internal_revenue_service national_office technical_advice_memorandum index numbers control number tam-115028-98 date number release date taxpayer’s name taxpayer’s address taxpayer’s tin tax_year legend company issues is taxpayer required to use the accrual_method to account for the purchase and sale of used automobiles are taxpayer’s transfers of customer notes to company sales or financings if the transfers described in issue are sales what are the amounts realized conclusions taxpayer is required to use the accrual_method to account for the purchase and sale of used automobiles taxpayer’s transfers of customer notes to company are sales the amounts realized from sales of the customer notes equal a the cash received for the customer note plus b the fair_market_value of taxpayer’s right to receive the distribution payments created by the sale tam-115028-98 facts taxpayer is an individual who files on the basis of a calendar_year using the cash_receipts_and_disbursements_method of accounting during tax_year taxpayer sold used automobiles since most of taxpayer’s customers were unable to arrange third- party financing because of perceived credit risk taxpayer accepted installment notes customer notes secured_by a lien on the automobile as part of the consideration for sales to finance its own operations and avoid the difficulties of servicing the customer notes taxpayer entered into a servicing agreement with company under the agreement taxpayer paid company a one-time nonrefundable enrollment fee and agreed to periodically submit customer notes for servicing administration and collection if company accepted a customer note it made an advance_payment to taxpayer and agreed to make distribution payments which were monthly payments conditioned on company’s collections on the customer notes the advance_payment was the lesser_of percent of the outstanding principal balance of the customer note or percent of the net down payment made on the purchase of the financed automobile a customer’s default did not obligate taxpayer to return the advance_payment or to repurchase either the customer note or the financed automobile company determined the distribution payments by pooling the customer notes transferred by taxpayer and by applying payments on the pool in the following order to pay company’s collection costs all of company’s out-of-pocket costs incurred in the administration servicing and collection of the customer notes to pay company’s fee of percent of the total_payment net of any collection costs and to repay company for all advance_payments made to taxpayer the reminder if any was payable to taxpayer as distribution payments taxpayer has stated that he never received and does not expect to receive any distribution payments once company agreed to service a customer note taxpayer transferred the customer note all files relating to the customer note and taxpayer’s security_interest in the financed automobile company was entitled to endorse taxpayer’s name on any payments made to taxpayer and any other instruments concerning the customer note and the financed automobile taxpayer was obligated to ensure that the customer obtained and maintained adequate automobile insurance_company in its discretion could determine whether there was a default on a customer note and could waive any late payment charge or any other fee it was entitled to collect in tam-115028-98 the ordinary course of servicing the customer note company agreed to use reasonable efforts to collect all payments due under a customer note and to repossess and sell or otherwise liquidate the financed automobile if a default on the customer note occurred taxpayer agreed to indemnify company for any expenses and claims arising out of company’s administration servicing and collection on the customer notes company had the right to terminate the servicing agreement on days written notice to taxpayer company could terminate immediately if for any two calendar quarters taxpayer failed to place with company at least qualifying customer notes or if taxpayer defaulted taxpayer also had the right to terminate the servicing agreement on days written notice if company terminated the agreement because of default or if taxpayer terminated the agreement taxpayer was obligated to pay company its unreimbursed collection costs any outstanding advances and a termination fee equal to percent of the outstanding amounts of the customer notes if company terminated the agreement other than for default or if taxpayer terminated the agreement company would continue servicing and administering the customer notes unless taxpayer asked company to stop at the time they signed a customer note taxpayer’s customers were told that the customer note would be assigned without_recourse to company the assignment was stated on the face of the customer notes taxpayer effectively treated the transfers of customer notes to company as sales for federal_income_tax purposes taxpayer’s treatment was consistent with a letter received from company the letter was prepared for company’s use including distribution to dealers participating in company’s programs and acknowledged that sale treatment was a permissible characterization of the transfers overview during tax_year taxpayer sold used automobiles in exchange for cash and customer notes taxpayer then sold the customer notes to company for cash plus the right to receive distribution payments as a dealer in used automobiles taxpayer was required to be on an accrual_method of accounting on the sale of an automobile taxpayer’s amount_realized was the cash received plus the issue_price of any customer note received which assuming adequate_stated_interest was the face_amount of the customer note tam-115028-98 on the sale of a customer note taxpayer’s amount_realized was the cash received from company the advance_payment plus the fair_market_value of taxpayer’s right to receive the distribution payments thus taxpayer realized a loss on the sale of a customer note equal to the difference between taxpayer’s adjusted_basis in the customer note and taxpayer’s amount_realized issue law and analysis is taxpayer required to use an accrual_method to account for the purchase and sale of used automobiles sec_446 of the internal_revenue_code provides that taxable_income is computed under the method on the basis of which the taxpayer regularly computes his income in keeping his books sec_446 of the code provides that if the method_of_accounting used by the taxpayer does not clearly reflect income the computation of taxable_income shall be made under such method as in the opinion of the secretary does clearly reflect income sec_446 of the code provides in part that subject_to sec_446 and b a taxpayer may compute taxable_income under the cash_method_of_accounting or an accrual_method of accounting sec_1_446-1 of the income_tax regulations provides that in all cases in which the production purchase or sale of merchandise of any kind is an income producing factor merchandise on hand including finished goods work in progress raw materials_and_supplies at the beginning and end of the year shall be taken into account in computing the taxable_income of the year for rules relating to computation of inventories see sec_263a and sec_471 and the regulations thereunder sec_1_446-1 of the regulations provides that in any case in which it is necessary to use an inventory the accrual_method of accounting must be used with regard to purchases and sales unless otherwise authorized under sec_1 c ii sec_1_446-1 of the regulations provides that the commissioner may authorize a taxpayer to continue the use of a method_of_accounting consistently used by the taxpayer even though not specifically authorized by the regulations if in the opinion of the commissioner income is clearly reflected by the use of such method tam-115028-98 sec_471 of the code provides that whenever in the opinion of the secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer inventories shall be taken by such taxpayer on such basis as the secretary may prescribe as conforming as nearly as may be to the best_accounting_practice in the trade_or_business and as most clearly reflecting the income sec_1_471-1 of the regulations provides that in order to reflect taxable_income correctly inventories at the beginning and end of each taxable_year are necessary in every case in which the production purchase or sale of merchandise is an income producing factor the inventory should include all finished or partly finished goods and in the case of raw materials_and_supplies only those that have been acquired for sale or that will physically become a part of merchandise intended for sale under sec_1_471-1 of the regulations inventories are necessary in every case in which the production purchase or sale of merchandise is an income producing factor see also sec_1_446-1 merchandise for purposes of sec_1_471-1 is property