t c summary opinion united_states tax_court brenda h jennings and robin d jennings petitioners v commissioner of internal revenue respondent docket no 4939-06s filed date brenda h jennings and robin d jennings pro sese james h harris jr for respondent nims judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure background some of the facts have been stipulated and are so found when this petition was filed brenda h jennings and robin d jennings resided in pennsylvania at all relevant times mr and ms jennings were married though at the time of trial the two were in the process of obtaining a divorce in mr and ms jennings shared the same house during that year mr jennings withdrew dollar_figure from a sec_401 plan from a previous employer mr jennings did so without the knowledge of ms jennings he then attempted to purchase a vehicle for his own use using dollar_figure of the proceeds from the withdrawal and financing the remainder mr jennings then returned the vehicle and received dollar_figure of his downpayment in return mr jennings then used an undetermined amount of the funds from the withdrawal to replace the floor in the kitchen of the jennings’ house purchase new kitchen appliances and improve steps and walls in other areas of the house the floor was replaced due to water damage caused by mr jennings on their joint income_tax return mr and ms jennings included the dollar_figure withdrawal as income but did not report the sec_72 early withdrawal addition_to_tax in addition the jenningses failed to include dollar_figure of unemployment_compensation mrs jennings received from the commonwealth of pennsylvania on the basis of the original return respondent determined a dollar_figure deficiency in the jenningses’ federal_income_tax the deficiency was due to the two items identified above in november of mr and ms jennings amended their return to correct these two items and they calculated that they owed dollar_figure in tax and penalties of which dollar_figure is attributable to the sec_72 additional tax the parties now agree that this figure is the correct amount of the underpayment and this amount remains unpaid two weeks after amending their return the jenningses received a notice_of_deficiency based upon the original return the petition seeking redetermination of the original deficiency was filed with this court on date on date after petitioning this court ms jennings filed with respondent a form_8857 request for innocent spouse relief seeking to avoid liability for the early withdrawal additional tax at the time of her request ms jennings still resided with mr jennings in date respondent denied ms jennings’ request for innocent spouse relief ms jennings did not amend the petition to challenge respondent’s determination to deny her relief from joint_and_several_liability trial was held on date the parties consented to the introduction of the innocent spouse issue at trial pursuant to rule b because the parties and respondent have agreed to the correct amount of the underpayment the sole issue for decision is whether respondent abused his discretion in denying ms jennings relief from joint_and_several_liability as to the portion of the underpayment that represents an additional tax for early withdrawal under sec_72 discussion a jurisdiction at trial there was a question as to whether either mr jennings or ms jennings had signed the petition both mr and ms jennings claimed not to have signed the petition handwriting samples were taken in open court from both individuals by the presiding judge and compared with the purported signatures on the petition based upon the testimony of the parties and the handwriting samples we find that ms jennings did in fact sign the petition but mr jennings did not there is no evidence that mr jennings permitted any other party to sign on his behalf and at trial mr jennings refused to accept the petition as filed as a result the court lacks jurisdiction over mr jennings because the court retains jurisdiction over ms jennings we may now proceed to the substance of her argument for purposes of convenience ms jennings will hereafter be referred to as petitioner b relief from joint_and_several_liability petitioner argues that she should not be held responsible for dollar_figure of the underpayment because that amount represents an additional tax on mr jennings’s early withdrawal from a sec_401 plan petitioner contends that she did not know of the distribution to mr jennings when the distribution was made and that she received no benefit from the distribution sec_6015 provides that an individual may seek relief from joint_and_several_liability on a joint income_tax return provided that individual meets the requirements of sec_6015 or c in addition sec_6015 provides that even if the taxpayer does not qualify under sec_6015 or c the taxpayer may be relieved of liability in the event the secretary determines that it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either petitioner does not qualify for relief under sec_6015 sec_6015 requires that the taxpayer establish that she had no reason to know of the understatement even if we accept petitioner’s statement that she did not know of the sec_401 distribution at the time it was made the distribution was reported on petitioner’s original tax_return and petitioner signed the return petitioner cannot rely solely on ignorance of the tax consequences of an item giving rise to a deficiency to satisfy her burden under sec_6015 see 887_f2d_959 9th cir 121_tc_73 ndollar_figure thus petitioner had reason to know of the understatement she cannot satisfy the conditions of sec_6015 furthermore petitioner cannot qualify under sec_6015 sec_6015 requires petitioner at the time she applied for relief to be either divorced from the individual with whom she filed the joint_return legally_separated from that individual or not a member of the same household as that individual for any time during the 12-month_period before the application is made at the time petitioner applied for relief she was neither divorced nor legally_separated from mr jennings and the two lived together therefore petitioner cannot satisfy the conditions of sec_6015 having failed to qualify for relief from joint_and_several_liability under sec_6015 or c petitioner may only qualify for relief if at all under sec_6015 sec_6015 allows relief from joint_and_several_liability if taking into account all the facts and circumstances it is inequitable to hold the individual liable pursuant to respondent’s discretionary authority to grant relief under sec_6015 the commissioner has prescribed procedures set forth in revproc_2003_61 2003_2_cb_296 which the commissioner applies in determining whether a spouse is eligible for relief as a threshold matter revproc_2003_61 sec_4 c b pincite lists seven conditions that must be met to be eligible to submit a request for equitable relief of these seven conditions respondent concedes that petitioner has met the first three the fourth condition is met if there has been no fraudulent transfer of assets between the spouses there is no evidence to suggest that any fraudulent transfer between the spouses has occurred here the fifth condition is met if there has been no transfer of disqualified assets between the spouses which under sec_6015 are assets transferred for the purpose of the avoidance of tax there is no indication that any such transfer took place the sixth condition is met if the requesting spouse did not file the return with fraudulent intent which petitioner did not the seventh condition is met if the item_of_income that gave rise to the liability is attributable to the nonrequesting spouse here the sec_401 withdrawal giving rise to the sec_72 additional tax at issue was made by mr jennings at his sole request that item_of_income is attributable to mr jennings therefore petitioner has met all seven of the threshold conditions from there we must determine whether petitioner is entitled to equitable relief revproc_2003_61 sec_4 c b pincite creates a safe_harbor for those seeking equitable relief if the liability reported on the return is unpaid as it is here and the requesting spouse’s situation meets all of the circumstances listed equitable relief will ordinarily be granted if not the requesting spouse may only qualify for relief on the basis of a balancing of factors listed in revproc_2003_61 sec_4 c b pincite the first condition of the safe_harbor is the same condition of sec_6015 the requesting spouse must have been divorced or legally_separated from the nonrequesting spouse or the spouses have lived apart for more than months as discussed above that condition is not met here thus petitioner does not qualify for the safe_harbor and must submit to the balancing of factors listed in revproc_2003_61 sec_4 revproc_2003_61 sec_4 lists six factors the commissioner considers in determining whether to grant equitable relief marital status economic hardship