tax_exempt_and_government_entities_division date wt department of the treasur internal_revenue_service washington d c contact person identification_number telephone number se tapratsy employer_identification_number dear applicant we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we conclude that you do not qualify for exemption under that section the reasons for our conclusion are set forth below you were incorporated in the state of virginia on february of incorporation state the following purposes your amended articles in your bylaws article sec_2_1 you further describe your purposes as follows information you submitted indicates that your primary activity will be credit repair that you provide as part of your credit consultation program with regard to credit consulting ir your bylaws in article sec_2_1 you state that it includes with respect to your financial counseling activitv in article sec_2_1 of your bylaws you state the following you represented that you do not currently have a debt management program in operation you have also represented that advocacy and debt negotiation activities are done as part of counseling and credit repair activities advocacy involves calling organizations to find food clothing shelter and money for needy individuals and families debt negotiation is an attempt to convince creditors to enter into a settlement of debts with debtors you also mention in your promotional material and in a letter to potential clients that you will you provided no specific detailed information as to how these particular activities are conducted and how many individuals or families you have assisted with housing issues involving foreclosures and evictions your current board_of directors consists of _ president ceo founder secretary director and treasurer director director you indicated in a letter dated date that and credit counselors will all have a beginning salary of dollar_figure' your letter of date that will receive a salary of dollar_figure will each receive a salary of dollar_figure per year and that per year you projected that your -per year you also indicated in is the mother of and with regard to the qualifi cations for your credit counselors you have stated that they must be high school graduates however you will not require that they have prior experience and you will provide on-the-job training you will require that they receive certification within one year of being hired from a private certifying company association of financial counselors and planner education afcpe you state that after they receive certification they will be entitled to a percent raise in response to our letter dated date you made the following statement our education services offer support encouragement financial education such as budgeting money management and recordkeeping have enclosed some of the information that is used for education as regards your in-house training program for credit counselors you have provided copies of training materials and a script your training materials include a one-page document titled managing money and ‘a two-page document containing a quiz to be given to clients on -_ an eight-page document a four-page document on’ and a fourteen-page document from the federal trade commission bureau of consumer protection titled equal credit opportunity which discusses the rights of consumers in the credit application process the aforementioned materials are apparently intended to train your credit counselors and provide credit education to your clients however you have not explained when where or how these materials will be used in training credit counselors or providing credit education to your clients you indicated that for the present the majority of your credit repair solicitation and counseling will be conducted over the telephone you provided a script to be used in attempting to sale your credit repair program in your script you stated the following as to the customer you would seek people that are having credit problems in need of financial credit counseling need of debt repair needing help with mortgage utilities food shelter and clothing you further stated the following we know that most churches and different organizations do their best to give good help to their congregation or staff we are here to help you so if you know of anyone that you want to recommend for these services please get them to contact us today you also stated in response to our letter dated date once a client calls in we used the enclosed script which tell them who we are what we do then we pause to allow them to ask questions we also thank them for using our services we also fill out an sic consultation form if the client decides to use our services the counselor will ask questions as to what services are needed also the form allows us to know what to charge the client up front we then sends sic out the necessary paper work to be signed before we get started paper work is only sent out to financial credit counseling and credit repair clients other services do not have to have signed forms because we give them information on different organizations and they start off doing the research to find help for food shelter mortgages rent and utilities if they are unsuccessful we try to help you further stated in the first sentence of the script that your objective in terms of potential clients would be churches and organizations dealing sic with many people thus it is apparent that you do not limit your debt repair services to a particular class of people or segment of the community moreover you stated in your letter dated date that is the only person presently attempting to recruit clients by making telephone calls stated the following we are currently advertising for clients by using flyers telephone and faxes majority of our clients are from word of mouth dept of social service churches and the public that know we are here we do not pay for referrals or leads in that letter you also your revised proposed financial data submitted as part of your form_1023 application listed gifts grants and contributions as your expected primary sources of revenue over a three- year period including your first year of operation in our letter to you dated date we requested that you describe your fundraising program and tell us how you plan to raise these amounts you responded in your letter dated date that you have not started a fundraising program you further stated that you would not commence your fundraising efforts until you are approved for c exempt status your revised proposed financial data for and shows total revenue in the for credit reports and supplies and postage and only dollar_figure of this amount you propose to spend considerably more on credit reports amount of dollar_figure and supplies and postage than on educational materials during this three-year period you anticipate spending dollar_figure_ educational supplies you plan to spend dollar_figure specific expenditures to any programs or organizations engaged in educational activities or programs you have not designated any expenses to advertising however you have stated that you would like to use an outside advertising agency in the future you also stated that you do not have a lease agreement because it is not clear whether is claiming a deduction for_the_use_of her home as an office on her personal income_tax return on charity as of this date you have made no for uses her home as your business office even though you claimed in your revised financial data that your revenue would be derived primarily from public contributions the written materials and other documents submitted with your form_1023 application clearly indicate that your current and sole source of revenue is from the sale of services in your debt repair program in your credit debt repair program you have clearly defined up-front fees to be charged for your various services for individuals you offer investigation and research supply your own credit reports for a dollar_figure reports adollar_figure credit reports for a dollar_figure consultation fee an addition to your initial fee applies to both individuals and married couples and is on a fee for husband and wife you offer investigation and research supply own fee your fee to pull three credit reports foreach person adollar_figure fee to pull three credit sliding scale as follows income dollar_figure dollar_figure-dollar_figure dollar_figure-dollar_figure under dollar_figure fee dollar_figure dollar_figure dollar_figure you provided no support for your contention that you waived fees for anyone who has used your credit repair services you do claim however that you waived a fee for one client because of her income you indicated in your letter dated date that in the year three clients paid fees for consultation services that all three chose to have credit reports retrieved by you and interpreted by you as regards the amount you charge for credit repair you made the following statement my fees are very low compared to other debt repair and credit counseling companies some per my clients they companies charge up sic dollar_figure and they do less than review the credit report and give the clients the form to fill out and send in themselves the client is doing their own debt repair and most of the time it is incomplete because the clients doesn't have the time to follow-up you have provided a copy of a form in which clients are requested to sign a blanket authorization which allows you to pull a credit report and release a client's credit information to his or her creditors in order to verify and rectify my credit obligation to your company you also have a contract in which clients pay a late fee penalty of percent if they are days late in paying for services it also states that unpaid accounts will be turned over to an attorney who will charge an additional one-third of the balance due itis not clear whether you have any agreement with an attomey for-sharing fees or receiving a referral fee you view your relationship with potential clients as a business relationship each prospective client receives a letter which states business license issued by the city of moreover you have provided a copy of your sec_1_501_c_3_-1 of the income_tax regulations provides that in order to be sec_501 of the code exempts from federal_income_tax corporations organized exempt as an organization described in sec_501 an organization must be both and operated exclusively for charitable educational and other purposes provided that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides 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_a_-1 defines the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirements of this subsection it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt_purpose or purposes and if the organization is not organized or operated for the primary purposes of