transferred to a customer taxpayer transferred used automobiles to its customers and the purchase and sale of such merchandise used automobiles were income producing factors in taxpayer's business this means that taxpayer was required to maintain an inventory thus taxpayer is required to use the accrual_method to account for the purchase and sale of used automobiles a change from taxpayer's current method_of_accounting to the accrual_method of accounting requires computing an adjustment under sec_481 of the code the entire sec_481 adjustment should be taken into account in the earliest year under examination sec_481 may limit the amount of tax arising from the sec_481 adjustment issue are taxpayer's transfers of customer notes to company sales or financings taxpayer transferred customer notes to company in exchange for advance_payments and contractual rights to distribution payments the question is whether taxpayer sold the customer notes or whether taxpayer borrowed the advance_payment from company using the customer notes as collateral if the transactions were sales then taxpayer must recognize any gain_or_loss for federal_income_tax purposes under sec_1001 of the code alternatively if the transactions were secured financings then taxpayer does not include the borrowed amounts tam-115028-98 in gross_income 499_us_573 1991_2_cb_30 in general federal_income_tax consequences are governed by the substance of a transaction determined by the intentions of the parties to the transaction the underlying economics and all other relevant facts and circumstances 293_us_465 xiv-1 c b the label the parties affix to a transaction does not determine its character 308_us_252 1939_2_cb_208 556_f2d_1107 ct_cl the term sale is given its ordinary meaning and is generally defined as a transfer of the ownership of property for money or for a promise to pay money 380_us_563 1965_2_cb_282 whether a transaction is a sale or a financing_arrangement is a question of fact which must be ascertained from the intent of the parties as evidenced by the written agreements read in light of the attending facts and circumstances 24_tc_1124 aff’d 241_f2d_288 9th cir but see 279_f2d_701 2d cir t he parties’ bona_fide intentions may be ignored if the relationship the parties have created does not coincide with their intentions a transaction is a sale if the benefits_and_burdens_of_ownership have passed to the purported purchaser 106_tc_237 77_tc_1221 in cases involving transfers of debt instruments the courts have considered the following factors to be relevant in determining whether the benefits_and_burdens_of_ownership have passed whether the transaction was treated as a sale see 54_tc_1215 acq 1971_2_cb_3 whether the obligors on the notes the transferor’s customers were notified of the transfer of the notes id which party serviced the notes id 51_tc_1049 acq c b xxv whether payments to the transferee corresponded to collections on the notes united surgical steel co t c pincite town country food co t c pincite whether the transferee imposed restrictions on the operations of the transferor that are consistent with a lender-borrower relationship united surgical steel co t c pincite 319_fsupp_441 n d ga which party had the power of disposition 421_f2d_442 5th cir cert_denied 400_us_819 revrul_82_144 1982_2_cb_34 which party bore the credit risk 426_f2d_115 6th cir cert_denied 400_us_827 65_f2d_568 2d cir aff’g 22_bta_224 revrul_82_144 and which party had the potential for gain united surgical steel co t c pincite town country food co t c pincite revrul_82_144 no one factor is dispositive of the issue of whether a sale has taken place the facts and circumstances determine the importance of each factor thus a factor-by- factor analysis is necessary to determine whether taxpayer sold the customer notes were the transfers treated as sales the form of the agreement between taxpayer and company is that of a servicing agreement and not a sales contract taxpayer nevertheless treated the transfers of the customer notes as sales for tax purposes further in the letter sent to taxpayer company acknowledged that sale treatment was a permissible characterization of the transfers were taxpayer’s customers notified of the transfer of the customer notes to company customers were told at the time they signed a customer note that it would be assigned without_recourse to company the assignment was also stated on the note itself see eg united surgical steel co t c pincite customers’ lack of notice of assignment was a factor supporting financing treatment which party handled collections and serviced the customer notes company collected payments serviced the customer notes and repossessed the financed automobile if a customer defaulted although the servicing agreement states that company was taxpayer’s nominee for administrating servicing and collecting on the customer notes in fact company was not acting as taxpayer’s agent taxpayer did not exercise any control_over company aside from agreeing to use reasonable efforts company had sole discretion to determine whether a default had occurred and to elect to pursue remedies compare united surgical steel co t c pincite and town country food co t c pincite taxpayers collected payments and serviced installment notes with elmer f 2d pincite taxpayer did not collect payments on installment notes see also mapco f 2d pincite tam-115028-98 did payments to company correspond to collections on the customer notes the payments company received were the payments that company collected on the customer notes taxpayer had no obligation to make payments to company company received payments only if and when it collected amounts on the customer notes compare united surgical steel co t c pincite and town country food co t c pincite lenders looked to taxpayers for repayment not payments on pledged installment notes with 51_tc_175 taxpayer’s payments to purported lender were exactly the same in amount and timing as payments on underlying installment notes furthermore an advance_payment was based on a fixed amount of a customer note not on taxpayer’s creditworthiness this implies that taxpayer sold the customer notes cf united surgical steel co t c pincite taxpayer did not borrow maximum amount allowable under agreement yancey bros co f_supp pincite taxpayer had access to additional funds without providing additional collateral did company impose restrictions on the operations of taxpayer that are consistent with a lender-borrower relationship the relationship between taxpayer and company had none of the characteristics that are common in a lender-borrower relationship company imposed no restrictions on the operations of taxpayer for example company did not require taxpayer to maintain a specified ratio of assets to liabilities or current_assets to current liabilities company did not receive the right to review taxpayer’s books_and_records company received only the right to documents that were necessary for company to exercise its rights and duties concerning the transferred customer notes since company imposed no restrictions on taxpayer’s operations company is less like a lender and more like a purchaser of the customer notes see eg united surgical steel co t c pincite bank’s imposition of restrictions on operations of taxpayer was a factor showing lender-borrower relationship that conclusion is further supported by company’s failure to require taxpayer to maintain a minimum amount of collateral see eg union planters nat’l bank of memphis f 2d pincite purported seller required to make margin_account payments yancey bros co f_supp pincite taxpayer obligated to maintain ratio of collateral to debt of not less than percent which party had the power to dispose_of the customer notes the servicing agreement is silent about the power of disposition taxpayer could dispose_of the customer notes only by reacquiring all of them from company to reacquire the tam-115028-98 customer notes taxpayer had to terminate the servicing agreement and pay company its unreimbursed collection costs any outstanding advances and a termination fee equal to percent of the outstanding amounts of the customer notes if however company were a lender then it would be reasonable to expect taxpayer to have the ability to substitute collateral of equal value to secure the outstanding loan cf american nat’l bank of austin f 2d pincite purported seller could dispose_of the securities without prior approval from purported buyer at the same time company’s power to dispose_of the customer notes must have been restricted since taxpayer had the right to reacquire them which party bore the credit risk on the customer notes by transferring the customer notes to company taxpayer eliminated almost all of his exposure to credit risk on the customer notes aside from cancelling the servicing agreement or breaching a representation or warranty in the event of a customer’s default taxpayer