knowledge or reason to know nonrequesting spouse’s legal_obligation significant benefit and compliance with income_tax laws in addition to these there are two additional factors that when present weigh in favor of relief but do not weigh against relief when not present these two factors are whether the nonrequesting spouse abused the requesting spouse and whether the requesting spouse was in poor mental or physical health at the time the return was signed or at the time that spouse requested relief we will discuss each of these factors in turn to determine whether respondent abused his discretion in denying petitioner’s request for relief from joint_and_several_liability first the marital status factor asks whether the requesting spouse is divorced or separated from the nonrequesting spouse at the time the request was filed petitioner was neither divorced nor separated from mr jennings they are now living apart and are in the process of obtaining a divorce respondent concedes that this factor weighs in favor of granting relief second the economic hardship factor asks whether the requesting spouse will suffer economic hardship if she must pay the liability the issue is whether the requesting spouse will be able to pay her reasonable living_expenses if relief is not granted see 119_tc_306 affd 101_fedappx_34 6th cir sec_301_6343-1 proced admin regs petitioner has not alleged that paying this liability will result in economic hardship and she has not provided any information about her current living_expenses that would allow us to determine whether she would suffer economic hardship this factor weighs against relief third the knowledge factor asks whether the requesting spouse did not know and had no reason to know that the non- requesting spouse would not pay the income_tax_liability consideration is given to the requesting spouse’s level of education deceit on the part of the nonrequesting spouse and the requesting spouse’s involvement in household financial matters and financial expertise and any lavish or unusual expenditures compared to past spending levels revproc_2003_ sec_4 a iii c c b pincite petitioner amended her return to reflect the existence of the sec_72 additional tax and made little effort to see that mr jennings paid that portion of the deficiency petitioner and mr jennings disagree as to whether mr jennings orally agreed to pay this liability although this oral agreement required petitioner to satisfy the remaining portion of the liability she has not done so which shows either that the agreement never existed or that neither party considered it to have any binding effect in any case we do not need to accept petitioner’s self-serving statement on this score see 87_tc_74 as a result this factor weighs against granting relief fourth the legal_obligation factor asks whether the non- requesting spouse has a legal_obligation to pay the outstanding income_tax_liability pursuant to a divorce decree or agreement no such agreement exists and so neither party has a legal_obligation to satisfy the liability this factor is neutral fifth the significant benefit factor asks whether the requesting spouse received significant benefit from the unpaid income_tax_liability or item giving rise to the deficiency significant benefit is defined as any benefit in excess of normal support sec_1_6015-2 income_tax regs mr jennings spent dollar_figure of the sec_401 withdrawal to purchase an automobile however mr jennings subsequently returned the vehicle to the dealership and received in return dollar_figure petitioner acknowledged that an undetermined amount of this money was spent for a new floor and several appliances for the kitchen of the jenningses’ house as well as new steps and walls for other areas of the home the kitchen floor was replaced due to water damage caused by mr jennings petitioner contends that this work was done in a year other than but petitioner offers no tangible evidence as to the timing and amount of these transactions without information regarding the scope and expense of this renovation we cannot determine whether the renovation represents a significant benefit or ordinary support respondent determined that this work represented a significant benefit and petitioner has given us no reason to question that determination this factor weighs against relief sixth the compliance factor asks whether the requesting spouse has made a good_faith effort to comply with the income_tax laws in the years following the year to which the request for relief relates petitioner did not file a return for her tax_year until and did not file for any extension of time to file the return this does not represent a good_faith effort to comply with the income_tax laws this factor weighs against relief next we turn to the two factors that if present weigh in favor of relief but do not weigh against relief if not present petitioner did not allege either that she was the victim of abuse or was in poor health at the time the return was filed or the time the request was made in a question posed to mr jennings petitioner asserted that a protection from abuse order had been filed against mr jennings at the time of the disbursement but she did not present evidence that such order existed and she did not offer sworn testimony that would show that she was the victim of abuse these two factors do not enter into the consideration of this case of the first six factors only one weighs in favor of relief while the rest either weigh against relief or are neutral as a result we hold that petitioner has not met her burden to show that she is entitled to relief from joint_and_several_liability we have considered all the arguments made by the parties and to the extent not addressed in this opinion we conclude that they are moot irrelevant or without merit in accordance with the foregoing an appropriate order and decision will be entered


internal_revenue_service number release date index number --------------------- --------------------------- ------------------------------------------------------ ---------------------- ----------------------------------- ------------------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc te_ge eo2 plr-117853-06 date date -------------------------------------------------------------------------------- ------------------------------------------------------ legend trust --------------------------------------------------------- ------------------------------------------------------------- corporation ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- association ------------------------------------------------------------- state ltd country a statute --------------------------------------------------------- ---------------------------------------------------------------------- dear ------------- ------------------------------------------------------------- ------------------------------------------------------ ----------------------------------------------- ------------------ ------------ this is in reply to a letter dated date and subsequent plr-117853-06 correspondence requesting rulings that after certain changes the income of trust will continue to be excluded from gross_income under sec_115 and that the income of corporation will be excluded from gross_income under sec_115 of the internal_revenue_code facts association formed a common_law trust trust to provide insurance for the association is a state non-profit corporation it has received a determination_letter that it is an organization described in sec_501 of the code association’s purpose is to promote public education and improve school board governance in state all public school districts in state are currently members of association in addition association’s bylaws also permit certain other enumerated public school entities to become members members of association since its formation trust has provided the participants in its insurance program with risk management services negotiated the design of policies with other insurance providers and endorsed such policies trust has also provided a variety of insurance-related services including safety and loss control services advice regarding insurance programs and third-party administrator services with respect to the workers’ compensation professional liability and property and casualty programs further through ltd a country a based captive_insurance_company trust insured or reinsured risks for general liability professional liability errors and omissions workers’ compensation property and casualty and similar risks also received income from consulting fees and fees for third-party claims services upon the dissolution of trust all of its assets were to be distributed to the participants in trust’s insurance programs income was excluded from gross_income under sec_115 with the caveat that all of the public school entities that participate in the trust insurance program must be political subdivisions of