research in petitioner became the director of cprt cprt taught emergency preparedness and cardiac pulmonary resuscitation cpr to the public and studied prehospital cardiac arrest treatment petitioner’s main role as director of cprt centered on research during her years as director of cprt petitioner successfully wrote research grant proposals and contract proposals for training firefighters in medical procedures training emergency medical technicians and paramedics for ambulances training school teachers in cpr training school - children in emergency recognition and response and for training the general_public in cpr by petitioner had received local statewide and national acclaim and letters of support for her efforts to improve public awareness of the need to learn and perform cpr at the earliest possible indication of a heart attack prominent members of the medical and political communities supported her efforts to expand her public sector training concepts petitioner’s business venture--save-a-life systems as petitioner was implementing emergency medical response training programs within public entities she formulated the idea that private sector emergency response systems were needed to coordinate with the public systems in order to insure that cardiac emergencies which occurred in private facilities received the proper recognition and the proper medical response until the public emergency response system arrived on the scene as a result petitioner decided that there was a need to teach people in public and private facilities how to recognize an emergency in progress where to find emergency equipment placed within the building how to place a call to the public emergency response system using and how to administer cpr and or use a defibrillator until the arrival of the public emergency response team - - in an effort to prove that expansion of the emergency medical response training into the private sector was worthwhile petitioner worked with the san francisco giants organization to create the first prototype for a private facility emergency response system the ushers at candlestick park were trained to recognize emergencies and to communicate the occurrence of an emergency to the paramedics and emergency response teams located throughout the stadium automatic defibrillators were also placed in the stadium for use by the trained staff during cardiac emergencies petitioner’s work with the san francisco giants’ emergency response program was done in her individual private capacity and not as the director of cprt in date petitioner collaborated with others in preparing a business plan for a private company called worksafe america corp the business plan expanded on petitioner’s concept to bring ems systems into the private sector by encouraging private industry to purchase defibrillation equipment and place it in strategic locations where statistics showed the public was more apt to need and benefit from access to such equipment the strategy was to create a consortium of vendors of defibrillators large employers and an implementation training team headed by petitioner which would place equipment and trained personnel in locations where heart -- - seizures were most likely to occur--in private work and recreational facilities in date petitioner met with attorney lawrence bisenberg for advice regarding how to set up a business they discussed the steps needed to introduce petitioner’s worksafe america corp concepts of providing emergency medical_care training and defibrillator training to the private sector the name to be utilized for petitioner’s concept was revised when petitioner applied to the department of corporations in california and learned that the name worksafe america corp was already being used by another organization the new name selected by petitioner was save-a-life systems sls but the concepts and goals for petitioner’s private business did not change in date a new business plan for sls was developed and petitioner met with different defibrillation companies negotiations went the farthest with physio-control a defibrillator manufacturer located in redmond washington during the first guarter of petitioner mitchell rappaport and doron braun traveled to washington to meet with physio- control and present their plan to the multiple areas within the organization the purpose of the meeting was to share petitioner’s concepts and seek a partnership with physio-control which would result in funding for sls the meeting with physio- - control was very positive and petitioner believed that physio- control was prepared to partner with sls and provide funding for her private business venture the state audit of cprt in date the state of california office of the state auditor initiated an audit of ucsf which was directed at the department of medicine and included cprt the state audit was precipitated by allegations of noncompliance with university policy leveled against the department of medicine harry cordon director of audit and management services at ucsf was responsible for all interaction with the office of state auditor during its conduct of the audit ucsf was concerned about certain procedures being employed during the state audit and retained coopers lybrand to perform a shadow audit during both the state audit and the coopers lybrand audit petitioner made herself available and expended a great deal of time and effort providing information requested by the auditors at no time during the audits did harry cordon believe petitioner’s position at ucsf was in jeopardy or that she should be concerned about her employment with ucsf in fact petitioner received continued assurances during the audits that her position was secure with the cprt and in date uscf extended petitioner’s contract as director of cprt through date the state’s audit report was made public in date --- - between july and date the san francisco chronicle and the san francisco examiner newspapers published several articles referencing cprt and the state audit as a result of these articles petitioner was concerned that adverse publicity would impact her ongoing efforts to obtain funding for sls in date petitioner consulted with two attorneys