internal_revenue_service appeals_office liberty avenue room pittsburgh pa release number release date date jul rekk rekk kkkk certified mail dear department of the treasury taxpayer_identification_number awe person to contact wee 1d tel fax tax periods ended december 20xx december 20xx december 20xx uil this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason sec_1_501_c_3_-1 of the federal tax regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt you have failed to demonstrate that you are operated exclusively for tax- exempt purposes described in sec_501 of the code since at least you have conducted no programs or activities furthering tax- exempt purposes and instead since that date all your efforts have been directed towards seeking to monetize a fictitious non-cash asset as such you are not an organization described in sec_501 and the favorable determination_letter issued to you on regarding your exempt status is hereby revoked contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms for the tax periods stated in the heading of this letter and for all tax years thereafter file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of revocation you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours s acting appeals team manager enclosure publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examination sec_985 michigan ave fi detroit mi attn a standen eo department of the treasury date date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we propose to revoke our recognition of your exempt status as an organization described in sec_501 of the internal_revenue_code code we enclose our report of examination explaining why we are proposing this action if you accept our proposal please sign and return the enclosed form_6018 consent to proposed action sec_7428 unless you have already provided us a signed form_6018 we will issue a final revocation letter determining you are not an organization described in sec_501 after the issuance of the final revocation letter we will publish an announcement that you have been deleted from the cumulative list of organizations contributions to which are deductible under sec_170 of the code if you do not respond to this proposal we will similarly issue a final revocation letter failing to respond to this proposal may adversely impact your legal standing to seek a declaratory_judgment because you may be deemed to have failed to exhaust administrative remedies if you do not agree with our proposed revocation and wish to file a protest with the appeals_office of the internal_revenue_service you must submit to us a written request within days from the date of this letter for your protest to be valid it needs to contain certain specific information including a statement of the facts the applicable law and arguments in support of your position the enclosed publication and publication explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation services referred to in publication generally do not apply after issuance of this letter for the specific information needed for a valid protest please refer to page of the enclosed publication the examination process and page of the enclosed publication exempt_organization appeal procedures for unagreed issues if you do submit a valid protest then an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly letter rev catalog number 34809f you may also request that we refer this matter for technical_advice as explained in publication and an annual revenue_procedure please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based ona technical_advice_memorandum issued by the eo rulings and agreements function then no further administrative appeal will be available to you within the irs on the matter if you receive a final revocation letter you will be required to file federal_income_tax returns for the tax period s shown above as well as for subsequent tax years we will notify the appropriate state officials of the revocation in accordance with sec_6104 of the code currently only certain states are eligible to receive notification of proposed revocation actions you can call the person at the heading of this letter to find out if your state is eligible to receive a notice of revocation of your tax-exempt status you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may cail toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter call if we need to contact you if you write please provide a telephone number and the most convenient time to thank you for your cooperation sincerely nanette m downing director eo examinations enclosures form_6018 publication publication report of examination letter rev catalog number 34809f form_886 a name of taxpayer explanation of items department of the treasury - internal revenuc service schedule no or exhibit year period ended december org 20xx december 20xx december 20xx legend org - organization name xx - date state - state - ra-1 - ra issue does org org continue to qualify for exemption under internal_revenue_code irc sec_501 facts org was incorporated in the state of state on may 19xx and was organized to serve the community and develop a school and foster home the form_1023 application_for recognition of exemption under sec_501 c of the internal_revenue_code dated june 19xx stated that org would operate a 24-hour residential facility for disabled adults on october 19xx org was granted exemption under sec_501 as a public charity then on may 20xx org was reclassified as a private non-operating foundation pf due to the fact that it received no public support during its first tax years org’s annual information_return form_990 for year ended december 20xx reported a dollar_figure contribution no expenses or balance_sheet items were reported on this return on the information returns of all subsequent years from yeat ended december 20xx through december 20xx org reported no income or expenses on each of these returns the only item reported was the dollar_figure asset that was donated to org in 20xx in response to information_document_request idr dated november 20xx org stated the dollar_figure noncash asset consists of us tax_credits accumulated in the development of medical and clinical equipment between 19xx and 20xx the noncash asset_tax credits was donated to org by ra-1 during the course of the examination the agent learned that on december 20xx a permanent injunction was filed by the united_states department of justice against ra-1 and anyone in active concert or participation in the complaint for permanent injunction with him for promoting and selling these tax_credits filed on june 20xx the department of justice determined that the tax_credits claimed to be owned by ra-1 had never existed and couldn’t be transferred even if they did exist form 886-a crev department of the treasury - internal_revenue_service page -1- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended december org 20xx december 20xx december 20xx in response to idr dated november 20xx org stated the org organization 1s not cutrently active in terms of directly managing projects or providing grants to other tax-exempt_organization sic org has an established ramp up project list when funds are available from leveraging the noncash asset org has been working since 20xx to obtain credit lines to generate profits to fund the organizations sic charitable missions applicable law sec_501 provides tax exemption for corporations and foundations that are operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt regulation sec_1 c -1 c treasury operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 c an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose states that an organization will be regarded as regulation sec_1_501_c_3_-1 states an organization is not operated exclusively for treasury one or more exempt purposes if its net_earnings inure in whole or in part to the benefit or private shareholders or individuals sec_1_501_c_3_-1 states that an organization is not organized or operated exclusively for one or more of the purposes specified in sec_501 unless it setves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of ptivate interests such as designated individuals the creator or his family shareholders of the organization ot persons controlled directly or indirectly by such private interests form 886-a crev department of the treasury - internal_revenue_service page -2- department of the ‘treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended december form_886 a name of taxpayer org 20xx december 20xx december 20xx private_letter_ruling 20x x21022' this ruling describes an organization that was granted exemption as a public charity and reclassified as a private_foundation for lack of public support during the advance_ruling period the irs revoked the exemption of the entity for failure to meet the operational_test due to its lack