state or integral parts of state or its political subdivisions the taxpayer now proposes to modify the above facts corporation a state chartered domestic insurance_company in what it represents is a sec_368 reorganization pursuant to which all of the assets operations and liabilities of ltd will become those of corporation and the corporate existence of ltd will cease represents that it will amend the trust agreement to clarify that only an entity that is a trust’s income was derived primarily from premiums and investment_income it based upon the above facts trust received a private_letter_ruling that trust’s trust proposes to domesticate its insurance operations by merging ltd into with respect to the insurance programs provided by trust the taxpayer trust is the sole shareholder of corporation corporation is a licensed insurance plr-117853-06 state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 may participate in any of the insurance programs provided by trust further the trust agreement will be amended to provide that the trust’s trustees will be selected by the participants in trust’s insurance program company in state it will provide insurance and reinsurance to public school districts and other public school entities that participate in corporation’s insurance program the taxpayer proposes to amend the bylaws of corporation to state that corporation will not provide insurance or reinsurance for any insurance_policy for which the insured is not a state a political_subdivision of a state or and organization the income of which is excluded from gross_income by sec_115 of the code investment_income its income is to be used to provide insurance and reinsurance and accumulate the capital necessary to meet the insurance needs of public school entities when corporation is dissolved any surplus remaining after satisfaction of all liabilities and obligations will be paid to participants in its insurance program the income of corporation will be derived from insurance premiums and law and analysis in revrul_77_261 1977_2_cb_45 income from an investment fund sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable further the income of trust will continue to accrue to the participants in trust’s plr-117853-06 from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust after carrying out the reorganization described above and adopting the proposed amendments to its trust agreement described above trust will continue to provide the participants in the trust insurance program with insurance in a cost effective manner in order to protect their fiscal integrity based upon revrul_90_74 and revrul_77_261 trust will perform an essential_governmental_function within the meaning of sec_115 of the code insurance programs all of which are required to be states political subdivisions of state or entities the income of which is excluded from gross_income under sec_115 of the code no private interests will participate in or benefit from the operation of trust other than as providers of goods or services any benefit to the employees of participants in the insurance programs is incidental to the public benefit see revrul_90_74 accordingly trust’s income will continue to be excludable from gross_income under sec_115 of the code corporation corporation the activities of corporation will help to protect the public entities that are members of association from financial loss by providing insurance products and services corporation will perform an essential_governmental_function similar to that provided by the taxpayer in revrul_90_74 further no part of corporation’s income will accrue to a private person the income of corporation will accrue to the public school entities that participate in the corporation insurance programs all of which are required to be states political subdivisions of state or entities the income of which is excluded from gross_income under sec_115 accordingly corporation’s income will be excluded from gross_income under sec_115 of the code subsequent to the formation of corporation and the merger of ltd and conclusions based on the information and representations provided the trust agreement of trust and the bylaws of corporation are amended as described above we hold that the income of trust will continue to be excluded from gross_income under sec_115 and the income of corporation will be excluded from gross_income under sec_115 this ruling is directed only to the taxpayer who requested it sec_6110 plr-117853-06 except as specifically provided otherwise no opinion is expressed on the federal_income_tax consequences of the transaction described above your representation that there was a sec_368 a f reorganization or the classification of trust or corporation as a_trust or corporation for federal tax purposes provides that this ruling may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes ___________________________ david l marshall chief exempt_organizations branch division counsel associate chief_counsel tax exempt and government entities sincerely


internal_revenue_service number release date index number ----------- ---------------------------- -------------------------------------- ---------------------------------------------- ------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number -------------------- refer reply to cc intl b05 plr-134579-08 date october ------------------ trust fund -------------------------------------- fund --------------------------------------------------- fund ----------------------------------------------------- fund --------------------------------------------------- dear ----------- this is in response to your letter dated date in which you request a ruling under sec_1_985-1 that fund fund fund and fund may each adopt a functional_currency other than the united_states dollar the ruling contained in this letter is predicated upon facts and representations submitted by the trust and accompanied by a penalties of perjury statement executed by the appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of factual information representations and other data may be required as part of the audit process trust has represented the facts described below facts trust is a delaware statutory trust registered with the sec under the investment_company act of as an open-ended series investment_company the trust will create a new series for each fund each fund will be treated as a separate corporation for federal tax purposes under sec_851 and each intends to qualify annually as a regulated_investment_company under subchapter_m of the internal_revenue_code each fund intends to operate as an exchange traded fund etf the investment objective of each fund will be to seek to preserve capital to maintain stability of plr-134579-08 principal and to maintain a high level of liquidity the funds will not seek capital appreciation or significant amounts of income as part of their respective investment objectives rather each fund is designed to decrease in value when the value of the u s dollar increases relative to the applicable currency eg euros pounds sterling canadian dollars or japanese yen and to increase in value when the value of the u s dollar falls relative to the applicable currency in seeking to achieve their respective investment objectives each fund will invest substantially_all of its assets in short-term instruments that i are rated investment grade ii are denominated in the local currency referenced by the fund’s name eg euros pounds sterling canadian dollars or japanese yen and iii have remaining maturities of days or less in addition each fund may invest up to of its assets in money market mutual funds denominated in u s dollars or the applicable currency u s dollar and u s cash equivalents consistent with the manner in which etfs operate each fund will issue and redeem shares at net asset value in groups of big_number shares or more such group of shares are referred to as creation units shares of each fund also are expected to trade on a national securities exchange over which such shares can be purchased and sold regardless of quantity each fund will conduct a significant portion of its activities in the foreign_currency to which its investment objective is linked each fund’s revenues and expenses with the exception of management fees and other administrative expenses normally will be in the foreign_currency to which its investment objectives are linked the funds will also maintain their books_and_records in their respective foreign_currencies purchases of creation units will require the purchaser to contribute the appropriate foreign_currency to the fund or in some cases to contribute securities of the type described above in which the fund invests while the funds’ current distributions are expected to be made in u s dollars redemption distributions normally will be paid_by a fund in its applicable foreign_currency although the fund may at its discretion distribute securities it