charlotte fishman and laura stevens because of concerns she had about leaks of information to the media regarding the state audit and the potential impact of adverse publicity to her professional reputation on date petitioner retained the law firm of rogers joseph o’donnell quinn rjo q petitioner consulted with her lawyers at rjo q many times in on the advice and recommendation of rjo q petitioner also retained the law firm of topel goodman according to rjo q’s billing reports the following legal services were performed for petitioner during june july august and date research preparation and drafting of documents for the criminal prosecution of petitioner and cprt preparation of a lawsuit to prevent the release of the draft state audit report research preparation and meetings with respect to the state audit investigation of cprt review of documents in petitioner’s personnel file regarding sex discrimination research preparation meetings and drafting --- - correspondence with respect to the coopers lybrand audit of cprt responding and communicating with the media and communication with petitioner’s criminal defense attorney william goodman all of the billing statements sent to petitioner from rjo q for services performed in june july august and september of were according to their heading regarding the state audit of cprt and dr braun between july and date petitioner and her lawyer consulted with a public relations firm regarding media response strategy and the preparation of press releases on behalf of petitioner as a result of the adverse publicity being printed in the san francisco news media petitioner put the incorporation and development of sls on hold around this time physio-control also put its plans to fund sls on hold petitioners’ tax_return petitioners’ federal_income_tax return was prepared by ronald stern a certified_public_accountant c p a mr stern had prepared petitioners’ income_tax returns for years before preparing petitioner’s schedule c for the tax_year mr stern discussed with petitioner the purpose of the legal and professional services proposed to be deducted for the tax_year petitioners deducted dollar_figure on schedule c for legal and professional fees respondent determined that petitioner’s legal fees in the amount of - lo - dollar_figure are deductible as a schedule a miscellaneous itemized_deduction as opposed to a schedule c deduction respondent also determined that petitioner is entitled to an additional_depreciation deduction on her schedule c in the amount of dollar_figure opinion the issues for our consideration are whether legal fees in the substantiated amount of dollar_figure and or dollar_figure of expenses in connection with sls are deductible on petitioner’s schedule c as ordinary and necessary business_expenses or whether they are deductible on petitioners’ schedule a as unreimbursed employee business_expenses subject_to the percent of adjusted_gross_income floor and the alternative_minimum_tax and whether petitioners are liable for an accuracy-related_penalty under sec_6662 legal expenses sec_162 allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business ordinary and necessary legal expenses are generally deductible under sec_162 when the matter giving rise to the expenses arises from or is proximately while petitioners deducted dollar_figure in legal and professional fees on schedule c profit or loss from business of their form_1040 u s individual_income_tax_return in they have conceded that only dollar_figure has been substantiated of the dollar_figure in substantiated expenses dollar_figure were expended by petitioner for services in connection with petitioner’s save-a- live systems sls business related to a business activity see 276_us_145 in order to be deductible on schedule c an expense must be directly connected with or proximately result from a trade_or_business of the taxpayer see id 91_tc_352 affd 972_f2d_150 7th cir ifa taxpayer’s trade_or_business is that of being an employee however then the legal expenses will be treated as an itemized_deduction subject_to the limitation of sec_67 see 102_tc_465 revd on other grounds 84_f3d_433 5th cir alexander v commissioner tcmemo_1995_ the deductibility of legal fees depends on the origin and character of the claim for which the expenses were incurred and whether the claim bears a sufficient nexus to the taxpayer’s business or income-producing activities see 372_us_39 the supreme court stated that the origin and character of the claim with respect to which an expense was incurred rather than its potential consequences upon the fortunes of the taxpayer is the controlling basic test id pincite thus in order for petitioner’s legal fees to be deductible on her schedule c the origin of those legal services must have been rooted in sls her schedule c business petitioners maintain that the legal fees are correctly claimed on schedule c because the expenses are directly related to petitioner’s professional reputation and thus sls respondent argues that the origin of petitioner’s legal fees did not arise from her schedule c trade_or_business and that under united_states v gilmore supra the consequences to petitioner’s schedule c business are irrelevant to the analysis based upon the record the origin of petitioner’s legal fees stems from her status as an employee of ucsf and not from her schedule c trade_or_business the event that prompted petitioner to hire attorneys in was the state audit of cprt and the impending release of the audit report while the record is replete with testimony from petitioner regarding the reasons she retained legal counsel it is also replete with evidence that the event that prompted the legal services was the state audit fthe billing detail from petitioner’s attorneys indicates that the majority of their services concerned the impending release of the state’s audit report and centered around the state audit of cprt the billing detail further indicates that the legal services performed were directly related to her employment with ucsf as director of cprt indeed the entire record indicates that petitioner hired attorneys in response to the state audit of cprt we do not question whether petitioner