had no obligation to repurchase either the customer note or the financed vehicle or return the advance_payment further taxpayer fixed his economic loss in the customer notes after transferring a customer note taxpayer’s only risk of loss was a diminution in value of its right to receive distribution payments company on the other hand was at risk for recouping the advance_payments it made to taxpayer it may be argued that company’s risk of loss was insubstantial because it advanced taxpayer no more than percent of the face_amount of each customer note and the distribution payments were based on the entire pool of customer notes which meant that taxpayer’s right to payments was subordinated to company’s right this argument assumes that the fair_market_value of the customer notes equaled their face amounts the evidence however is to the contrary between a customer’s down payment and the advance_payment from company taxpayer generally profited on the sale of an automobile given the value of the automobiles sold the credit quality of the customers and statutory limits on interest charged in consumer credit sales it is reasonable to conclude that the face amounts of the customer notes exceeded their fair market values see eg 40_bta_999 taxpayer inflated sales_price to account for buyer’s uncertain credit status taxpayer transferred customer notes to company for cash payments of no more than percent of their face amounts and permitted company to retain substantial fees on all collections taxpayer would not have agreed to these conditions unless the fair_market_value of the customer notes was less than their face amounts tam-115028-98 accordingly we are unwilling to conclude that company’s risk of loss was insubstantial the potential for gain on the customer notes company’s potential for gain on the customer notes was greater than taxpayer’s company gave taxpayer cash namely the advance_payments when taxpayer transferred customer notes to company company’s right to recover those advance_payments plus payment for its collection costs and fees was limited to its collections on the customer notes company’s profits therefore depended on the timing and amount of the collections rather than on any interest charged to taxpayer while the advance_payments were outstanding consequently the greater the collections on the customer notes the greater company’s rate of return on the advance_payments made to taxpayer in addition company stood to gain more than taxpayer if customers defaulted at a rate lower than expected in cases addressing transfers of debt instruments or other rights to future payments courts have pointed to a fixed rate of return on the loaned amount as evidence that the transactions were financings e g mapco f 2d pincite union 1an example may help illustrate why company’s rate of return on its investment the advance_payments depended solely on the performance of the customer notes assume taxpayer transferred to company a customer note with a face_amount of dollar_figure a term of months an interest rate of percent per annum and monthly payments of approximately dollar_figure also assume that company had no collection costs and taxpayer transferred only the one customer note company would be entitled to receive its fee of percent of each payment approximately dollar_figure company would also be entitled to the remaining dollar_figure of any payment dollar_figure - dollar_figure fee until it recovered the advance_payment of dollar_figure thus company would be entitled to seventeen payments of dollar_figure one payment of dollar_figure and eighteen payments of dollar_figure taxpayer would be entitled to receive starting in month eighteen one payment of dollar_figure and eighteen payments of dollar_figure company’s rate of return on the advance_payment made to taxpayer increases as more payments are collected on the customer note if company were to collect all payments then company’s yield_to_maturity would be approximately percent per annum compounded annually if company were to collect enough payments for it to recoup its collection costs its percent fee and its advance_payment then company’s yield_to_maturity still would be approximately percent as the example shows the more payments company collects the greater company’s rate of return on its advance_payment to taxpayer tam-115028-98 planters nat’l bank of memphis f 2d pincite american nat’l bank of austin f 2d pincite united surgical steel co t c pincite a debt_instrument can provide for a variable rate of return and even contingent payments e g sec_1_1275-4 and sec_1_1275-5 of the regulations revrul_83_51 1983_1_cb_48 nevertheless to be a financing there must be a debtor-creditor relationship between company and taxpayer since company's economic return was based solely on the performance of the customer notes rather than on its relationship with taxpayer company was more like an owner of the customer notes than a creditor of taxpayer after transferring the customer notes taxpayer had little potential to realize gain on the customer notes only after company recouped its out-of-pocket costs its fees and all of the advance_payments would taxpayer receive any distribution payments while taxpayer had the potential for some benefit if the pool of customer notes had a low default rate that potential benefit does not in itself make taxpayer the owner of the customer notes see commissioner v brown 380_us_573 revrul_83_51 1983_1_cb_48 further the cost of reacquiring the customer notes from company effectively prevented taxpayer from profiting from any changes in market interest rates for the foregoing reasons we conclude that the transfers of customer notes to company are sales issue what are the amounts realized on the sale of the customer notes under sec_1001 of the code and sec_1_1001-1 of the regulations the amount_realized from the sale of property is the money received plus the fair_market_value of any other_property received the fair_market_value of property is a question of fact but only in rare and extraordinary cases will property be considered to have no fair_market_value in return for the customer notes taxpayer received advance_payments and the right to distribution payments the advance_payments are clearly money received under sec_1001 of the code the amount_realized attributable to taxpayer's right to receive the distribution payments must be determined under the servicing agreement taxpayer's receipt of distribution payments depended on company's ability to collect on the customer notes and company's cost of making those collections distribution payments were determined under a complex formula no amount or time of payment was specified in tam-115028-98 the servicing agreement for any particular customer note or any group of customer notes payment if any was deferred until an indefinite time in the future moreover there was no provision for interest regardless of when taxpayer might receive any distribution payments the deferred nature of the distribution payments and the absence of any stated_interest implicates sec_483 of the code sec_483 generally applies to payments under a contract for the sale of property if the contract provides for one or more payments due more than year after the date of sale and the contract does not provide for adequate_stated_interest for purposes of sec_483 a sale is any transaction treated as a sale for tax purposes such as taxpayer’s transaction with company and property includes debt instruments such as the customer notes sec_1_483-1 of the regulations sec_483 of the code is intended to ensure that a minimum portion of the payments under a sales contract is treated as interest h conf_rep no 97th cong 1st sess 1981_2_cb_525 in other words if a sales contract provides for deferred payments but not adequate_stated_interest sec_483 recharacterizes a portion of the deferred payments as interest for tax purposes thus unstated_interest is not treated as part of the amount_realized from the sale_or_exchange of property in the case of the seller and is not included in the purchaser's basis in the property acquired in the sale_or_exchange sec_1_483-1 of the regulations see sec_1 g and g because the servicing agreement calls for deferred payments but no interest some portion of the distribution payments must be characterized as interest under sec_483 of the code this in turn reduces the amount_realized under sec_1001 attributable to those payments had the servicing agreement called for a single dollar_figure payment due three years after sale of a pool of customer notes fixing the amount_realized would be relatively simple it would involve nothing more than calculating the present_value of the dollar_figure on the date of sale this however is not the case the conditional nature of the distribution payments raises additional questions under sec_483 2the deferred receipt of the distribution payments superficially resembles the