holds rather than the applicable foreign_currency in redemption of its shares each fund will compute its taxable_income or loss in its designated currency and translate its taxable_income into u s dollars using the weighted_average_exchange_rate for the year law and analysis sec_985 of the internal_revenue_code generally provides that all determinations for federal_income_tax purposes shall be made in a taxpayer's functional_currency sec_985 except as otherwise provided by ruling or administrative_pronouncement the u s dollar is the functional_currency of a qualified_business_unit qbu that has the united_states as its residence as defined in sec_988 sec_1 b iii sec_1_989_a_-1 provides that a corporation is a qbu under plr-134579-08 sec_988 the united_states is the residence of a corporation which is a united_states_person as defined in sec_7701 the term united_states_person includes a domestic_corporation a corporation created or organized in the united_states or under the laws of the united_states sec_7701 and a each fund intends to qualify as a regulated_investment_company and will be a domestic_corporation if all the requirements of sec_851 and its accompanying regulations are met as domestic corporations under sec_985 and the applicable regulations thereunder the functional_currency of each fund would be the u s dollar absent a ruling to the contrary each fund would be required to recognize sec_988 gain_or_loss on all of its sec_988 transactions because these transactions would be denominated in the fund's designated currency which would be a nonfunctional_currency to the fund additionally any qbus of each fund with a functional_currency other than the u s dollar would be subject_to trust represents that were the funds required to adopt the u s dollar as their functional_currency they would be required to recognize foreign_currency_gain_or_loss under sec_988 every time a short-term instrument held by a fund matured or was otherwise_disposed_of which would jeopardize the ability of the fund to maintain a stable net asset value in its designated currency and to provide investors with an opportunity to receive non-u s currency exposure against the u s dollar the general explanation of the tax_reform_act_of_1986 states that i n appropriate circumstances a domestic qbu such as a regulated_investment_company organized to invest in securities denominated in a specific currency may have a foreign_currency as the functional_currency staff of the joint_committee on taxation 100th cong 1st sess general explanation of the tax_reform_act_of_1986 pincite comm print sec_1_985-1 provides that if a qbu is not required to use the dollar as its functional_currency its functional_currency shall be the currency of the economic environment in which a significant part of the qbu's activities are conducted if the qbu keeps or is presumed to keep its books_and_records in such currency sec_1_985-1 provides that the economic environment in which a significant part of the qbu's activities are conducted shall be determined by taking into account all the facts and circumstances sec_1_985-1 sets forth some facts and circumstances which are considered when determining the economic environment in which a significant part of the qbu's activities are conducted if the ruling requested herein is issued each fund would be permitted to determine its functional_currency by applying the principles of sec_1_985-1 under these principles each fund would be eligible to adopt its designated currency as its functional_currency if the facts and circumstances warrant such a determination this conclusion is plr-134579-08 consistent with the language in the general explanation of the tax_reform_act_of_1986 as set forth above based solely on the facts and representations submitted and provided that each fund qualifies as a regulated_investment_company under sec_851 of the code and that each fund is treated as a separate corporation under sec_851 trust may apply the principles of sec_1_985-1 to determine the functional_currency of each fund accordingly each fund may adopt its designated currency as its functional_currency if the facts and circumstances warrant such a determination should a fund properly adopt its designated currency as its functional_currency it will compute its taxable_income or loss in its designated currency and translate its taxable_income into u s dollars using the weighted_average_exchange_rate for the year no opinion is expressed as to whether the funds qualify as regulated_investment_companies under sec_851 of the code and the accompanying regulations thereunder or whether each fund may be treated as a separate corporation under sec_851 no opinion is expressed as to the character of any amounts received by shareholders as distributions on or redemptions of their shares in a fund no opinion is expressed on the character of income or loss realized on a sale by shareholders of their shares in a fund this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax return of the taxpayers involved for the taxable_year in which the determination covered by this letter is made in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the trust's representatives sincerely jeffrey l dorfman chief branch international cc


internal_revenue_service number release date index number ----------------------------------- --------------------------------------------------- -------------------------------------- -------------------- -------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc tege eoeg eo1 plr-132649-10 date december entity c ---------------------------------------------------- ----------------------------------------------------------- entity a --------------------- ----------------------------------------------------------- entity b ---------------------------------------------- ----------------------------------------------------------- plan state date date date statute dear ---------- --------------------------------------------------------------------------------- ------ ----------------------- ------------------- ---------------------------------------- ------------------------------------------------------- this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of entity c requesting a ruling that entity c’s income from certain activities is excludable from gross_income under sec_115 of the internal_revenue_code plr-132649-10 cc tege eoeg eo1 facts entity c is a state nonprofit corporation formed on date by and as one of three successor organizations to the plan the plan was an unincorporated association formed on date pursuant to statute it served as a joint self-insurance pool for its political_subdivision members the service issued a favorable sec_115 private_letter_ruling to the plan on date the plan subdivided its functions into three parts to avoid cross-liability between its joint self-insurance lines entities a b and c entity a is an umbrella organization that oversees the other two organizations it has no members entity c is a joint healthcare self-insurance pool and entity b is a joint property casualty self-insurance pool the members of entities c and b are political subdivisions or entities the income of which is excludable under sec_115 entity c is governed by a board_of directors in accordance with regulations and bylaws governing documents which are subject_to amendment or repeal by a majority vote of the board directors are elected representatives or current employees of the members of entity c and they are elected by a majority vote of those members casting ballots the directors of entities c and b make up entity a’s board_of trustees day-to-day management of entity c is provided by an administrator whose appointment must be approved by entity a the administrator is subject_to termination by entity c’s board with or without cause upon entity c’s termination any assets remaining after payment of all liabilities shall be distributed to the members of entity c as determined by the board_of directors law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of an essential_governmental_function and accruing to a state or a political_subdivision of a state in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or plr-132649-10 cc tege eoeg eo1 municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling stated that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in revrul_90_74 1990_2_cb_34 the income of an organization formed funded and operated by political subdivisions to pool various risks arising from their obligations regarding public liability workers’ compensation or employees’ health is excludable from gross_income under sec_115 in this ruling private interests did not materially participate in the organization nor did they benefit more than incidentally from the organization entity c operates a joint healthcare self-insurance program for its members this program allows these members to pool resources to obtain