carrying on an unrelated_trade_or_business in revrul_61_170 1961_1_cb_112 an association composed of professional private duty nurses and practical nurses which supported and operated a nurses’ registry primarily to afford greater employment opportunities for its members was not entitled to exemption under sec_501 of the code although the public received some benefit from the organization’s activities the primary benefit of these activities was to the organization's members in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization which held the funds in a_trust account and disbursed the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon voluntary contributions primarily from the creditors participating in the organization's budget plans for its support the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code revrul_72_369 1972_2_cb_245 held that an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations did not qualify for exemption under sec_501 of the code providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the fact that the services were provided at cost and solely for exempt_organizations was not sufficient to characterize the activity as charitable for purposes of sec_501 of the code fumishing the services at cost lacks the donative element necessary to establish this activity as charitable revrul_76_244 1976_1_cb_155 held that home delivery of meals to the elderly free or revrul_78_99 1978_1_cb_152 held that the provision of individual and group counseling for widows based on their ability to pay is an educational activity with charges on a sliding scale depending on recipients’ ability to pay is a charitable purpose revproc_90_27 1990_1_cb_514 provides in part that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere statement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned and the nature of the contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt a record of actual operations may be required before a ruling or determination_letter will be issued an organization must establish through the administrative record that it operates as a sec_501 organization denial of exemption may be based solely upon failure to provide information describing in adequate detail how the operational_test will be met american science foundation v commissioner tcmemo_1986_556 82_tc_215 pius xil academy v commissioner tcmemo_1982_97 exempt status can be recognized in advance of operations if proposed operations can be described in enough detail to permit a conclusion that the organization will clearly meet the requirements of sec_501 american science foundation v commissioner tcmemo_1986_556 in 326_us_279 the supreme court held that the presence of a single non-exempt purposes if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in 276_f2d_476 cir the court denied tax exemption to an organization in part because its net eamings were distributed to its shareholders for their personal benefit the founder of the organization and his two sisters were the only shareholders these three and two of their spouses were the organization's trustees the court found that the organization was operated as a business ultimately producing substantial revenues for its operators in consumer credit counseling service of alabama inc v united_states u s tax cas d d c the court held an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service which had been recognized as exempt under sec_501 in a group ruling is an umbrella organization made up of numerous credit counseling service agencies in this case these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families the professional counselors used only percent of their time for debt management programs they did not limit these services to low-income individuals and families but they provided their services free of charge the court found that the law did not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under sec_501 nonetheless these agencies did not charge a fee for the programs that constituted their principal activities a nominal fee was charged for the debt management services but was waived when payment would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way an incidental amount of their revenue was from fees thus the court concluded that each of the plaintiff consumer credit counseling agencies was an organization described in sec_501 as a charitable and educational_organization see also credit counseling centers of oklahoma inc v united_states u s tax cas d d c in which the facts were virtually identical and the law was identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above in 70_tc_352 the court found that a corporation formed to provide consulting services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit educational nor scientific but rather commercial ts primary purpose was not charitable in addition the court found that the organization's financing did not resemble that of the typical 501_c_3_organization it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation did not limit its clientele to organizations that were sec_501 exempt_organizations in st louis science fiction limited v commissioner t c memo date the court reviewed the annual convention of a science fiction organization it held that while the conventions may have provided some educational benefit to some of the individuals involved that social and recreational activities and private benefit predominated the court distinguished 75_tc_337 in which the organization provided public art education by using juries to insure artistic quality and integrity petitioner relies heavily upon goldsboro art leaque v commissioner t c memo date in support of the contention that it is tax-exempt in goldsboro art ‘ league the taxpayer was an organization that operated two art galleries that exhibited and sold artworks we held that the taxpayer was tax-exempt under sec_501 because it was organized and operated exclusively for an exempt purpose--art education we noted that in order to insure artistic quality and integrity the artworks displayed were selected by jury procedures we also noted that the taxpayer was the only such museum or gallery within its county or any contiguous county we held that it served public rather than private interests and that its sales activities were incidental to advancing its exempt_purpose by contrast petitioner in this case did not apply any controls to insure the quality of the books and artworks sold at its convention also the tone of petitioner's convention is substantially if not predominantly social and recreational rather than educational in addition petitioner's huckster's room and art auction provided substantial benefit to private interests that is not incidental to its exempt_purpose consequently we think the case goldsboro art league is clearly distinguishable on its facts from the instant case in easter house v united_states 846_f2d_78 fed cir aff cl_ct the court found an organization that operated an adoption agency was not exempt under sec_501 of the code because it operated for a substantial commercial purpose rather than for the exempt purposes of providing educational and charitable services to unwed mothers and children the services for unwed mothers and children were merely provided incident to the organization's adoption service business the agency's operation was funded completely by the fixed fees charged adoptive parents it relied entirely on those fees and sought no funds from federal state or local sources nor engaged in fund raising programs nor did it solicit contributions moreover the court found that adoption services do not in and of themselves constitute an exempt_purpose in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a non-exempt commercial purpose rather than for a tax-exempt purpose among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations the credit repair organizations act croa u s c section et seq effective date imposes restrictions on credit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed u s c section 1679b sec_501 organizations are by definition excluded from regulation under the croa the croa defines a credit repair organization as a any person who uses any instrumentality of interstate commerce or the mails to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied purpose of- i improving any consumer's credit record credit history or credit rating or ii providing advice or assistance to any consumer with regard to any activity or service described in clause i in ftc v gill 265_f3d_944 cir u s c section 1679a the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission’s policy is that if an entity communicates with consumers in any way about the consumers’ credit situation it is providing a service covered by the croa 21_fsupp2d_424 n d n j affg 183_fsupp2d_1171 the appellate court inferred that a credit repair organization that first promised a free consultation but charged fees in advance of the full performance of services was being operated as a charity primarily for purposes of evading regulation under the croa businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission nonprofit_organizations are not subject_to this rule this registry was created by rules promulgated by the ftc and the federal communications commission see c f_r section b iii b c f_r sec_64 c an organization seeking exemption must establish that it operates as a sec_501 organization denial of exemption may be based solely upon failure to provide information describing in adequate detail how the operational_test will be met see revproc_90_27 american science foundation v commissioner tcmemo_1986_556 revproc_90_27 requires an applicant to submit sufficient information during the application process for the service to conclude that the organization is in compliance with the organizational and operational requirements of sec_501 before a ruling is issued you have not fully described your activities as they relate to the number of clients you expected to _ you have provided no proof enroll in your debt repair program during that your credit counselors receive any form of training or are in fact certified by the private certification agency that you identified you have not established that you have and will meet with clients on a regular systematic basis to provide substantive counseling in credit and financial matters most importantly you have not provided a detailed description of the educational program to be provided to clients who purchase credit repair and other services from you nor have you provided a detailed description of your housing food clothing and other programs that you indicate you have initiated including the number of individuals and families served by you you failed to indicate the amount of salary your directors or others would receive as employees above and beyond compensation_for their