deferred receipt of payment in 360_us_446 1959_2_cb_460 nevertheless as discussed later under the facts and circumstances taxpayer had no fixed_right to receive the distribution payments at the time taxpayer sold the customer notes tam-115028-98 sec_483 of the code authorizes the secretary to issue regulations applying sec_483 to any contract for the sale_or_exchange of property under which the liability for or the amount or due_date of a payment cannot be determined at the time of the sale_or_exchange sec_1_483-4 of the regulations which was issued under the authority of sec_483 contains rules applying sec_483 in the case of a sales contract that calls for one or more contingent payments in general sec_1_483-4 of the regulations establishes the treatment of contingent payments by reference to sec_1_1275-4 which was issued simultaneously with sec_1_483-4 and addresses the taxation of contingent payment debt instruments specifically sec_1_483-4 states that interest under the sales contract is generally computed and accounted for using rules similar to those that would apply if the contract were a debt_instrument subject_to sec_1_1275-4 thus each contingent payment under the contract is characterized as principal and interest under rules similar to those in sec_1_1275-4 neither sec_1_483-4 nor sec_1_1275-4 of the regulations define the term contingent payments nevertheless the statutory basis for the sec_1_483-4 regulations is sec_483 and sec_483 pertains to payments which the liability for or the amount or due_date of cannot be determined at the time of the sale_or_exchange payments are not contingent payments however merely because of a contingency that is remote or incidental at the time of the sale_or_exchange see sec_1 a the distribution payments called for in the servicing agreement are contingent payments under sec_483 of the code and sec_1_483-4 of the regulations at the time taxpayer sold a customer note company's liability for and the amount and timing of any distribution payments could not be reasonably determined company's liability to make distribution payments depended on its ability to collect on the customer notes and its collection costs in this case these contingencies were neither remote nor incidental nor were they predictable at the time of sale both taxpayer and company understood that customers' defaults and company's collection costs would reduce the amounts left for distributions to taxpayer a sec_3section applies to sales or exchanges that occur on or after date for a sale_or_exchange that occurred before date a taxpayer may use any reasonable method to account for the contingent payments including a method that would have been required under the proposed_regulations when the sale_or_exchange occurred see t d 1996_2_cb_84 tam-115028-98 discussed above the face of the customer notes generally exceeded the value of the underlying collateral given that fact together with the high credit risk of taxpayers’ customers company would fail to collect the entire principal_amount of a significant but uncertain number of customer notes company would also have significant but uncertain collection costs thus reductions due to default and collection costs would be significant and because of the formula for determining the distribution payments could reasonably be expected to leave taxpayer with minimal if any distribution payments for these reasons and in light of other unique circumstances company’s liability for and the amount and timing of those payments to taxpayer could not be determined at the time of the sale of the customer notes because the distribution payments are contingent payments under sec_1_483-4 of the regulations each payment must be accounted for using rules similar to those contained in sec_1 c under sec_1_1275-4 of the regulations the portion of a contingent payment treated as interest is includible in gross_income by the holder and deductible from gross_income by the issuer in the year in which the payment is made a contingent payment is characterized by sec_1_1275-4 as a payment of principal in an amount equal to the present_value of the payment determined by discounting the payment at the test rate from the date the payment is made to the issue_date under sec_1_1275-4 of the regulations the holder's basis in the contingent payments under a contract is reduced by any principal payments as characterized by sec_1_1275-4 received by the holder if the holder's basis in the contingent payments is reduced to zero any additional principal payments as characterized by sec_1_1275-4 are treated as gain from the sale_or_exchange of the contract sec_1_1001-1 of the regulations provides the rule for determining the amount_realized attributable to a debt_instrument subject_to sec_1_1275-4 or sec_1_483-4 under sec_1_1001-1 the amount_realized attributable to contingent payments is their fair_market_value since the distribution payments are contingent payments for purposes of sec_483 of the code the amount_realized attributable to the distribution payments is the fair_market_value of the distribution payments thus the amounts realized from the sales of the customer notes equal a the cash received plus b the fair_market_value of taxpayer's right to receive the distribution payments tam-115028-98 the conclusions reached on this issue are consistent with sec_451 of the code sec_451 provides that the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-1 of the regulations provides that under an accrual_method of accounting_income is includible in gross_income when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy see also sec_1 c ii a thus it is the right to receive and not the actual receipt that determines inclusion 292_us_182 1934_1_cb_281 in 360_us_446 1959_2_cb_460 the supreme court addressed the issue of whether accrual_method taxpayers have a fixed_right to receive income even though payment is withheld the taxpayers were two automobile dealers and a trailer dealer who accepted installment notes from their customers each dealer sold their notes to a finance company for a price determined by a fixed formula the finance company paid to percent of the formula price in cash and held the remainder in reserve the reserve served as security for payment of the dealers' obligation to repurchase a note that went into default if the accumulated reserve exceeded a designated percentage of the unpaid principal balances of the notes the finance companies paid the excess to the dealer the supreme court held that the dealers had to currently include in income the amounts withheld in reserve even though the dealers' actual receipt of the reserve amounts was subject_to their contingent liabilities to the finance companies the court concluded that the dealers had received a fixed_right to the reserve amounts id pincite only one of two things could happen to the reserve amounts -- either the amounts would be paid to the dealers or would be used to satisfy the dealers' guaranty obligations to the finance companies id pincite as the dealers effectively received the entire amount of the reserves in all events the right to the receive the reserves was not conditional but absolute at the time they were withheld and the dealers had to include the reserves in income at that time id sec_483 was not applicable in hansen sec_483 was added to the code by the revenue act of pub_l_no sec_224 78_stat_19 and applies to sellers of ordinary_income_property as a result of the tax_reform_act_of_1984 pub_l_no 98_stat_678 98th cong 2d sess tam-115028-98 under the particular facts and circumstances of the instant case taxpayer does not have a fixed_right to distribution payments at the time taxpayer sells a customer note taxpayer’s case is distinguishable from hansen taxpayer’s customers had poor credit and the customer notes were of poor quality because of the poor creditworthiness of the customers company’s collection costs were uncertain and sometimes significant company was obligated to pay distribution payments to taxpayer only if it collected enough from the customers to recover all its collection costs on the transferred customer notes its servicing fee on the customer notes and any outstanding advances on the customer notes under these circumstances there was reasonable doubt that any future distribution payments would be made to taxpayer in light of these facts and circumstances which were not present in hansen taxpayer’s right to distribution payments were contingent upon future events that were uncertain at the time the notes were sold to company accordingly the amount_realized by taxpayer from the sale of the customer notes does not necessarily include the full amount of future distribution payments rather the amount_realized is equal to a the cash received plus b the fair_market_value of taxpayer’s right to receive the future distribution payments a copy of this technical_advice_memorandum is to be given to taxpayer sec_6110 of the code provides that it may not be used or cited as precedent -end-