of activities ‘taxpayer’s position in a letter dated may 20xx org stated that it continues to qualify for exemption under sec_501 c org made the following statements in the letter org maintains that the irc allows an exempt_organization to be meeting the requirements of the code if it is engaged in charitable activities or financial activities needed to create corpus funds for the organization to fund the charitable activities org has been and continues to this day to be involved in getting the noncash asset converted to cash in order to fund org projects and provide funds to other exempt_organizations org has been pursuing aggressively to get the tax_credits monetized through selling the tax_credits or using the tax_credits as collateral to fund a line of credit loc until the sic tax_credits have no fair_market_value org currently has seven prospective funding entities in final due diligence to purchase the tax_credits and two parties to fund a line of credit org estimates it will take another to days to complete the transaction until the tax_credits are converted to cash and to set up an investment corpus no projects can be funded and org will not report any expenses on org annual 990-pf filings the irs audited the tax_credits while they were being earned when donated to org and all subsequent audits 20xx 20xx 20xx 20xx 20xx and 20xx the irs didn’t challenge org’s exempt status in any prior irs audits government’s position org’s protest letter provided no new or additional information to cause the government to change its position that org does not qualify for exemption under sec_501 k ke wk ' while gcm's and private letter rulings may not be used or cited as precedents sec_6110 courts have long considered them helpful and instructive along with revealing the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws 369_us_672 945_f2d_1529 656_f2d_659 form 886-acev department of the treasury - internal_revenue_service page -3- form_886 a department of the ‘treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended december org 20xx december 20xx december 20xx org does not pass the operational_test as specified in sec_1_501_c_3_-1 because the lack of activities is evidence that the entity is not operated exclusively for one or more charitable purposes to be considered as operating exclusively for charitable purposes an entity is required to engage primarily in activities which accomplish one or more exempt purposes as specified in sec_501 c based on org’s response to idr and its filed annual information returns the entity have never conducted any type of charitable activities its only activity thus far has been to receive a contribution of other assets reported at dollar_figure in 20xx the activities listed on form_1023 and on org’s articles of incorporation have never been conducted in their protest letter org indicated that it is still attempting to sell the tax_credits that were donated to org by ra-1 mote specifically the protest letter indicates that until the tax_credits are sold or otherwise converted to cash org cannot fund any charitable projects as indicated above the u s department of justice filed a final injunction against ra-1 for promoting and selling these tax_credits the complaint filed by the u s department of justice against ra-1 indicates that the tax_credits claimed to be owned by ra-1 never existed and couldn’t be transferred even if they did exist therefore the tax_credits claimed to be donated by ra-1 to org never existed and consequently are worthless org has never conducted any charitable activities as indicated in their protest letter org claims that until it sells the tax_credits or otherwise converts them to cash they will not be able to conduct any charitable activities since the tax_credits are worthless and don’t exist they cannot be transferred to cash consequently it appears that org will never be able to conduct any charitable activities in their protest letter org claimed that the irs has never challenged org’s exempt status in prior audits according to irs records before the current examination org had never been examined by the irs since org has not conducted any charitable activities since its inception we are proposing revocation of tax exemption retroactive to the date of formation may 19xx conclusion org’s tax exemption under sec_501 should be revoked effective may 19xx for failure to meet the operational_test described in sec_1_501_c_3_-1 form 886-acrev department of the treasury - internal_revenue_service page -4- form_886 a department of the ‘treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended december name of taxpayer org 20xx december 20xkx december 20xx as an organization that is no longer exempt under sec_501 org is required to file form_1120 annually in addition the state of state would be notified that org is no longer exempt form 886-a cev department of the treasury - internal_revenue_service page -5-


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel number info release date u i l dear cc tege eb qp2 genin-110699-02 date this responds to a letter you faxed to of my staff regarding the proper reporting of governmental sec_457 plan distributions after congress’ recent enactment of the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra although this general information letter1 cannot furnish definitive guidance we hope it helps resolve your questions and concerns the first point to note is that egtrra significantly revises the provisions regarding income_tax_withholding upon distributions from eligible governmental sec_457 plans effective beginning on date egtrra subjects these distributions to the sec_3405 provisions that govern income_tax withholdings upon distributions from pensions annuities individual_retirement_arrangements iras and now governmental sec_457 plans by contrast distributions from tax-exempt organizations’ sec_457 plans are still subject_to the wage income_tax_withholding rules of sec_3401 that also governed governmental sec_457 plan distributions before this year since egtrra did not change the withholding laws applicable to nonqualified_deferred_compensation_plans of non-governmental tax-exempt organizations the second major point to note is that sec_3405 and the regulations thereunder provide a separate set of rules for each of three types of distributions eligible rollover distributions non-eligible rollover distributions that are periodic_payments and non-eligible rollover distributions that are not periodic_payments the rules specifically applicable to one type of these distributions should not be applied to another type section dollar_figure of revproc_2001_1 defines an information_letter as a statement issued by the internal_revenue_service that calls attention to a well-established interpretation or principle of tax law without applying it to a specific set of facts this section also provides that an information_letter is advisory only and has no binding effect on the service genin-110699-02 sec_402 of the internal_revenue_code the code defines an eligible_rollover_distribution as any distribution to an employee of any portion of the balance to the employee’s credit in an eligible_retirement_plan such as a qualified_retirement_plan a sec_403 tax-sheltered annuity and now an eligible governmental sec_457 plan except for any substantially_equal_periodic_payments made over the recipient’s lifetime or for at least years any amount that is a required_minimum_distribution rmd described in sec_401 or any hardship_distribution any amount of an eligible_rollover_distribution that is not rolled over into another eligible_retirement_plan or an ira in a direct_rollover is subject_to income_tax_withholding under sec_3405 of the code there is no provision for a participant electing out of the withholding upon an eligible_rollover_distribution with respect to any periodic_payment distribution that does not constitute an eligible_rollover_distribution under these above-described rules sec_3405 subjects it to wage-like withholding under the detailed provisions of sec_3405 unless the recipient files a form w-4p withholding_certificate for pension or annuity payments either claiming additional exemptions thereby reducing the amount withheld or electing out of withholding under sec_3405 with respect to any non-periodic payment distribution that does not constitute an eligible_rollover_distribution sec_3405 subjects it to the income_tax_withholding rules unless the recipient files a form w-4p electing out of withholding under sec_3405 in the past as noted in notice_2000_38 2000_33_irb_174 distributions from any eligible sec_457 plans and the income_tax_withholding thereon were until recently reported on a form_w-2 wage and tax statement issued to the participants concerning your question regarding the proper reporting beginning this year of distributions from