service on the board you failed to provide a copy of a lease agreement or provide details of efforts to find a location outside of a private home for your operations you provided no proof such as demographic studies that your services are directed primarily to individuals and families from low-income groups further you provide no information regarding how your contemplated debt management program would operate including identification of a back-end provider lastly you failed to provide a detailed description of how your fundraising program would operate including an explanation of efforts tnade to date to raise money for the conduct of your educational and charitable programs based on our analysis of the information you submitted we have concluded that while you are organized for charitable purposes you do not satisfy the operational requirements to be recognized as exempt under sec_501 of the code you failed to establish that you are or will be operated for either a charitable or educational purpose in fact the administrative record demonstrates that you operate for the substantial non-exempt purpose of operating a business because the business is operated solely by the members of one family you have not established that you are operated primarily for charitable purposes rather than to provide them employment opportunities in addition you have not shown that your income does not inure to any private individual another non-exempt purpose appears to be your operation to avoid regulation under the croa while you have not submitted sufficient information to support a favorable ruling you have submitted sufficient information for us to conclude that the activities you plan to engage in will not meet the requirements of the operational_test for the reasons explained below you state in your bylaws that your purpose is to minister educate and motivate clients about credit financial and economic matters you also state that you will offer credit consulting financial counseling and debt management providing individual counseling to clients on credit matters may be educational or if provided in a charitable manner may be charitable within the meaning of sec_501 see eg revrul_78_99 1978_1_cb_152 individual and group counseling for widows based upon their ability to pay is an educational activity however you have not submitted sufficient documentation for us to determine that the counseling you do is either charitable or educational in the sense recognized by law sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operating exclusively for exempt purposes only if it engages primarily in activities that accomplish one or more of the exempt purposes specified in sec_501 of the code providing services exclusively for the benefit of the poor a recognized charitable_class furthers charitable purposes for instance counseling the poor about economics and personal finance can achieve an exempt_purpose see revrul_69_441 supra you do not restrict your activities to the benefit of the poor the credit debt repair services and financial consulting you offer are soid to anyone who has unsecured debt and is willing to purchase your services no court or irs ruling has indicated that the sale of credit debt repair services and financial consulting is a charitable activity since the sale of debt repair services and financial consulting to the general_public appears to be one of your substantial purposes we cannot conclude that you are operating for charitable purposes further based on the information you submitted you have not established that you in your response to our letter dated date you described operate for educational_purposes within the meaning of sec_501 training an individual to develop his capabilities or instructing the public on subjects useful to the individual and beneficial to the community are both educational_purposes recognized as exempt see sec_1_501_c_3_-1 of the regulations financial counseling could be carried out as an educational activity consumer credit counseling service of alabama inc v united_states and revrul_69_441 supra while education is a broad concept the service and the courts require that some rigor must be evident n st louis science fiction limited supra the court clearly stated that an organization must have a substantial educational program not a non- educational program with some random educational features the information you submitted provides no basis for us to conclude that you offer either education to the public on subjects useful to the individual and beneficial to the community or training to the individual the information that is given to a client when he or she contacts you regarding your credit repair or financial consulting services you stated that your credit counselor will ask the potential clients what services they want and let them know what the charges are up-front for these services the discussion with clients does not include any educational material or counseling component your primary focus appears to be the sale of your credit debt repair services rather than the provision of substantial education to your clients you have not submitted any evidence of plans for future educational activity and have neither hired competent employees to teach nor budgeted to provide it your board_of directors has no experience in educational methods and there is no evidence that it plans to acquire any expertise you submitted a copy of what you consider to be training materials which is limited in scope and amount of information provided you even included information from the federal trade commission that is readily available to the general_public for free the information you plan to provide to your credit counselor candidates is not detailed and comprehensive moreover you have not indicated how you would specifically use these materials in the training of your credit counselors and the education of individuals and families who would seek to purchase credit repair and consultation services your use of the language credit consulting implies that your interactions with clients will be of short duration there is no evidence that you plan to provide a series of sessions with in- depth education directed to the particular needs of the client or to dedicate the time necessary to address the financial problems faced by the client this consultation format appears to be designed purely to expedite the sale of credit debt repair services to potential clients it appears that the vast majority of the time of all your counselors would be spent in selling credit debt repair services with no time spent on public education or on meaningful personal counseling the budget that you included with your application shows no separately budgeted item for educational activities you have not provided information as to the amount of time a credit counselor would spend in credit education versus the amount of time to be spent in persuading clients to purchase your credit repair or consultation services your activities are completely different from those found to be providing community education and individual training by the court in consumer credit counseling service of alabama inc v united_states supra unlike those organizations you submitted no evidence that you provide general education for the community second the counselors in consumer credit counseling service of alabama spent their in that case counselors spent additional time in individual counseling concerning also in contrast to the organization in consumer credit counseling service of alabama time providing information to the general_public through speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit you have submitted no evidence that you provide any similar information to the general_public you have not demonstrated the individual training content of your counseling sessions with your clients budgeting and the appropriate use of consumer credit to debt-distressed individuals and families the professional counselors used only percent of their time for debt management programs the script you provide your counselors is entirely aimed at selling credit debt repair and consulting services in addition one of the hallmarks of a charitable_organization is that it serves the public interest see sec_1_501_c_3_-1 of the regulations however the terms of the agreement s with your clients make it clear that you are not operating for their benefit one of your forms requires a client to sign a blanket authorization which allows you to pull a credit report and release a client's credit information to his her creditors in order to verify and rectify my obligation to your company this agreement would give you authority and discretion over the private business matters of individuals who perhaps do not fully understand the potential negative consequences of signing this form furthermore there is no indication that you have met all of the required license and bond requirements that may be needed in the location where you do business that you have a business license from the city of not satisfy these particular requirements subject_to a late fee penalty of 25percent if he or she i sec_30 days late in paying for your services it also provides that you can turn this account over to an attorney who will charge an additional one-third of the balance due this would clearly serve to impose an additional financial hardship on an individual or family who is already strapped with debt problems would moreover you have a contract in which the client is the information you provided indicates that you charge significant fees for credit repair and financial consultation you have not provided any information to show that these fees are in fact reasonable for the services you perform or that they bear any relationship to the amount or difficulty of those services that you were told they are reasonable’ is not sufficient to establish that they are in fact reasonable the information you have provided indicates that you perform the following activities you contact individuals and families and then persuade them to purchase your credit repair and consultation services you also pull credit reports for clients check for inaccuracies in credit reports and you contact creditors to make corrections with each credit reporting agency if the individual pulled his or her own credit report and made the necessary phone calls and wrote a letter to his creditors it would likely be a lot less expensive you failed to explain why your costs are so much greater than the costs an individual would incur on his own you operate in a manner that it is strikingly different from the charitable credit_counseling_organization described in revrul_69_441 that ruling states the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid moreover there is no evidence that your counselors are otherwise trained or qualified to provide any