insurance coverage at a level no single member could afford to provide on its own providing pooled insurance services to political subdivisions and sec_115 entities constitutes the performance of an essential_governmental_function within the meaning of sec_115 see revrul_90_74 and revrul_77_261 no private interests materially participate in the operation of or otherwise benefit more than incidentally from entity c upon dissolution entity c’s remaining assets after satisfaction of all debts will be distributed to its members all of which are political subdivisions or sec_115 entities see revrul_90_74 based solely on the facts and representations submitted by entity c we conclude that the income of entity c is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 consequently we hold that entity c’s income is excludable from gross_income under sec_115 except for the specific ruling above no opinion is expressed or implied regarding the federal tax consequences of the facts of this case under any other provision of the code specifically no representation is made that contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be tax-free this ruling concerns only the federal tax treatment of entity c’s income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits plr-132649-10 cc tege eoeg eo1 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely sylvia hunt assistant chief exempt_organizations branch office of division counsel associate chief_counsel tax exempt government entities enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc re person to contact telephone number refer reply to cc psi 4-plr-105825-02 date may legend decedent date date date dear this is in response to your letter of date in which you requested an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an alternate_valuation election under sec_2032 of the internal_revenue_code according to the information submitted decedent died on date the decedent’s estate contained real_estate bonds and marketable_securities among other assets due to a misunderstanding between the executor and the cpa form_706 did not elect to value the assets on the alternative valuation_date under sec_2032 the assets were valued at their date of death value the form_706 was timely filed on date shortly after the form_706 was filed it was discovered that the alternative valuation_date should have been elected on date within one year of the date decedent’s form_706 was due the cpa filed a supplemental form_706 electing to value decedent’s assets on the alternative valuation_date you have requested a ruling that decedent’s estate be granted an extension of time to make the election under sec_2032 to the date the supplemental form_706 was filed sec_2032 provides that the value of the gross_estate may be determined if the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise disposed plr-105825-02 of within months after the decedent’s death such property shall be valued as of the date of distribution sale exchange or other_disposition in the case of property not distributed sold exchanged or otherwise_disposed_of within months after the decedent’s death such property shall be valued as of the date months after the decedent’s death any interest or estate which is affected by mere_lapse_of_time shall be included at its value as of the time of death instead of the later date with adjustment for any difference in its value as of the later date not due to mere_lapse_of_time sec_2032 provides that no election may be made under sec_2032 with respect to an estate unless such election will decrease the value of the gross_estate and the sum of the tax imposed by this chapter and the tax imposed by chapter with respect to property includible in the decedent's gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 such election once made shall be irrevocable under sec_2032 no election may be made under sec_2032 if such return is filed more than one year after the time prescribed by law including extensions for filing such return under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-105825-02 sec_301_9100-3 provides that a taxpayer will not be considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not i competent to render advice on the regulatory election or ii aware of all relevant facts sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money based on the facts submitted and the representations made the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently an extension of time to make the election under sec_2032 is granted until date the date on which the amended form_706 was filed except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosure copy for purposes cc


internal_revenue_service number release date index numbers --------------------------------------- ---------------------------- ------------------------------ ---------------------------- department of the treasury washington dc person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b03 - plr-116456-17 date date legend x ------------------------------------------------------------ ---------------------------------------- a ------------------------- -------------------------------------------------------------- country d1 d2 d3 dear ----------------- ---------- --------------------------- ------------------ ------------------ this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes plr-116456-17 facts the information submitted discloses that x was formed on d1 under the laws of country on d2 x’s indirect owner a became a u s tax resident a intended x to be classified as a disregarded_entity for federal tax purposes effective d3 however x failed to timely file form_8832 entity classification election to be classified as a disregarded_entity for federal tax purposes effective d3 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides plr-116456-17 that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a disregarded_entity effective d3 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached this ruling is contingent on x and its owner filing within days of the date of this letter all required federal_income_tax and information returns including amended returns for all open years consistent with the requested relief these returns must include but are not limited to form_8858 information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election plr-116456-17 this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-117334-10 date august internal_revenue_service number release date index number -------------------------------- ------------------------------------------ ---------------------------- -------------------------- ------------------------------------------------ ---------------------------- ------------------------------- legend decedent trust state trustee date date date date date date daughter daughter county court state statute state statute state statute citation dear ----------------------- ----------------------- ------------------------------------------------------------------ --------------------------- -------------- -------------------- ------------------------ ------------------- ------------------ ------------------------ -------------------------- ------------------------ ------------------- ------------------ ----------------------------------------------------------- ------------------------------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------------------------------------------ plr-117334-10 this responds to your date letter requesting a ruling under sec_2601 of the internal_revenue_code concerning the generation-skipping_transfer gst tax consequences of a proposed reformation of trust you have requested the following ruling the proposed reformation of trust will not cause trust to lose its status as a gst exempt trust or become subject_to the provisions of chapter of the internal_revenue_code the facts submitted are as follows decedent executed her will on date article ninth of decedent’s will provides that the rest and residue of decedent’s estate are to be held in trust paragraph of article ninth provides that during the life of decedent’s two daughters daughter and daughter or the survivor thereof the net_income of trust is to be paid or accumulated for daughter and daughter share and share alike accumulated income is to be held as undistributed_income for the use and benefit of those entitled thereto subject_to the trustee’s discretionary right of distribution at such times and in such amounts as it may determine upon the death of the survivor of daughter and daughter any undistributed_income is to be added to the corpus of the trust paragraph of article ninth provides that upon the death of the survivor of daughter and daughter trust is to be divided into as many parts as decedent has grandchildren then surviving or who have previously died leaving issue then surviving as to each trust net_income is to be paid to or accumulated for the grandchild for whose benefit