internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-101683-02 date date x a b d1 d2 state dear this is in reply to the letter dated date submitted on behalf of x by x’s authorized representative requesting that x be given an extension of time under sec_301 of the procedure and administrative regulations in which to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d2 the information submitted states that x is a limited_partnership formed under the laws of state on d1 a and b the owners of x intended for x to elect to be treated as an association_taxable_as_a_corporation as of d2 however a form_8832 entity classification election was not filed for x by the due_date for the election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner plr-101683-02 -2- to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301 c i an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 provides that the commissioner has the discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth 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 on whose behalf it was requested sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours paul f kugler 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 numbers washington dc person to contact telephone number refer reply to cc corp 4-plr-114377-02 date date legend x this letter responds to your date request that we supplement our letter_ruling dated date plr-115711-00 the prior letter_ruling capitalized terms not defined in this ruling retain the meanings assigned them in the prior letter_ruling the information submitted with regard to this supplemental ruling_request is summarized below supplemental facts the prior letter_ruling addresses certain federal_income_tax consequences of the proposed distribution of controlled stock and related transactions the proposed transaction due to unanticipated and significant developments since the date of the prior letter_ruling including developments in industry ab the proposed transaction has not been consummated furthermore in light of these market developments and the need to satisfy obligations imposed by government agency distributing intends as part of the proposed transaction to enter into a purchase agreement with parent whereby distributing will purchase x from parent agreement additionally parent and sub will enter into a purchase agreement whereby parent will purchase x from sub for the purpose of fulfilling a portion of its agreement obligation agreement agreement and agreement are collectively referred to as the agreements representation in connection with this supplemental ruling_request distributing makes the following representation at the time of the prior letter_ruling distributing had no intention to enter into the agreements plr-114377-02 ruling based solely on the information and representation submitted with the supplemental ruling_request we rule as follows the agreements will have no adverse effect on the rulings contained in the prior letter_ruling and will not prevent those rulings from having full force and effect caveats 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 no opinion is expressed about the tax treatment of the proposed transaction under any other provision of the code or regulations or the tax treatment of any condition existing at the time of or effect resulting from the proposed transaction that is not specifically covered by the above ruling procedural statements this supplemental ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ____________________________ lewis k brickates acting chief branch office of the associate chief_counsel corporate


department of the treasury inwashington d c eo ak exemptand index numbers division date mar ame employer_identification_number contact person identification_number contact number by ladies and gentlemen this is in response to a letter dated date from your authorized representatives who have requested certain rulings on your behaif this letter addresses issues arising in connection with the merger of n into m including the treatment under sec_501 sec_511 through and other provisions of the internal_revenue_code the code facts our records indicate that m is exempt from federal_income_tax under sec_501 of the code as a fraternal beneficiary society described in sec_501 m's local and subordinate units are also described in sec_501 m provides its members with fraternal benefits and offers life sick accident or other_benefits to its members in accordance with sec_501 m has a number of wholly owned taxable subsidiaries our records also indicate that n is exempt from federal_income_tax under sec_501 as a fraternal beneficiary society described in sec_501 n’s local and subordinate units are also described in sec_501 n offers life sick accident or other_benefits to its members in accordance with sec_501 as well as fraternal benefits to its members n also has a number of wholly owned taxable subsidiaries including o m's articles of incorporation provide that its purposes are to bring together individuals who share a common bond and their families with similar individuals and their families to offer membership in a fraternal beneficiary society and to assist members and others m's article sec_2 also refer to its involvement in a number of endeavors including those of a charitable religious and educational nature n’s articles of incorporation provide that its purposes revolve around service to its members and include those of a charitable religious and educational nature n's articles refer to providing life sick or accident benefits to its members as stated in the agreement and plan of merger between m and n and in accordance with the applicable insurance laws n will be merged with and into m and the separate existence of n will cease upon effectiveness of the merger n’s contracts and certificates will be converted into corresponding contracts and certificates of m as the surviving corporation each member of n will automatically become a member of m as the surviving corporation m as the survivor of the merger and the successor to n will assume all obligations of n including the obligations under the insurance and annuity_contracts that were issued by n n’s policies no formal exchange of insurance and annuity_contracts and certificates will occur due to the merger as of the effectiveness of the merger m will issue endorsements to n’s policies pursuant to which n’s policies will be converted into corresponding insurance and annuity_contracts and certificates of m as the surviving corporation as represented the merger and the endorsements to n’s policies issued by m will not change the terms of any of n’s policies except as the law requires the articles of incorporation and bylaws of m will become part of n’s policies similarly the substitution of m's articles of incorporation and bylaws for n’s articles of incorporation and bylaws will not change in any material respect the terms and conditions of n’s policies and the policyholders’ rights and obligations under n’s policies except for the substitution of m’s articles and bylaws all of the terms of n’s policies including the terms conditions rights and obligations concerning premiums benefits cash surrender values charges annuity options surrender rights interest and mortality assumptions and policy loan provisions will remain the same after the merger and the issuance of the endorsements as represented the merger and the endorsements to n’s policies issued by m will not change the terms of any of n’s policies except as the law requires m’s articies and bylaws will become part of n’s policies similarly the substitution of m’s articles and bylaws for n’s articles and bylaws will not change in any material respect the terms and conditions of n's policies except for the substitution of m’s articles and bylaws all of the terms of n’s policies including the terms conditions rights and obligations concerning premiums benefits cash surrender values charges annuity options surrender rights interest and mortality assumptions and policy joan provisions will remain the same after the merger and the issuance of the endorsements the owners of n’s policies will continue to own their insurance and annuity_contracts after the merger the owners of n’s policies will not receive new policy forms other representations relating to the merger include the following following the transaction m will continue the historic fraternal and any other activities of n or use a significant portion of n's historic assets in m’s activities oze2 mand n will pay their respective expenses_incurred in connection with the transaction there is no intercorporate corporate indebtedness existing between m and n that was issued acquired or will be settled at a discount the fair_market_value of the assets of n transferred to m will equal or exceed the liabilities assumed by m plus the amount of liabilities to which the transferred assets are subject the total adjusted bases of the assets of n will equal or exceed the sum of the liabilities assumed by m plus the amount of the liabilities to which the transferred assets are subject no fractional membership interests of m will be issued in the merger the aggregate fair_market_value of all membership interests of m is greater than the aggregate fair_market_value of all membership interests of n and the members of n will not receive as a result of being members of n membership interests of m which represent more than percent of the fair_market_value of the membership interests of m any property previously used by m or n in a business that gives rise to unrelated_business_taxable_income will continue to be so used after the merger the respective boards of directors of m and n have concluded that the merger of n with to best fulfill and into m as provided in the agreement and plan of merger will enabie m and n their common objective of improved and expanded service to the p community they will also increase their financial strength and resources for growth and enhance their potential for expanded delivery of services to existing and new members and other constituencies moreover the merger is expected to achieve substantial cost savings the agreement and pian of merger between m and n contains the following provisions one provision of the agreement refers to employee benefit plans including plans described in sec_401 of the code asecond provision of the agreement refers to plans contracts or arrangements described in sec_401 sec_403 sec_403 and sec_408 of the code a third provision of the agreement refers to employee benefit plans including plans described in sec_401 of the code and a fourth provision of the agreement refers to plans contracts or arrangements described in sec_401 sec_403 sec_403 and sec_408 of the code oldu contemporaneously with the merger of m and n wholly owned subsidiaries of the respective organizations will also merge the taxpayer's authorized representatives assert that these other mergers will have no effect on any contract issued by n or any qualified_plan maintained by n law and discussion - exempt_organizations issues sec_501 c of the code provides for the exemption from federal_income_tax of fraternal beneficiary societies orders or associations that operate under the lodge_system or for the exclusive benefit of the members of a fraternity itself operating_under_the_lodge_system and provide for the payment of life sick accident or other_benefits to the members of such society order or association or their dependents sec_1_501_c_8_-1 of the income_tax regulations the regulations provides that a fraternal beneficiary society is exempt from tax only if operated under the ‘lodge system the regulations provide that operating_under_the_lodge_system means carrying on its activities under a form of organization that comprises local branches chartered by a parent organization and largely self-governing called lodges chapters or the like in order to be exempt it is also necessary that the society have an established system for the payment to its members or their dependents of life sick accident or other_benefits sec_1_501_a_-1 of the regulations provides that to establish exemption an organization must file an appropriate application form a determination that an organization is exempt can be relied upon so long as there are no substantial changes in the organization's character purposes or methods of operation revrul_67_390 1967_2_cb_179 provides that an organization must file a new application_for_exemption_from_federal_income_tax when a change in its structure results in the creation of a new entity sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 of the code sec_512 of the code defines the term unrelated_business_taxable_income as gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions that are directly connected with such trade_or_business sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_function sec_514 of the code sets forth rules with respect to unrelated_debt-financed_income sec_1_513-1 of the regulations states that unless one of the specific exceptions of sec_512 or sec_513 is applicable gross_income of an exempt_organization subject_to the tax imposed by sec_511 is includible in the computation of unrelated_business_taxable_income if itis income from trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization’s performance of its exempt functions sec_1_513-1 of the regulations provides that when an activity does not possess the characteristics of a trade_or_business within the meaning of sec_162 the unrelated_business_income_tax does not apply the term trade_or_business generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether a trade_or_business is regularly carried on within the meaning of sec_512 regard must be had to the frequency and continuity with which the activities are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of nonexempt organizations neither the exempt_purpose nor the operations of m as a fraternal beneficiary society described in sec_501 of the code will materially change due to the merger of n with and into m as represented m's articles of incorporation and bylaws will be substituted for n's articles of incorporation and bylaws although the purpose provisions in the organizations’ articles are not identical m’s and n's respective purposes are to promote the general welfare of their membership through various programs as well as to support p institutions both m and n are organized for exempt purposes under sec_501 as fraternal beneficiary societies and thus m's exempt_purpose will not materially change as a result of the merger at the completion of the merger n's separate existence will cease and m will assume all obligations of n as represented the merger will not materially change the terms and conditions of n's policies and the policyholders’ rights and obligations under n’s policies also as represented the merger will not change the membership rights or the terms of any contracts or certificates of any member of m following the transaction m will continue the historic fraternal and any other activities of n or use a significant portion of n's historic assets in m's activities the merger will not materially change the nature of the operations underlying m's basis for exemption under sec_501 of the code therefore immediately following the merger m will continue to be exempt from tax under sec_501 of the code as a fraternal beneficiary society generally when the exempt purposes and activities of an organization remain the same after reorganization and no new legal entity is created its tax-exempt status is not adversely affected the merger will also not affect the status of n as an exempt_organization under sec_501 prior to the merger with regard to whether a new application_for recognition of exemption must be filed it appears that m the surviving organization is not a new entity the merger of n with and into m in the manner described does not substantially change m’s exempt_purpose or the nature of its operations and most importantly does not result in the creation of a new organization a therefore m will not need to file a new exemption application as a result of the merger revrul_67_390 supra is distinguishable as the situations described therein involved the creation of new legal entities that were required to submit new exemption applications with regard to the unrelated_business_income_tax the merger of n with and into m will not result in either organization realizing or recognizing any unrelated_business_taxable_income under sec_511 through of the code the merger is not considered a trade_or_business under sec_1_513-1 of the regulations because it does not constitute an activity carried on for the production_of_income from the sale_of_goods or performance of services also the information submitted indicates that the merger will be a one-time transaction and therefore it will not be regularly carried on as required by sec_1_513-1 furthermore for purposes of sec_511 through n’s basis and holding_period in assets including shares of o will carry over in the hands of m no gain_or_loss need be recognized on exchanging n's membership interests for m’s membership interests and as a result of the merger no depreciation need be recaptured with respect to any debt-financed asset or other asset that may give rise to unrelated_business_taxable_income law and discussion -- employee_plans and insurance issues sec_401 of the code provides requirements for qualification under that section for both defined benefit and defined contribution employee_plans such requirements permit the purchase of annuity_contracts both for investment purposes and for purposes of distributing benefits to participants sec_402 c and e of the code provide the rules applicable to distributions from retirement plans which are qualified under sec_401 a sec_72 of the code provides in summary rules governing to what extent distributions under annuities endowment or life_insurance contracts constitute gross_income sec_72 of the code provides in relevant part certain rules applicable to distributions made from a_trust described in sec_401 which is exempt from tax under sec_501 sec_401 of the code provides in short that a profit-sharing or stock_bonus_plan a pre-erisa_money_purchase_plan or a rural_cooperative_plan may include a cash_or_deferred_arrangement coda and retain its sec_401 status sec_401 of the code in relevant part sets forth the distribution rules applicable to sec_401 k codas sec_403 of the code provides rules for taxability of a beneficiary of amounts distributed under annuity_contracts that satisfy the requirements of sec_404 sec_404 relates to the purchase of annuity_contracts such as retirement annuities or those that cover both retirement annuities and medical benefits similarly sec_403 provides rules for taxability of amounts distributed under certain annuity_contracts described in that section ov purchased by an employer for its employees sec_403 of the code provides in short that as long as the requirements in sec_403 are met amounts paid_by an employer described in paragraph a to a custodial_account which satisfies the requirements of sec_401 shall be treated as amounts contributed by him to a sec_403 annuity_contract sec_403 of the code sets forth certain distribution_requirements applicable to annuities described in sec_403 sec_408 of the code provides requirements that individual retirement annuities iras issued by insurance_companies must satisfy for the tax treatment of sec_408 to apply to distributions from those contracts sec_408a sets forth the rules applicable to roth iras sec_72 of the code imposes a additional income_tax on certain distributions made from qualified_retirement_plans prior to the date on which an employee ira holder annuitant etc attains age sec_3405 of the code provides that the term designated_distribution is defined in part as any distribution or payment from an employer_deferred_compensation_plan an individual_retirement_plan or a commercial_annuity sec_4974 of the code provides that the term qualified_retirement_plan as used in sec_72 includes a plan described in sec_401 which includes a_trust exempt from tax under sec_501 an annuity plan described in sec_403 an annuity described in sec_403 an individual_retirement_account described in sec_408 and an individual_retirement_annuity described in sec_408 sec_4973 of the code provides in relevant part for the imposition of a 6-percent excise_tax on the amount of an excess_contribution to an individual_retirement_annuity within the meaning of sec_408 or to a custodial_account treated as an annuity_contract under sec_403 a sec_4979 of the code provides in relevant part for the imposition of a 10-percent excise_tax on the amount of an excess_contribution for a year or excess_aggregate_contribution as defined in sec_401 to a plan described in sec_401 which includes a_trust exempt under sec_501 an annuity plan described in sec_403 or an annuity_contract described in sec_403 generally speaking annuity_contracts issued by an insurance_company that satisfy the requirements set forth in sec_404 of the code and thus the taxability of whose distributions is subject_to sec_403 or sec_403 or that are permitted to be purchased under the qualification rules of sec_401 or the ira annuity rules of sec_408 or the roth_ira rules of sec_408a do not lose their tax status under sec_403 or 2b with respect to a sec_401 pian or sec_408 ira or sec_408a roth_ira have their qualified status adversely affected merely because the issuing company has changed ownership if the change in ownership has not changed the terms of the annuity_contracts additionally an annuity issuing company’s changing ownership in and of itself without a change in the terms of the annuities issued does not result in a distribution for purposes of sec_402 sec_403 sec_408 sec_4973 or sec_4979 of the code from any of its issued annuity_contracts in this case the taxpayer's authorized representatives have asserted that neither the merger of m and n nor the endorsements issued by m with respect to n’s policies will change the terms of any of n’s policies except as required_by_law and except with respect to the articles and bylaws of m furthermore except for the substitution of m's articles and bylaws all of the terms of n’s policies including the terms conditions rights and obligations concerning premiums benefits cash surrender values charges annuity options surrender rights interest and mortality assumptions and policy loan provisions will remain the same after the merger and after the issuance of m’s endorsements additionally the owners of n’s policies will continue to own their insurance and annuity_contracts after the merger the owners of n’s policies will not receive new policy forms the authorized representatives have asserted that the differences between the articles and bylaws of m and n are incidental to the terms and conditions and the policyholders’ rights and obligations under n's policies the merger will not change the membership rights or the terms of any benefit contracts or certificates of arly member of m furthermore the authorized representatives in this case make the following representations the fair_market_value of m's interests received by the members of n merger will be approximately equal to the fair_market_value of n’s interests exchanged therefor and the fair_market_value of the assets of n’s assets transferred to m will equal or exceed the liabilities assumed by m plus the amount of liabilities to which the transferred assets are subject in the also the proposed merger will not result in any designated_distribution under sec_3405 of the code that is subject_to_withholding under sec_3405 or c of the code conclusion based on the above facts and representations we rule as follows immediately following the merger m will continue to be exempt from tax pursuant to sec_501 of the code the merger will not affect the status of n as an exempt_organization pursuant to sec_501 of the code immediately before the merger e m will not need to file a new application_for exemption as a result of the merger the merger will not result in either m or n realizing or recognizing any unrelated_business_taxable_income pursuant to sections of the code n’s basis and holding_period in its assets including the shares of o will carry over in the hands of m after the merger n membership interest holders will recognize no gain_or_loss on exchanging n membership interests for m membership interests a the proposed transaction will have no effect on the date each annuity_contract purchased by a_trust described in sec_401 of the code purchased by a plan described in sec_403 described in sec_403 or from an individual_retirement_arrangement within the meaning of either sec_408 or sec_408 of either m or n was issued entered into purchased or came into existence for purposes of sec_72 b the merger will have no effect on the date that any policy including any life_insurance or annuity_contract issued by m or n was or is deemed to have been issued purchased or entered into for purposes of sec_72 sec_72 sec_72 sec_72 sec_72 sec_72 sec_72 u v f a a f 7702a or 7702b of the code will not require retesting or the start of a new test period for any company policy under sec_264 sec_7702 sec_7702 b - e or 7702a and for purposes of sec_72 and sec_72 will not cause annuity_contracts with annuity start dates before the merger to be treated as having starting dates after the merger as a result of the merger no depreciation will be recaptured with respect to any debt- financed asset or other asset that may give rise to unrelated_business_taxable_income the proposed transaction will have no effect on any life_insurance or annuity_contract of either m or n for purposes of sec_72 sec_401 sec_402 sec_403 sec_408 or sec_408a of the code the proposed transaction will not result in distributions for purposes of sec_403 of the code with emphasis on sec_403 additionally the proposed transaction will not result in distributions for purposes of sec_401 with emphasis on sec_401 the proposed transaction will not constitute with respect to policies issued by either mor n in effect prior to the effective date of the proposed transaction and which are qualified within the meaning of sec_401 sec_403 sec_408 or sec_408a of the code a distribution from or a contribution to any of these policies plans or arrangements for federal_income_tax purposes and the proposed transaction will not result in any distributions and thus will not result in a any gross_income to the employee or the beneficiary thereof as a distribution from a code sec_401 qualified_plan pursuant to sec_72 unless accompanied by an actual distribution to either the employee or beneficiary thereof b the imposition of the 10-percent additional income_tax imposed under sec_72 of the code on premature distributions from qualified_retirement_plans c the imposition of any excise_tax described in either sec_4973 or sec_4979 of the code or d any designated_distribution under sec_3405 of the code that is subject_to_withholding under sec_3405 or c this ruling is based on the understanding that there will be no material changes in the facts upon which it is based except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code we have not been asked and we express no opinion on whether any property previously used by m or n in a business that gives rise to unrelated_business_taxable_income under sec_511 through of the code will continue to give rise to this tax as a result of the merger this ruling only addresses whether the merger itself results in unrelated_business_taxable_income the rulings that you have requested other than those enumerated above have been forwarded to the office of the associate chief_counsel corporate that office will respond directly to you pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to m's and n's authorized representatives a copy of this letter should also be kept in m's and n's permanent records this letter is directed only to the organizations that requested it this letter modifies and supersedes the letter issued to the organizations on date sec_6110 of the code provides that it may not be used or cited by others as precedent on if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely nerd vu sack gerald v sack manager exempt_organizations technical group


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 tege eb qp2 plr-116437-15 date date legend ------------------------- -------------------------------------------------------- ------------------------------------------------------------- ------- ------- college plan x church state year a religious tradition -------------------------- directory m number a number b number c number d number e number f number g number h number i date a date b -------------------------------------------------------------------- ----------- -- ---- ---- -- --- -- ---- --- ----------------- ------------------------ dear ---------------------- this responds to your letter dated date submitted on your behalf by your authorized representatives in which you request a ruling that plan x is a church_plan within the meaning of sec_414 of the internal_revenue_code the following facts and representations have been submitted under penalties of perjury plr-116437-15 college is a private not-for-profit college of the church college was formed under the not-for-profit corporation laws of state and is exempt from tax under sec_501 college was founded in year a college is an official institution_of_higher_education of church college is listed in directory m and is also listed as a church college on its website and on church’s website college is dedicated to challenging and nurturing students for lives of leadership and service as a spirited expression of their faith and learning college embraces certain teachings and writings that are central to religious tradition which have been formalized by church college has accepted these teachings and writings as its official doctrine and represents that it shares common religious bonds and convictions with church church has adopted a constitution and bylaws in which its colleges and universities are described church bylaw number a states the relationship of this church to its colleges and universities shall be guided by policies fostering educational institutions dedicated to the religious tradition wherein such institutions are an essential part of god’s mission in the world faithful to the will of god as institutions providing quality instruction in religion and a lively ministry of worship outreach and service diligent in their preparation of leaders committed to truth excellence and ethical values and pledged to the well-being of students in the development of mind body and spirit article number b of college’s restated articles of incorporation includes the following statement of college’s purpose and affiliation with church the corporation shall operate a coeducational liberal arts college of church or its successor sections number c and number d of the bylaws of college include the following statements of the college’s religious mission and vocation college is dedicated to challenging and nurturing students for lives of leadership and service as a spirited expression of their faith and learning college helps students discover and claim their callings-connecting their learning with faith and values their understanding of themselves and their gifts their perspective on life and the future and the opportunities for participating in church community and the larger society in purposeful and meaningful ways plr-116437-15 article number g of college’s articles of incorporation provides that the members of college include the members of the church assembly the officers of church and the members of the board_of regents of college board the regular meetings of the members of college are held at the same place as the church wide assemblies of church at a time designated by the bishop of church the presiding officer of the church wide assembly of church presides at the meeting of the members of college section number e of the bylaws of college states that the corporation is managed by board which is composed of a minimum of persons and a maximum of persons article number f of the articles of incorporation of college requires at least of the regents to be members of a church congregation in nomination of persons to be considered for membership on board board consults with church bishops in the synods of regions number b and number g of church section number h of the bylaws of college provides that board has the power and authority to appoint or remove the president of college who in turn must be a member of a church congregation or another church body that has a relationship of full communion with church the president of college shall be responsible to board shall serve as the executive head of college and shall have the administrative responsibility for all the affairs of college article number i of the articles of college dictates that in the event of college’s dissolution its assets shall revert to church or to a tax-exempt_organization designated by church college has maintained and sponsored plan x a defined contribution retirement_plan established as a b tax-deferred annuity program since date b the vice president for finance administration and the director of human resources payroll are primarily responsible for the day-to-day ministerial administration of plan x they report to the retirement_plan subcommittee of board which is responsible for the overall administration of plan x the subcommittee is comprised of five members of board including the president of college and board chair the vice president for finance administration and the director of human resources payroll staff the subcommittee all of the members of the subcommittee are members of church congregations plan x covers active and former employees of college no other persons are eligible to participate in plan x none of the eligible employees are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 and none of the eligible employees that participate in plan x are employees of for-profit entities in accordance with revproc_2011_44 notice to interested persons with reference to plan x was provided on date b plr-116437-15 sec_414 generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches which is exempt from taxation under sec_501 sec_414 provides in part that the term church_plan does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 or sec_414 or their beneficiaries sec_414 provides that a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 generally defines employee of a church or a convention or association of churches to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches sec_414 provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches revproc_2011_44 2011_39_irb_446 supplements the procedures for requesting a letter_ruling under sec_414 relating to church plans the revenue_procedure requires that plan participants and other interested persons receive a notice in connection with a letter_ruling request under sec_414 for a qualified_plan requires that a copy of the notice be submitted to the internal_revenue_service irs as part of the ruling_request and provides procedures for the irs to receive and consider comments relating to the ruling_request from interested persons plr-116437-15 in order for an organization that is not itself a church or a convention or association of churches to have a qualified church_plan it must establish that its employees are employees or deemed employees of a church_or_convention_or_association_of_churches under sec_414 by virtue of the organization’s control by or association with a church_or_convention_or_association_of_churches employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 and is controlled by or associated with a church_or_convention_or_association_of_churches in addition in order to be a church_plan the administration or funding or both of the plan must be by an organization described in sec_414 to be described in sec_414 an organization must have as its principal purpose the administration or funding of the plan and must also be controlled by or associated with a church_or_convention_or_association_of_churches in this case college a state not-for-profit corporation is an organization described in sec_501 that is tax exempt under sec_501 college is listed in directory m the directory for church the management and direction of the business and affairs of college is vested in board at least of whose members must be members of a church congregation and whose nomination to board is done in consultation with church officials as described above various sections of the articles of incorporation and bylaws of college demonstrate that college shares common religious bonds and convictions and is associated with church in light of the relationship between church and college we conclude that college is associated with a church or a convention or association of churches within the meaning of sec_414 in addition the employees of college who are eligible to participate in plan x meet the definition of employee under sec_414 and they are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization which is exempt from tax under sec_501 and which is associated with a church or a convention or association of churches plan x is administered by the retirement_plan subcommittee the principal responsibility of the subcommittee is to administer plan x the members of the subcommittee include the president of college who must be a member of a church congregation or a church body with a relationship of full communion with church and members of board who are nominated in consultation with church officials all of the members of the subcommittee are members of church congregations based on these facts we find that the subcommittee shares common religious bonds and convictions with church and is associated with church because the subcommittee is associated with church we conclude that the subcommittee is an organization described in sec_414 based on the foregoing facts and representations we conclude that plan x is a church_plan within the meaning of sec_414 plr-116437-15 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative sincerely s laura b warshawsky senior tax law specialist qualified_plans branch tax exempt government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-101817-00 date date legend x llc d1 d2 d3 d4 state this responds to your letter dated date submitted on behalf of x requesting a ruling that llc be given an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a corporation for federal tax purposes and be granted relief under sec_1362 of the internal_revenue_code facts x elected to be treated as an s_corporation effective d1 on d2 llc was formed under state law and x merged into llc with llc surviving the merger under state law x represents that the merger qualified as a reorganization under sec_368 of the code although llc intended that it be taxed as a corporation for federal tax purposes as of d2 llc did not timely file an election form to be treated as an association and therefore taxable as a corporation for federal_income_tax purposes on d3 when llc realized that it did not timely file and election form to be treated as an association_taxable_as_a_corporation it requested relief under sec_301_9100-3 llc was advised by the internal_revenue_service that its operating_agreement provided for more than one class of stock which made llc no longer eligible plr-101817-00 to be taxed under subchapter_s of the code on d4 llc adopted a new operating_agreement which provided that llc have no more than one class of stock llc represents that it did not intend to terminate its s_corporation_election and that during the termination period it has timely and consistently filed its tax returns consistent with its treatment as an s_corporation law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is an entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code sec_301 a an eligible_entity with at least two members an elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is a partnership if it has two or more members to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election can be effective on the date specified on the form_8832 or on the date filed if no such date specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or in a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin 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 for 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 evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 plr-101817-00 a sec_1361 defines an s_corporation with respect to any taxable_year as a small_business_corporation for which an s election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation cannot have more than one class of stock 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 the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of the cessation sec_1362 sec_1362 in relevant part provides that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in the termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make any 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 terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary the committee reports accompanying the subchapter_s_revision_act_of_1982 explain sec_1362 as follows if the internal_revenue_service determines that a corporation’s subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequence of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that the taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts plr-101817-00 s rep no 97th cong 2d sess 1982_2_cb_718 h_r rep no 97th cong 2d sess 1982_2_cb_730 conclusions based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result llc is granted an extension of time to elect to be taxed as an association as of d2 llc has days from the date of this letter to file form_8832 with the applicable service_center to elect to be treated as an association for federal tax purposes as of d2 further we conclude that llc’s subchapter_s_election terminated on d2 when x merged into llc and llc’s operating_agreement provided that llc have more than one class of stock we also conclude that the termination constituted an inadvertent termination within the meaning of sec_1362 pursuant to sec_1362 x will be treated as continuing to be an s_corporation from d2 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether the original election made by x to be treated as an s_corporation was a valid election under sec_1362 this ruling is directed only to the taxpayer who requested it sec_6110 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 the taxpayer sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca_2009090116243747 ---------------------------- number release date from --------------------- sent tuesday september pm to ------------------------ cc subject re assessment on defaulted snd case -------- the short answer is that yes it is legally permissible to assess less than the amount in the statutory_notice_of_deficiency however doing so without entering into a closing_agreement or having some kind of signed document means the assessment is based on an irs initiated adjustment special interest rules apply sec_6611 if there has been any kind of concession negotiation in order to get to the settlement it seems appropriate to enter into a closing_agreement let me know if you need anything further -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ------------------


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 --------------------------- ------------------- telephone number -------------------- refer reply to cc psi plr-130674-14 date date legend coop1 --------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------ coop2 -------------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------------ coop3 ---------------------------------------------------------------------------- --------------------------------------- corp state a ------- ------ llc --------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- dear ---- --------- this is in response to a request for a ruling dated date submitted on behalf of coop3 by your authorized representative the ruling concerns the application of cooperative tax law to the transaction described below coop1 coop2 and coop3 the cooperatives are nonexempt rural_cooperative telephone_companies that operate on a cooperative basis each cooperative has less than ------ customers in its respective statutory exchange area as plr-130674-14 defined by the state a utilities board each cooperative’s service area is significantly rural and substantially agricultural coop1 has --------telephone access lines coop2 has ----- telephone access lines and coop3 has ----- telephone access lines as discussed below each cooperative consistent with its respective business goal seeks to provide its member-patrons with access to communications technology advances as these advances become available and feasible for deployment coop1 was organized to among other things i furnish communication services to its members at the lowest cost ii contract for exchange service and toll service and reciprocal telecommunications service with connecting lines with local exchanges and long distance companies and iii do and perform any and all acts and things as necessary or convenient to accomplish any or all of the cooperative’s objectives members are issued a certificate of membership which is required in order to receive communication services no member of the association may own more than one membership and each member shall be entitled to one vote at meetings of the members of the association coop1’s articles of incorporation enumerate the manner in which the directors are to annually dispose_of the earnings_of the association in excess of its operating_expenses the articles provide among other things that remaining net_earnings shall be allocated to a revolving fund and shall be credited to the account of each member ratable in proportion to the business he has done with the association during each year such credits are herein referred to a as ‘deferred patronage dividends’ upon dissolution or liquidation the assets of the association shall be applied first to pay liquidation expenses then to pay association obligations and other capital credit statements issued therefore and the remainder of such assets shall be distributed in the manner and order provided by law coop2 was organized to among other things i furnish improve and expand telephone service to its members at the lowest possible cost consistent with the proper maintenance of its telephone lines and other facilities ii contract for exchange service and toll service and reciprocal telecommunications service with connecting lines with local exchanges and long distance companies and iii do and perform any and all acts and things as necessary or convenient to accomplish any or all of the cooperative’s objectives a member purchases a membership in the cooperative at the issuing price and is eligible to receive telecommunication services each member may only own one membership which entitles him or her to one vote at all meetings of the association the cooperative’s articles of incorporation explain the manner in which the directors shall annually dispose_of the earnings_of the association in excess of its operating_expenses r emaining net_earnings shall be allocated to a revolving fund and shall be credited to the account of each member ratably in proportion to the business he has done with the association during the year such credits are herein referred to as ‘deferred patronage dividends’ upon dissolution or liquidation the assets of the association shall be applied first to pay liquidation expenses next to pay obligations to general creditors next to redeem preferred_stock and pay accumulated dividends plr-130674-14 thereon if any and finally the remainder of the assets shall be distributed in the manner and or of priority provided by law and the by-laws coop3 was organized to among other things i furnish improve and expand telecommunication services to its members and others at the lowest possible cost consistent with the proper maintenance of its telephone lines and other facilities ii contract for exchange service and toll service and reciprocal telecommunications service with connecting lines with local exchanges and long distance companies in such manner as shall be deemed to be in coop3’s best interest and iii to do and perform all acts and things and to have and exercise any and all powers as may be necessary or convenient to accomplish any of all of the foregoing purposes or as may be permitted by the provisions of the laws under which coop3 was formed and to exercise any of its powers anywhere coop3 members are composed of any person firm cooperative corporation limited_liability_company partnership limited_liability partnership or body politic who receive retail telecommunication services from the cooperative at a premise within its established service area and the execution of a membership application agree to comply with and be bound by articles of incorporation and bylaws and relevant rules - and accepted by majority vote of board_of directors and are issued a certificate of membership at an issuing price no member may own more than one membership and each member entitled to one vote on each issue presented for vote of the members of the cooperative coop3 is operated on a cooperative nonprofit basis for the mutual benefit of its patrons members the cooperatives articles of incorporation provide the manner in which the directors shall annually dispose_of the earnings_of the cooperative in excess of its operating_expenses the cooperative’s articles of incorporation provide in relevant part that the cooperative shall allocate all remaining net_earnings as provided in sec_2 below sec_2 in the furnishing of telecommunications service the cooperative’s operations shall be conducted so that all persons will through their patronage furnish capital for the cooperative in order to induce patronage and to assure that the cooperative will operate on a nonprofit basis the cooperative is obligated to account on a patronage basis to all its patrons for all amounts received and receivable from the furnishing of telecommunications service in excess of operating costs and expenses at the moment of receipt by the cooperative and received with the understanding that they are furnished by the patrons as capital the cooperative is obligated to pay by credits to a capital_account for each patron all such amounts in excess of operating costs and expenses in the event of dissolution or liquidation after all outstanding indebtedness of the cooperative shall have been paid outstanding capital credits shall be retired without priority on a pro_rata basis before any payments are made on account of property rights of its members -----------------------------------------------------------------------------------------it is plr-130674-14 expressly understood that amounts paid for telecommunications services in excess of the cost of service are furnished by members as capital and each member shall be credited with the capital so furnished as provided in the bylaws or articles of incorporation the provision of telecommunication services by small independent telecommunication providers such as the cooperatives to the relatively few customers in a respective statutory exchange areas is costly particularly the provision of switching calling features broadband iptv and call announcements in an effort to provide their respective customers with a broader range of telecommunication services of higher quality delivered in a more efficient manner the cooperatives and similarly-situated providers formed llc llc enabled the providers to pool their respective resources and provide furnish improve and expand telecommunication services to their respective customers at the lowest possible cost which was consistent with each of the cooperatives respective goals the partnership’s operating_agreement provides in relevant part that the business of the company shall provide for switching telecommunications traffic to that end llc enabled the participating providers to pool their resources in securing a switch in which the partners could direct their respective telecommunications traffic the partnership_agreement provides that each member participate in the switch sharing_agreement in ------ in furtherance of llc’s overall purpose llc executed an agreement with -------------------------------------------------- and ----------------------------------------------------- --------- state a to purchase the state a --- license and state a --- license for ------------ and ------------ respectively llc purchased this spectrum in order to assist its members in enhancing the telecommunications services that each member provides to member- patrons that is it was intended that the spectrum acquisition would enable llc’s members to provide its member-patrons with enhanced voice data wireless internet and wireless backhaul llc did not purchase the spectrum for investment purposes the intention was to use the spectrum in order to enhance the telecommunication services that each member provided to its respective member-patrons llc did not put the spectrum to use immediately because the construction costs associated with its usage eg tower construction and electronic equipment installation was approximately dollar_figure---------- in addition to the construction-related costs it was estimated that on-going operational and management costs such as paying customer services representatives and fiber transport costs would be approximately dollar_figure------------ annually neither llc nor its members had the financial wherewithal at the time the spectrum was purchased to use the spectrum llc and its members however did anticipate using the spectrum in the future to enhance their respective customers’ telecommunication services between ------ and ------ the spectrum market exploded due in large part to advances in telecommunications technology which boosted spectrum’s value in order plr-130674-14 to support the advances in technology the key players in the telecommunications marketplace sought available spectrum in some instances these players would consult spectrum brokers in their respective searches for available spectrum corp learned of the licenses that llc purchased in ------ - and corp ultimately made an offer which llc accepted llc purchased the spectrum in ------ with the intent to use it however at the time llc could not use the spectrum because construction costs were prohibitive importantly the spectrum license required llc to complete its build out by ------------------------- following the purchase the costs associated with using the spectrum continued to climb as the spectrum market began to heat up the key players in the telecommunications industry were better positioned to use the spectrum and possessed the financial wherewithal to bear the costs associated with using the spectrum as the costs associated with spectrum usage were ever-increasing llc determined in ------ that it would not be in a position to use the licenses and accepted corp’s offer on ------- ------------------------ llc sold the spectrum as a result of the spectrum sale coop3 received a distributive shares of partnership income relative to the sale coop3 submits that because the spectrum sale relates directly to its enterprise such distributive shares constitutes patronage sourced income based on the foregoing coop3 requests a ruling that its distributive_share of partnership income from llc’s spectrum sale constitutes patronage sourced income and if properly allocated to coop3’s member-patrons is excludable from coop3’s gross_income in the tax_year ending -------------------------- sec_501 of the code contemplates that rural_cooperative telephone_companies may qualify as tax-exempt organizations as the telephone business has developed however very few rural telephone cooperatives now qualify for this exemption coop3 falls into this category and thus is a non-profit but taxable cooperative corporation subchapter_t of the code sections provides the statutory scheme for taxing most cooperatives rural telephone cooperatives however are not governed by subchapter_t because of the exclusion provided by sec_1381 for rural telephone cooperatives when congress enacted subchapter_t in congress excluded rural telephone cooperatives in order to avoid over-regulating them and presumably to provide them with more flexible tax treatment because of the necessary services they provided to under-served parts of the country the underlying committee reports stated that cooperative corporations engaged in providing telephone service to persons in rural areas would continue to be treated the same as under prior_law see h_r rep no 87th cong 2d sess a127 s rep no 87th cong 2d sess see also revrul_83_135 1983_2_cb_149 plr-130674-14 sec_1382 and sec_1388 of subchapter_t placed new restrictions on the ability of cooperatives to deduct patronage_dividends that were allocated but not paid in many other ways however subchapter_t codified the law that existed prior to since its enactment in most of the development in the law regarding the taxation of cooperatives has occurred in cases under subchapter_t thus while the cases and rulings interpreting subchapter_t may not control the taxation of rural telephone cooperatives such as coop3 these authorities indicate the position of the service and the courts on many of the issues that do control the taxation of rural telephone cooperatives cooperatives are a unique form of business_entity which are democratically controlled by their patrons in cooperatives each member has one vote regardless of how much capital he or she contributed cooperatives are required to allocate their net margins from business done with or for their patrons back to such patrons in proportion to their patronage this return of patronage-sourced income is bound up with the basic concept of a cooperative rather than using their net_income to pay dividends to their shareholders as a regular_corporation would cooperatives pay patronage_dividends to their members based on the amount of business that the member does with the cooperative patronage_dividends are thus effectively price rebates for member- patrons see 995_f2d_101 7th cir the taxable_income of a cooperative is calculated in much the same manner as the taxable_income of a taxable corporation with one distinct difference the income of a cooperative that is attributable to business done with or for patrons is excluded from or deducted from the income of the cooperative when such income is allocated to the cooperative’s patrons at the time this patronage-sourced income is allocated or in the case of cooperatives not subject_to subchapter_t at the time it is distributed the cooperative’s patrons realize the income patronage-sourced income flows through the cooperative and is taxed only once in order for the amount_realized from the proposed sale of the spectrum to be deductible by coop3 upon allocation the amount must be patronage-sourced income ie income derived from business carried on with or for cooperative’s patrons while neither the code nor the regulations provide a clear definition of patronage-sourced income the courts have in general held that if the income at issue is produced by a transaction which is directly related to the cooperative enterprise such that the transaction facilitates the cooperative’s marketing purchasing or service activities then the income is deemed to be patronage income farmland industries industries v commissioner 78_tcm_846 acq aod citing 765_f2d_1102 675_f2d_988 8th cir 88_tc_238 87_tc_435 in revrul_69_576 1962_2_cb_166 the service provided the following analysis of what it means for income to be patronage sourced plr-130674-14 the classification of an item_of_income as from either patronage or nonpatronage sources is dependent on the relationship of the activity generating the income to the marketing purchasing or service activities of the cooperative if the income is produced by a transaction which actually facilitates the accomplishment of the cooperative’s marketing purchasing or service activities the income is from patronage sources however if the transaction producing the income does not actually facilitate the accomplishment of these activities but merely enhances the overall profitability of the cooperative being merely incidental to the association’s cooperative operation the income is from nonpatronage sources see also revrul_74_160 1974_1_cb_245 ruling that interest_income realized from loans made by the taxpayer was patronage source because the loans actually facilitated the accomplishment of taxpayer’s cooperative activities in that the loans enabled the taxpayer to obtain the necessary supplies for its operations revrul_83_135 1983_2_cb_149 provides that a taxable cooperative not subject_to the provisions of subchapter_t of the code may exclude from gross_income the patronage_dividends paid or allocated to its patrons in accordance with its by-laws cooperatives became partners in llc to insure that telecommunication services would be available to the cooperatives’ customers courts have ruled in several instances that income from corporations organized by cooperatives to conduct activities related to the cooperative business is patronage sourced in farmland industries the taxpayer a cooperative organized for the purpose of providing petroleum products to its patrons sought to have the proceeds from the disposition of its stock in three subsidiaries classified as patronage-sourced income in reaching its decision the court stated that its task was to determine whether each of the gains and losses at issue was realized in a transaction that was directly related to the cooperative enterprise or in one which generated incidental income that contributed to the overall profitability of the cooperative but did not actually facilitate the accomplishment of the cooperative’s marketing purchasing or servicing activities on behalf of its patrons t c m pincite emphasizing the need to focus on the totality of the circumstances and to view the business environment to which the income producing transaction is related the tax_court analyzed the reasons behind both the organization of the subsidiaries and their eventual disposition id pincite first it looked at whether the taxpayer’s subsidiaries were organized to perform functions related to its cooperative enterprises the subsidiaries had been organized to explore for produce and transport crude_oil the court determined that all of the subsidiaries were organized to perform functions related to the taxpayer’s business and were not mere passive investments id pincite plr-130674-14 in other cases the direct relationship between the purpose of a cooperative business and its reasons for investing in a subsidiary were found to be dispositive on the question of whether income received from the subsidiary was patronage sourced for example in astoria plywood corp v united_states a f t r 2d ustc d or the court found that the income derived by a plywood and veneer workers cooperative from the cancellation of a lease on a veneer plant was patronage sourced because the production of veneer was an integral part of the cooperative’s business in other words the reason the cooperative leased the property to begin with had nothing to do with investing in real_estate and everything to do with making veneer similarly in 410_fsupp_1100 d or the court held that the dividends received by a plywood workers cooperative from west coast adhesives a glue supplier which the cooperative helped to organize in order to supply its adhesive needs were patronage-sourced income since glue is essential for the manufacture of plywood and the arrangement to produce the glue was reasonably related to the business done with or for the cooperative’s patrons coop3’s investment in llc and its purchase of the spectrum was directly related to its cooperative business investing in a company in order to provide wireless telephone service is directly related to the business of a rural_cooperative telephone company whose reason for existence is to provide telephone service to its patrons coop3’s sale of the spectrum through llc is also directly related to its cooperative business_purpose in cf industries judge posner noted in his opinion that the court was not aware of any dramatic opportunities for tax_avoidance by use of the cooperative form f 2d pincite however the court implied that a cooperative would be gaining an unfair tax advantage for its members if it were investing in businesses unrelated to its cooperative purpose and in effect running a mutual_fund for its members on the side id judge posner indicated that one type of transaction would not pass the mutual_fund test a temporary investment by a cooperative in securities id certainly if coop3 had taken its members capital and purchased a diversified portfolio of public company securities there can be no doubt that the proceeds from such a portfolio should not and would not be patronage sourced but coop3 did nothing of this sort rather coop3 became a partner in llc for the purpose of providing its patrons with advanced telecommunication services accordingly based solely on the above we rule that coop3’s distributive_share of partnership income from llc’s spectrum sale constitutes patronage sourced income and if properly allocated to coop3’s member-patrons is excludable from coop3’s gross_income in the tax_year ending -------------------------- this ruling is directed only to the taxpayers that requested it under section plr-130674-14 k of the code it may not be used or cited as precedent in accordance with a power_of_attorney filed with the request a copy of the ruling is being sent to your authorized representative sincerely yours nicole r cimino senior technician reviewer branch office of the associate chief_counsel passthroughs special industries cc