an eligible governmental sec_457 plan the internal_revenue_service is currently studying the effect of the egtrra changes and hopes to issue a revised notice soon explaining whether governmental sec_457 plan administrators should continue to report such distributions upon a form_w-2 or should start reporting such distributions this year on a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc2 in your letter you inquired about withholding upon participants’ governmental_plan distributions that exceed their rmd as explained above assuming that the portion exceeding their rmd is an eligible_rollover_distribution the recipients cannot elect out of the withholding by filing a form w-4p although they can elect out of withholding upon the rmd portion of their distribution by filing this form the form w-2g has no applicability to these distributions since it is used only to report certain gambling winnings genin-110699-02 to determine the proper income_tax_withholding upon governmental_plan distributions of participants who elect to receive lump-sum_distributions or periodic_payments you must first determine whether their distributions constitute eligible rollover distributions or non-eligible rollover distributions as explained above and then apply the specific provisions applicable to the appropriate category of distribution finally with respect to participants who receive non-eligible rollover periodic governmental_plan distributions as explained above they are subject_to the detailed sec_3405 withholding provisions unless they file a form w-4p specifying a lower withholding rate or electing out of withholding and these distributions are not subject_to rules applicable to a different type of distribution such as the withholding applicable to an eligible_rollover_distribution we hope the general information supplied in this letter has been helpful if you of my staff at need further assistance please contact sincerely robert d patchell acting branch chief qualified_plans office of the associate chief_counsel tax exempt and government entities


internal_revenue_service number release date index number 468b ------------------------ ------------------------------------------- ------------------------- ---------------------------------- --------------------------- - department of the treasury washington dc third party communication congressional government dates of communication date date date date person to contact -------------------------- id no ------------ telephone number -------------------- refer reply to cc ita b07 plr-146027-05 date date legend company ------------------------------------------------- a b c d ---------------------------------------- --------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------ f g h ------------- ----------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- -------------------------- ------------------------------ ---------------------------------- ------------------------------------------------------ ---------------------------------------------- -------------------------------------------- ---------------------------------------------------------------------------------------------------- ------- ------- -------------------------- ------------------ i j l m n o p year year date date number ----------- dollar_figurex ---------------- plr-146027-05 dear ---------- this is in response to your ruling_request on behalf of company dated august that upon irrevocable assignment to j or l respectively of the company’s that the escrow accounts are qualified settlement funds within the meaning of as amended on date and on date and supplemented by correspondence dated date date date date date date two letters date two letters and date you requested the following rulings concerning the tax treatment of certain escrow accounts required by and established pursuant to law sec_1_468b-1 of the income_tax regulations and payments made by company to these escrow accounts are fully deductible or reversionary_interest in the escrow accounts established by company with the b pursuant to a d relating to g product sales in j and in l the escrow accounts are qualified settlement funds within the meaning of sec_1_468b-1 of the income_tax regulations and payments made by company to these escrow accounts are fully deductible or reversionary_interest in the escrow accounts established by company with the b pursuant to a d relating to g product sales in j or in l payments made by the company to these escrow accounts are ordinary and necessary business_expenses and under sec_162 and sec_461of the code are fully deductible a taxpayer conference of right was held on date that upon irrevocable assignment to j or l respectively of the company’s facts company is a corporation engaged in the manufacture and wholesale distribution the cs brought a consolidated suit against the major manufacturers and sellers only of i brands of f a type of g product company uses an accrual_method of accounting manufacturers of g including f products the suit asserted various claims for monetary equitable and injunctive relief including consumer protection and or antitrust laws company was not a party defendant in the suit brought by the cs against the major manufacturers of g products against the major manufacturers of g products under the a the party defendant on date the cs entered into a settlement agreement a to resolve litigation the party defendant manufacturers believed that the manufacturers of g plr-146027-05 manufacturers of g products are required to establish escrow accounts and make annual payments in perpetuity into escrow for the benefit of the cs the a provides that all payments are in settlement of h the party defendants’ ongoing payments to the escrow accounts are determined by a formula based on their f sales in exchange for these payments the defendant manufacturers of g products are absolutely and unconditionally released and forever discharged from all claims that the cs directly indirectly derivatively or in any other capacity ever had now have or hereafter can shall or may have against the defendant manufacturers from liability relating to past present and certain future claims stemming from the use sale distribution manufacture development advertising or marketing of f under the a these escrow accounts are expressly intended to be treated as qualified settlement funds for federal_income_tax purposes products not named as party defendants in litigation also contributed to the harms eg relating to p alleged by the cs consequently the party defendant manufacturers of g products demanded as a condition of the settlement that nonparty manufacturers of g products be required to share the financial burdens and make deposits into escrows as well the cs of which j and l are parties agreed in relevant part the a directs the cs to require that certain nonparty manufacturers of which company is one establish escrow accounts further to accomplish this each c is required to have o ie a d a model d was incorporated into and made an integral part of the a approved by the court having jurisdiction each c has a d the a to assume a share of the financial burdens ie the c-borne costs created by the use of f a type of g products the d applies to any nonparty manufacturer of g products selling f within a c the amount of any manufacturer’s annual deposits into the escrow accounts required by the d is based on the manufacturer’s sales of f during the year in question any escrow accounts set up for this purpose must be approved by one of the cs company has not opted into the a therefore as a nonparty manufacturer of g products selling f within a c company is required to establish escrow accounts under each c’s d above and have made written demands for the deposits in year company established the escrow accounts and began making annual deposits to the escrow accounts on date company transferred the escrow accounts to b institution to date company has deposited a total of dollar_figurex in accordance with the above as long as company remains a g product manufacturer selling f within a c it will continue to be required to make annual deposits into such escrow accounts based on its f sales either at b or similar financial institutions the escrow accounts exist to satisfy c claims the objective of the d is to force nonparty manufacturers who refuse to opt into the cs advised company of its duty to deposit funds in accordance with the company expects that claims for reimbursement for the costs of identical harms plr-146027-05 brought against company within number after the date such funds are placed into escrow company may not access the funds for any purpose other than satisfying c claims during the number period under the model d any remainder will revert to company reversionary_interest after those periods lapse alleged by the cs and settled under