the trust has been established or his or her issue at such times and in such amounts as the trustee may in its sole and unrestricted discretion determine paragraph b of article ninth provides that each trust is to terminate first as to each surviving grandchild upon his or her death second as to any issue of any nonsurviving grandchild upon such issue reaching age years or dying prior thereto upon the death of any surviving grandchild or issue of any nonsurviving grandchild prior to receiving his or her share of the principal and income the trust as to such grandchild or issue is to terminate and thereupon the trust estate principal and undistributed_income is to pass as follows aa dying intestate to his or her heirs determined by the laws of the state of his or her domicile at the time of his or her death bb dying testate to such person or persons other than his or her estate his or her creditors or creditors of his or her estate as he or she may have designated in his or her last will and testament it is intended that each grandchild have a limited_power_of_appointment within the terms of the internal_revenue_code plr-117334-10 decedent died on date daughter died on date daughter died on date decedent’s will directs the trustee of each trust to distribute the assets of each trust upon termination in the situation in which a grandchild dies intestate and when a grandchild dies testate and exercises the limited_power_of_appointment in his or her will however the will provides no direction if a grandchild dies testate and does not exercise the limited_power_of_appointment in his or her will this lack of direction created a patent ambiguity in trust on date the trustee of trust trustee filed a petition in the county court to reform certain provisions of paragraph of article ninth of the will that because of scrivener’s error created a patent ambiguity in trust the petition sought to reform subparagraph b aa as follows dying intestate or dying testate without exercising the limited_power_of_appointment given to said grandchild under article ninth subparagraph b bb to his or her heirs determined by the laws of the state of his or her domicile at the time of his or her death on date county court entered an order granting the petition subject_to the issuance of a favorable private_letter_ruling by the internal_revenue_service law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date provided no additions actual or constructive were made to the trust after that date sec_26_2601-1 provides that the gst tax does not apply to any generation-skipping_transfer under a will or other revocable_trust executed before date provided that the document in existence on date is not amended at any time after date in any respect which results in the creation of or an increase in the amount of a generation-skipping_transfer and the decedent dies before date this paragraph also provides that the rules contained in sec_26_2601-1 apply to any will or revocable_trust within the scope of plr-117334-10 this paragraph sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener's error will not cause an exempt trust to be subject_to the gst provisions if the judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust for the benefit of grantor's children a and b and their issue the trust is to terminate on the death of the last to die of a and b at which time the principal is to be distributed to their issue however the provision governing the termination of the trust is ambiguous regarding whether the trust principal is to be distributed per stirpes only to the children of a and b or per capita among the children grandchildren and more remote issue of a and b in the trustee files a construction suit with the appropriate local court to resolve the ambiguity the court issues an order construing the instrument to provide for per capita distributions to the children grandchildren and more remote issue of a and b living at the time the trust terminates the court's construction resolves a bona_fide issue regarding the proper interpretation of the instrument and is consistent with applicable state law as it would be interpreted by the highest court of the state therefore the trust will not be subject_to the gst tax in 387_us_456 the court considered whether a state trial court’s characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state in this respect the federal_agency may be said in effect to be sitting as a state court plr-117334-10 state statute provides that a trustee of an express trust by will or other written instrument or a person interested in the trust may petition the district_court for an order to construe interpret or reform the terms of a_trust or authorize a deviation from the terms of a_trust state statute provides that a general residuary clause in a will or a will making general disposition of all of the testator's property does not exercise a power_of_appointment held by the testator unless the testator's will manifests an intention to include property subject_to the power state statute provides that if a governing instrument creating a power_of_appointment expressly requires that the power be exercised by a reference an express reference or a specific reference to the power or its source it is presumed that the donor's intention in requiring that the donee exercise the power by making reference to the particular power or to the creating instrument was to prevent an inadvertent exercise of the power and an attempt to exercise the power by a donee who had knowledge of and intended to exercise the power is effective if there are ambiguities in the construction of the terms of an instrument the court will adopt that construction which will result in sustaining the questioned provision to the end that the intention of the settlor or testator may be carried out the court can look to the trust instrument as a whole to find such intent citation in this case the failure to include in trust a direction for disposition of a grandchild’s trust share in the event that the grandchild dies testate but without exercising the grandchild’s limited_power_of_appointment is a scrivener’s error creating a patent ambiguity as discussed above the judicial action involves bona_fide issues and the reformation based on scrivener's error is consistent with applicable state law that would be applied by the highest court of state accordingly based on the facts presented and the representations made we conclude that the reformation of trust is consistent with applicable state law that would be applied in the highest court of state thus the proposed reformation will not cause trust to lose its status as a gst exempt trust or become subject_to the provisions of chapter in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representative 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 plr-117334-10 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code date date employer 1d number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we'll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely director exempt_organizations enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service i cincinnati oh legend popae name are u dollars amount v dollars amount w number x number y dollars amount dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons outlined below facts you were incorporated in the state of o on p as a not for profit corporation your articles of incorporation state your purpose is to provide housing on a non-profit basis and in pursuance thereof to acquire own improve develop operate manage sell convey pledge assign mortgage lease or rent any real_estate and any personal_property the articles also indicate you have x shares of common_stock with a par_value of y dollars there are no provisions for dissolution your bylaws state your purpose is to provide your members with housing on a cooperative and non-profit basis while your form_1023 states your purpose is to provide moderately priced housing to persons aged or over on a cooperative ownership basis moreover you letter rev catalog number 47630w completed schedule f indicating you are providing housing to the elderly and that your housing is affordable to a significant segment of the elderly in your community the schedule f also indicated the following e e you do not have arrangements for the healthcare needs of your residents you do not have any arrangements with government welfare agencies or others to absorb all or part of the cost of maintaining residents who become unable to pay their regular charges your facility is not designed to meet the physical emotional recreational religious and or other similar needs of the elderly or handicapped you are operating a cooperative apartment building you own your facility and land on which it sits your members buy the number of shares of stock allocated to a specific apartment instead of receiving a deed members receive a stock certificate and