meaningful counseling for debt-distressed individuals you have indicated that you the organization in the revenue_ruling assisted the debtor by using all of the debtor's funds to pay off creditors in contrast you put your clients in worse financial shape than they started by signing them to contracts that would result in greater financial hardship if they miss payments to you and charging very high fees for credit repair and consultation services will only require that your counselors be high school graduates you will also require that they be certified by a private certification agency you even state that you will provide on the job training for these individuals however no specialized training or qualifications on counseling debt-distressed individuals is necessary to conduct your credit repair services activity an analysis of the information provided shows that you are operated primarily for the nonexempt purpose of operating a for-profit business all of your revenue is currently derived from fees charged to clients for the purchase of credit repair and consultation services you have not provided any evidence that the fees to be charged to clients are any less than would be paid_by individuals serviced by a for-profit credit repair and counseling company in airlie foundation v commissioner supra one of the factors considered in assessing commerciality was the extent and degree of below cost services provided you provided no evidence that your clients ever receive free services or services according to their ability to pay although you claim you waived your fee for one client because of her income you have provided no written evidence that this ever occurred moreover your assertion that your fees are low compared to other debt repair and credit counseling companies is self-serving and not proof of fact even if your assertion is true your fees still appear to be very high for individuals and families experiencing financial hardship your sliding scale used to determine the cost of your consultation fee is further evidence that you are operating a business it would appear that these payments bear no relation to the costs of providing your service and are a purely profit-making tool you provided no economic rationale for the amount you charge for the service other than if you have greater income then you should pay more for the service you have provided no financial studies or other information that would justify these particular fees unlike the agencies in consumer credit_counseling_services of alabama you receive token or no support from contributions from the general_public government or private_foundation grants or assistance from the united way in fact you have no fundraising program to solicit such contributions by comparison for-profit business enterprises are supported by-fees paid_by those who receive services while charitable institutions often do provide services to individuals the cost is generally subsidized by contributors who do not receive anything in return in b s w group inc v commissioner supra the court cited lack of solicitation and sole support from fees as negative factors for exemption see also easter house v united_states supra you have not shown that revenue from operation of your credit debt repair and credit consultation services are used for any purpose other than to cover operating_expenses like any ordinary commercial business your expenditures are almost exclusively to pay salaries and other expenses you have not provided any information to indicate that you plan to dedicate significant revenue to activities involving educational and or charitable programs in having a paid staff with no volunteer help and having no direct expenditures_for charitable and educational_purposes you are similar to the organization described in easter house v united_states supra where the court determined that the organization was not exempt because its conduct of adoption services activity was in furtherance of a non-exempt commercial purpose all of your revenue is being used predominately to operate and expand your business you are similar to the organization described in easter house v united_states supra that organization failed to make significant direct expenditures_for charitable and educational_purposes like easter house v uniféd states you function by means of a paid staff with no volunteer help an exclusively paid staff is characteristic of a commercial corporation rather than a charitable nonprofit organization moreover you are unlike the agency held to be exempt in consumer credit_counseling_services of alabama which obtained its clients through referrals from employers union leaders and clergymen your apparent attempt to avoid regulation under the croa also indicates that you are operated for a substantial non-exempt purpose see u s c section et seq this statute imposes restrictions on credit repair organizations including forbidding advance_payment before services are fully performed u s c section 1679b as stated above the courts have interpreted the croa so as to apply to the activities of credit counseling organizations the information you provided can only be interpreted as evidence that you charge an you have not provided credible_evidence that any clients have received a waiver advance fee a practice forbidden to for-profit organizations under the croa your credit debt repair services program requires that prospective clients pay up-front fees you only provide a waiver in the case of consultation fees for an individual or family who has income below dollar_figure based on the information you have submitted it appears that you are seeking exemption as an exempt charitable_organization because your activities would not otherwise be permitted a commercial for-profit corporation in this regard you are similar to the organization described in ftc v gill supra in that one of your purposes appears to be evading regulation under the croa sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest to meet the requirements of this subsection an organization must establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests your board_of directors rather than being representative of a broad cross-section of the because and her family members you are similar to the nurses’ community consists of registry described in revrul_61_170 in that your primary purpose is to provide employment for these family members even if we concluded that the public received some benefit from your activities the primary benefit of your activities will be to the members of your board and her family members contro your board_of directors we also cannot conclude that your assets will not inure to their benefit you represented that your operation is conducted out of the home of and that she and each of her family members will receive a salary and possibly other compensation your board as presently constituted has inherent conflicts of interests in determining their own compensation the amounts to be paid for rent and other financial matters see easter house supra in which the taxpayer similarly failed to show that no part of its earnings inured to the benefit of any private individual also see birmingham business college supra where the organization was controlled by the founder and his family members based on our analysis of your actual and proposed activities and in light of the applicable law we have determined that you are not operated for exempt purposes rather you are operated primarily for the non-exempt purpose of furthering your business interests through the marketing and sale of credit repair and credit consultation services to the general_public any activities involving authentic credit counseling provided to a genuine charitable_class are purely incidental to your non-exempt purpose of operating an ordinary for-profit business in addition we conclude that your operations serve private rather than a public interests in that one of your substantial purposes is to provide employment for your board members moreover you have not demonstrated that your assets will not improperly inure to the benefit of private individuals accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power of attomey and otherwise qualify under our conference and practices requirements if you do not protest this ruling in a timely manner it will be considered by the internal_revenue_service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section 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 administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 when sending additional letters to us with respect to this case you will expedite their receipt by using the following address internal_revenue_service constitution ave n w washington d c if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely ashu pe rorke debra j kawecki manager exempt_organizations technical group


internal_revenue_service department of the treasury number release date index numbers 368-dollar_figure washington dc person to contact telephone number refer reply to cc dom corp 2-plr-118068-00 date date legend acquiring target state x a dear this is in response to your authorized representative’s letter dated date requesting rulings under sec_368 of the internal_revenue_code the code with respect to a proposed transaction additional information was received in a letter dated date the material information submitted is summarized below acquiring is a closed-end non-diversified management investment_company organized under the laws of state x and registered under the investment_company act of the act acquiring has elected to be taxed as a regulated_investment_company ric under of the code acquiring currently has outstanding voting common_stock and five series of voting preferred_stock target is also a closed-end non-diversified management investment_company organized under the laws of state x and registered under the act target has elected to be taxed as a ric under of the code target currently has outstanding voting common_stock and one series of voting preferred_stock for what are represented to be valid business reasons acquiring and target propose the following transaction the transaction which to the best of their managements’ knowledge and belief does not qualify as a reorganization under sec_368 of the code plr-118068-00 pursuant to a plan_of_reorganization target will transfer to acquiring all of target’s assets and liabilities in exchange for newly issued acquiring common_stock and voting preferred_stock target will distribute all of the acquiring common and preferred_stock received in the exchange to its shareholders each holder of target fund common_stock will be entitled to receive a proportionate number of acquiring common shares equal to the aggregate net asset value of the common_stock owned by such shareholder on the exchange date each target preferred shareholder likewise will be entitled to receive a number of acquiring preferred shares having a liquidation preference and value equal to the liquidation preference and value of the target shares owned by such shareholder on the exchange date target’s preferred shares have the same terms as the acquiring preferred shares to be issued as soon as practicable after the step described in paragraph above target will dissolve in accordance with the laws of state x and will terminate its registration under the investment_company act of acquiring may sell up to a of the assets received from target in the exchange described in paragraph above to unrelated purchasers and will reinvest any proceeds in a manner consistent with acquiring’s investment objectives and policies the following representations have been made in connection with the proposed transaction hereinafter referred to as the transaction a the fair_market_value of the acquiring stock received by each target shareholder will be approximately equal to the fair_market_value of the target stock surrendered in the exchange b there is no plan or intention by target shareholders who own or more of target’s stock and to the best of the knowledge of the management of target there is no plan or intention on the part of any other shareholders of target to sell exchange or otherwise dispose_of a number of shares of acquiring received in the transaction that would reduce such target shareholders’ ownership of acquiring stock to a number of shares having a value as of the date of the transaction of less that of the value of all of the formerly outstanding_stock of target as of the same date for purposes of this representation shares of target stock exchanged for cash or other_property surrendered by dissenters or exchanged for cash in lieu of fractional shares of acquiring stock will be treated as outstanding_stock of target on the date of the transaction moreover shares of target and shares of acquiring held by target shareholders and otherwise sold redeemed or disposed of prior or subsequent to the transaction will be considered in making this representation target represents that it plr-118068-00 is publicly traded and therefore may appropriately make the above representation with respect to it sec_5 shareholders rather than shareholders under revproc_86_42 1986_2_cb_722 c acquiring will acquire at least of the fair_market_value of the net assets and at least of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts paid_by target to dissenters amounts used by target to pay its reorganization expenses amounts paid_by target to shareholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer will be included as assets of target held immediately prior to the transaction d acquiring has no plan or intention to reacquire any of its stock issued in the transaction e after the transaction acquiring will use the assets acquired from target in its business except that a portion of these assets may be sold or otherwise_disposed_of in the ordinary course of acquiring’s business any proceeds will be invested in accordance with acquiring’s investment objectives acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business f target will distribute to its shareholders the stock of acquiring received pursuant to the plan_of_reorganization g the acquiring preferred_stock to be received by target preferred shareholders in exchange for their target preferred_stock will be identical to the target preferred_stock exchanged therefor h the liabilities of target assumed by acquiring and any liabilities to which the transferred assets of target are subject were incurred by target in the ordinary course of its business i following the transaction acquiring will continue the historic_business of target or use a significant portion of target’s historic_business_assets in the continuing business j target acquiring and the shareholders of target will pay their respective expenses if any incurred in connection with the transaction k there is no intercorporate indebtedness existing between target and acquiring that was issued acquired or will be settled at a discount plr-118068-00 l acquiring and target each meets the requirements of a ric as referred to in sec_368 m the fair_market_value of the assets of target transferred to acquiring will equal or exceed the sum of the liabilities assumed by acquiring plus the amount of liabilities ir any to which the transferred assets are subject n acquiring does not own directly or indirectly nor has it owned during the past five years directly or indirectly any stock of target o cash is being distributed to shareholders of target in lieu of fractional shares of acquiring solely to save acquiring the expense and inconvenience of issuing and transferring fractional shares and such cash does not represent separately bargained for consideration in the transaction the total cash consideration that will be paid to target shareholders instead of issuing fractional shares of acquiring stock will not exceed of the total consideration that will be issued to target shareholders in exchange for their shares of target stock the fractional share interests of each target shareholder will be aggregated and no target shareholder will receive cash in an amount equal to or greater than the value of one full share acquiring stock p target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 q target and acquiring have elected to be taxed as rics under sec_851 and for all of their taxable periods including the last short taxable_period ending on the date of transaction for target have qualified for the special tax treatment afforded rics under the code after the transaction acquiring intends to continue to so qualify r there is no plan or intention for acquiring the issuing_corporation as defined in sec_1_368-1 or any person related as defined in sec_1_368-1 to acquiring to acquire during the five-year period beginning on the date of the transaction with consideration other than acquiring stock acquiring stock furnished in exchange for a proprietary interest in target in the transaction either directly or through any transaction agreement or arrangement with any other person except for cash distributed to target’s common shareholders in lieu of fractional shares of target common_stock s during the five-year period ending on the date of the transaction i neither acquiring nor any person related as defined in sec_1_368-1 to acquiring will have acquired target’s stock with consideration other that acquiring stock ii neither target nor any person related as defined in sec_1_368-1 without regard to e i a to target will have acquired target’s stock with consideration other than acquiring stock or target stock and iii no distributions will have been made with respect to target’s stock other than ordinary normal regular dividend distributions plr-118068-00 made pursuant to target’s historic dividend paying practice either directly or through any transaction agreement or arrangement with any other person except for a cash paid to dissenters and b distributions described in sec_852 and sec_4982 of the code as required for target’s tax treatment as a ric t the aggregate value of the acquisitions redemptions and distributions discussed in paragraphs r and s above will not exceed of the value without giving effect to the acquisitions redemptions and distributions of the proprietary interest in target on the effective date of the proposed transaction based solely on the information provided and the representations made we conclude as follows the acquisition by acquiring of substantially_all of the assets of target in exchange for voting shares of acquiring stock and acquiring’s assumption of target’s liabilities as described above followed by the distribution by target to its shareholders of acquiring shares in complete_liquidation as described above will qualify as a reorganization within the meaning of sec_368 and acquiring and target will each be a_party_to_a_reorganization within the meaning of sec_368 target will recognize no gain_or_loss upon the transfer of substantially_all of its assets to acquiring solely in exchange for voting_stock of acquiring and acquiring’s assumption of target’s liabilities sec_361 and sec_357 target will recognize no gain_or_loss on the distribution of acquiring stock to its shareholders in pursuance of the plan_of_reorganization sec_361 acquiring will recognize no gain_or_loss on the receipt of the assets of target in exchange for voting shares of acquiring sec_1032 the basis of target’s assets in the hands of acquiring will be the same as the basis of those assets in the hands of target immediately prior to the transaction sec_362 acquiring’s holding_period for target assets transferred will include the period during which such assets were held by target sec_1223 the shareholders of common and voting preferred target stock will not recognize any gain_or_loss on their respective receipt of shares of common and voting preferred acquiring stock solely in exchange for their target shares except to the extent that target common shareholders plr-118068-00 receive cash representing an interest in fractional shares of acquiring in the transaction sec_354 the basis of acquiring shares received by target shareholders will be the same in the aggregate as the basis of the target shares surrendered in exchange therefor sec_358 the holding_period of the acquiring shares received by target shareholders in exchange for their target shares will include the period during which the exchanged target shares were held provided that the target shares are held as a capital_asset in the hands of target shareholders on the date of the exchange sec_1223 the payment of cash to the target shareholders in lieu of fractional shares of acquiring will be treated as though the fractional shares were distributed as part of the transaction and then redeemed by acquiring the cash payment will be treated as a distribution in full payment for the fractional shares deemed redeemed under sec_302 with the result that such target shareholders will have short-term or long-term_capital_gain or loss to the extent that the cash distribution differs from the basis allocable to their fractional shares rev_rul 1966_2_cb_116 revproc_77_41 c b pursuant to sec_381 and b and sec_1_381_a_-1 and sec_1 b of the income_tax regulations the tax_year of target will end on the date of the reorganization and acquiring will succeed to and take into account the items of target described in sec_381 subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder no opinion is expressed as to the tax treatment of the transaction under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling specifically no opinion was requested and none is expressed as to whether acquiring or target qualifies as a ric that is taxable under subchapter_m part i of the code this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of plr-118068-00 the material submitted in support of the request for rulings it is subject_to verification on examination a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours assistant chief_counsel corporate by charles m levy reviewer branch