internal_revenue_service number release date index number ---------------------------------------------- ---------------------------------- ---------------------------- -------------------------- -- department of the treasury washington dc third party communication none date of communication n a person to contact -------------------- id no ------------- telephone number ------------------- refer reply to cc psi b02 plr-130930-09 date date x ----------------------------------- ----------------------- state -------------- date ---------------------- dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state it was intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation for x was timely filed sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for plr-130930-09 such taxable_year or no such election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then 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 effective date accordingly provided that x makes an election be an s_corporation by filing a completed form_2533 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning date a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal_income_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 requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c contact person identification_number contact number employer_identification_number form required to be filed tax years tax_exempt_and_government_entities_division number release date date date vil dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements letter cg catalog number 47632s if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions about your sincerely lois lerner director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number 47632s tax_exempt_and_government_entities_division date date department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number vil legend b c d ef g h j k l m state date governing body member governing body member governing body member governing body member governing body member for-profit entity for-profit entity trust dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue sec_1 are you operated exclusively for charitable religious or educational_purposes where no part of your net_earnings inure to the benefit of private shareholders or individuals no for the reasons described below are your activities exclusively charitable religious or educational and conducted in a manner that is not commercial in nature no for the reasons described below letter cg catalog number 47630w facts you were incorporated in the state of bon c according to your articles of incorporation you are organized and operated exclusively for charitable purposes more specifically your purpose is to foster a change in the behavior and lifestyle habits using education and a holistic wellness system to bring about a positive change in health for people at risk including seniors young people families women and those who are disabled all five members have a your governing body consists of five individuals d f g h and j financial interest in the activities conducted by your organization d is the board chair and ceo and receives an annual salary for his duties as ceo he is currently the managing director of k a limited_liability_company that provides advisory services d’s wife f is the vice- chairperson she is a licensed esthetician and is the manager and owner of l a for- profit business currently performs her services as a contractor of l h is a director on your governing body and is an expert in fitness and health he is a personal trainer and has years of experience in owning and operating for-profit health clubs j is also a director and is a licensed chiropractor g is your secretary treasurer and is a certified massage therapist she to fulfill your purposes you plan to construct and operate a facility that will house health and wellness programs and services the business hours of the facility will be weekdays from am to pm you stated in part that you are assembling a core group of full and part time natural health practitioners and their equipment in one location your full-time offerings will include chiropractic care exercise physiology massage therapy nutrition and skin and body treatments each of these full-time services will be conducted by the corresponding governing body member who is licensed and certified to perform these services the board members will basically conduct their own for-profit businesses out of your facility and pay rent to you for the space they use you will also have other part time practitioners offering services such as yoga acupuncture meditation etc the part time practitioners have yet to be identified you explained that your facility will provide services to both for-profit and non-profit customers you defined for-profit customers as individuals that can afford to pay market rates and non-profit customers as those less fortunate you estimate that each of your practitioners the licensed health care professional chiropractor massage therapist and esthetician will spend of their time on their own for-profit clients and of their time on non-profit clients arranged by your outreach program although you have not determined exact fees that will be charged for services you did explain how your fee structure will be set up and how billing will be conducted for-profit customers will pay regular market rates they will receive services from an individual practitioner and then be billed at market rate directly from the practitioner non-profit customers will be pre-qualified by you they will then receive services from the individual practitioner the practitioners have a discounted rate for non-profit customers’ that i sec_33 less than the market rate the practitioner will bill the customer’s insurance_company any amount not covered by the insurance_company or paid for by donors on a clients behalf explained later will be billed to you then you will subsidize the service and pay the difference you provided the following example to explain the fees letter cg catalog number 47630w lf a practitioner charges dollar_figure hour market rate for one-on-one counseling you will establish a non-profit rate discounted by or dollar_figure hour if the client cannot afford that rate you will subsidize them if the market rate for a comprehensive health evaluation is dollar_figure you will establish a non-profit rate of dollar_figure if the client cannot afford that rate you will subsidize them you hope to match low-income clients with high income client sponsors who will donate for a specific individual client or a targeted group of clients for example pregnant women special needs individuals teenagers or elderly these donors would provide funding before your subsidy program would be used as a payment method _ in general to qualify for the non-profit rate the countable assets level must be less than dollar_figure for an individual and less than dollar_figure for a couple exclusive of the primary home one vehicle household goods and personal belongings monthly income must be less than dollar_figure mo for an individual and less than dollar_figure mo for a couple you will also have programs aimed at healthy physical and mental wellbeing you will maintain a resource and education center at your facility in the resource and education center you intend to offer interactive educational workshops information and referral to community medical services and a resource library including books magazines health newsletters video and audio tapes as well as web access to many traditional and holistic health wellness resources educational sessions will be offered and implemented by your staff and will take place in the all purpose room these sessions will take place before or after normal business hours you hope to offer at least three educational offerings each week in addition to providing services and information you will sell nutritional and wellness products at your facility natural food and produce vitamins herbs supplements water products and equipment books weight management and recycled products will be sold for this endeavor you plan to provide and sell the products to for-profit customers at fair_market_value and to non-profit customers at cost sales of merchandise and products will occur in the lobby and waiting room areas of your facility they will be sold on your behalf by all practitioners and participants merchandise and products will be available for sale during normal business hours be allowed to sell their own products or merchandise in common areas of your facility individual practitioners will not according to your financial information in the first two years you expect donations to be your main source_of_income while your facility is being constructed then in the third year your main support will come from selling products and services