was engaged in a schedule c trade_or_business nor do we doubt that petitioner was indeed concerned that the state audit and consequences flowing from the audit could negatively affect her professional reputation and therefore her schedule c business however we are bound by the rule established by united_states v gilmore supra to look to the origin of the underlying claim and not the consequences petitioner’s motives for hiring attorneys and exploring her legal options simply are not relevant the origin of the claim herein was not in the trade_or_business of sls but rather in petitioner’s activities as an employee of ucsf the event that caused her to hire attorneys the state audit of cprt was directly related to her employment as director of cprt the legal expenses were incurred in response to an event that was not part of sls’ business but rather was part of petitioner’s employment thus the fact that the legal services may have resulted in damage control necessary to fend off disparaging publicity and salvage petitioner’s schedule c business relationships is irrelevant because the state audit which had nothing to do with sls was the precipitating event petitioners contend that the legal fees were not incurred in connection with any litigation but instead they were incurred to seek advice and counsel thus they argue it is appropriate to examine the nature of the taxpayer’s concerns and the reason the advice is sought petitioners cite ahadpour v commissioner tcmemo_2000_68 for the proposition that costs associated with legal advice obtained while trying to protect one’s business reputation are deductible petitioners’ reliance on ahadpour however is inapposite because in that case we did not consider whether the taxpayer was protecting his professional reputation concluded that the taxpayer was not entitled to a deduction for legal fees and did not suggest that a separate test for determining deductibility applies when dealing with fees for legal advice as opposed to fees for litigation indeed in ahadpour v commissioner supra we utilized the origin of claim test set forth in united_states v gilmore supra accordingly we find that the claim or event that prompted petitioner to incur legal fees did not arise in connection with petitioner’s schedule c trade_or_business and therefore we sustain respondent’s determination that the legal fees in the amount of dollar_figure are deductible as unreimbursed employee business_expenses on schedule a with respect to the dollar_figure expended by petitioner for services in connection with petitioner’s sls business petitioners are entitled to claim that amount as a business_expense on the schedule c for the taxable_year accordingly to that extent petitioners have shown respondent’s determination to be in error accuracy-related_penalty respondent determined that petitioners underpaid a portion of their income_tax because of negligence sec_6662 a imposes a penalty in an amount equal to percent of the portion of the underpayment attributable to negligence or disregard of rules or regulations negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and the term disregard includes any careless reckless or intentional disregard sec_6662 the accuracy-related_penalty will apply unless petitioners demonstrate that there was reasonable_cause for the underpayment and that they acted in good_faith with respect to the underpayment see sec_6664 taxpayers can avoid liability for the accuracy-related_penalty if they engage a competent professional to prepare their returns and they reasonably rely on the advice of that professional see 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 taxpayers must show that they provided all relevant information to the professional see 59_tc_473 applying these principles to the instant case we conclude that petitioners have sustained their burden of establishing that reasonable_cause and good_faith existed for deducting legal fees -- - on petitioner’s schedule c petitioner testified credibly at trial that she engaged the professional services of ronald stern a c p a to prepare petitioners’ income_tax return for mr stern had prepared petitioners’ income_tax returns for the past years according to petitioner mr stern questioned her about the legal and professional fees because he wanted to understand what services the attorneys were performing accordingly petitioner provided him with information regarding those expenses the characterization of legal fees in this case as either a schedule a or a schedule c deduction involves analyzing and applying a set of facts to a technical area of the law thus in the context of determining the correct deduction for legal expenses that touch both upon a taxpayer’s employment and trade_or_business it 1s reasonable for a taxpayer to consult and rely on acc p a here petitioners were clearly relying on mr stern to determine the proper characterization and deduction of the legal fees based on the record we find that petitioners have proved that their actions with respect to characterizing the legal fees as schedule c deductions were reasonable and are not subject_to the sec_6662 accuracy-related_penalty respondent also contends the fact that petitioners claimed deductions in excess of what they actually substantiated warrants the imposition of the accuracy-related_penalty petitioners were able to substantiate only a portion of the deductions that they claimed on schedule c petitioners did not provide any explanation as to why they were unable to substantiate all of the legal fees that they claimed as deductions thus with respect to the substantiation item we find that petitioners have failed to show that their actions were reasonable and not made with intentional disregard of rules or regulations under these circumstances we hold that petitioners are liable for the accuracy-related_penalty under sec_6662 on the portion of any underpayment attributable to the deduction of legal fees that were not substantiated we have considered all other arguments of the parties and to the extent not addressed herein we find them to be either moot meritless or irrelevant to reflect the foregoing decision will be entered under rule


ss significant index number department of the treasury internal_revenue_service washington d c jul tax_exempt_and_government_entities_division se tep pa’ ar re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the amortization charge bases as identified in your application submission established as of july total outstanding balance of dollar_figure as of that date with a the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the to the _ and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours dsk za david m ziegler manager ep actuarial group


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 1-plr-121586-98 date date legend acquirer target subsidiary foundation a b c d e f g h i j k plr-121586-98 state x state y state z business p date date date date date date dear we respond to your letter dated date requesting that we rule on a significant sub-issue present in a proposed transaction see sec_3 of revproc_99_3 1998_1_irb_106 additional information was submitted in letters dated date date date and date the information submitted is summarized as follows acquirer is a publicly held calendar_year taxpayer organized in state y that is engaged in business p and whose stock has been publicly traded on the new york stock exchange since date although acquirer is authorized to issue both common and preferred_stock no shares of preferred_stock have been issued however acquirer has a shares of common_stock outstanding as of date from date to date the average daily volume of acquirer common_stock traded on the new york stock exchange was approximately b target is a state z corporation that is engaged in business p whose authorized capital stock consists of class a convertible common_stock class a stock class b convertible preferred_stock class b stock common_stock blank preferred_stock and series a preferred_stock series a preferred however as of date target had issued and outstanding c shares of class a stock and d shares of class b stock and warrants to purchase series a preferred which will be exercised before the merger is executed plr-121586-98 subsidiary is a state y corporation formed exclusively for the proposed transaction its authorized capital stock consists of e shares of common_stock all of which is owned by acquirer foundation is a state x non-profit corporation and a major shareholder of acquirer foundation holds no stock in target nor will it receive any target stock in the merger described below on date target acquirer and subsidiary entered into a merger agreement whereby target will merge into subsidiary merger in the merger each holder of class a stock and series a preferred have the right to receive at his her election in certain circumstances either i a certain number of shares of acquirer common_stock ii a certain amount per share of cash or iii a combination thereof additionally each holder of class b stock will receive a certain number of acquirer common_stock the amount of common_stock to be issued in the merger by acquirer to target’s shareholders will be determined pursuant to a formula set forth in the merger agreement which will take into account the average closing trading price over a day period nevertheless the formula will ensure that at least of the total merger consideration will consist of acquirer common_stock with the remaining amount being paid in cash currently the relative value of target in comparison to the value of acquirer is less than on date a date prior to and unrelated to the merger agreement acquirer’s board_of directors approved a stock repurchase program authorizing acquirer to repurchase up to i shares of acquirer common_stock on the open market repurchase plan the repurchase plan was intended to help acquirer offset the dilutive effects on its earnings as a result of stock issuances under its employee stock_option and employee stock_purchase_plans as well as permit acquirer to repurchase its common_stock if depending on market fluctuations it deemed such purchases to be in the best interest of the stockholders additionally acquirer currently plans to raise dollar_figurek by issuing convertible debentures because the issuance of the debentures will increase acquirer’s fully diluted outstanding shares acquirer plans to repurchase its shares in the amount of j shares from foundation in order to offset any related potential dilution to its earnings per share at the time the merger agreement was executed on date acquirer’s board_of directors amended the repurchase plan by increasing the amount of stock acquirer may repurchase in the open market to f this increase was intended to help acquirer offset the dilutive effect on its earnings to be caused by the issuance of common_stock in the merger acquirer did not make any repurchases pursuant to the repurchase plan prior to entering into the merger agreement however since entering into the merger agreement acquirer has repurchased g shares of its common_stock in the open plr-121586-98 market acquirer expects to make additional repurchases of its common_stock pursuant to the repurchase plan after the consummation of the merger the repurchases will be made on the open market on the new york stock exchange through a broker because of the mechanics of an open market purchase acquirer will not know the identity of the sellers nor will the sellers know the identity of the buyers the following representations have been made in connection with the proposed transaction the merger will satisfy the statutory requirements of sec_368 and a d and will satisfy the continuity_of_interest requirement of sec_1_368-1 and e continuity_of_interest requirement not taking into account the effect of acquirer’s repurchase of its stock on the open market after the merger acquirer has no plan or intention of repurchasing acquirer’s common_stock that will be issued to the target’s shareholders in the merger however acquirer stock may be repurchased through a broker on the new york stock exchange acquirer’s plan to repurchase shares of acquirer stock subsequent to the merger was not undertaken at the request of target or the target shareholders and actual purchases by acquirer of its stock following the merger will not be made at the request of target or the target shareholders to the best knowledge of acquirer there is no plan or intention on the part of the stockholders of target to utilize acquirer’s repurchase plan to have acquirer redeem the shares of acquirer common_stock issued to them in the merger any repurchases by acquirer of its stock on the open market at the same time that a former target stockholder may be selling such stock on the open market would be purely coincidental based solely on the facts submitted and the representations made above it is held as follows the purchase by acquirer of its common_stock following the merger pursuant to the repurchase plan adopted by acquirer will not cause the merger to fail the continuity_of_interest requirement no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that plr-121586-98 are not directly covered by the above rulings this 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 letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated sincerely assistant chief_counsel corporate by alfred bishop chief branch


department of the treasury employer_identification_number contact person - id number contact telephone number uil list internal_revenue_service p o box cincinnati oh release number release date date legend city state q name of facility r u dollar_figure cost of project v dollar_figure amount of set_aside w dollar_figure set-aside year x dollar_figure set-aside year y dollar_figure set-aside year z dollar_figure set-aside year dear why you are receiving this letter this is our response to your date and your subsequent amendment thereto requesting approval of a set-aside under internal_revenue_code sec_4942 you’ve been recognized as tax-exempt under sec_501 of the code and have been determined to be a private_operating_foundation under sec_509 and sec_4942 our determination based on the information furnished your set-aside program is approved under internal_revenue_code sec_4942 as required under sec_4942 the set_aside amount must be paid within the 60-month period after the date of the first set-aside description of set-aside request you previously acquired a historic property q located in r you propose to restore q at an estimated total cost of dollar_figureu when you acquired q a portion of it was leased out to commercial tenants and the remaining part was vacant after restoration the building q will be dedicated in its entirety to your exempt purposes the first floor will be used for orientation space exhibition space a gift shop and public space the second floor will provide office space for various existing functions of your organization and an exhibition space in the rear the upper floor will contain exhibition spaces and spaces for organ recitals and receptions a second exit from q will also be built to meet a fire code requirement the project can better be accomplished using a set-aside than by making an immediate payment because long-term expenditures must be made requiring more than one year’s income to assure their continuity you intend to restore q using no outside financing this is a major project demanding the accumulation of funds in earlier years for expenditure in later years the predesign and design phases of the project will occupy the initial two years of the set-aside period the final construction phase of the project will be carried out in the third fourth and fifth years of the set-aside period you have requested an initial set-aside of dollar_figurew for the fiscal_year ending march __ with additions of dollar_figurex dollar_figurey and dollar_figurez for the and march _ respectively fiscal years march the total set-aside requested being dollar_figurev the set_aside requested for each year is expected to be sufficient to ensure that you qualify that year as a private_operating_foundation under sec_4942 march31 you expect that the project will be completed by december have affirmed that all the amounts to be set_aside will actually be paid within months of the date of the first set-aside and you basis for our determination internal_revenue_code sec_4942 states that an amount set_aside for a specific project which includes one or more purposes described in sec_170 may be treated as a qualifying_distribution if it meets the requirements of sec_4942 sec_4942 of the code states that an amount set_aside for a specific project will meet the requirements of this subparagraph if at the time of the set- aside the foundation establishes that the amount will be paid within five years and eitner clause i or ii are satisfied sec_4942 of the code is satisfied if at the time of the set-aside the private_foundation establishes that the project can better be accomplished using the set-aside than by making an immediate payment sec_4942 of the code requires that private operating_foundations must spend at least of its adjusted_net_income or its minimum_investment_return whichever is less directly for the active_conduct of its exempt_activities the income test in order to remain a private_operating_foundation sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that a private_foundation may establish a project as better accomplished by a set-aside than by immediate payment if the set-aside satisfies the suitability test described in sec_53_4942_a_-3 sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that specific projects better accomplished using a set-aside include but are not limited to projects where relatively long-term expenditures must be made requiring more than one year’s income to assure their continuity in revrul_74_450 1974_2_cb_388 an operating_foundation converted a portion of newly acquired land into a public park under a four-year construction_contract the construction_contract payments were to be made mainly during the final two years this constituted a specific project the foundation’s set-aside of all its excess earnings for four years was treated as a qualifying_distribution under internal_revenue_code sec_4942 what you must do your approved set-aside s will be documented on your records as pledges or obligations to be paid_by the date specified the amounts set_aside will be taken irito account to determine your minimum_investment_return under internal_revenue_code sec_4942 and the income attributable to your set_aside s will also be taken into account in computing your adjusted_net_income under sec_4942 of the code additional information this determination is directed only to the organization that requested it internal_revenue_code sec_6110 provides that it may not be used or cited as a precedent please keep a copy of this letter in your records if you have any questions please contact the person listed in the heading of this letter sincerely notice redacted copy of letter holly o paz director exempt_organizations rulings and agreements enclosure


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal_revenue_service washington d c form tax years employer_identification_number number release date date uil index dear ------------- this letter constitutes a final adverse_ruling with respect to your claim of exemption from federal income_taxation under sec_501 of the internal_revenue_code we make our ruling for the following reason s identification_number telephone number contact person you have failed to establish that you are organized and operated exclusively for charitable or educational_purposes you have failed to establish that your activities lessen the burdens of government you operate a business that furthers a substantial nonexempt commercial purpose and serves private rather than public interests donors may not deduct contributions to your organization under sec_170 of the code the code and the regulations issued thereunder require that you file federal_income_tax returns based upon the financial information that you furnished you should file returns on the form and for the tax years indicated above within days from the date of this letter unless you request and are granted an extension of time to file the returns you should attach a copy of this letter to the returns you file questions concerning the filing of returns should be directed to the ohio tax exempt and government entities te_ge office pincite-5500 a toll free number if you decide to contest this ruling under the declaratory_judgment provisions of sec_7428 of the code you must initiate a suit in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia before the 91st day after the date that we mailed this ruling to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment the filing of a declaratory_judgment suit under sec_7428 does not stay the processing of income_tax returns and assessment of any taxes in accordance with sec_6104 of the code we will notify the appropriate state officials of this action this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions concerning the reasons for this ruling please contact the person whose name and telephone number appear in the heading of this letter enclosure notice martha sullivan director exempt_organizations sincerely


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 b07 plr-125089-07 date date legend taxpayer ------------------------------------------------------------------------------------------------- ----------------------- dear ---- this responds to a request dated date for a ruling whether taxpayer must collect the tax imposed by sec_4261 and sec_4271 of the internal_revenue_code on amounts paid to it under the facts described below for the flight segments between the private airfield and the airports in which taxpayer is not transporting persons or property for its customers the facts submitted and the representations made are summarized as follows taxpayer operates helicopters for customers engaged in oil_and_gas exploration the helicopters depart from a private airfield and travel to one or more airports to pick up customers and then transport the customers and their cargo to offshore exploration and production sites on the return flight the helicopters transport the customers and their cargo from the offshore exploration and production sites to the airports the passengers disembark at the airport and the helicopters return to the private airfield taxpayer does not transport persons or property for its customers on the flight segments between the private airfield and the airports taxpayer keeps flight time for each segment of all flights and is able to separately accumulate flight time for segments in which passengers and cargo are on board the private airfield from which the helicopters depart is not a facility that is eligible for assistance under the airport and airway development act of the plr-125089-07 airports at which the helicopters pick up passengers are eligible facilities all of the helicopters used are aircraft having a maximum_certificated_takeoff_weight over big_number pounds sec_4261 imposes a tax on the amount_paid for taxable_transportation of any person by air sec_4262 defines taxable_transportation to include transportation by air that begins and ends in the continental_united_states sec_4262 defines the term transportation to include layover or waiting time and movement of the aircraft in deadhead service sec_4271 imposes a tax on the amount_paid for the taxable_transportation of property if the amount is paid to a person engaged in the business of transporting property by air for hire sec_4272 defines taxable_transportation to include transportation by air that begins and ends in the continental_united_states sec_4272 defines the term transportation to include layover or waiting time and movement of the aircraft in deadhead service sec_4262 and sec_4272 expressly include movement of the aircraft in deadhead service as taxable_transportation accordingly based on the facts submitted and the representations made taxpayer is required to collect the taxes imposed by sec_4261 and sec_4271 on amounts paid_by its customers for any flight_segment between a private airfield and facilities eligible for assistance under the airport and airway development act of including flights in which taxpayer is not transporting persons or property for its customers except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent plr-125089-07 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s representatives sincerely frank boland frank boland chief branch office of associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes cc