internal_revenue_service number release date index number --------------------- ------------------------- ---------------------------- ---------------------------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ----------------- ------------------------------------------------------ telephone number --------------------- refer reply to cc corp b05 plr-132022-11 date date legend oldco new llc target target acquirer business a functions facility state a country a ---------------------------- ----------------------- -------------------------------- --------------------------------------------- ------------------------------------------- ------------------------------------------ ----------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- ------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- ----------- -------------- ----------------- plr-132022-11 a ------------- dear --------------- this letter responds to your request for rulings dated date on certain federal_income_tax consequences of a proposed series of transactions the information provided in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts oldco is the common parent of an affiliated_group the oldco group that files a consolidated federal_income_tax return oldco is an accrual_method taxpayer with a tax_year ending september 30th business a is conducted primarily by oldco other business segments are primarily conducted through oldco’s wholly-owned subsidiaries in addition oldco performs functions for the oldco group oldco in connection with the performance of the functions may enter into contractual arrangements for the benefit of its subsidiaries the contractual obligations oldco owes net intercompany payables in excess of dollar_figurea to its domestic and foreign subsidiaries the intercompany payables the vast majority of the intercompany payables are related to the oldco functions proposed transaction for purposes of separating the assets and liabilities of business a from the assets and liabilities related to the functions and for what oldco represents are additional valid business reasons that will make operation of oldco’s business more efficient effective and profitable oldco proposes the following steps i through vi the transaction i ii oldco will form a wholly-owned corporation holdco pursuant to business corporation law of state a holdco will form a wholly-owned limited_liability_company new llc pursuant to the limited_liability_company law of state a plr-132022-11 iii iv v oldco will transfer the assets and liabilities associated with the functions the intercompany payables certain contractual obligations the directly owned stock of certain subsidiaries us subs directly owned membership interests in single-member u s limited_liability companies a directly owned partnership_interest in a foreign_partnership and the stock of directly owned controlled_foreign_corporations cfcs collectively the transferred assets to holdco simultaneously with the execution of step v holdco will assume all of the liabilities and obligations of oldco under an outstanding credit agreement and certain outstanding notes and oldco will guarantee all of those liabilities and obligations pursuant to the business corporation law of state a oldco will merge with and into new llc and the following will happen by operation of law the merger a the legal existence of oldco will cease and new llc will be the surviving entity b each outstanding share of oldco common_stock will be converted into a share of holdco common_stock c each option warrant or other right to acquire shares of oldco common_stock that is outstanding will represent the right to acquire the same number of shares of holdco common_stock and all non-equity rights measured by the value of oldco equity will be converted to non-equity rights measured by the value of holdco equity and d new llc will surrender to holdco each share of holdco stock held by oldco prior to the merger which shares will be cancelled vi employees of new llc that perform the functions will be transferred to holdco the post-merger transfer the merger will be effective on the effective date specified in the merger documents filed with the state a department of financial institutions the merger effective date the merger will result in holdco directly owning new llc the us subs the us single member llcs a partnership_interest in a foreign_partnership previously owned directly by oldco and cfcs previously owned directly by oldco certain transactions the unrelated transactions involving subsidiaries of oldco were anticipated to be executed before the transaction but after the submission of your request target a lower-tier subsidiary of oldco will have merged into acquirer a first-tier subsidiary with acquirer as the surviving entity target a lower-tier plr-132022-11 subsidiary also will have merged into acquirer with acquirer as the surviving entity the business operations of target and target were previously integrated into acquirer with legal entities remaining in existence the purpose of the unrelated transactions is to dissolve corporate entities that are no longer needed oldco represents that the unrelated transactions are independent of the transaction and the decision to execute these transactions is unrelated to whether the transaction is ultimately executed in addition prior to the transaction oldco may transfer the facility to acquirer as a capital_contribution oldco represents that this transaction is independent of the transaction and the decision to execute this transaction is unrelated to whether the transaction is ultimately executed oldco established branch operations in country a prior to the transaction but subsequent to the submission of your request representations the following representations have been made with respect to the transaction a b c d e f g for u s federal_income_tax purposes new llc will be an entity disregarded as separate from holdco under sec_301_7701-2 in addition neither oldco nor holdco intends to make an election pursuant to sec_301_7701-3 to treat new llc as an association the shareholders of oldco will receive solely holdco stock in the transaction following the transaction the shareholders of oldco will own all of the outstanding_stock in holdco and will own such stock solely by reason of their ownership of stock in oldco immediately prior to the transaction following the transaction each shareholder of oldco will hold the same percentage of stock in holdco as the percentage of stock such shareholder previously held in oldco the fair_market_value of the holdco stock received by each oldco shareholder will be approximately equal to the fair_market_value of the oldco stock converted in the transaction oldco holdco and each of the oldco shareholders will pay his her or its own expenses_incurred in connection with the transaction at the time of the transaction oldco will not have any outstanding warrants options convertible securities or any other type of right pursuant to which any person could acquire shares of oldco except for options to purchase plr-132022-11 shares of common_stock of oldco performance shares or other rights to acquire shares of common_stock of oldco that were granted pursuant to oldco’s compensation plans all of which were in effect prior to the transaction after the transaction becomes effective any such oldco incentive plans will be adjusted either by amendment or automatic conversion so that holdco becomes the issuer of such shares all liabilities to which the oldco assets are subject at the time of the transaction and all liabilities of oldco that are properly treated as being assumed by holdco in the transaction as determined under sec_357 are liabilities that were incurred in the ordinary course of business and are associated with assets transferred from oldco to holdco at all times prior to acquiring the assets of oldco in transaction step iii i holdco will have been engaged in no business activity ii holdco will have had no federal_income_tax attributes attributes described in sec_381 and iii holdco will have held no assets except for holding a minimal amount of assets if such assets are required for the purpose of paying holdco’s incidental_expenses or required in order to maintain holdco’s status as a corporation in accord with state law immediately after transaction step v holdco will hold directly and through new llc all the assets held by oldco immediately prior to the transaction except for assets used to pay expenses in connection with the transaction these assets used to pay expenses will be less than one percent of the fair_market_value of the net assets of oldco immediately prior to the transaction no assets will be distributed and there will be no dissenting shareholders oldco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 rulings steps i through v of the transaction will be integrated and treated as the transfer by oldco of all of its assets subject_to liabilities to holdco in exchange for stock of holdco followed by the distribution of by oldco of the holdco stock to its shareholders in liquidation and will constitute a reorganization within the meaning of sec_368 see revrul_67_274 c b h i j k holdco and oldco will each be a party to the reorganization within the meaning of sec_368 plr-132022-11 the post-merger transfer will not preclude steps i through v from qualifying as a sec_368 reorganization rev_rul c b no gain_or_loss will be recognized by oldco upon the transfer of all of its assets to holdco in exchange for holdco stock and the assumption_of_liabilities sec_361 and sec_357 no gain_or_loss will be recognized by holdco upon receipt of the oldco assets sec_1032 holdco’s basis in the assets acquired from oldco will be the same as oldco’s basis in such assets immediately before the proposed transaction sec_362 holdco’s holding_period for the assets acquired from oldco will include the period during which such assets were held by oldco sec_1223 no gain_or_loss will be recognized by the shareholders of oldco upon the receipt of the stock of holdco in exchange for the stock of oldco sec_354 any holder of an oldco option warrant or other right to acquire shares of oldco common_stock will not recognize gain_or_loss upon the conversion treated as an exchange of the oldco option warrant or other right to acquire shares of oldco for holdco options warrants or rights with identical terms sec_354 sec_1_354-1 the basis of the holdco stock in the hands of the oldco shareholders will be equal in the case of each shareholder to the basis of the oldco stock surrendered by that shareholder in exchange therefor sec_358 the holding_period for the holdco stock in the hands of the oldco shareholders will include the period in the case of each such shareholder during which that shareholder held the oldco stock exchanged therfor provided that the oldco stock is held as a capital_asset in the hands of that shareholder on the date of the exchange sec_1223 as provided by sec_381 holdco will succeed to the tax_attributes of oldco enumerated in sec_381 since the transaction is treated as a reorganization within the meaning of sec_368 the affiliated_group of which oldco was the common parent_corporation and the taxable_year of such affiliated_group will not terminate and such affiliated_group and such taxable_year will continue with plr-132022-11 holdco the successor to oldco as the common parent of the affiliated_group sec_1_381_b_-1 and sec_1_1502-75 holdco will continue to use the taxpayer_identification_number previously assigned to oldco rev_rul c b none of the rulings set forth above will be altered as a result of oldco engaging in any of the unrelated transactions described above rev_rul c b caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed regarding the tax treatment of the unrelated transactions the transfer of facility or the establishment of branch operations in country a procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _isaac w zimbalist____________ isaac w zimbalist senior technical reviewer corporate cc


department of the treasury i n t e r n al r e v e n u e s e r v i c e w as h i n g t o n d c date offic e of c h ief c o u n sel number release date uilc 6050l cc it a mebrookens tl-n-452-00 internal_revenue_service national_office significant service_center advice memorandum for area_counsel tax exempt government entities pacific coast central mountain thousand oaks ca cc tege pccm la attn mark a weiner from heather c maloy associate chief_counsel income_tax accounting subject form_8282 - required donor identification numbers this significant service_center advice responds to your memorandum concerning the above subject relating to a question raised by the ogden service_center significant service_center advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issue if a donee organization fails to include a donor’s taxpayer_identification_number tin when filing the information_return required by sec_6050l of the internal_revenue_code form what procedure should the ogden service_center follow in determining whether to impose a penalty on that organization under sec_6721 conclusion the donee’s obligation under sec_6050l is to file a correct information_return failure_to_file a correct information_return including failure to include all information is subject_to a penalty under sec_6721 the penalty may be waived for reasonable_cause the donee may demonstrate reasonable_cause by showing that the failure was due to the donor’s refusal to provide the tin facts a donee organization received a gift of charitable_deduction_property for which the donor claimed a charitable_contribution of more than dollar_figure under sec_170 within years of its receipt the donee organization disposed of the property for consideration as required by sec_6050l the donee organization filed an information_return with the irs tl-n-452-00 on form_8282 donee information_return but failed to include the donor’s tin on the form sec_6721 provides for imposition of a penalty if a person required to file an information_return fails to file it or provides incomplete information you seek our views concerning a procedure to determine if imposition of the penalty is appropriate law and analysis overview this case involves closely related code and regulatory provision sec_1 pertaining to the substantiation required of donors of charitable_deduction_property the information reporting obligations of donee organizations receiving and then disposing of such property and the penalties to which those donee organizations may be subjected if their reporting obligations are not met in brief sec_170 and sec_1_170a-13 of the income_tax regulations require donors who claim charitable deductions in excess of dollar_figure for contributions of property other than publicly_traded_securities to substantiate the deduction by filing an appraisal_summary with the irs and by giving a copy of that appraisal_summary to the donee organization sec_6050l and its regulations generally require a donee of charitable_deduction_property to file an information_return with the irs and to provide a copy of the return to the donor if the donee of the charitable_deduction_property sells exchanges or otherwise disposes of such property within years after its receipt sec_6721 provides generally for a penalty to be imposed on any person who fails either to file a required information_return or who fails to include on that return all the information it is required to provide these code sections and the regulations and forms designed to implement them are discussed in more detail below the sec_170 charitable_contribution substantiation rules and form_8283 sec_2 a provides generally that a deduction shall be allowed for any charitable_contribution paid within the taxable_year but that the deduction is allowable only if the charitable_contribution is verified under regulations prescribed by the secretary in a of the deficit_reduction_act_of_1984 1984_3_cb_1 the act congress directed the treasury_department to prescribe regulations concerning substantiation of charitable_contributions under sec_170 in general these substantiation regulations were to address contributions of property other than publicly_traded_securities if the claimed value of the property exceeded dollar_figure pursuant to the congressional directive the treasury_department promulgated rules found in sec_1_170a-13 concerning gifts of property to charitable organizations sec_1_170a-13 imposes the substantiation rules on individuals partnerships closely held corporations personal_service_corporations and s_corporations making charitable gifts after date if the gift is of property other than money or a publicly tl-n-452-00 traded security and the donor reports or claims a sec_170 deduction for the gift in an amount exceeding dollar_figure sec_1_170a-13 requires the donor of such property as a condition for the allowance of the deduction to obtain a qualified_appraisal for the property to attach a fully completed appraisal_summary to the donor’s tax_return and to maintain certain specified records the sec_1_170a-13 regulations are implemented in part by form_8283 noncash charitable_contributions which donors of property are required to file with their tax returns if claiming a charitable deduction of more than dollar_figure form_8283 and sec_1_6050l-1 require donors to provide their tins a social_security_number for an individual or an employer_identification_number for all other filers to describe the property donated to list any conditions or restrictions to which the property is subject and to give the name and address of the donee organization a donor claiming a deduction of more than dollar_figure must also complete and file an appraisal_summary and under some circumstances may be required to attach a complete appraisal of the property being donated the appraisal_summary is found in section b part of form_8283 whenever that summary is required -- that is whenever a deduction of more than dollar_figure is being claimed -- the regulations require the form to be signed not only by the donor but also by the appraiser and except in rare and unusual circumstances by a representative of the donee charitable_organization sec_1_170a-13 c i b and c iv c although the donee's signature on form_8283 does not represent agreement in the appraised value of the contributed_property the signature does serve to acknowledge that the donee is a qualified_organization that the property was received on the date specified and that the donee understands the information reporting requirements imposed by sec_6050l and sec_1_6050l-1 sec_1 170a- c iv m i the donor is required to give the donee organization a copy of the appraisal_summary sec_1_170a-13 sec_1_6050l-1 requires the donee to retain the donor’s appraisal_summary in the donee’s records for so long as it may be relevant in administering any internal revenue law the donee's acknowledgment on form_8283 contains an express affirmation that the donee will inform the irs in the event it sells exchanges or otherwise disposes of the donated property within years of the property's receipt the sec_6050l information reporting requirements and form_8282 sec_6050l was enacted in as a companion provision to the congressional mandate concerning substantiation regulations section b of the act 1984_3_cb_1 - sec_6050l generally requires a donee of any charitable_deduction_property to make an information_return if the donee sells exchanges or otherwise disposes of the property within years of its receipt charitable_deduction_property is defined in sec_6050l in a manner precisely paralleling its definition in act a tl-n-452-00 the sec_6050l information reporting requirement is imposed not only on donees but on successor donees sec_1_6050l-1 however a donee or successor donee need not file an information_return if the item of charitable_deduction_property is consumed or distributed by the donee without consideration to further the donee’s tax-exempt purpose for example no reporting is required with respect to medical_supplies consumed or distributed by a tax-exempt relief organization in aiding disaster victims sec_1_6050l-1 the form devised to implement sec_6050l is form_8282 donee information_return which must be filed with the ogden service_center form_8282 requires the donee organization to provide at a minimum a description of the property disposed of and its own name address and employer_identification_number sec_1_6050l-1 the code regulations and form_8282 require the donee organization to provide the name address and tin of the donor to describe the property disposed of to provide the dates of contribution and disposition to report the amount received on the disposition and to give the donor a copy of the form sec_6050l and c sec_1_6050l-1 and -1 d the form_8282 instructions state that the donor’s tin is the social_security_number in the case of an individual and the employer_identification_number in the case of a corporation or partnership the instructions to form_8282 also state that the form does not have to be filled out completely if for example the information is not available to the donee organization because it does not have the donor's appraisal_summary information reporting penalties information reporting penalties are set forth in sec_6724 provides for a waiver of the penalties for reasonable_cause form_8282 is designed to obtain information relevant not only to substantiation but also to other rules governing charitable deductions for example sec_170 provides generally that deductions for contributions of tangible_personal_property are limited to the donor's basis in the property however a donor is allowed a deduction for the property's fair_market_value if sale of the property would produce long- term capital_gain for the donor and the property is used by a public charity for a purpose related to the charity's tax exempt purposes under sec_1_170a-4 the donor can satisfy the related use test if it was reasonable to anticipate that the property will not be put to an unrelated use by the donee a charity's sale of the property to raise funds is not an exempt_purpose accordingly if the donee organization sells tangible_personal_property within years of a contribution form_8282 gives the irs notice that the related use test may not have been met similarly a filed form_8282 regarding the sale of inventory puts the irs on notice that the donee may not have complied with the rules of sec_170 and permitting corporate donors to claim deductions in excess of basis for contributions of inventory under specified conditions tl-n-452-00 sec_6721 provides for a penalty for failure_to_file_correct_information_returns the penalty is imposed for a failure_to_file an information_return before the due_date or a failure to include all of the information required to be shown on the return or the inclusion of incorrect information for purposes of this section the term information_return is defined in sec_6724 to include a return required under sec_6050l the penalty under sec_6721 is generally dollar_figure for each return with respect to which a failure occurs to a maximum of dollar_figure per filer per year there are exceptions to the amount of the penalty and or to the maximum penalties if the filer corrects the failure within a specified time period if the filer’s failures to include information are de_minimis or if the filer’s gross_receipts do not exceed certain amounts see sec_6721 b - d sec_6721 provides for a higher penalty in the case of failures due to intentional disregard of filing_requirements a donee organization which fails to file a form_8282 as required under sec_6050 or files such form omitting the donor’s tin or other information would therefore be subject_to the sec_6721 penalty in addition if the donee fails to furnish a complete statement to the donor as required under sec_6050 the donee would be subject_to a penalty under sec_6722 sec_6722 provides for a penalty for a failure to furnish correct payee statements the penalty is imposed for any failure to furnish a payee_statement on or before the due_date to the person to whom such statement is required to be furnished or any failure to include all of the information required to be shown on a payee_statement or the inclusion of incorrect information for purposes of this section payee_statement is defined in sec_6724 to include any statement required to be furnished under sec_6050l of the code the penalty under sec_6722 is dollar_figure per failure to a maximum of dollar_figure per filer per year sec_6722 provides for a higher penalty in the case of intentional disregard if the donor did not furnish his tin to the donee the donor is also subject_to a penalty sec_6723 provides for a penalty for failure to comply with other information reporting requirements the penalty is dollar_figure per failure to a maximum of dollar_figure per year this penalty applies to a failure to furnish a tin to another person as required under sec_6109 see sec_301_6723-1 of the procedure and administration regulations summary donee organization's receipt and retention of donor’s tin clearly the interwoven legal rules and the forms discussed above are designed to ensure that a donee organization both receives and retains the information it needs fully to comply with its obligations under sec_6050l in particular any donee organization required to file form_8282 ought ordinarily to possess the donor's tin taken together the code regulations and form_8283 require donors claiming deductions under sec_170 for donations of property in excess of dollar_figure to include the donor's tin on form_8283 complete the appraisal_summary on that form tl-n-452-00 obtain the donee organization's signature on the form and give the donee organization a copy of the form and appraisal_summary accordingly at the time a donee organization subject_to sec_6050l received the donated property it should also have received the information it needs to comply with its statutory obligations moreover a donee organization required to comply with sec_6050l should have retained the information it needs to complete form_8282 the donee is required_by_law to retain the appraisal_summary in its records for a period sufficient for it to comply with its information reporting responsibilities the donee's express affirmation on form_8283 -- that it will file form_8282 with the irs in the event it sells exchanges or otherwise disposes of the property described in section b part the appraisal_summary within years of its receipt of the property -- is designed to remind the donee of precisely those information reporting responsibilities assertion of penalties under sec_6721 if donee organization fails to provide donor’s tin as noted above sec_6721 provides for a penalty for failure_to_file a correct information_return including form_8282 the penalty is imposed for failure to include all required information a failure to include the tin of a donor on a form_8282 would constitute a failure subject_to the penalty the martinsburg computing center generates the penalty notices with respect to information returns that are missing tins but those notices are actually sent out to filers by the service centers the service_center does not have any leeway in sending these notices in other words it cannot exercise discretion in imposing a penalty at this point however following receipt of a penalty notice which generally states that a penalty is proposed a donee organization may request a waiver of the penalty due to reasonable_cause penalties imposed against the donee organization may be waived if the organization can show it had reasonable_cause for the failure_to_file correct returns in order to show reasonable_cause a filer must show that either there are significant mitigating factors with respect to the failure or the failure arose from events beyond the filer’s control in addition the filer must show that it acted in a responsible manner see sec_301_6724-1 events beyond the filer’s control include the actions of a payee or another person who fails to provide the filer with information necessary to comply with information reporting requirements or who provides incorrect information upon which the filer relies in good_faith sec_301_6724-1 and c sec_301_6724-1 provides that acting in a responsible manner means generally that the filer exercised reasonable care taking steps to avoid or mitigate the failure with respect to missing or incorrect tins however special rules are set forth in sec_301_6724-1 and f the filer must have solicited the person’s tin as provided in tl-n-452-00 these regulations in order to show that it acted in a responsible manner with respect to the failure to include the tin on the information_return the regulations require an initial solicitation of the tin and up to two annual solicitations a filer seeking a waiver of the information_return penalties must follow the procedures in sec_301_6724-1 the filer must submit a written_statement to the district_director or service_center signed under penalties of perjury including the relevant facts and the provision under which a waiver is sought we note that the sec_6721 penalty may be assessed without following the deficiency procedures the sec_6721 penalty is found in subtitle f chapter 68b of the code under sec_6212 a notice_of_deficiency is required only for taxes imposed by subtitle a or b or for chapter sec_41 through if we may be of further assistance please call ms marilyn e brookens of this office at


significant index no uv751029 department of the treasury internal_revenue_service washington d c sep tep raltl ad aa be tax_exempt_and_government_entities_division re dear this letter is to inform you that your request for an extension of the period of years for amortizing the unfunded liabilities described in sec_412 of the internal_revenue_code code and sec_302 of the employee_retirement_income_security_act_of_1974 erisa effective with the plan_year beginning september has been denied sec_412 of the code and sec_302 of erisa provide that the period of years required to amortize any unfunded_liability described in any clause of sec_412 of the code and sec_302 of erisa of any plan may be extended by the secretary of labor for a period of time not in excess of years if it is determined that such an extension would carry out the purposes of erisa and would provide adequate protection for participants under the plan and their beneficiaries and if it is determined that the failure to permit such extension would result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and be adverse to the interest of plan participants in the aggregate reorganization plan no c b effective date transferred the authority of the secretary of labor under sec_412 of the code and sec_304 of erisa to the secretary of treasury the plan is a multiemployer defined_benefit_plan the plan is maintained as a result of collective bargaining agreements between local bargaining units of the union and related employers primarily in the movie theater industry the plan is a mature plan with a large number of retirements in recent years and an even larger number expected in the near future the industry has been in decline for a number of years and technology has reduced the number of employees in the industry and reduced wages these factors increased the gap between the plan’s costs and employer contributions the information provided with your request included projections that reflected the changes made to the minimum_funding requirements under the pension_protection_act of ppa these projections indicated that the plan will not experience a funding deficiency until given that there is no projected funding deficiency until an extension will not carry out the purposes of erisa furthermore failure to grant an extension will not result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and will not be adverse to the interest of plan participants in the aggregate this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the ‘authorized representative pursuant to a power_of_attorney on file in this office and to your if you require further assistance in this matter please contact sincerely yours fpr la james e holland jr manager employee_plans technical