and renting space rental receipts will be collected from the practitioners the rest of the program income will come from retail sales of nutritional wellness products wellness evaluations and one-on-one coaching mentoring currently trust fund m is the owner of the property upon which you plan to build your facility you can raise the money needed for construction of the building the land would either be if funding cannot be donated to you or you would purchase it from m at fair_market_value letter cg catalog number 47630w if obtained to finance the construction of the building and private financing has to be arranged the building will be privately owned in this scenario all participants including you would pay their pro_rata share of rent to the owners of the building all rooms will be provided on a rental basis you report that the fair market rental rate in your local area is dollar_figure sq ft you plan to base the rental rates on the amount of space used and the market rate for that space part time practitioners will be billed an occupancy charge on a per day or per hour basis at market rate when asked about the role of k in your operations you indicated that they are currently inactive pending your startup however it is not anticipated that they will be providing services to you if any transactions do occur they will comply with your current conflict of interest policy law sec_501 provides for the recognition of exemption of organizations that are organized and operated exclusively for charitable religious or educational_purposes where no part of the net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the federal tax regulations states that in order to qualify under sec_501 of the code an organization must be both organized and operated exclusively for one or more exempt purposes if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 of the federal tax regulations states that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the federal tax regulations states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest who created it it must not be operated for the benefit of designated individuals or the persons revrul_98_15 irb applied the definition of charitable as noted in income_tax regulation c -1 d and stated that not every activity that promotes health supports tax exemption under sec_501 for example selling prescription pharmaceuticals certainly promotes health but pharmacies cannot qualify for recognition of exemption under sec_501 of the code on that basis alone 72_tc_687 aff'd 625_f2d_804 8th cir federation pharmacy furthermore an institution for the promotion of health is not a charitable institution if privately owned and is run for the profit of the owners 4a austin w scott and william f fratcher the law of trusts sec_372 4th ed see also restatement second of trusts it is in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes letter cg catalog number 47630w the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 505_f2d_1068 6th cir a non-profit hospital with an independent board_of directors executed a contract with a medical partnership composed of seven physicians the contract gave the physicians control_over care of the hospital’s patients and the stream of income generated by the patients while also guaranteeing the physicians thousands of dollars in payment for various supervisory activities the court held that the benefits derived from the contract constituted sufficient private benefit to preclude exemption the petitioner in 71_tc_1067 conducted training seminars and lectures in the area of intrapersonal awareness such activities were conducted under licensing arrangements with various for-profit corporations the licensing agreements were conditioned on the petitioner maintaining tax exempt status the petitioner argued that it had no commercial purpose of its own and that its payments to the for-profits were just ordinary and necessary business_expenses the court did not agree with the petitioner citing that the operational_test see sec_1_501_c_3_-1 of the income_tax regulations focuses on the purpose rather than nature of an organization's activities the court concluded that the petitioner is not exempt under sec_501 of the code because the petitioner serves a substantial private and commercial purpose rather than an exempt_purpose in international postgraduate medical foundation v commissioner tcmemo_1989_36 the tax_court considered the qualification for exemption under sec_501 of the code of a the petitioner had nonprofit corporation that conducted continuing medical education tours mr helin who was a shareholder and the president of h c tours a for profit three trustees mr regan an attorney and a third director who was ill and did not participate travel agency mr helin served as executive director the petitioner used h c tours exclusively for all travel the arrangements court found that a substantial purpose of the petitioner was benefiting the for-profit travel agency it concluded that there is no evidence that the petitioner ever sought a competitive bid when a for-profit organization benefits substantially from the manner in which the activities of a related_organization are carried on the latter organization is not operated exclusively for exempt purposes within the meaning of sec_501 even if it furthers other exempt purposes application of law you are not described in sec_501 of the code because you are not operated exclusively for religious charitable or other purposes specified in the statute and your net_earnings inure to the benefit of private individuals although you meet the organizational_test you do not satisfy the requirements of sec_1_501_c_3_-1 of the income_tax regulations because you do not meet the operational_test you are not operated exclusively for one or more exempt purposes’ as set forth in sec_1_501_c_3_-1 of the regulations because your net_earnings inure to the benefit of the letter cg catalog number 47630w members of your governing body your activities provide the individual practitioners practicing in your facility with increased clientele and revenue that they would not receive were it not for your services and activities this is evidenced by the fact that of their clients will be non- profit clients pre-qualified by you and who would normally be unable to pay for these services even though the practitioners are providing the services for a reduced fee they are still receiving substantial private benefit because of your activities furthermore even your it is reasonable organizational structure will increase business to the related for-profit entities to conclude that by bringing all of these services together under one roof and advertising as a non-profit health and wellness center each individual practitioner will receive more clients since the practitioners are also the members of your governing body this constitutes inurement inurement to interested parties is strictly prohibited and precludes exemption you do not meet the requirements of sec_1_501_c_3_-1 of the federal tax regulations because your operations benefit the private interests of the individuals who created you as noted in revrul_98_15 not all activities that promote health support tax exemption under sec_501 institutions that are devoted to promoting health are not charitable when they are privately owned and run for the profit of the owners although you are not privately owned your facility will clearly be operated for the profit and benefit of your governing body members this benefit constitutes inurement exemption cannot be granted when inurement to private individuals is present you are similar to the organization involved in the court case 326_us_279 which was denied exemption although you do have some purposes and activities that fall within the guidelines of sec_501 of the code such as your educational sessions you also have substantial non- exempt_activities in the form of inurement and commerciality because the services that you claim are your activities are actually performed by the related for-profit entities your primary activities include renting space in your facility to for-profit entities at a market rate and selling products to the public at market rate neither of these activities are exclusively charitable educational or religious but rather commercial activities normally carried on for profit as explained in the court case the presence of a single non-exempt purpose so long as it is substantial in nature destroys the claim for exemption regardless of the number or importance of any truly exempt purposes in your case you actually have two non-exempt purposes inurement and commerciality your educational sessions are in furtherance of educational_purposes which are exempt in nature however they constitute only a small portion of your overall program your main program is the operation of your facility which will house the for-profit practices of the members of your governing body and other service providers this is verified by the fact that you plan to have only three educational sessions per week and they will be conducted before or after normal business hours in contrast your commercial activities that provide inurement to your board members are conducted monday through friday from am to pm you are similar to the organization in 505_f2d_1068 6th cir which was denied exemption even though your purpose is the promotion of health letter cg catalog number 47630w the manner in which your operations are conducted provide private benefit to the members of your governing body when the private benefit is flowing to insiders including governing body members it constitutes inurement your activities of advertising pre-qualifying and subsidizing non-profit clients creates a whole new market segment to which your board members’ for-profit entities can now provide services in fact you explained that of their clients will be these non-profit clients this is revenue they would not receive were it not for your activities this mode of operation constitutes inurement again the presence of inurement nullifies your claim for exemption under sec_501 of the code you are similar to the organization in 71_tc_1067 which was denied exemption as described above your activities serve a substantial private and commercial purposes rather than an exempt_purpose you are also similar to the organization in international postgraduate medical foundation v commissioner tcmemo_1989_36 like this organization you are controlled by a governing body of interested parties you did not create an unbiased governing body and seek out qualified practitioners in an unbiased manner instead it appears you are group of practitioners who came together to operate your for-profit businesses in a cooperative manner in order to increase your client bases and therefore increase revenue like the organization in this court case you have a substantial purpose of benefiting the related for-profit entities that will operate their practices out of your facility applicant’s position you provided statistics showing your area to be one in which over of the population is below the poverty_line you commented on the current healthcare system in which mostly sick care is provided rather than preventative services you stated that a nonprofit community based integrated facility such as what you plan will simplify the path to wellness you went on to indicate that many organizations pool for-profit talent to further a nonprofit cause you intend to partner for-profits with your nonprofit to provide wellness services this will include your practitioners plan to network with other sister groups in your area you mentioned that some of your governing body members who will also be contracted for services already have some charitable endeavors j already conducts free physicals for twenty local special olympics participants and would like to expand those services f enjoys helping underprivileged girls with low self-esteem overcome their acne skin problems g gives therapeutic massages to physically handicapped individuals they hope to continue these endeavors through your center you also indicated that members of your governing body have ties to the native american veteran and disabled communities you hope to serve these communities by providing access to health resources letter cg catalog number 47630w service response to applicant’s position we do not disagree that some of your activities and operations are charitable in nature however as explained above the inurement provided to the members of your governing body overrides any charitable aspect of your operations just like in 326_us_279 the presence of a single non- exempt_purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes also the preventative health services you claim to conduct are not actually activities of your organization these services are provided by the related for-profit endeavors of your board members your actual activities consist of renting space to for-profit entities at market rates selling products to the general_public at market rates pre-qualifying non-profit clients for your related for-profit entities and providing some educational classes as explained above a substantial portion of these activities are commercial in nature and are normally carried on for profit you argue that your activities are not commercial and do not inure to the benefit of the members of your governing body you argue that the use of for-profits is a normal necessity however the court cases referenced above have deemed that arrangements similar to yours show that the private interests of insiders including their for-profit enterprises are substantially benefited this benefit constitutes inurement and prevents exemption under sec_501 of the code conclusion as a result we are not able to conclude that you are operated exclusively for based on the information provided it is clear that your net_earnings inure to the benefit of the members of your governing body and their for-profit entities that conduct business in your facility charitable religious or educational_purposes where no part of your net_earnings inure to the benefit of private shareholders or individuals we are also not able to conclude that your activities are not commercial in nature despite any charitable and educational_purposes your activities may achieve you do not qualify for tax exemption because more than an insubstantial part of your operations result in inurement to your board members and you operate in a commercial manner accordingly you do not qualify for exemption under sec_501 of the code you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation letter cg catalog number 47630w during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if if you do not intend to protest this determination you do not need to take any further action we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh deliver to internal_revenue_service eo determinations quality assurance main street room cincinnati oh if you fax you may fax your statement using the fax number shown in the heading of this letter your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure publication sincerely lois lerner director exempt_organizations letter cg catalog number 47630w


internal_revenue_service number release date index numbers ---------------------- --------------- ------------------------------------------ ----------------------- ------------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc psi b01 plr-105726-10 date date legend x ----------------------------------------------------------- ------------------------------------------- date state ---------------------- ------------- dear ----------------- this letter responds to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation for federal tax purposes facts the information submitted states that x was a limited_liability_company formed under the laws of state x failed to timely file an election to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date 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 elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an plr-105726-10 eligible_entity chooses to change its classification 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 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than 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 section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory 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 conclusion based solely on the facts and information submitted including the affidavits submitted and the representations that have been 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 sixty days from the date of this letter to file a form_8832 to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective date a copy of this letter should be attached to the form 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-105726-10 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by faith colson faith colson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury n washington d c ice tax_exempt_and_government_entities_division jul se't ep’ pati uniform issue list xxxxxkxkxkxk xxxxxkxxxkkxkxkxkxkxkkxk xxkxxkxxkxkxkkxkkxkkxkkxkkxkk legend taxpayer a xxxxxkxxxxkxxkxk ira b xxxxkxxkxkxkxkxkkxkkkkxkkxkkkkkkkmk xxxxkxkxkxkkxkxkxkk financial_institution c xxxxxxkxxkxxxxkkxk amount dollar_figurexxxxxx dear xxxxxxxx this is in response to your request dated date as supplemented by correspondence dated date date and date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution from ira b totaling amount taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a mistake made by financial_institution c which led to amount being erroneously distributed from ira b page taxpayer a maintains ira b at financial_institution c taxpayer a attained age prior to and was required to receive code sec_401 required minimum distributions from ira b in ___ the year of the distribution taxpayer a directed financial_institution c to make the required_minimum_distribution from ira b in three installments on october taxpayer a called financial_institution c to determine whether any of the ira b required minimum distributions remained to be made for of taxpayer a was to take a further distribution from ira b only if it was a required_minimum_distribution the representative from financial_institution c correctly told taxpayer a that three payments of amount had been made however the representative from financial_institution c also told taxpayer a that a fourth installment of amount needed to be taken from ira b to fulfill her year required_minimum_distribution for ira b this was incorrect due to financial_institution c’s erroneous advice taxpayer a received a distribution from ira b on october for20 reauired minimum distribution until her accountant received the form 1099-r for taxpayer a represents that she had other funds available for her use had the fourth payment of amount been retained in ira b taxpayer a did not discover that amount was in excess of the of amount which was in excess of the required minimum the intent based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into page such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 of the code do not apply to any amount required to be distributed under sec_408 of the code sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a are consistent with her assertion that her failure to accomplish a timely rollover was due to financial_institution c’s error with regard to the correct required_minimum_distribution amount for therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day page requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code 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 of the 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_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact xxxxxxxxxxx xxxxx id xxxxxxxxx at xxx xxxxx please address all correspondence to se t ep ra t1 sincerely yours otte a- beth carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc xxxxxxxxxkxxx xxxxxxxkxkxxk xxxxxxkxxxxkx


internal_revenue_service number release date index number ------------------------ --------------------------------------------------------- ---------------------- ------------------- ---------------------- --------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-135136-08 date date x --------------------------------------------------------- ----------------------- legend legend country ------ date ------------------ dear ----------- this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an entity classification election under sec_301_7701-3 facts the information submitted states that x was formed under the laws of country on date x represents that x is a foreign_entity eligible to elect to be treated as a partnership for federal tax purposes x intended to elect to be treated as a partnership for federal tax purposes effective on date however x did not timely file a form_8832 entity classification election 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 plr-135136-08 elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i 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 sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 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 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an plr-135136-08 extension of time of sixty days from the date of this letter to elect to be treated as a partnership for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to your authorized representative sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------ -------------------------------- ----------------------------- attn ------------------------------------------------------- ---------------------------------------------------------- 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 plr-120896-12 date date legend parent ----------------------------------------------------------- ------------------------------ date date date date x -------------------------- -------------------------- --------------------------- --------------------------- -- company official ------------------------------------------------------------------ ------------------------------------------------ tax professional --------------------------------------------------------------------------- ------------- dear ---------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to revoke an election to relinquish the carryback period with regard to a consolidated_net_operating_loss and to make an election to extend the plr-120896-12 carryback period with regard to the cnol together the revocation and election the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group the parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent made an election under sec_1_1502-21 to relinquish the entire cnol carryback period with regard to the year cnol parent is now seeking to revoke the carryback waiver pursuant to sec_1_1502-21t and to make the election pursuant to sec_172 to carry back the year cnol x years to its taxable_year ending on date parent timely elected pursuant to sec_1_1502-21t to relinquish the entire carryback period with regard to its year cnol parent was required to file the revocation and election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the revocation and election was due on date but for various reasons a valid revocation and election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the revocation and 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 parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol 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 an applicable nol is the taxpayer’s nol 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-120896-12 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 of the income_tax regulations 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 nol 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 may 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 sec_1_1502-21t provides that a consolidated_group may revoke a prior election pursuant to sec_1_1502-21 to relinquish the entire carryback period with respect to an applicable cnol but only if the group makes the election pursuant to sec_172 with regard to such applicable cnol revproc_2009_52 2009_2_cb_744 provides when and how a taxpayer may make an election under sec_172 for an extended carryback period and when and how to revoke an election to waive the carryback period 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 by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b b and dollar_figure of revproc_2009_52 require the revocation of the waiver of the carryback period and the election of the extended carryback period 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 plr-120896-12 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 revoke a previous carryback waiver and the election to extend the carryback period under sec_172 for a cnol is regulatory elections therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the revocation and 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 the revocation and election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the revocation and election and that the request for relief was filed before the failure to timely make the revocation and 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 revoke the previously filed carryback waiver and to file the election for an extended carryback period we grant an extension of time under sec_301_9100-3 until date for parent to file the revocation and election the time in which parent may file a form_1139 for the year cnol has expired however parent may file the revocation and election with respect to the year cnol on form 1120x amended u s_corporation income_tax return for the taxable_year ending date 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-120896-12 of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the revocation and election applies than it would have been if the revocation and election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved plr-120896-12 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 revocation and election in addition we express no opinion as to the tax effects or consequences of filing the revocation and 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 revocation and election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury 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 revocation and election any penalties and interest that would otherwise be applicable continues to apply this letter_ruling is directed only to the taxpayer 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 representatives sincerely __________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc