internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 2-plr-118607-99 date date x a date year year dear this letter responds to a date letter and subsequent correspondence that x’s authorized representative submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x incorporated on date of year a the sole shareholder of x intended x to be an s_corporation beginning with x’s year taxable_year however x’s attorney inadvertently failed to file form_2553 election by a small_business_corporation for x for year when it became apparent that form_2553 had not been timely filed x’s attorney filed form_2553 for x effective for year x filed a form_1120s u s income_tax return for an s_corporation for year and a filed a’s year form_1040 u s individual_income_tax_return consistent with x being an s_corporation sec_1362 of the code provides that if-- a an election under sec_1362 for any taxable_year is made 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 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 we express no opinion 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 pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely yours h grace kim assistant to chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service index number number release date cc dom corp plr-111984-98 date re distributing controlled b c d e f g h j k l m n p business q state z b c d e f g h i j k m n p q r s t u v w x page y z aa bb cc dd ee ff gg hh jj kk mm nn pp qq rr ss tt uu ww page dear this letter responds to your request dated date for a ruling as to the federal tax consequences of a proposed transaction additional information was submitted on date date date date and date the rulings contained in this letter are predicated upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by the appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the factual information representations and other data may be required as part of the audit process distributing is a closely held state z corporation it is an accrual basis taxpayer and the last day of its taxable_year is the last day of the month of february distributing has b shares of class a voting no par common_stock authorized of which c shares are issued and outstanding in addition distributing has d shares of class b nonvoting no par common_stock authorized of which c shares are issued and outstanding the stock is owned as follows shareholder class a class b total e b brother of f and k f c wife of b d son of b and c - - - e daughter of b and c - - - bb cc - - - - - - f sister of b and k g son of f h son of f j son of f g dd - - - - - - - - - - - - - - - - - - k brother of b and f h i l wife of k m son of k and l - - - - - - n daughter of k and l p son of k and l - - - ee ff - - - - - - - - - - - - - - - j k m n n n p q r r r - - - - - - gg ff hh jj jj jj kk mm nn nn nn s t u v w x x x y z aa aa aa bb cc gg ff pp jj jj jj qq rr nn nn nn distributing is engaged in two businesses business q and the rental real_estate business financial information has been received indicating that each of distributing’s two businesses had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years the real_estate business holds a number of residential and commercial rental real_estate properties in page addition it holds a number of undeveloped parcels of land k l m n and p the k family group want to expand the real_estate business by making improvements to certain of the rental properties and by building additional rental properties on the undeveloped land distributing’s other shareholders are not interested in expanding the real_estate business and want to devote their attention and the company’s resources to business q accordingly the shareholders have adopted a plan_of_reorganization to go their own separate ways which consists of the following steps distributing will form controlled a state z corporation which will be an accrual basis taxpayer and the last day of controlled’s taxable_year will be the last day of the month of february controlled will issue ss shares of class a no par common voting_stock and tt shares of nonvoting no par common_stock distributing will transfer certain of its residential and commercial rental real_estate properties and certain of its parcels of undeveloped land to controlled solely in exchange for all of the shares of controlled stock distributing will distribute all of its controlled class a and class b stock to k l m n and p in exchange for all of their distributing class a and class b stock distributing and controlled will each elect to be treated as an s_corporation immediately after the distribution in the month period immediately following the distribution of the controlled stock controlled will employ a full-time business manager to advertise tenant vacancies and negotiate new leases collect rents and pay bills handle tenant questions and problems do bookkeeping and perform everyday carpentry plumbing and electrical work controlled will also employ a part time employee to do general carpentry electrical mechanical and plumbing work during this period controlled will make improvements to certain of its rental properties costing approximately dollar_figureuu and begin site work on certain of its undeveloped properties costing approximately dollar_figureww in connection with these projects the business manager will determine specifications for building improvements act as general contractor evaluating subcontractor bids and hiring subcontractors and ensure compliance with the requirements of various governmental oversight agencies to fund these projects k will make a capital_contribution to controlled of dollar_figureww distributing has made the following representations concerning the proposed transaction a controlled will not be indebted to distributing after the distribution of the controlled stock page b c d e f g h i j k the fair_market_value of the controlled stock to be received by each shareholder of distributing will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholder in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation no part of the consideration to be distributed by distributing will be received by a security holder the five years of financial information submitted on behalf of distributing is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue independently and with its separate employees the active_conduct of its business or businesses the distribution of the stock of controlled is carried out for the following corporate business_purpose to allow the rental real_estate business to prosper by allowing one group of shareholders to operate and manage that division without interference from the other shareholders the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled after the transaction there is no plan or intention by either distributing or controlled directly or indirectly to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or to otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business the total bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred page l the income_tax_liability for the taxable_year in which investment_credit_property including any building to which sec_47 applies is transferred will be adjusted pursuant to sec_50 or a or sec_47 as in effect before amendment by public law title 104_stat_1388 if applicable to reflect an early disposition of the property m distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction n o p no intercorporate indebtedness will exist between distributing and controlled at the time of or subsequent to the distribution of controlled payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arms length no two parties to the transaction are investment companies as defined in sec_368 and iv based solely on the information submitted and the representations made we conclude as follows concerning the proposed transaction the transfer by distributing to controlled of a portion of the assets of the rental real_estate business solely in exchange for all of the shares of controlled stock followed by the distribution of the controlled stock in redemption of all of the distributing stock owned by k l m n and p will be a reorganization within the meaning of sec_368 of the code distributing and controlled will each be a party to the reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the transfer of assets subject_to liabilities if any to controlled in exchange for shares of controlled stock sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the receipt of assets from distributing in exchange for the shares of controlled stock sec_1032 the basis of the assets received by controlled from distributing will be the same as the basis of such assets in the hands of distributing immediately prior to the transaction sec_362 the holding_period of the distributing assets received by controlled will include page the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized by distributing upon the distribution of all of the shares of controlled to k l m n and p in exchange for their shares of distributing sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of k l m n or p on the receipt of controlled stock in exchange for their distributing stock sec_355 the basis of the controlled stock received by k l m n and p will be the same as the basis of the distributing stock surrendered in exchange therefor sec_358 the holding_period of the controlled stock received by k l m n and p will include the holding_period of the distributing stock surrendered in exchange therefor provided that such stock is being held as a capital_asset on the date of the exchange sec_1223 as provided in sec_312 of the code proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 of the regulations no opinion is expressed about tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings the ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent page a copy of this letter should be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transaction covered by this ruling letter is consummated sincerely yours assistant chief_counsel corporate by mark s jennings senior technician reviewer branch page


t c no united_states tax_court harry e pehaden jr and cindy d peaden petitioners v commissioner of internal revenue respondent docket no filed date c p's wholly owned s_corporation leased trucks under master lease agreements master leases for each truck c and the lessor agreed to a base rent dependent on the lessor's cost of the truck the master leases contain a terminal_rental_adjustment_clause trac as defined in sec_7701 i r c providing that the lessor at the conclusion of the lease_term must sell the truck and remit to c any sale proceeds that exceed the remaining base rent plus the lessor's cost of arranging the sale r does not argue that the lease agreements are not qualified motor_vehicle operating agreements within the meaning of sec_7701 h i r c but instead argues that the trac may be taken into account in determining whether the transactions entered into pursuant to the master leases lease transactions should be treated as leases held pursuant to sec_7701 i r c the trac contained in the master leases will not be taken into consideration in deciding whether the lease transactions are entitled to lease treatment held further the lease transactions are entitled to be treated as leases david d aughtry and vivian d hoard for petitioners mark s mesler for respondent wells judge respondent determined a deficiency petitioners’ federal income taxes of dollar_figure and accuracy-related_penalty of dollar_figure unless otherwise indicated all section references internal_revenue_code in effect for the year in issue rule references are to the tax_court rules_of_practice procedure the issues we must decide in the instant case are in a section are to the and all and whether sec_7701 precludes consideration of a terminal_rental_adjustment_clause trac ' contained in certain agreements sec_7701 h provides terminal_rental_adjustment_clause defined ---- a in general --for purposes of this subsection the term terminal_rental_adjustment_clause means a provision of an agreement which permits or requires the rental price to be adjusted upward or downward by reference to the amount_realized by the lessor under the agreement continued covering transactions entered into by country-fed meat co inc country-fed a subchapter_s_corporation wholly owned by petitioner harry e peaden jr petitioner and whether such agreements should be treated as leases or purchases of trucks findings_of_fact some of the facts and certain exhibits have been stipulated for trial pursuant to rule the parties' stipulations of fact are incorporated into this opinion by reference and accordingly are found as facts in the instant case at the time they filed the petition petitioners resided in fayetteville georgia petitioner is the sole shareholder of country-fed a corporation that was incorporated under the laws of the state of georgia petitioner elected before to have country--fed taxed as a small_business_corporation pursuant to sec_1362 country-fed is in the business of selling meat chicken and seafood products through direct sellers country-fed's direct sellers distribute country-fed's products in approximately states ‘ continued upon sale_or_other_disposition of such property during country-fed entered into separate agreements collectively master leases with world omni leasing inc world omni mccullagh leasing inc mccullagh and automotive rentals inc ari collectively the lessors covering approximately trucks with attached refrigeration units trucks for the following duration trucks for months truck for months trucks for months trucks for months trucks for months trucks for months and trucks for months collectively lease transactions each of the trucks has a useful_life that extends beyond its respective lease_term country-fed provides the trucks to direct sellers who use the trucks daily to distribute country-fed's products the master leases were negotiated at arm's length and contain the general provisions for individual lease transactions covering each of the trucks country-fed and the lessors adhered to the contractual terms of their respective master lease agreements country-fed is not required to make a downpayment in conjunction with any of the lease transactions the lessors realized a more than de_minimis pretax economic benefit from each of the lease transactions as a part of each the master leases are similar to one another in both form and substance to the extent that there are any important differences in the master leases we will refer to the master leases separately lease transaction country-fed executed the certification required by sec_7701 h c in each lease transaction sec_7701 h provides qualified_motor_vehicle_operating_agreement defined --for purposes of this subsection-- a in general --the term qualified_motor_vehicle_operating_agreement means any agreement with respect to a motor_vehicle including a trailer which meets the requirements of subparagraphs b c and d of this paragraph b minimum liability of the lessor ---an agreement meets the requirements of this subparagraph if under such agreement the sum of-- the amount the lessor is personally liable to repay and the net fair_market_value of the lessor's interest in any property pledged as security for property subject_to the agreement eguals or exceeds all amounts borrowed to finance the acquisition of property subject_to the agreement there shall not be taken into account under clause ii any property pledged which is property subject_to the agreement or property directly or indirectly financed by indebtedness secured_by property subject_to the agreement c certification by lessee notice of tax_ownership --an agreement meets the requirements of this subparagraph if such agreement contains a separate written_statement separately signed by the lessee-- under which the lessee certifies under penalty of perjury that it intends that more than percent of the use of the property subject_to such agreement is to be ina trade_or_business of the lessee and continued the lessor's rental income over the period of the lease exceeded the sum of the lessor's depreciation and cost of financing its purchase of the trucks a typical lease transaction takes place as follows country-fed first identifies the type of truck it wishes to lease the lessor then obtains the truck that country-fed has identified often country-fed negotiates with dealers regarding the price for which the lessor could acquire the truck after identifying a truck which country-fed wishes to lease country- fed and the lessor execute a new vehicle order which is subject_to the terms of the master lease and contains the continued which clearly and legibly states that the lessee has been advised that it will not be treated as the owner of the property subject_to the agreement for federal_income_tax purposes d lessor must have no knowledge that certification is false ---an agreement meets the requirements of this subparagraph if the lessor does not know that the certification described in subparagraph c i is false as to each truck country-fed executed the certification required by sec_7701 h c and used the truck in its business there is no evidence in the record regarding how the lessors financed their acquisition of the trucks ‘ this is the term used by the mccullagh master lease the ari master lease refers to this agreement as a motor_vehicle lease agreement the world omni master lease refers to this agreement as the leased unit quotation despite the difference in terminology the information contained in each document is essentially the same following additional information as to the particular truck the term of the lease the base rent and the monthly rental charge the base rent represents the sum of all of the monthly rent due throughout the lease transaction for the particular truck the base rent is dependent on the lessor's cost of obtaining the truck and refitting it to petitioner's specifications which could include the purchase and attachment of the refrigeration units over the lease_term a fixed portion of the monthly rent is applied to reduce the base rent the amount of the reduction is calculated to be equal to an amount that at the end of the lease_term effectively reduces the base rent to zero the remaining portion of the monthly rent is a service and administrative charge that is not applied to reduce the base rent the ari master lease refers to this figure as the capitalized value the ari master lease reaches the same result by providing that upon the termination of the lease period the capitalized value is reduced by the total depreciation_reserve the total depreciation_reserve is determined by multiplying the number of months a vehicle is billed in service and paid_by the lessee times the capitalized value times the monthly depreciation percentage which is determined at the outset of the lease the monthly depreciation percentage is calculated to be equal to an amount that at the end of the lease_term effectively reduces the capitalized value of the truck to zero under the ari master lease this is the portion of the continued in addition to the monthly rent country-fed must pay all registration and compliance fees not included in the base rent country-fed also must pay any taxes that accrue with respect to the use or possession of the particular trucks during the term of its lease transaction country-fed must repair any damage to the trucks ifa truck is damaged beyond repair country-fed must pay the lessor the remaining base rent the master lease provides that title to the leased truck remains with the lessor throughout the term of the lease at the end of the lease_term for a particular truck country-fed is responsible to return that truck to the lessor if the truck remains in country-fed's possession beyond the term of the respective lease country-fed is required to continue paying the lessor the monthly service and administrative fees upon return of the truck the lessor is obligated to sell the truck if the proceeds of the sale obtained by the lessor exceed any remaining base rent plus the cost to the lessor of t continued monthly rent not included in the depreciation_reserve the ari master lease also provides that country-fed may continue to use the truck at the end of the lease_term as long as it continues to pay the administrative portion of the monthly rent under the ari master lease if a truck was damaged beyond repair country-fed can elect to terminate the lease termination of the lease effectively results in country-fed's paying the lessor the remaining base rent see infra arranging the sale the lessor is required to remit the excess to country-fed if the proceeds of the sale obtained by the lessor are less than any remaining base rent plus the cost to the lessor of arranging the sale country-fed is required to pay the lessor the difference the mccullagh master lease contains an option for country- fed to buy the respective truck at the end of its lease_term for the truck's fair_market_value the ari master lease specifically provides that country-fed has no option to purchase the respective truck at any time the world omni master lease does not provide an option for country-fed to buy the respective truck but provides that country-fed may purchase the truck if it is being sold at a public sale country-fed did however acquire title to most of the trucks at the end of the respective lease transactions on or about date respondent issued a notice_of_deficiency that determined a deficiency in petitioners' federal_income_tax in the amount of dollar_figure for their taxable_year respondent increased petitioners' schedule e income by dollar_figure in calculating the increase respondent determined that petitioners were not entitled to a rental deduction of dollar_figure for the lease of trucks and related equipment by country-fed an employee business relations entertainment deduction of dollar_figure and other deductions of dollar_figure -- - respondent allowed petitioners additional schedule e deductions of dollar_figure for depreciation and dollar_figure for fringe_benefits paid to employees additionally respondent increased petitioners' adjusted_gross_income by dollar_figure for fringe_benefits received and disallowed dollar_figure in itemized_deductions respondent further determined that petitioners were liable for an accuracy-related_penalty pursuant to sec_6662 of dollar_figure the parties have settled all of the issues determined in the notice_of_deficiency except the disallowed schedule e rental deduction for the trucks and related equipment leased by country- fed and the allowable_depreciation deduction if the rental deduction is disallowed opinion we must decide whether sec_7701 precludes consideration of the trac contained in the master leases covering the lease transactions and whether the lease transactions should be treated as leases or as purchases of trucks neither party disputes that the provisions of the master leases that require either the lessor to remit to country-fed the amount by which the sale proceeds of the truck exceed the remaining base price plus the cost of the sale or conversely require country-fed to remit to the lessor the amount by which the remaining base rent plus the cost of the sale exceeds the proceeds are a terminal_rental_adjustment_clause within the meaning of sec_7701 h respondent contends that the lease transactions are conditional purchases of trucks because as to any particular lease transaction the remaining base rent is always lower than the fair_market_value of the respective truck at the end of its lease_term respondent points to the trac contained in each of the master leases and argues that because the amounts that the lessors receive on the sale of the trucks always exceed the remaining base rent country-fed could and for the most part did acquire the trucks at the end of the lease_term for a nominal price accordingly respondent argues the substance of the lease transactions is the purchase of a truck petitioners argue that in deciding whether the lease transactions should be treated as leases sec_7701 h precludes consideration of the trac upon which respondent relies petitioners argue that but for the trac the substance of the lease transaction is a lease and therefore the lease transactions should be treated as leases sec_7701 h provides sec_7701 h motor_vehicle operating leases ---- in general --for purposes of this title in the case of a