the terms of the a will be made against all the contributed funds if successful the funds will be used to satisfy the c’s claims and nothing will remain to revert to company nonparty manufacturer of g to irrevocably assign its reversionary_interest in the escrow accounts to j or to l respectively and providing that immediately upon the irrevocable assignment of the reversionary_interest in the escrow account the monies in the escrow account may be used to resolve or satisfy claims relating to the harm caused by the manufacture and the sale of f see m and n number and on date company amended its submission by requesting ruling number at its conference of right held on date and in its post-conference submission company indicated its preference for requested ruling number on date company amended its submission by requesting ruling in year j and l both of which are members of the cs each o permitting a requested ruling sec_1_468b-1 provides that a qualified_settlement_fund is a fund account escrow account classification sec_468b of the code provides in part that nothing in any provision of law shall be construed as providing that an escrow account settlement fund or similar fund is not subject_to current income_tax pursuant to the authority of sec_468b the secretary has published sec_1_468b-1 through 468b-5 of the regulations regarding qualified settlement funds or trust that satisfies all three requirements of sec_1_468b-1 first sec_1_468b-1 requires that the fund account or trust is established pursuant to an order of or it is approved by the united_states any state including the district of columbia territory possession or political_subdivision thereof or any agency_or_instrumentality including a court of law of any of the foregoing and is subject_to the continued jurisdiction of that governmental authority second sec_1_468b-1 requires that the fund account or trust is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event or related series of events that has occurred and that has given rise to at least one claim asserting liability i under the comprehensive environmental response compensation sec_1_468b-1 provides that if a fund account or trust is established to plr-146027-05 and liability act of ii arising out of a tort breach of contract or violation of law or iii designated by the commissioner in a revenue_ruling or revenue_procedure third sec_1_468b-1 provides that the fund account or trust must be a_trust under applicable state law or its assets must be otherwise segregated from other assets of the transferor and related_persons resolve or satisfy claims described in sec_1_468b-1 the assets of the fund account or trust are treated as owned by the transferor of those assets until the fund account or trust also meets the requirements of sec_1_468b-1 and c on the date the fund account or trust satisfies all the requirements of sec_1_468b-1 the transferor is treated as transferring the assets to a qualified_settlement_fund sec_1_468b-2 provides that a qualified_settlement_fund is in existence for the period that i begins on the first date on which the fund is treated as a qualified_settlement_fund under sec_1_468b-1 and ii ends on the earlier of the date the fund a no longer satisfies the requirements of sec_1_468b-1 or b no longer has any assets and will not receive any more transfers based on the facts represented in year the escrow accounts established by second with respect to sec_1_468b-1 under all these facts and company satisfied all three requirements of sec_1_468b-1 and therefore are treated as qualified settlement funds as of the date established first with respect to sec_1_468b-1 the cs are governmental authorities as the term is used in that context under the d provisions each escrow account established by company must be approved by the c for which the account is established the appropriate_official of each c has the authority to monitor and pursue in court charges against company to enforce annual compliance with the d circumstances we are persuaded that company established the escrow accounts to resolve or satisfy contested or uncontested claims that have resulted or may result from a related series of events that has occurred and that has given rise to at least one claim asserting liability arising out of a violation of law in this case no formal complaint has been legally filed against company by any of the cs however the absence of a formal complaint is not fatal to a determination that the cs have established the existence of the requisite claim or claims and asserted_liability against company and the company has established the escrow accounts to resolve or satisfy said claim or claims with respect to the event or related series of events that has already occurred is the development manufacture advertising marketing use sale and distribution of f the only g product which company sells the claim that has already arisen is that a manufacturer of f is financially liable to reimburse the cs for the costs associated with the harms related to the sale of f although company has not been plr-146027-05 named a party defendant to a suit filed by the cs the requirement of a suit asserting liability is not what the regulation requires the regulation requires only that at least one claim asserting liability has resulted or may result each of the cs has already made at least one claim asserting liability against each non-party manufacturer of f by means of having o that is a d and by means of making a written demand for deposits against company with respect to it is also clear that company established and funded the note that the facts in this case are distinguishable from example in section escrow accounts to resolve or satisfy the claims whether eventually contested or uncontested and written demand made by the cs the objective of the d is to force nonparty manufacturers who refuse to opt into the a to assume a share of the financial burdens created by the harms allegedly caused by the use of f each c has a d which applies to any nonparty manufacturer of g products selling f within a c the amount of a manufacturer’s annual deposits into the escrow accounts are based on a manufacturer’s sales of f during the year in question company is such a manufacturer and the amounts of its legally-obligated deposits are calculated on said basis therefore even in the absence of a formally-filed legal complaint the second prong under the regulation is satisfied 468b-1 k regarding a landfill operator there a corporation owned and operated a landfill in a state that required the corporation to transfer money to a_trust annually based on the total tonnage of material placed in the landfill during the year under the law the corporation is required to perform either itself or through contractors specified closure activities when the landfill is full and the trust assets would be used to reimburse the corporation for these closure costs the trust in that example is not a qualified_settlement_fund because it is established to secure the liability of the corporation to perform such closure activities the instant case does not involve a performance liability the funds transferred to the escrow accounts under a d are not used to secure the future performance of company to the contrary the funds will be used to satisfy the cs claims based on the past conduct of company conduct that is related to known harm stemming from the use of f and that has given rise to known liabilities eg increase in financial burdens on the cs are otherwise segregated from other assets of company and related_persons beginning in year company established separate escrow accounts with several leading financial institutions including accounts at b under the regulations a separate bank account is sufficient to satisfy this requirement see sec_1_468b-1 deduction of payments third with respect to sec_1_468b-1 the assets in the escrow accounts sec_162 of the code provides the general_rule that there shall be allowed plr-146027-05 as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business see also sec_1_162-1 sec_461 provides in part that the amount of any deduction shall be taken for the taxable_year that is the proper taxable_year under the method_of_accounting used in computing taxable_income sec_1_461-1 provides in part that under an accrual_method of sec_461 provides that if the taxpayer contests an asserted_liability accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the taxable_year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability the taxpayer transfers money or other_property to provide for the satisfaction of the asserted_liability the contest with respect to the asserted_liability exists after the time of the transfer and but for the fact that the asserted_liability is contested a deduction would be allowed for the taxable_year of the transfer or for an earlier taxable_year determined after application of sec_461 then the deduction shall be allowed for the taxable_year of the transfer sec_461 provides in part that in determining whether an amount has been incurred with respect to any item during the taxable_year the all_events_test shall not be treated as met any earlier than when economic_performance with respect to such item occurs if all events have occurred which determine the fact of the liability and the amount of such liability can be determined with reasonable accuracy performance occurs with respect to a liability described in sec_1_468b-1 to the extent the transferor makes a transfer to a qualified_settlement_fund to resolve or satisfy the liability the extent a the transferor or a related_person has a right to a refund or reversion of a transfer if that right is exercisable currently and without the agreement of an unrelated_person that is independent or has an adverse_interest eg the court or agency that approved the fund or the fund claimants or b money or property is transferred under conditions that allow its refund or reversion by reason of the occurrence of an event that is certain to occur such as the passage of time or if restrictions on its refund or reversion are illusory sec_461 provides that the all_events_test is met with respect to any item sec_1_468b-3 provides that economic_performance does not occur to sec_1_468b-3 provides that for purposes of sec_461 economic sec_1_468b-3 provides that a transferor must include in gross_income sec_1_468b-3 provides that a distribution described in sec_1 468b- based on the above the amounts transferred into escrow accounts will be used plr-146027-05 any distribution it receives from a qualified_settlement_fund f or f is excluded from the gross_income of a transferor to the extent provided by sec_111 regarding the recovery_of tax_benefit items to pay money damages to the cs for liabilities that arose as a result of company’s principal business activity that is the manufacture and sale of f thus such amounts are deductible under sec_162 as ordinary and necessary business_expenses to the extent that the all events tests under sec_1_461-1 including economic_performance are met the amounts transferred into the escrow accounts would be deductible in the taxable_year transferred in this case the first prong of the all_events_test ie all the events have occurred that establish the fact of the liability is met because this is a contested liability within the meaning of sec_461 likewise the second prong ie the amount of the liability can be determined with reasonable accuracy is met because the amount of the liability can be readily ascertained based on the formula prescribed by the d finally under sec_1_468b-3 transfers to a qualified_settlement_fund to resolve or satisfy claims for which it is established constitute economic_performance therefore transfers to the escrow accounts are deductible in the taxable_year company makes the transfers to the qualified settlement funds the fact that the model d provides for a reversion of monies if any remain after number from the date of the transfers does not prevent economic_performance from occurring under the facts represented the model d provides that the monies transferred into the escrow accounts revert to company after number from the date of the transfers if the cs have not filed and prevailed on claims either by obtaining a judgment against or a settlement with company the funds exist to satisfy c claims brought against company within number after the date monies are transferred into the funds company may not access the funds for any purpose other than satisfying c claims during the number period company expects that claims will be made against all the assets of the funds and if successful the funds will be used to satisfy c claims and that nothing will remain to revert to company there is no guarantee and little likelihood that any amounts will revert to company after number the reversion in this case requires not only the passage of time but also the successful defense against claims brought by the cs before anything reverts to company although the passage of time ie number is certain to occur it is clearly uncertain whether the cs will neither file nor prevail on claims against company thus the payments are not transferred under conditions that allow its refund or reversion by reason of the occurrence of an event that is certain to occur finally company does not have a currently exercisable right to a refund or reversion however to the extent company receives any distributions from plr-146027-05 the escrow accounts eg overpayments refunds interest or other appreciation on the funds company must include such amounts in its gross_income requested ruling sec_2 and we decline to rule on requested ruling sec_2 and which are alternative plans to the transaction the company proposed in requested ruling section dollar_figure of revproc_2006_1 2006_1_irb_1 provides in relevant part that the internal_revenue_service will not issue a letter_ruling on alternative plans of proposed transactions conclusions except as expressly provided herein no opinion is expressed or implied based solely on the information provided and the representations made we in accordance with the powers of attorney on file with this office a copy of this conclude that each of the escrow accounts established with b or similar institutions as mandated by the cs each having o that is a d is treated as a qualified_settlement_fund within the meaning of sec_1_468b-1 of the regulations as of the date of the establishment of the respective escrow fund and that a deductible payment was made to a qualified_settlement_fund on the first date and each subsequent date that company transferred funds to the respective escrow fund concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to company who requested it sec_6110 of the code provides that it may not be used or cited as precedent letter is being sent to company’s authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant representations submitted by the company 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 george baker branch chief office of associate chief_counsel income_tax and accounting the rulings contained in this letter are based upon information and sincerely


internal_revenue_service number release date index number ------------------------------------ ---------------------------------------------------- ----------------------------------------------- ---------------------------------- ------------- ------------------------------ department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc fip b02 plr-125976-11 date date legend taxpayer ------------------------------------------------------------------------------------------------- ----------------------- fund llc ---------------------------------------------- --------------------- mineral ------ state ------------------- state ------------- state ------------ date -------------------------- date ---------------- date --------------------- date ---------------------- a b ---- ------------------ plr-125976-11 c d e f g h i k m n ------ ---- ------ ---- ------------ -- -- -------------- -------------- ----------- dear ----------------- this responds to the letter dated date and supplemental correspondence dated date submitted by your authorized representative on behalf of taxpayer taxpayer requests that the internal_revenue_service rule that gross_income realized by taxpayer from payments made under a surface use agreement for_the_use_of a surface estate in land constitutes rents_from_real_property for purposes of sec_856 and c a of the internal_revenue_code_of_1986 as amended the code facts taxpayer is a limited_liability_company incorporated in state that has elected to be taxed as a real_estate_investment_trust reit beginning with its first taxable_year which ended on date taxpayer owns an a percent limited_partnership_interest in fund a state limited_partnership fund owns the sole membership interest in llc a state limited_liability_company that for federal_income_tax purposes is disregarded as an entity separate from fund fund’s purpose is to engage in the business of investing in timber- producing real_property and certain rights and assets related to such real_property and in entities that own manage develop harvest and sell such properties plr-125976-11 llc owns the surface estate the surface estate in an area of timberlands located in state prior to date the mineral estate and surface estate with respect to the land together the property were held by a single_person subject_to certain mineral leases granted by a prior owner on date the owner of the property conveyed all of its right title and interest in all minerals on the property subject_to the existing mineral leases to another person mineral owner the deed effectuating the transfer acknowledged that the grantor’s rights to the surface and timber were subordinate and inferior to those of the mineral owner to the minerals after date an individual not related to taxpayer individual acquired the surface estate on date individual and a mining company that is the lessee under one of the mineral leases mining entered into a surface use agreement governing mining’s use of the surface of the property the sua taxpayer represents that none of fund llc or the taxpayer owns any interest in or is under common_control with any of mineral owner mining or any business controlled by individual llc acquired the surface estate from individual on date in exchange for dollar_figureb llc succeeded individual as the lessor under the sua in accordance with its terms neither taxpayer nor any affiliated entity acquired rights to the minerals under the surface estate in or since that transaction mining wished to enter into the sua to clarify and extend its rights to use the surface of the property under the laws of state and the terms of mining’s lease to which the rights of llc are subject mining is permitted to conduct its mining activities and to disturb the surface of the property without the consent of llc changes in the law of state however raised concerns that mining could be required to pay damages to the owner of the surface estate for the destruction of the surface of the property mining also wished to assure its rights to the surface upon expiration of its lease with mineral owner and with respect to additional areas on which it sought to lease minerals from mineral owner mineral owner has sufficient rights under its deed that it could confer the same broad rights to the surface as under the current lease without the consent of llc mining was able to secure such rights directly from individual however under the sua under the sua the lessor grants the lessee the full and unfettered right to any and all use of the surface of the property including the right to damage the surface through its mining activities in lieu of any damages the surface owner might claim the sua provides for payments from the lessee mining to the lessor now llc based on the amount and sales_price of the mineral removed or transported the payments specifically mining is required to pay an amount per ton of mineral mined and removed from the property equal to the greater of i dollar_figurec or ii d of the sales_price of such mineral and an amount per ton of mineral transported across but not mined from the property equal to the greater of i dollar_figuree or ii f of the sales_price of the mineral the sua provides for an advance minimum payment of dollar_figureg per year which is set off against the first dollar_figureg that would otherwise be payable under the per-ton payments plr-125976-11 the sua preserves to the lessor the right to remove timber from the property provided that the removal cannot interfere with the mining activities of lessee as lessee mining is not liable for any damage to the timber through the activities permitted under the under the sua if it provides the required advance notice to the lessor of timber that might be destroyed the original term of the sua is h years and is automatically renewable for i successive renewal periods of i years unless sooner terminated mining can terminate the sua if it determines that the mineral on or near the leased premises cannot be mined or transported at a profit and in certain other circumstances llc can terminate the sua if there is no mining on the property for a specified period for its first taxable_year llc received a total_payment under the sua of dollar_figurek taxpayer realized income in the amount of dollar_figurem by virtue of its partnership_interest in fund taxpayer’s other income for such year was interest_income in the amount of dollar_figuren that is permitted under sec_856 and meets the definition of qualified_temporary_investment_income under sec_856 law and analysis sec_856 provides that to qualify as a reit for any taxable_year under part ii of subchapter_m an entity must derive at least percent of its gross_income excluding gross_income from prohibited_transactions from the sources listed in sec_856 which includes rents_from_real_property and at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed in sec_856 which also includes rents_from_real_property sec_856 provides that subject_to the exclusions in sec_856 the term rents_from_real_property includes among other things rents from interests_in_real_property sec_1_856-4 of the income_tax regulations provides that subject_to the exceptions of sec_856 and sec_1_856-4 the term rents_from_real_property means generally the gross amounts received for_the_use_of or the right to use real_property of the real_estate_investment_trust under sec_1_856-3 the term real_property means land or improvements thereon such as buildings or other inherently permanent structures thereon it also includes interests_in_real_property local law definitions are not controlling for purposes of determining the meaning of the term real_property as used in sec_856 and the regulations thereunder sec_856 provides that the term interests_in_real_property includes fee ownership and co-ownership of land or improvements thereon leaseholds of land or improvements thereon options to acquire land or improvements thereon and options to acquire leaseholds of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-3 provides specifically that a retained plr-125976-11 economic_interest in coal_or_iron_ore with respect to which the special provisions of sec_631 apply is within the exclusion for mineral oil or gas royalty interests sec_856 provides that subject_to certain exceptions the term rents_from_real_property does not include any amount received or accrued directly or indirectly with respect to any real or personal_property if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property except that any amount so received or accrued shall not be excluded from the term rents_from_real_property solely by reason of being based on a fixed percentage or percentages of receipts or sales sec_1_856-4 provides that an amount received or accrued as rent for the taxable_year which consists in whole or in part of one or more percentages of the lessee's receipts or sales in excess of determinable dollar amounts may qualify as rents_from_real_property if i the determinable amounts do not depend on the income or profits of the lessee and ii the percentages and determinable amounts are fixed at the time the lease is entered into and are not renegotiated during the term of the lease in a manner which has the effect of basing rent on income or profits it further provides that an amount will not qualify as rents_from_real_property if considering the lease and all the surrounding circumstances the arrangement does not conform with normal business practice but is in reality used as a means of basing the rent on income or profits sec_1_856-3 provides that a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share for purposes of sec_856 the interest of a partner in the partnership's assets is determined by reference to its capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership remains the same in the hands of the partners for all purposes of sec_856 the legislative_history underlying the tax treatment of reits indicates that the central concern behind the gross_income restrictions is that a reit's gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business sec_631 provides capital_gain or loss treatment for certain gains or losses from the disposal of coal_or_iron_ore mined in the united_states held for more than one year before such disposal by the owner thereof under any form of contract by virtue of which such owner retains an economic_interest in such coal_or_iron_ore sec_631 does not apply to income realized by any owner as a co-adventurer partner or principal plr-125976-11 in the mining of such coal_or_iron_ore and the word owner means any person who owns an economic_interest in coal_or_iron_ore in place including a sublessor sec_1_611-1 provides that an economic_interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place or standing timber and secures by any form of legal relationship income derived from the extraction of the mineral or severance of the timber to which he must look for a return of his capital a person who has no capital_investment in the mineral deposit or standing timber does not possess an economic_interest merely because through a contractual relation he possesses a mere economic or pecuniary advantage derived from production for example an agreement between the owner of an economic_interest and another entitling the latter to compensation_for extraction or cutting does not convey a depletable economic_interest see also 287_us_551 revrul_64_75 1964_1_cb_228 holds that where the owner of mineral- bearing real_property subject_to leases under which the minerals are extracted in exchange for payments that are determined primarily by reference to the amount of minerals mined the owner’s interests in the real properties are mineral royalty interests rather than real_estate_assets for purposes of sec_856 and revenues derived from its leases do not qualify as rents_from_real_property under sec_856 and the owner’s property interest was deemed a mineral oil or gas royalty interest because the receipts fell within the normal and ordinary meaning of the term ‘royalty ’ revrul_85_16 1985_1_cb_180 explains that a mineral royalty is generally a payment based on a fixed percentage of production or a share of net profits from production received by a person with a right to the minerals in place for permitting another to extract and take those minerals and payable only from the minerals produced or the proceeds derived from the disposition of those minerals consequently the ruling holds that a taxpayer’s mining tax_payments to the government of the province of ontario canada were not royalties for purposes of determining percentage_depletion deduction under sec_613 of the code even though such payments were referred to as royalties on some forms and were measured by reference to mining profits they were not treated as royalties because among other reasons the province of ontario retained no rights to any mineral mined or income therefrom and did not participate in any mining risks in 86_f3d_1526 9th cir the court found that the ordinary meaning of the term royalty is a payment made to the owner of property for permitting another to use the property and that t he payment is typically a percentage of profits or a specified sum per item sold the property is typically either an intangible_property right or a right relating to the development of natural_resources therefore the court found that it was the nature of the property the owner is permitting another to use that differentiates a royalty from rent the court based its plr-125976-11 conclusion on definitions of royalty in webster's ninth new collegiate dictionary share of the product or profit reserved by the grantor especially of an oil or mining lease and black’s law dictionary compensation_for the use of property usually copyrighted material or natural_resources share of product or profit reserved by owner for permitting another to use the property revrul_79_144 1979_1_cb_219 holds that payments received under a lease of surface rights even when measured by reference to coal mined from that area under a coal lease with a third party are not proceeds from the disposal of coal within the meaning of sec_631 but are instead ordinary_income received in return for the right to use the surface overlying such coal see also 329_f2d_393 6th cir 46_f3d_760 8th cir in 481_f2d_238 5th cir cert den 414_us_1092 a lease between surface owners as lessor and holders of certain mineral rights as lessee required lessee to pay lessor specified amounts for well locations and other uses of the surface in addition to compensation_for all actual damage caused to the surface the court concluded that payments for the surface rights were in the nature of rental income the payments constitute amounts received for_the_use_of or right to use the surface estate and are not based on the income or profits of mining the payments therefore constitute rents_from_real_property if llc’s interest in the surface estate is an interest_in_real_property the property is land and the surface estate is an ownership_interest in that land the surface estate therefore is an interest_in_real_property for purposes of sec_1_856-3 and real_property for purposes of sec_1_856-3 unless llc’s property interest is a mineral royalty interest described in sec_856 llc’s interest is not a retained economic_interest in coal_or_iron_ore with respect to which the special provisions of sec_631 apply which would be a mineral royalty interest under sec_1_856-3 see revrul_79_144 llc’s interest in the property is also not a royalty interest within the ordinary meaning of the term unlike the taxpayer in revrul_64_75 llc did not hold an interest in minerals and therefore did not transfer such an interest to a lessee and retain a royalty interest llc’s interest is only in land and periodic_payments for_the_use_of land are ordinarily treated as rent the fact that llc’s rights under local law are only to the surface of the property is not determinative of the nature of its property for purposes of sec_856 the facts here however do not suggest that llc has an economic_interest in the minerals that would cause its interest in the surface estate to be treated as a royalty interest mining has the right to terminate the sua without penalty llc has no right to or control_over any minerals on the property mining has the right to mine the property without the consent of llc llc’s receipts are measured by reference to the quantity and sales plr-125976-11 price of mineral mined but sec_856 expressly permits rents to be based on receipts or sales moreover the circumstances indicate that the surface estate and sua were not a means by which taxpayer could acquire an investment that was in form an interest_in_real_property but in substance a mineral royalty interest the payments under the sua were negotiated at arms length by unrelated parties prior to taxpayer’s investment the payments relate to the surface because what the lessor surrendered in exchange for the payments was the right to damages for destruction of the surface because llc is a disregarded_entity fund is the owner of the surface estate for federal_income_tax purposes taxpayer is deemed to own a percent of the surface estate and is deemed to be entitled to a percent of the payments the character of the property interest in the surface estate and the character of the payments remain the same in the hands of taxpayer for purposes of sec_856 conclusion based on the facts as represented by taxpayer we rule that the gross_income realized by taxpayer from the payments constitutes rents_from_real_property for purposes of sec_856 and sec_856 of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed on whether the taxpayer qualifies as a reit or the treatment of the payments for any purpose other than sec_856 and this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely jonathan d silver jonathan d silver assistant to the branch chief branch office of associate chief_counsel financial institutions products


internal_revenue_service p o box cincinnati oh release number release date date date legend specified scholarship scholarships b c x dollars initial set-aside y dollars total project cost dear department of the treasury employer_identification_number contact person - id number contact telephone number vil why you are receiving this letter this is our response to your date letter 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_foundation under sec_509 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 propose set-asides for the purpose of constructing an academy to help students similar to b recipients the academy will be a private boarding school for high achieving high school students from public high schools whose students are eligible for b admitted students will attend the school at no charge you will pay all tuition fees room and board books and other costs the amount of the set-aside for calendar_year __ is x dollars additional set- asides for the years of will equal the excess of the undistributed_income in each year that is not used for the purpose of awarding c the total estimated cost of the project is y dollars and20_ the project can better be accomplished by set-aside rather than immediate payment of funds because it is a long-term project the building site is not currently owned architectural plans have not been finalized preparing architectural plans and building the project will take more than a year such a project reasonably requires a period of time that spans several years and is customary in the construction business that payments are made as work is completed a statement has been submitted that the amounts to be set-aside will actually be paid within a specified time period not to exceed months from the date of the first set_aside 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 either 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_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 into 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 stephen a martin director exempt_organizations rulings and agreements enclosure


internal_revenue_service number release date index number ------------------------------- ------------------------------------ ------------------ --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------ telephone number -------------------- refer reply to cc psi plr-106524-14 date date legend x d1 d2 d3 trust dear ----------- ------------------------------------------------------------------------------------------------- ----------------------------- ----------------------- ------------------ --------------------- ------------------------------------------------------------------------------------------------- -------------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code code facts x was incorporated on d1 and elected to be an s_corporation effective d2 on d3 trust became a shareholder of x x represents that trust satisfies the qualified_subchapter_s_trust qsst requirements under sec_1361 however the income_beneficiary of trust failed to file an election for trust to be a qsst effective d3 therefore trust was not a permitted shareholder x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x further represents that x and its shareholder have filed consistently with the treatment of x as an s_corporation since d2 x and its shareholder plr-106524-14 have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 and the beneficiary of such trust shall be treated as the owner for purposes of sec_678 of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center where the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small plr-106524-14 business corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on d3 when stock in x was transferred to trust we further conclude that the termination was inadvertent within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d3 and thereafter provided that x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 this ruling is conditioned on the beneficiary of trust filing a qsst election for trust effective d3 with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the qsst election except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provisions of the code including x’s eligibility to be a valid s_corporation or trust’s eligibility to be a qsst plr-106524-14 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative sincerely holly porter branch chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 b04 plr-120452-16 date july decedent ------------------------- date ------------------- spouse ------------------ dear ------------------- this letter responds to your personal representative's letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make a qualified_terminable_interest_property qtip_election under sec_2056 of the internal_revenue_code facts decedent died testate on date survived by spouse spouse the executrix of decedent's_estate filed a timely form_706 at the time of filing form_706 spouse determined the fair_market_value of the estate was less than decedent’s available exclusion amount however spouse filed a form_706 for decedent’s estate in order to make the portability election under sec_2010 at that time spouse believed the value of the estate was not sufficient to fund the marital trusts and thus a qtip_election was not made on that return with respect to any property included on the return plr-120452-16 on the timely-filed form_706 spouse reported an incorrect value for an item of tangible_personal_property after an additional appraisal and later sale of this item spouse realized the original form_706 was no longer accurate because it failed to include the proper date of death value for the property based on the valuation of this property performed after the filing of the form_706 the marital trusts under decedent’s will were required to be funded accordingly decedent's_estate now requests an extension of time under sec_301_9100-3 to make an election under sec_2056 to elect to treat the marital trusts as qtip trusts law sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is except as limited by sec_2056 to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 disallows this deduction where upon the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 the property is treated as passing to the surviving_spouse and for purposes of sec_2056 no part of the property is treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property that passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if the surviving_spouse is entitled to all of the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property is made by the executor on the return of tax imposed by sec_2001 such an election once made is irrevocable under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code plr-120452-16 except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interest of the government sec_301_9100-3 conclusion based solely on the facts submitted and the representations made we conclude that the standards of and have been satisfied accordingly we grant an extension of time for making the qtip_election under sec_2056 the election must be made days from the date of this letter the election should be made on a supplemental form_706 which also reports the current value of property the supplemental form_706 should be filed with the service_center where the original form_706 was filed a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for that purpose except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-120452-16 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely associate chief_counsel passthroughs special industries by melissa liquerman melissa liquerman branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number x a d1 washington dc person to contact telephone number refer reply to cc psi - plr-112696-00 date date year dear this letter responds to a letter dated date and subsequent correspondence submitted by you on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the secretary of x represents that x was intended to be an s_corporation effective for the year taxable_year this intent is evidenced by the minutes of the organizational meeting of x which indicate that x’s directors resolved to be taxed as an s_corporation a further represents that a prepared and filed a form_2553 election by a small_business_corporation for x however x’s internal_revenue_service center has no record of x’s filing of a form_2553 therefore no form_2553 was timely filed for x for the year taxable_year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code 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 sincerely yours jeanne m sullivan assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------------------ -- ------------------------------------ ------------------------------------ in re --------------------------------------------------- ------------ 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 b04 plr-105544-16 date date legend decedent spouse date date dear ---------------- -------------------------------------------------- ----------------- ---------------------------- -------------------- this letter responds to the letter from your authorized representative dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow decedent's surviving_spouse spouse to take into account decedent's deceased spousal unused exclusion dsue amount the facts submitted and the representations made are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent's dsue amount to spouse decedent's_estate was required to file form_706 united_states estate and generation- skipping transfer_tax return on or before the date that is nine months after decedent's date of death or the last day of the period covered by an extension decedent's form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election executrix of decedent's_estate represents that the value of decedent's gross_estate is less than the basic exclusion amount in the year of decedent's death including taxable_gifts made during his lifetime executrix requests an extension of time pursuant plr-105544-16 to sec_301_9100-3 to elect portability of decedent's dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-105544-16 sec_20_2010-2t a of the estate_tax regulations as in effect on the date in question provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that the taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make an election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see 2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 plr-105544-16 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date executrix represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly- prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-105544-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with the office we have sent a copy of this letter to your authorized representatives sincerely associate chief_counsel passthroughs special industries lorraine e gardner by _____________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures two copies of this letter copy of this letter for sec_6110 purposes cc