a proprietary lease contract agreement shareholders become part owner of the building with rights and obligations for the user and occupancy of an apartment stock ownership is lower to moderately priced compared to nonsubsidized housing in the area depending on the amenities and condition of the housing unit shares of stock are in the range of u dollars the minimum age for stockholders and a tenant i sec_55 per your bylaws a person applying to become a member stockholder must be approved by affirmative action of your board and at least of the stockholders must ratify this action membership entitles that person to occupy the apartment assigned by the board as well as entitles him her to purchase shares of capital stock in the corporation which shall be approximately w of the total shares of the corporation a person may not become a member without becoming a stockholder and acquiring the right to lease an apartment your board will enter into a contract agreement with each member stockholder for his her apartment this contract will require the member to pay each month in advance his her pro-rata share of the fixed costs or expenses of owning and operating the property it will also require each member to maintain their interior at the member’s own expense maintenance fees for the organization are t dollars per month they cover various building expenses including building insurance trash service custodial services water sewage laundry facilities landscaping snow removal maintenance and repairs etc changes to the assessed maintenance fees are subject_to a vote you will pay the cost of structural repairs and cost of maintaining the exterior of the building and common areas you also make assessments and hold votes for major capital improvements such as building improvements windows sidewalks roofing etc those fees are maintained in a separate bank account and are not available for ordinary maintenance it is the duty and obligation of the member withdrawing to find an acceptable purchaser your board shall have the first right to purchase any shares of capital stock should a member withdraw but is not obligated to do so for his her shares of stock that member has the right to establish the price and terms upon which he will sell his her shares as long as they comply with the terms of the bylaws when selling an apartment a buyer provides a check to a seller for the balance due the seller provides the bank with the old stock certificates signed by the seller the bank issues new stock certificates to the buyer with the buyer’s full name and apartment number after closing the buyer will sign a contract agreement and receive a copy of your bylaws your board shall have the right to purchase the shares of stock at market_value and cancel membership of any member who has died without designating a subsequent purchaser of the apartment has failed to meet payments for a specified period of time has failed to pay other obligations to you or has been found to be unsatisfactory or undesirable for membership after a hearing and vote by your board letter rev catalog number 47630w your revenue comes primarily from membership fees with insubstantial amounts arising from laundry and vending and capital_gains on sale of stock certificates your expenses consist primarily of maintenance_expenses including repairs custodial services lawn care trash service utilities pest control snow removal landscaping and window washing you also have expenses for taxes and licenses insurance inspections rental agency fees and legal and accounting your board currently consists of four individuals law sec_501 of the code provides for the recognition of exemption of organizations that are organized and operated exclusively for religious charitable or other purposes as specified in the statute no part of the net_earnings may inure to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the income_tax regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of income_tax regulations holds that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization’s assets will be considered dedicated to an exempt_purpose if upon dissolution such assets would by reason of a provision in the organization’s articles or operation of law be distributed for one or more exempt purposes sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be regarded as ‘operated exclusively' for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 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 income_tax regulations provides that an organization is not organized and operated exclusively for educational_purposes unless it serves a public rather than a private interest revrul_69_175 1969_1_cb_149 states that when a group of individuals associate to provide a cooperative service for themselves they are serving a private interest by providing bus transportation for school children the organization enables the participating parents to fulfill their individual responsibility of transporting their children to school thus the organization serves a private rather than a public interest accordingly it is not exempt from federal_income_tax under sec_501 of the code revrul_71_395 1971_2_cb_228 states that a cooperative art gallery formed and operated by a group of artists for the purpose of exhibiting and selling their works does not qualify for exemption under sec_501 it served the private purposes of its members even though the exhibition and sale of paintings may be an educational activity in other respects letter rev catalog number 47630w revrul_79_18 1979_1_cb_194 states a nonprofit organization that provides specially designed housing to elderly persons at the lowest feasible cost and maintains in residence those tenants who subsequently become unable to pay its monthly fees is an organization operated exclusively for charitable purposes within the meaning of sec_501 of the code 326_us_279 states that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number and importance of truly exempt purposes the court case 305_f2d_814 4th cir describes a corporation organized by world war ii veterans for the purpose of purchasing a government housing project and converting it to cooperative nonprofit housing for members individuals become members in the housing unit and the number of members was limited to the number of units the court held that the organization did not qualify under sec_501 of the code because its activities were of the nature of an economic and private cooperative undertaking the organization did not promote social welfare because it furnished housing to only a certain group of individuals as opposed to the community as a whole it was a public spirited but a private endeavor that only provided incidental public benefit application of law you are not described in sec_501 of the code because you fail both the operational_test and the organizational_test as per sec_1_501_c_3_-1 of the regulations you fail the organizational_test because your purpose clause does not meet sec_1_501_c_3_-1 of the regulations you also do not have a valid dissolution provision per sec_1_501_c_3_-1 of the regulations this also causes you to fail the organizational_test you are not operating exclusively for charitable purposes as required under sec_1_501_c_3_-1 of the regulations you are operating for the non-exempt private purpose of providing housing on a cooperative basis to members for example your members residents of the building are contractually obligated to pay monthly dues to you these dues are pooled for the purpose of paying your members’ living_expenses this non-exempt purpose is substantial moreover members buy your shares which give them the right to occupy an apartment in your building members can also sell their shares of your stock at market_value allowing members to buy and sell shares of stock in you for market_value is a substantially commercial activity which is also a substantial nonexempt purpose you are not described in sec_1_501_c_3_-1 of the regulations because you serve the private interests of your members rather than the general_public members are responsible to pay you maintenance repair and capital improvement fees you use the fees to cover the cost of operating and maintaining the building for your members including providing insurance you are like the cooperative art gallery described in revrul_71_395 because you also operate on a cooperative basis for the private benefit of your members your members are being directly benefited by your operations which illustrates you are operating for the private purposes of your members you are unlike the organization in revrul_79_18 although your membership may consist of the elderly you are operating to provide housing to a select few on a cooperative basis if a member cannot pay fees or other obligations to you their membership is cancelled like better business bureau of washington d c inc letter rev catalog number 47630w v united_states u this single substantial nonexempt purpose destroys your claim for exemption under sec_501 of the code you are like the organization described in commissioner_v lake forest inc that failed to qualify under sec_501 of the code because you are operating a housing cooperative primarily benefiting a select few individuals moreover your activities are characteristic of an economic and private undertaking consequently your activities primarily serve private interests disqualifying you from exemption under sec_501 of the code conclusion based on the facts and information provided you are not organized nor operated exclusively for exempt purposes as required by sec_1_501_c_3_-1 and sec_1_501_c_3_-1 of the regulations you are operating for the benefit of your members therefore you do not meet the operational_test as required by sec_1_501_c_3_-1 of the regulations you do not serve a public rather than a private interest as required by sec_1_501_c_3_-1 i of the regulations accordingly you do not qualify for exemption under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete letter rev catalog number 47630w your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely director exempt_organizations enclosure publication letter rev catalog number 47630w


internal_revenue_service number release date index number ---------------------------------- ------------------------------------------------------ ----------------------- ----------------------------- in re ---------------------------- legend legend decedent beneficiary department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------------ id no ------------ --------- telephone number --------------------- refer reply to cc psi b09 plr-101598-06 date date ---------------------- ---------------------------------------------------------------------------------- ---------------- ---------------------------------------------- ------------------- -------------- --------- --------- charity date x y z dear ------------- this is in response to a letter dated date and subsequent correspondence requesting a ruling regarding the reformation of a testamentary charitable_remainder_unitrust under sec_2055 of the internal_revenue_code decedent died on date clause sixth of decedent’s will provides that dollar_figurex is to be held in trust trust for the benefit of beneficiary and charity during beneficiary’s lifetime beneficiary is to receive each year a unitrust_amount equal to percent of the net fair_market_value of the trust’s assets upon beneficiary’s death trust’s remainder_interest is to be paid to charity clause sixth authorizes the trustees to amend the trust so that the trust qualifies as a charitable_remainder_unitrust with in the meaning of sec_664 it has been represented that charity meets the requirements of sec_170 decedent’s estate intends to reform trust under sec_2055 in state court it has been represented that trust’s terms as reformed will conform with the requirements of sec_664 in addition it has been represented that trust’s terms will provide for an annual payment of a unitrust_amount equal to percent of the net fair_market_value of the trust’s assets y percent of which will be paid to beneficiary and z percent of which will be paid to charity it is represented that the proposed reformation will be effective plr-101598-06 as of the decedent’s date of death at beneficiary’s death the trust remainder is to be distributed to charity the executors of decedent’s estate are requesting rulings that the trust is eligible for reformation under sec_2055 that the proposed reformation will be a qualified_reformation within the meaning of sec_2055 and that after the proposed reformation the remainder_interest and the unitrust_interest passing to charity will be qualified interests within the meaning of sec_2055 law and analysis sec_664 provides in part that a charitable_remainder_unitrust is a_trust from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals sec_2055 provides that for purposes of the federal estate_tax the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises and transfers to or for a corporation or certain other organizations organized and operated exclusively for religious charitable scientific literary or educational_purposes sec_2055 provides that where an interest in property other than an interest described in ' f b passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest which is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 no deduction shall be allowed under sec_2055 for the interest that passes or has passed to the person or for the use described in sec_2055 unless in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in ' or a pooled_income_fund described in ' c sec_2055 provides in general that a deduction shall be allowed under sec_2055 in respect of any qualified_reformation sec_2055 provides that the term qualified_reformation means a change_of a governing instrument by reformation amendment construction or otherwise which changes a reformable_interest into a qualified_interest but only if-- i any difference between-- i the actuarial value determined as of the date of the decedent's death of the qualified_interest and ii the actuarial value as so determined of the reformable plr-101598-06 interest does not exceed percent of the actuarial value as so determined of the reformable_interest ii in the case of -- i a charitable_remainder interest the nonremainder interest before and after the qualified_reformation terminated at the same time or ii any other interest the reformable_interest and the qualified_interest are for the same period and iii such change is effective as of the date of the decedent's death sec_2055 provides that the term reformable_interest means any interest for which a deduction would be allowable under sec_2055 at the time of the decedent's death but for sec_2055 prior to the enactment of sec_2055 under a of the estate_tax regulations if a_trust was created or property was transferred for both a charitable and a private purpose a deduction was allowed for the value of the charitable interest if the charitable interest was presently ascertainable and hence severable from the noncharitable interest sec_2055 provides that the term reformable_interest does not include any interest unless before the remainder vests in possession all payments to persons other than an organization described in sec_2055 are expressed either in specified dollar amounts or a fixed percentage of the fair_market_value of the property sec_2055 provides however that sec_2055 shall not apply to any interest if a judicial proceeding is commenced to change such interest into a qualified_interest not later than the 90th day after- i if an estate_tax_return is required to be filed the last date including extensions for filing such return or ii if no estate_tax_return is required to be filed the last date including extensions for filing the income_tax return for the first taxable_year for which such a return is required to be filed by the trust sec_2055 provides that the term qualified_interest means an interest for which a deduction is allowable under sec_2055 sec_2055 provides that the deduction referred to in sec_2055 shall not exceed the amount of the deduction which would have been allowable for the reformable_interest but for sec_2055 in this case prior to the reformation the beneficiary’s unitrust_interest is expressed as a fixed percentage of the fair_market_value of the trust’s property accordingly the remainder_interest to charity is a reformable_interest within the meaning of sec_2055 because a deduction would have been allowable under sec_2055 for this interest if not for the requirements of sec_2055 based upon the facts submitted and the representations made we conclude that trust is eligible for reformation under sec_2055 plr-101598-06 further the proposed reformation in this case satisfies the requirements of sec_2055 the difference between the actuarial value of the qualified_interest and the actuarial value of the reformable_interest does not exceed percent of the actuarial value of the reformable_interest both before and after the proposed reformation beneficiary’s interest will terminate at her death further it is represented that the proposed reformation will be effective as of the decedent’s date of death accordingly based on the facts submitted and representations made we conclude that provided the proposed reformations are made within days of the due_date of the federal estate_tax_return including extensions actually granted and comply with state law the proposed reformation of trust will result in a qualified_reformation under sec_2055 and the remainder_interest and unitrust_interest passing to charity will be qualified interests within the meaning of sec_2055 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely melissa c liquerman melissa c liquerman branch chief branch passthroughs special industries enclosures copy for ' purposes cc