qualified_motor_vehicle_operating_agreement which contains a terminal rental adjustment clause-- a such agreement shall be treated as a lease if but for such terminal_rental_adjustment_clause such agreement would be treated as a lease under this title and b the lessee shall not be treated as the owner of the property subject_to an agreement during any period such agreement is in effect respondent does not contend that the master leases are not qualified motor_vehicle operating agreements ’ rather respondent argues that the trac may be considered in deciding whether the substance of the lease transactions is the purchase of a truck we disagree the plain meaning of legislation should be conclusive except in the 'rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters ' 489_us_235 quoting 458_us_564 sec_7701 was enacted after our decision in 76_tc_547 revd 692_f2d_651 9th cir in swift dodge the taxpayer a leasing company entered into various lease transactions under the terms of each lease part of the lessee's monthly payments was to be applied to the cost of the vehicle capitalized cost resulting in the depreciated value the lease further provided that if at the end of the lease_term the actual wholesale value of the car exceeded its depreciated value the lessor would see the statutory definition of qualified_motor_vehicle_operating_agreement set forth supra note remit the excess to the lessee conversely if the depreciated value of the car exceeded its actual wholesale value the lessee would pay the difference to the lessor we held that the agreement in question was a lease noting that the depreciated value was calculated on the basis of expected depreciation of the vehicle over the course of the lease see id pincite we explained that the inclusion of a contract provision that shifts the depreciable loss to the extent of wholesale value away from the taxpayer in an attempt to minimize business risks does not control for purposes of determining whether the agreement is a lease or conditional sales contract id pincite we further stated that this is not a case in which the total rental payments paid all but a nominal amount of the cost of the leased property id pincite after our decision in swift dodge v commissioner supra congress enacted the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_324 tehfra section 96_stat_447 precluded the commissioner from considering trac provisions in determining whether an agreement was a lease until a statute is enacted or regulations are issued see 80_tc_411 after the enactment of tefra the court_of_appeals for the ninth circuit reversed our decision in swift dodge v commissioner f 2d pincite the court_of_appeals held that the agreement in question was closer to a conditional_sales_agreement than to a lease see id pincite the court did not consider the effect of tefra section after the decision of the court_of_appeals in swift dodge the commissioner proposed_regulations which would have prevented leases containing trac provisions from being treated as leases see sec_1 f -12 proposed income_tax regs fed reg date during congress enacted sec_168 as part of the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_494 defra sec_32 is virtually identical to current sec_7701 which was enacted during as part of the tax_reform_act_of_1986 tra publaw_99_514 sec c 100_stat_2085 the legislative_history of defra sec_32 specifically refers to our decision in swift dodge the decision of the court_of_appeals for the ninth circuit in swift dodge and the proposed_regulations see h rept pincite s rept pincite h conf rept pincite 1984_3_cb_1 by those references we know that when defra sec_32 was enacted congress was aware of our holding and the court of appeals' holding in swift dodge as well as the proposed_regulations consequently when the defra sec_32 was enacted and when the current identical sec_7701 was enacted as part of tra congress being well aware of those holdings -- - and regulations could have specifically denied the protection provided by sec_7701 to lease transactions such as those in issue in the instant case where the total rental payments paid all but a nominal amount of the cost of the leased property swift dodge v commissioner t c pincite congress however did not elect to place such limitations in sec_7701 and it is not within our province to do what congress failed to do or elected not to do see 369_us_672 consequently we will adhere to the plain language of sec_7701 as required by that section we will analyze the lease transactions without the trac that is we will look at the lease transactions as if the lessors received possession of the trucks at the end of the lease_term without any obligation to sell them and remit to country-fed any proceeds which exceed the base price plus the cost of arranging the sale moreover as a result of our disregarding the trac we regard any sale of the trucks to country-fed under the provisions of the mccullagh or world omni master leases ’ as sales at fair_market_value as required by the master leases the ari master lease specifically provides that country-fed has no option to purchase the truck at the end of the lease_term it that country-fed in fact paid only a nominal price for the purchase of the trucks at the end of the lease_term is a direct continued -- - once the trac is disregarded the master leases contain standard equipment lease provisions that do not preclude treatment of the lease transactions as leases see eg 88_tc_702 because net leases are common in commercial settings it is less relevant that the lessor was not responsible for the payment of property taxes or that the lessor bears less of a risk of loss or damage to the property because the lessee is required to maintain insurance on the property 87_tc_1471 we have long rejected any notion that a net_lease shifts the burden of ownership from the lessor to the lessee 58_tc_836 finding that even a generous purchase option is not fatal to lease determination affd per curiam 500_f2d_1222 9th cir accordingly in the instant case we conclude that the lease transactions should be treated as leases finally the form of a transaction if imbued with tax- independent considerations has economic_substance and will be continued result of the trac because country-fed was entitled to the proceeds of the sale above any remaining base price plus the costs to the lessor of arranging the sale when country-fed purchased the trucks it was not required to pay the lessor anything above the base price plus the costs to the lessor of arranging the sale moreover because the base price was effectively reduced to zero at the end of the lease_term country-fed would be reguired to pay only a nominal amount to purchase the vehicle at the end of the lease_term respected for federal_income_tax purposes see 435_us_561 91_tc_371 country-fed chose to lease the trucks instead of purchasing them outright because the lessors did not require a downpayment on leased trucks not having to make a downpayment on the trucks allowed country-fed to use its capital elsewhere in its expanding business of course leasing the trucks apparently’ resulted in additional tax benefits to country-fed in the form of accelerated deductions that a transaction is shaped in part however by tax considerations is not a sufficient reason for disregarding its form see frank lyon co v united_states supra pincite we have considered the parties’ remaining arguments and find them irrelevant or unnecessary to reach to reflect the foregoing and the concessions of the parties decision will be entered under rule petitioner has moved to shift the burden_of_proof arguing that the amounts in the notice_of_deficiency relating to allowed_depreciation deductions were arbitrary because we hold that petitioner is entitled to rental deductions and not depreciation_deductions with respect to the trucks petitioner's motion to shift the burden_of_proof is moot


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division date date taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax number release date uil certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code you are no longer exempt under sec_501 of the code for the tax_year ending december 20xx the revocation of your exempt status was made for the following reason s you are not operated under the lodge_system also you do not provide for the payment of life sickness accident or other_benefits to your members thus you fail to meet the requirements of sec_501 which requires an organization to operate under the lodge_system or for the exclusive benefit of the members of a fraternity itself operating_under_the_lodge_system as well as to provide for the payment of life sickness accident or other_benefits to its members in order to be exempt under sec_501 you are required to file an income_tax return on form_1120 for the tax_year ending december 20xx with the appropriate service_center in accordance with the instructions of the return 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 internal_revenue_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 and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosures publication ay department of the treasury anit internal_revenue_service rs tax exempt and government entities i exempt_organizations examinations uw date date taxpayer_identification_number test form tax_year s ended person to contact employee id telephone fax manager's contact information employee id telephone response due_date certified mail -- return receipt requested dear why you're receiving this letter we enclosed a copy of our audit report form 886-a explanation of items explaining that we propose to revoke your tax-exempt status as an organization described in internal_revenue_code irc sec_501 _ if you agree if you haven't already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issue a final adverse letter determining that you aren't an organization described in sec_501 for the periods above after we issue the final adverse determination_letter we'll announce that your organization is no longer eligible to receive tax deductible contributions under sec_170 if you disagree request a meeting or telephone conference with the manager shown at the top of this letter send any information you want us to consider file a protest with the irs appeals_office if you request a meeting with the manager or send additional information as stated in and above you'll still be able to file a protest with irs appeals_office after the meeting or after we consider the information the irs appeals_office is independent of the exempt_organizations division and resolves most disputes informally if you file a protest the auditing agent may ask you to letter rav catalog number 34809f sign a consent to extend the period of limitations for assessing tax this is to allow the irs appeals_office enough time to consider your case for your protest to be valid it must contain certain specific information including a statement of the facts applicable law and arguments in support of your position for specific information needed for a valid protest refer to publication how to appeal an irs determination on tax- exempt status fast track mediation ftm referred to in publication the examination process generally doesn’t apply now that we've issued this letter request technical_advice from the office of associate chief_counsel tax exempt government entities if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the irs if you're considering requesting technical_advice contact the person shown at the top of this letter if you disagree with the technical_advice decision you will be able to appeal to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call for additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs aov forms-pubs or by calling 800-tax-form ae if you have questions you can contact the person shown at the top of this letter sincerely hooke maria director exempt_organizations examinations enclosures form 886-a form_6018 publication publication letter rev catalog number 34809f form 886-a date name of taxpayer schedule number or exhibit issued tax identification_number last digits year period ended explanations of items department of the treasury internal_revenue_service - i issue does the organization continue to qualify for exemption under sec_501 of the internal_revenue_code irc december 20xx facts zero dollars are reported in part line of form_990 benefits paid to or for members likewise no amount is reported on line of part ix benefits paid to or for members part ill of the 20xx form_990 indicates that the org did not undertake any significant program services during the year which were not listed for the prior year and that the org did not cease conducting or make significant changes in how it conducts any program services part vi section c disclosure item replies to the requirement that the org make its form_1024 and 990-t available to the public the question asks how they are made available in reply to which the org checked the option for upon request schedule o expands on this by entering the text no documents available to the public in reply to my request for comments on the schedule o statement the poa referred to the upon request reply the reply appears to be missing some text four classes of members are reported as follows on the form_1024 - honorary social meritorious birth or descent meritorious members are nominated and regular regular members with for distinguished service exemplary conduct community achievements and exemplary moral social achievements contribution to the lodge and the community social members participate in lodge activities have voting rights and may be elected to office this class is open to the public but may not fall into any membership category listed above honorary members are past members who have had a significant the organization has loans owed to members for renovations the org claims that these loans were disclosed on the 20xx form_990 schedule l the org also discloses their conflict of interest policy prohibiting personal benefit generally if after due diligence no independent offers are acceptable then the board_of directors decides if the offer is fair to and in the best interests of loans and other payables to current officers directors trustees key employees highest compensated employee and disqualified persons were reported in part x line of the 20xx form_990 as dollar_figure the prior year end reflected a balance for this line of dollar_figure the loan is disclosed on schedule l of the 20xx form_990 to be dollar_figure the original amount of information_document_request - form_4564 was sent to the org and specifically asked if the organization receives contributions which are deductible by donors the poa replied that the catalog number 20810w page www irs gov form 886-a rev form 886-a date name of taxpayer schedule number issued tax identification_number last digits year period ended explanations of items department of the treasury - internal_revenue_service december 20xx deductible contributions for amounts given is a member supported_organization however donors do not receive tax it is noted that as of the aug 20xx letter replying to a request for clarification of exempt status the right to deductibility of donations was affirmed under sec_501 and classification as a public charity approved under sec_509 and sec_170 the organization reports in part v of the 20xx form_990 that it did not solicit any contributions that were not taxable as charitable_contributions an inspection of the admin file disclosed that the org discloses in part is selects option f’ to indicate that it was applying on form_1024 for exemption as a sec_501 organization fraternal beneficiary societies etc providing life sick accident or other_benefits of the same form_1024 the org replies to question 2a that it does not operate under the lodge_system in reply to question 2b benefit of the members of an organization operating under a lodge_system question asks is the organization a parent or a the answer provided to this question is replies that they do or will operate for the exclusive in schedule e of this part no’ it is noted that in the cover letter for form_1024 dated november 20xx is twice referred to by the poa as a ministry articles for amendment of the club name were filed on october 20xx the name changed from to the new name form_1024 also contains the following question answer for part il question lf the organization is the outgrowth or continuation of any form of predecessor state the name of each predecessor the period during which it was in existence and the reasons for its termination submit copies of all papers by which any transfer of assets was effected the reply was the organization has always been a separate legal entity however it fell under the group exemption of the national organization at one time it had filed its own exemption which was approved however it is now filing paperwork so that it may have its own c exemption apart from the group exemption of the national organization in part iv of the form_1024 replied to a section that did not pertain to it but rather to orgs which are exempt under sec_501 and c who are requesting additional time to secure tax-exemption avail themselves of additional time to file in their response however they indicate that they should be eligible to letter signed by director of exempt_organizations tamara ripperda and dated may 20xx granted tax exemption to the organization under sec_501 catalog number 20810w page www irs gov form 886-a rev schedule number explanations of items se rbi issued tax identification_number last digits year period ended department of the treasury - internal_revenue_service form 886-a date name of taxpayer december 20xx the addendum to the may letter begins with the statement our records indicate that you were previously tax-exempt as a subordinate under group exemption number because you applied for and have been granted your own individual tax-exempt status you no longer rely on your affiliation with a parent organization for recognition of your tax-exemption the addendum continues with a second and final provision if become a subordinate under a group ruling you will lose your individual recognition of tax-exempt status moreover if you become a subordinate under a group ruling and your parent organization loses its tax-exempt status you also will lose your exempt status to reestablish your individual tax-exemption after rejoining a group exemption you will be required to reapply and pay the appropriate user_fee in the future you choose to the information_document_request idr dated january 20xx asked the organization to identify the types of benefits provided to membership including if applicable the payment of life sickness accident or other insurance benefits to the members or their dependents in reply to this question the org stated in their letter dated feb 20xx that as with the members did not receive any of the benefits that you have listed in your letter however they did receive benefits as a social_club which included various events organizational activities and community programs the feb 20xx letter further states that the organization once was a component unit of the until on november 20xx the and completed the application as a stand-alone organization for recognition as a nonprofit entity broke away from the the signage shown in the of the reads social_club of the article implies that the establishment is open to the public with the statement when the local group passers-by despite the labor involved in a weekly pasta dinner no employees or employee compensation is reported on the 20xx form_990 whose monday pasta offerings beckon it is reported by that funds have been raised by the attorney for the statewide lodge suing the local group under the auspices of the group described on its website as the largest and oldest national organization for men and heritage in the united_states the national group which began as a mutual aid women of society for early preservation medical_research disaster relief and veterans' needs immigrants funds causes such as educational programs cultural catalog number 20810w page www irs gov form 886-a rev form 886-a date explanations of items anna number issued tax identification_number last digits year period ended department of the treasury - internal_revenue_service name of taxpayer december 20xx the local group which refers to itself as the lists among its charitable works food drives for the donations to and and its work with on its website - even so said because the the lawyer suing property rightly should be administered by the cut ties with and hierarchal body such as a church they take nothing with them except for their membership he said group opted to leave the national organization its money and law states that when members on behalf of the state law to be exempt under sec_501 a fraternal beneficiary society order or association must meet the following requirements it must have a fraternal purpose it must operate under the lodge_system or for the exclusive benefit of the members of a fraternal_organization itself operating_under_the_lodge_system operating_under_the_lodge_system requires at a minimum two active entities and ii it must provide for the payment of life sickness accident or other_benefits to the members of such society order or association or their dependents a subordinate chartered by the parent and largely self-governing i a parent organization an organization that provides benefits to some but not all of its members may qualify for exemption so long as most of the members are eligible for benefits and criteria for excluding certain members are reasonable perhaps the leading judicial pronouncement of what constitutes a fraternal beneficiary society is in this extract from national union v marlow 374_f_775 a fraternal-beneficial society would be one whose members have adopted the same or a very similar calling avocation or profession or who are working in union to accomplish some worthy object and who for that reason have banded themselves together as an association or society to aid and assist one another and to promote the common cause the term fraternal can properly be applied to such an association for the reason that the pursuit of a common object calling or profession usually has a tendency to create a brotherly feeling among those who are thus engaged many of these associations make a practice of assisting their sick and disabled members and of extending substantial aid to the families of deceased members their work is at the same time of a beneficial and fraternal character because they aim to improve the condition of a class of persons who are engaged in a common pursuit and to unite them by a stronger bond of sympathy and interest the regulations under sec_501 states in part that operating_under_the_lodge_system means carrying on its activities under a form of organization that comprises local branches that catalog number 20810w page www irs gov form 886-a rev fon 886-a date name of taxpayer schedule number or exhibit issued tax identification_number last digits year period ended si explanations of items department of the treasury revenue internal service ir - i are chartered by a parent organization and that are largely self-governing called lodges chapters or the like revrul_55_495 1955_2_cb_259 holds that an organization which does not have a parent organization or subordinate branches does not qualify under sec_501 because it does not operate under the lodge_system december 20xx revrul_55_495 deals with an organization which did provide benefits to members but did not operate under the lodge_system or for the exclusive benefit of the members of an organization so operating an entity seeking exemption under sec_501 must have an established system for the payment of life sick accident or other_benefits to its members or their dependents it is not essential that every member of a fraternal beneficiary society be covered by its program of benefits for the organization to qualify as exempt under sec_501 revrul_64_194 1964_2_cb_149 provides that a fraternal association having two classes of members beneficial and social qualifies for exemption under sec_501 even though its social members are not covered by its benefit program beneficial membership is available only to a member who joins prior to his her 50th birthday but social membership is available to older persons an exempt fraternal_organization must operate under the lodge_system and provide for an established system of benefit payments to its members and their dependents it is not necessary that either of these features predominate i t 1_2_cb_180 however both features must be substantially present neither may be a sham the org does not provide for the payment of any financial benefits as required for the org does not operate under the lodge government position the organization fails to qualify for exemption under multiple provisions an org that is tax exempt under sec_501 system also required members are united by social purpose of celebrating a common the majority of members do not heritage but not for the payment of benefits for accidents qualify for benefits as benefits are provided to none of the members the method of excluding members is therefore considered unreasonable taxpayer position the government position was discussed with poa cpa on xx the poa indicated that the organization may agree with the revocation of exempt status but that in the future would file with the irs form_1024 with another possible sub section conclusion corporation tax forms effective as of january 20xx any deductions taken by donors will be disallowed from the effective date the org's tax exemption should be revoked form 990's converted to catalog number 20810w page www irs gov form 886-a rev


department of the treasury internal_revenue_service washington d c office_of_chief_counsel number info release date index no date dear i apologize for the delay in responding to your date inquiry on behalf of your constituent segment tax to on-demand air charter flights in a recent technical_advice_memorandum tam issued by the irs wrote about the application of the the air transportation excise_taxes are user fees and the amounts collected are paid into the airport_and_airway_trust_fund the trust fund the trust fund uses these funds to plan construct develop operate and maintain the united states’ airport and airway system in addition the trust fund covers the department of transportation’s budget dealing with air transportation and air safety this includes over one-half of the operating costs of the federal aviation administration before the taxpayer_relief_act_of_1997 the act air transportation providers calculated the excise_tax on domestic air transportation solely as a percentage of the amount_paid for that transportation in addition providers of international air transportation beginning or ending in the united_states calculated an international_travel_facilities_tax as a fixed amount applicable to any amount_paid for that air transportation the act decreased this percentage and added a new tax on each segment of taxable_transportation the act provides that the segment tax is imposed on the amount_paid for each domestic_segment of taxable_transportation in the context of commercial air transportation the segment tax applies to each passenger who pays any amount for a segment the term domestic_segment is defined as one takeoff and one landing which is taxable_transportation described in sec_4262 of the internal_revenue_code the code sec_4261 of the code the international_travel_facilities_tax is similar to the segment tax because both are calculated not as a percentage of the amount_paid but as a fixed amount applicable to any amount_paid for the transportation revrul_72_309 1972_1_cb_348 shows how to calculate the international_travel_facilities_tax when the purchaser makes a single payment for a charter that revenue_ruling concluded when an individual or organization pays a single amount for a charter implicit in the charter fee is an amount_paid for the transportation of each passenger actually on the flight the similar language in sec_4261 and sec_4261 supports the conclusion that the segment tax should apply in the same way as the international_travel_facilities_tax thus although the irs has not issued guidance on the segment tax specifically the guidance for the similar international_travel_facilities_tax clearly suggests the segment tax should also apply per passenger the per-passenger application means all users of the airport and airway system will share equally in the cost rather than commercial air passengers bearing a higher share of those costs than passengers in chartered aircraft the secretary_of_the_treasury can prescribe the extent if any to which any ruling applies without retroactive effect sec_7805 of the code the holding of a tam applies retroactively unless the secretary exercises this discretionary authority generally a tam will not apply retroactively when the irs has issued an earlier tam or letter_ruling to the taxpayer about the same matter under consideration in the tam revenue_procedure 2001_1_irb_79 thus because the irs had not issued a letter_ruling to the taxpayer before issuing the tam it would generally not be appropriate to apply the tam nonretroactively simply because the taxpayer disagreed with the position reached in the tam i recognize the application of the segment tax to each passenger may be the subject of disagreement however when taxpayers are unclear on the application of a particular tax they can request a letter_ruling rather than wait for published guidance from the irs the letter_ruling program provides guidance to taxpayers when they are unclear on the application of the code each year we announce the procedures for requesting a letter_ruling in the first revenue_procedure published in the internal_revenue_bulletin this year’s procedures are in revproc_2001_1 2001_1_irb_1 copy enclosed i hope this information is helpful if you have any questions please contact me at sincerely richard a kocak chief branch associate chief_counsel passthroughs and special industries enclosure


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-157641-01 date date x y llc a b c date date date date dear this responds to your letter dated date together with subsequent correspondence requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was a corporation that elected to be treated as an s_corporation effective on date on date llc a limited_liability_company owned by a b and c acquired x stock on date the owners of llc were unaware that x was an s_corporation however a b and c later discovered that x was an s_corporation and the llc’s ownership of x stock had terminated x’s plr-157641-01 s election on date llc’s shares of x stock were distributed to a b and c on date x’s articles of incorporation were amended changing the corporation’s name to y y represents that the transfer of shares to an ineligible s_corporation shareholder was not motivated by tax_avoidance or retroactive tax planning y as the successor to x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation that the secretary may require sec_1361 of the internal_revenue_code defines an s_corporation means as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that the term small_business_corporation is a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation a termination of an s_corporation_election under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such 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 such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election was terminated on date as a result of llc an ineligible s_corporation shareholder acquiring shares of x in addition we conclude plr-157641-01 that this termination was inadvertent within the meaning of sec_1362 under the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s s election was valid and was not otherwise terminated accordingly all of the shareholders in x in determining their respective income_tax liabilities for the period beginning date and ending on date must include their pro_rata share of the separately_stated and non-separately computed items of x as provided in sec_1366 make any adjustments to basis provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 for the purposes of the preceding sentence during the period from date to date a b and c will be treated as owners of the stock held by llc and the ownership of x stock by llc will be ignored if x or its shareholders fail to treat themselves as described above this ruling shall be null and void except as specifically ruled upon above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer who requested it section sec_6110 of the code provides that it may not be used or cited as precedent sincerely matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------- ------------------------------- ------------------- --------------------------------------------- ------------------------ ------------------------------------------------------------ -------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc intl b02 plr-126770-15 date date ty ------- legend taxpayer ------------------- ----------------------- year year year year year country x accounting firm ------- ------- ------- ------- ------- ----------------------- ---------------- dear mr ----------- this is in response to a letter received by our office dated date submitted on behalf of taxpayer by its authorized representative requesting an extension of time under sec_301_9100-3 to make the election provided by sec_953 of the internal_revenue_code code to be treated as a domestic_corporation for u s tax purposes commencing on the first day of taxpayer’s year taxable_year the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in plr-126770-15 support of the request for a ruling verification of the factual information representations and other data may be required as part of the audit process taxpayer has provided an affidavit representing the following taxpayer is a regulated insurance_company organized under the laws of country x taxpayer with accounting firm’s assistance filed a sec_953 election statement along with its timely filed tax_return for year in year the irs notified taxpayer that additional information was required from taxpayer in connection with the sec_953 election approval process during year taxpayer with accounting firm’s assistance mailed the additional information to the irs in year accounting firm contacted the irs because taxpayer had not received a letter approving its sec_953 election the irs informed accounting firm that the election was not approved because the irs did not receive the requested additional information in year taxpayer with accounting firm’s assistance makes this request to be granted an extension of time to make the election provided by sec_953 a grant of relief will not result in a lower tax_liability for the taxable years affected by the election because taxpayer with accounting firm’s assistance filed its tax returns for year through year as if a sec_953 election had been in place since year accordingly a grant of relief will not prejudice the interests of the government sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that except as provided in paragraphs b i through iii of that section a taxpayer is deemed to have acted reasonably and in good_faith if it meets one of the conditions described in sec_301 b i through v one such condition is that that taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 treas reg b i through iii does not apply to the facts as presented in this request plr-126770-15 sec_301_9100-3 provides that a taxpayer is not considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or was not aware of all relevant facts sec_301_9100-3 provides that relief will be granted only when the interests of the government will not be prejudiced revproc_2003_47 2003_2_cb_55 provides that the election to be treated as a domestic_corporation under sec_953 to be effective for a taxable_year must be filed by the due_date prescribed in sec_6072 with extensions for the united_states income_tax return that is due if the election becomes effective in the present situation revproc_2003_47 fixes the time to make the election under sec_953 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth under sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to make the election provided by sec_953 in accordance with the procedural rules set forth in revproc_2003_47 to be treated as a domestic_corporation for federal_income_tax purposes commencing on the first day of taxpayer's year taxable_year the granting of an extension of time is not a determination that taxpayer is otherwise eligible to make the sec_953 election sec_301_9100-1 the taxpayer should attach a copy of this letter_ruling to its federal_income_tax return for the relevant year 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-126770-15 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely jeffery g mitchell branch chief branch international 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 corp b1 plr-113116-11 date july legend parent prior parent date date date date x ---------------------------------------- ----------------------- ----------------------------------------------- ----------------------- -------------------------- -------------------------- ---------------------- -------------------------- -- company official -------------------------- ----------------------------------------------------------- tax professional ----------------------------- ---------------------------------------- dear ----------------- this letter responds to a letter dated date submitted by your authorized representative on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an extension of time to elect an extended carryback plr-113116-11 period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration in that letter and in subsequent correspondence is summarized below parent is the common parent of a group of affiliated corporations that joined in filing a consolidated_return for u s federal_income_tax purposes the parent group prior to date including with respect to the taxable years ending on date sec_1 and prior parent was the common parent of the parent group the parent group incurred a cnol in the taxable_year ending on date the year cnol parent seeks to carry back the year cnol x years to the taxable_year ending on date under sec_172 parent was required to file the election in order for the parent group’s year cnol to be carried back to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on the due_date with extensions of the parent group’s consolidated_income_tax_return for the tax_year ending date but for various reasons a valid election was not timely filed after the due_date for the election it was discovered that the election had not been timely filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s consolidated_income_tax_return for the taxable_year in which the year cnol was incurred or any subsequent taxable_year sec_172 of the internal_revenue_code generally permits a taxpayer to carry back a net_operating_loss to each of the taxable years preceding the taxable_year of the nol sec_172 of the internal_revenue_code permits a taxpayer to elect to carry back an applicable net_operating_loss to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that the term applicable net_operating_loss applicable nol means the taxpayer’s net_operating_loss for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various plr-113116-11 factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that net_operating_loss_carryovers_and_carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group can elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date an applicable cnol and that the election applies to the entire applicable cnol revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol an amended_return applying the applicable cnol to the carryback_year or a claim for a tentative_carryback_adjustment on form_1139 sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for an applicable cnol is a regulatory election therefore the plr-113116-11 commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election parent should file the election under sec_172 to carry back the year cnol x years on a form 1120x amended u s_corporation income_tax return according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr- of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liabilities if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liabilities for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter plr-113116-11 for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc