department of the treasury internal_revenue_service te_ge eo examinations commerce street dallas tx tax_exempt_and_government_entities_division release number release date legend org - organization name org addre sec_501 date october xx - date address - address person to contact identification_number in reply refer to te_ge review staff ein certified mail - return receipt requested dear a final adverse determination_letter as this is to your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated may 19xx is hereby revoked and your exemption from federal_income_tax under sec_501 of the code is hereby revoked effective january 20xx our adverse determination was made for the following reasons organizations described in ilr c sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes and must serve public rather than private interests our examination of your activities and finances revealed that you more than insubstantially served private interests and engaged in affirmative conduct to conceal such interests service’s in reasonable requests for information about your operations such actions are inconsistent with the requirements to operate exclusively for purposes set forth in sec_501 and to maintain exempt status discontinue cooperating with addition chose you the to contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending date and for all years thereafter in addition because you are a private_foundation that has not terminated in accord with sec_507 of the internal_revenue_code you will continue to be required to file forms 990-pf return of private_foundation processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the 91st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling tel or write taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours nanette m downing director eo examinations enclosures publication form_6018 consent to proposed adverse action envelope e vet tax_exempt_and_government_entities_division legend department of the treasury internal_revenue_service tege eo examinations commerce street mc dallas tx date org - organization name xx - date address - address org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we propose to revoke our recognition of your exempt status as an organization described in sec_501 of the internal_revenue_code code we enclose our report of examination explaining why we are proposing this action if you accept our proposal please sign and return the enclosed form_6018 consent to proposed action - sec_7428 unless you have already provided us a signed form_6018 we will issue a final revocation letter determining you are not an organization described in sec_501 after the issuance of the final revocation letter we will publish an announcement that you have been deleted from the cumulative list of organizations contributions to which are deductible under sec_170 of the code if you do not respond to this proposal we will similarly issue a final revocation letter failing to respond to this proposal may adversely impact your legal standing to seek a declaratory_judgment because you may be deemed to have failed to exhaust administrative remedies if you do not agree with our proposed revocation and wish to protest our proposed revocation to the appeals_office of the internal_revenue_service then you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision this written request is called a protest for your protest to be valid it needs to contain certain specific information which generally includes a statement of the facts the applicable law and arguments in support of your position for the specific information needed for a valid protest please refer to page of the enclosed publication the examination process and page of the page of in lieu of letter enclosed publication exempt_organizations appeal procedures for unagreed issues these documents also explain how to appeal an irs proposed action if you do submit a valid protest then an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication and publication explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process please note that fast tract mediation services referred to in publication generally do not apply after issuance of this letter you may also request that we refer this matter for technical_advice as explained in publication and an annual revenue_procedure please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the eo rulings and agreements function then no further administrative appeal will be available to you within the irs on the matter if you agreed with the proposed revocation or if you receive a final revocation letter you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days of the date you agreed with the revocation or the date of your final revocation letter whichever is sooner unless a request for extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns we will notify the appropriate state officials of the revocation in accordance with sec_6104 of the code currently only certain states are eligible to receive notification of proposed revocation actions you can call the person at the heading of this letter to find out if your state is eligible to receive a notice of revocation of your tax-exempt status you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation page of in lieu of letter sincerely nanette m downing director eo examinations enclosures publication publication form_6018 report of examination page of in lieu of letter explanation of items schedule number or exhibit attachment to form 4621-a name of organization taxpayer tax identification_number year period ended 886-a rotmaya eee rev january 19xx org a k a org ein december 20xx 20xx and 20xx legend org - organization name president - president ra-1 through ra-12 companies xx - date state - state country - country cfo - cfo dir-1 through dir-5 through dir through ra co-1 through co-8 through issue sec_1 whether the activities conducted by org since the year 20xx were in compliance with the rules and regulations under the nternal revenue code irc sec_501 whether org qualifies for exemption under rc sec_501 whether org’s grant loan benefited a private enterprise rather than the general_public or charitable_class of individuals within the meanings of the federal tax regulations the regulation sec_1_501_c_3_-1 whether org complied with record keeping requirements as described under rc sec_6001 and sec_6033 organizational information facts org was formerly known as org org was incorporated in the state of state on december 19xx under the nonprofit public benefit law the articles of incorporation was signed by dir-1 as incorporator article two stated the purposes as organized and at all times shall be operated exclusively for the benefit of to perform the function of or to carry out the purposes of the state community_foundation on december 19xx dir-1 submitted a form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code to the internal_revenue_service the service on behalf of org the following individuals were listed as officers and board members president director chief financial officer director secretary president cfo secretary dir-2 director dir-3 dir-4 director director on march 19xx the service issued a letter to org granting exemption under sec_501 as an organization described under sec_509 form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit attach t to ac pw a4 f orm name of organization taxpayer tax identification_number year period ended 886-a f ea triatcs org a k a org ein december 20xx 20xx and 20xx on march 19xx org amended its articles which were endorsed on october 19xx the amended articles were signed by president as president and secretary as secretary the amended articles restated purposes to exclusively for charitable religious scientific testing for public safety literary or educational_purposes fostering national or international amateur sports competition but only if no part of its activities involve the provision of the athletic_facilities or equipment or for the prevention of cruelty to children or animals within the meaning of sec_501 of the internal_revenue_code of 19xx the amended articles included the following restrictions notwithstanding any other provision of these articles this corporation shall not except to an insubstantial degree engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation and the corporation shall not carry on any other activities not permitted to be carried on a by a corporation exempt from federal_income_tax under sec_501 of the internal_revenue_code of 19xx or the corresponding provision of any future united_states internal revenue law or b by a corporation contributions to which are deductible under sec_170 of the internal_revenue_code of 19xx or the corresponding provision of any future united_states internal revenue law on january 19xx ra-12 filed a second form_1023 with the service under activities and operational information the application stated on october 19xx the foundation amended its articles of incorporation to change from a supporting_organization to a private_foundation the foundation’s activities will be to provide support to various non-profit entities in the community as the board_of directors shall deem appropriate on the second form_1023 dir-2 and dir-4 were removed and dir-5 was added to the board the remaining board members were listed with the same ones listed on the first form_1023 on may 19xx the service issued a letter to org reclassifying its foundation status to a private_foundation no amendment to the articles was provided to substantiate the name change to org this name was first used on the form_990-pf return of private_foundation for the year ending december 20xx operational information form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit nageenter a a f h name of organization taxpayer tax identification_number year period ended form 886-a ee - org a k a org ein december 20xx 20xx and 20xx on july 20xx the service initiated an examination of the form_990-pf for the year ending december 20xx this return was not signed by any officer or director the form s 990-pf filed for the years 20xx through 20xx indicated no activities of its own or the provision of grants to other organizations president stated that org went dormant after he had divorced his wife cfo on february 20xx org stated that the letters gt within its name stood for co-2 it was committed to bring transformational educational practices to all mankind in order to improve the human condition the form_990-pf filed for the year ending december 20xx indicated a dollar_figuredollar_figure grant to co-1 org explained on february 20xx that it made a loan to co-1 of dollar_figuredollar_figure this was not a distribution and it is the hope that this loan will be repaid in time co-1 needed this funds to begin the formation of a network of center to teach transformation given the purpose for which org was constituted it was apparent that the country market contain of with world’s population and that this group needed assistance to penetrate this market org supported these statements with the following documents e amemo dated xx stated a request of the wire transfer of dollar_figuredollar_figure from co-2 to co-1 e e e this memo was signed by president org’s minutes dated xx stated the approval of the loan the minutes also indicated that president was the sole member of the board however on october 20xx president under the penalties of perjury signed the form_990-pf for the year ending december 20xx the name on this return was org and four names were listed as directors this return indicated dollar_figuredollar_figure cash as org’s only asset org’s annual minutes dated april 20xx march 20xx and march 20xx were signed by president as the sole director of the board a promissory note issued on xx indicated co-1 as the borrower and org as the lender for the amount of dollar_figuredollar_figure a interest was accrued but not required to be paid until the note mature years later there was no collateral to this note org provided a list of contributor records displaying names addresses and amounts of contributions to substantiate the source of contributions while most of the contributors were from the united_states there were contributors from country country country country country country country and country co-6 entities form 886-a 1-19xx department of the treasury-internal revenue page of 886-a for achimextttpieor form explanation of items tax identification_number year period ended name of organization taxpayer f schedule number or exhibit attach tto org a k a org ein december 20xx 20xx and 20xx based on our understanding there were three entities with the name co-6 co-3 co-3 and co-4 co-4 and co-5 co-5 these entities were for-profit entities offering transformational educational opportunities in the united_states and other countries during the year of 20xx president served as the chairman of co-3 in 20xx president formed foundation for co-2 co-2 the activity of co-2 was to provide scholarship assistance to educational organizations around the world particularly those in country which could provide transformational educational opportunities to their students president filed a form_1023 with the service to obtain the exempt status for co-2 the stated purposes under part iv narrative description of your activities were the foundation will provide scholarship assistance to organizations and schools which demonstrate the propensity to provide transformational educational opportunities to their students transformational education is learning designed to allow the individual to understand their full human potential to impact positively the world around them when one fully understands that they are responsible for their life and actions and that they are not at the outside mercy of the world around them miracles begin to happen in their lives ra-1 co-7 ra-2 co-6 corporation ra-3 and others around the world are transforming lives by awakening others to the possibility of who they can be and are the foundation is targeting country because of its size and projected impact on every aspect of the world the impact a peaceful and positive country can have on the earth will be dramatic in the coming decades advance trips to country and country have demonstrated a desire within the country hierarchy to view transformational educational in a favorable light several country leaders educated in the united_states and familiar with work are very favorable to such courses being given in country however the biggest issue is the inability of the average country students to pay for their education they live in an environment where education is provided by the state and the average country work rate is very low there are organizations and persons who are willing to provide the knowledge but scholarships through grants and loans are crucial to reach the general population in a significant way however if said grants and loans can be provided the leaders in the transformational arena will organize the schools and facilities to help bring transformation to the country public as a result the foundation will need no facilities or maintenance in country to reach its objectives the size and terms of grants and loan for scholarships will be negotiated depending on the circumstances situation and education organization the foundation contracts the education will be conducted by experts in this arena in this area who will be identified by the foundation promoting the goals and objectives of the foundation president the chairman and president of the foundation is on the form 886-a 1-19xxx department of the treasury-internal revenue page of schedule number or exhibit explanation of items attachment to form 4621-a name of organization taxpayer tax identification_number year period ended form 886-a rev january 19xx org a k a org ein december 20xx 20xx and 20xx board_of co-1 the ra-1 founded organization promoting the power of positive speaking and co-6 corporation the world wide leader in transformational education as a result his ability to find and utilize the best educational vehicles for the foundation’s student grants and loans is well established the foundation is expected to begin its action plan within the next six months initially in country and country however this request for exemption status was not approved by the service in the mean time co-3 and co-4 started a fund raising campaign and solicited donations from its worldwide program participants and employees the donations were directed and deposited into co-7 account of co-2 the letter dated february 20xx written to the examiner by secretary secretary of org stated org is an independent organization from co-6 but shares its values and commitment to transformation there is a common member of the board_of directors of co-6 president and org charitable grant or loan on april 20xx in response to our request for supporting records to demonstrate how the grant loan furthers its charitable purposes org responded as follows co-6 is an international company that delivers educational programs to individuals and companies these programs related to personal development and awareness transformation the company has been in business for more than years and considering its legacy enterprise more than years its markets includes the united_states country country country country country country and now beginning in country in 20xx it became clear from the input derived from two of co-6’s senior management team situated in country that an opportunity to bring these educational programs to country was possible due to softening of the political climate and the inroads that had been made by these tow management members the company is a ‘for-profit’ enterprise that made a s-corporation election under sec_1361 its sole shareholder is a qualified_pension plan esop controlled under irs sec_401 as such the results of its operations are not subject_to federal or state_income_tax the decision was made in 20xx to develop the opportunity in country but co-6 itself could not afford the start-up capital_investment required an appeal was form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit attach machete leery ov t to f tax identification_number year period ended name of organization taxpayer 886-a a form org a k a org ein december 20xx 20xx and 20xx made to the graduate and participants group of individual to support the worthy cause of bring transformation education to mainland country the money received by org was raised expressly for the purpose of loaning it to co-5 it was structured as a loan in order to position repayment in the event of financial success org is established to bring educational opportunities to the general_public transformation is an educational opportunity that fulfills on its promise to assist individuals and companies achieve their maximum potential numerous books and articles have been published on the topic of transformation and org stands for ‘co-2’ the above statement was enclosed with a number of materials related to seminars trainings provided by co-3 co-4 in summary co-3 co-4 provided seminars for participants to break out of the box mentality of designing strategies and setting objectives which are predictable and obtainable based on what is already known and into a new realm of performance and effectiveness the targeted participants were individuals with careers and business organizations on june 20xx in response to what org planned to recover the loss in the event of a default the statement received from org as follows the money was raised for the express purpose of supporting a fledging effort to bring transformation educational programs to mainland country the graduate base of co-6 is very passionate about these programs and as a rule is committed to bringing transformation opportunities to all people of the world while the money sent to co-5 was intended for its financial support and it was understood that the monies advanced would likely be spent and not returned the grant was structured as a loan in order to facilitate a repayment in the event that the venture was financial successful in that manner the funds could be recycled to other locations within country as such it was not viewed as a financial investment and it would have not appropriate to seek appraisals collateral or other analysis this was in substance a grant emphasis added because org stated that the fund was wired to a foreign organization in substance was a grant we requested information to verify whether org as a private_foundation had excised its due diligence on making a grant to the grantee foreign organization on august 20xx in response to our request for information regarding whether co-5 organized and operated as an organization described under rc sec_509 or and was substantiated by the article of incorporation and bylaws org responded as follows co-1 was formed by a now deceased graduate of the co-6 forum who lived in country he was well respected and trusted graduate and was solely form 886-a 1-19xxx department of the treasury-internal revenue page of explanation of items schedule number or exhibit anabhatens phot tax identification_number year period ended name of organization taxpayer form 886-a et ce i org a k a org ein december 20xx 20xx and 20xx responsible for raising the funds associated with this project the use of the funds used to support education in country and was only individual knowledgeable about the legal status of this entity vests with local_government held in trust for the benefit of its citizens that the enterprise was operated in a manner consistent with sec_170 it was not a private_foundation its ownership like all non-profit enterprises believe org did not provide co-5's the organizational and operational documents in response to our request for information regarding co-5’s activities to decide whether co-5 was organized and operated as a sec_501 organization and how org determined to make a grant to co-5 org responded as follows co-5 is a foreign_corporation and was established under the provision of country law their taxing system is wholly different from the united_states internal_revenue_code and as such it is difficult to make direct comparisons as your question begs the enterprise was operated as is described in sec_501 as a corporation organized and operated exclusively for educational_purposes the nature of planned operation was discussed with the management of co-3 who supported the proposition of this effort by allowing the aforementioned graduate to solicit financial support from the graduate base of the company based upon the founding principals of co-5 org determined that it was a worthy and trustworthy cause to pursue in response to our request for information in support of org made a reasonable_judgment that the grantee was an organization described in irc sec_509 or or sec_4942 and how org reached that judgment it responded as follows the ‘grantee’ as you characterize it was not a private_foundation and as such no comparison to sec_509 or sec_4942 is appropriate co-5 was a corporation formed in country to bring education programs to the citizens of country in response to our request for an affidavit prepared by co-5 or opinion of a counsel that org relied on to make the grant to co-5 it responded as follows no the decision to support this entity was based upon the trust earned by the manager of the entity who was a graduate of co-6 and a very honorable individual as well as the description of the plan to bring transformation programs to a needed place in the world in response to our request for precautions took by org to ensure that the grant would be spent for proper purposes and whether it was substantiated by documentation org responded as follows form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit ein py ga name of organization taxpayer tax identification_number year period ended 886-a form se ae org a k a org ein december 20xx 20xx and 20xx ‘it is not required within the code that once support is given ongoing governance and reviews take place have provided you previously with the documentation related to this entity and how the funds were used including reports from the entities management do not offer any additional documentation at this time in response to our request for the full and complete reports from co-5 concerning the use of funds and whether org submitted full and detailed reports describing its expenditures to the service it responded as follows org filed income_tax returns as required_by_law beyond this am not certain what additional information was required at the time of filing co-5 is an independent company and is not obligated to provide any additional information beyond what was previously provided org and co-2 in response to our request for bank statements and cancelled checks we received all bank statements and cancelled checks for 20xx for co-2 initially we were led to believe that co-2 was a doing-business-as name of org most of the transactions on these statements matched the financial information reported on the form_990-pf org also had another bank account but we only received the february 20xx bank statement for this account on july 20xx org provided a form 1099-int for the year 20xx issued by co-7 to co-2 to support its interest_income earned we noticed that the employer_identification_number ein which was different from org’s ein a further research indicated that this ein belonged to co-2 the entity president formed in 20xx this implied that most of the financial information reported on form_990-pf did not belong to org on september 20xx org amended its forms 990-pf for the tax years ending december 20xx and 20xx the following table displays a comparison between the original and the amended returns for the year 20xx and their variances form_990-pf amended _ variance original revenue contributions received interest total revenue expenses accounting fees bank credit card charges compensations of officer outside services legal fees office expense form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit attachment to form 4621-a name of organization taxpayer december 20xx 20xx and tax identification_number year period ended ein 20xx form 886-a rev january 19xx org a k a org del contributions total paid net revenue we summarized transactions within bank statements and cancelled checks of co-2 and compared the summary to the original and amended returns the following table displays the comparison between co-2’s financial information and the original return for the year 20xx bank statement of co-2 amount form_990-pf original co-2 total return 990-pf less bk without co-2's stmt legal fees accounting fees comp to secretary comp to managing director printing internet hosting services postage delivery wired transfer to co-5 total disbursements net revenue outside services legal fees office expense postage delivery contributions paid total expenses net revenue an automatic rolling over cd account account no was maintained to earn a higher yield interest deposits initial deposit rolling cd other deposits interest earned from cd total deposits disbursements other withdraws charges refunds to contributors revenue contributions received interest total revenue expenses bank credit card charges the following table displays a comparison between co-2’s financial information and the amended_return for the year 20xx return less bk amended rtn wio co-2's deposits initial deposit rollover cd other deposits interest earned from cd total deposits disbursements other withdraws charges refunds to contributors bank statement of co-2 amount form_990-pf amended stmt revenue contributions received interest total revenue expenses bank credit card charges accounting fees form 886-a 1-19xx department of the treasury-internal revenue page of 886-a form eae org a k a org schedule number or exhibit actaris wa december 20xx 20xx and 20xx explanation of items tax identification_number year period ended name of organization taxpayer comp to secretary comp to managing director legal fees printing internet hosting svcs postage delivery wired transfer to co-5 total disbursements net revenue a rollover cd program account no was maintained to earn a higher yield interest n1 since this amount did not match other deposits of co-2 we could not be certain that it was co-2’s revenue n2 the 1099-int issued to co-2 was dollar_figure ein compensations of officer outside services legal fees office expense postage delivery contributions paid total expenses net revenue on october 20xx in lieu of responding to our request for explanation why org provided a form 1099-int with a tax id of co-2 what the relationship was between the two entities and why org used this account for its financial activities and transactions org provided a letter dated april 20xx written by president as chairman of co-2 and addressed to ra-4 ceo of co-6 corporation including the following statements am very disappointment to report that have just received word that the irs has not accepted my request for c status for the foundation for co-2 as you know even with the extra work and difficulties that have been involved from the bureaucratic application process completely expected the c application to be approved by the irs with my experience of setting up and operating_foundations over the last years their not doing so came as a total surprise to me their not accepting our application was based on two things second they were concerned with the fund being used almost exclusively to support co-6’s programs and co-6 being a for-profit company while am disappointed in the irs’s determination and regret the potential adverse affect on people who donated money am excited about what co-6 has accomplished to date in country and about the foundation working with co-6 on the country initiative there is no question in my mind that the impact we can have in country will be significant we will proceed with our plans to start providing financial contribution by the end of july to make co-6’s transformational programs available in country will keep you posted on our progress in other areas as the foundation moves full steam ahead on the fulfillment of its goals including our potentially re-applying in the future for c status in response to our inquiry whether or not org notified each of the donors that the gifts they gave to support co-5’s activities in country were not deductible for income_tax purposes and whether any donor was welcome to a refund if his expectation was not consistent with this form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit antec hitentte ony tax identification_number year period ended name of organization taxpayer fi 886-a tecate org a k a org ein december 20xx 20xx and 20xx position org provided a copy of a notification letter to contributors and the cancelled checks of refunds to contributors on january 20xx the meeting between two revenue agents president and ra-5 the power_of_attorney of org was conducted to discuss about the wire transfer of dollar_figuredollar_figure org provided the additional information as follows e e e e e president stated that he had little knowledge about the wired transaction he stated secretary secretary of org and ra-6 were wholly responsible for fund raising campaigns and the wired transaction to co-5 ra-6 has passed away in the recent year president was the chairman of co-3 in year 20xx president stated that he relied on the opinions of ra-6 to authorize the wired transaction and he believed the fund would be wholly used for the educational_purposes president stated that all the money wired to co-5 was from public support program participants and employees of co-6 his contributions if any was de minis during the examination we requested books_and_records for the years 20xx and 20xx however president only provided a copy of the bank statement of org account in co-7 account as of february 20xx and a couple of bank statements of the co-2 account in co-7 account the bank statements indicated a transfer of dollar_figuredollar_figure from co-2 to org president stated there were a few to no transactions after that transaction the balance of org’s account in co-7 was dollar_figuredollar_figure as of february 20xx president did not answer questions related to when org changed its name from org to org whether or not org had filed the amendment to the articles of incorporation with the state secretary of the state of state for the name changed and why the name was changed on january 20xx org provided the additional information including the email dated august 20xx from ra-7 of co-8s co-8 to president and ra-8 of co-2 and ra-6 of and ra-9 of co-6 the body of the email contained the following statements my notes from the conference cal this morning as follows governance it is agreed that ra-9 will be the chair and director of the foundation and that ra-7 and ra-8 will resign ra-9 shall be responsible for preparing that paperwork and getting it to ra-7 in the mean time ra-8 and ra-7 will remain directors purely for transition purposes organizational structure there are several structural pieces that need to be put in place for the co-2 for the past several months have been the voice of the co-2 this occurred form 886-a 1-19xx department of the treasury-internal revenue page of 886-a form se a aco explanation of items schedule number or exhibit astacimont tol erm name of organization taxpayer tax identification_number year period ended december 20xx 20xx and org a k a org 20xx ein following our first presentation with ra-10 it quickly became clear that a live representative of the co-2 was needed to respond to questions that said this also bring up several questions regarding the relationship that and my assistant ra-11 have to the co-2 going forward we really shouldn't take off our we are the foundation of co-2 hats after all we are the consultants responsible for raising the fund required however we should consider the language to be used to describe that relationship on correspondence business cards and the website emphasis added on march 20xx ra-9 stated that his client instructed him not to respond in writing because the examination has been taking too long and become a burden for org org would not provide any more documentation and or information requested we requested the following documentation and information from org however as of the date of this report we have not received them e e e e e bank statements of org for the years 20xx 20xx and 20xx except for the month of february 20xx the purpose of the banking transfer of dollar_figuredollar_figure on february 20xx from co-2 to org whether org filed an amendment to the articles of incorporation with the state state secretary for it name change an explanation for inconsistency between two documents president represented org in signing a promissory note to commit a loan to co-5 on september 20xx however the foundation adopted resolutions in the name of org by the consent of the sole director president to approve and execute the promissory note on the same date documentation that verifies the transfer of funds from org fka org to co-5 in settlement of the loan entered into as noted above the rationale of org to amend its form_990-pf for the year ended december 20xx an explanation for the savings and temporary investments increased in the amount of dollar_figuredollar_figure at the beginning of the year 20xx on the amended form_990-pf compared to the original return forms 1099-miisc org provided two forms 1099-misc for payments to ra-8 secretary and ra-11 managing director these forms were issued with the ein of org the service has no records that these forms were filed with the service in addition the above facts indicated that the payments were made by co-2 law form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit attachmentita oa name of organization taxpayer tax identification_number year period ended form el 886-a eno org a k a org ein december 20xx 20xx and 20xx sec_501 provides in part that organizations described in rc sec_501 are exempt from federal_income_tax sec_501 of the code describes in part an organization that is organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual treasury regulations treas reg sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 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 states 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 states that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines private_shareholder_or_individual as a person having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 states that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 defines educational as in general a the instruction or training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community in 326_us_279 the supreme court held that the presence of a single nature will destroy the exemption regardless of the number or importance of truly exempt purposes monexempt purpose if substantial in record keeping requirement form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit altschae ntfs foe tax identification_number year period ended form 886-a ee ey name of organization taxpayer org a k a org ein december 20xx 20xx and 20xx sec_6001 states that every person liable for any_tax imposed by this title or for the collection thereof shall keep such records render such statements make such returns and comply with such rules and regulations as the secretary may from time to time prescribe whenever in the judgment of the secretary it is necessary he may require any person by notice served upon such person or by regulations to make such returns render such statements or keep such records as the secretary deems sufficient to show whether or not such person is liable for tax under this title sec_6033 of the code states that in general every organization_exempt_from_taxation under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purpose of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under rc sec_501 and subject_to the tax imposed by rc sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by rc sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law revrul_59_95 1959_1_cb_627 jan states that an organization previously held exempt from federal_income_tax was requested to produce a financial statement as of the end of the year and a statement of its operations during such year however its records were so incomplete that it was unable to furnish such statements held failure or inability to file the required information_return or otherwise to comply with the provision of rc sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of an exempt status the effective date of revocation sec_1_501_a_-1 states that subject only to the commissioner's inherent power_to_revoke rulings because of a change in the law or regulations or for other good cause an organization that has been determined by the commissioner or the district_director to be exempt under sec_501 or the corresponding provision of prior_law may rely upon such form 886-a 1-19xx department of the treasury-intemnal revenue page of explanation of items schedule number or exhibit attaches ae name of organization taxpayer tax identification_number year period ended 886-a ‘orm oe oc org a k a org ein december 20xx 20xx and 20xx determination so long as there are no substantial changes in the organization's character purposes or methods of operation sec_601_201 states that a ruling or determination_letter recognizing exemption may not be relied upon if there is a material_change inconsistent with exemption in the character the purpose or the method of operation of the organization sec_601_201 states ajn exemption ruling or determination_letter may be revoked or modified by a ruling or determination_letter addressed to the organization the revocation or modification may be retroactive if the organization omitted or misstated a material fact operated in a manner materially different from that originally represented taxpayer position the foundation’s position on these issues is unknown at this time government position issue activities grant loan based on the filed returns by org it appeared that org made a dollar_figuredollar_figure grant to co-5 in the calendar_year of 20xx the documentations we received indicated that the funds to make this grant was from co-2 the organization president formed to support co-6 enterprises things did not work out the way president planned he was unable to obtain an sec_501 exemption status for co-2 in the meantime solicitations from co-6 graduates were well underway and contributions ranging from dollar_figure to dollar_figure were pouring in around september 20xx president and his associates decided to transfer dollar_figuredollar_figure of contributions received and prepare documents to make it appear that the funds were from org any organization that failed to establish its exemption status could transfer its funds to another established exempt_organization and could have that organization carry on its charitable activities however the grantee or the borrower in this case was a for-profit entity and the funding was for capital expenditures the grant or loan benefited the owners of the co-6 enterprise organizations exempt under rc sec_501 are prohibited from participating in activities that will benefit private individuals the activity co-2 intended to carry out did not qualify as a charitable activity to satisfy the operational_test an organization must engage primarily in activities furthering an exempt_purpose and cannot engage except in insubstantial part in activities not furthering an exempt_purpose aside from this grant loan org did not have any other charitable activity since 20xx records indicated that president who had primary control if not sole control of org assisted and allowed others to use it without considering whether such activity would have been in furtherance of its charitable purposes org was not operated exclusively for exempt purposes as defined under tres reg sec_1_501_c_3_-1 form 886-a 1-19xx department of the treasury-internal revenue page of explanation of items schedule number or exhibit nene h f ee name of organization taxpayer tax identification_number year period ended form 886-a or org a k a org ein december 20xx 20xx and 20xx issue record keeping requirements throughout the examination org provided the information and the statements that belonged to co-2 instead of its information or document the february 20xx bank statement was the only correct information provided for org a comparison of co-2’s bank statements to the forms 990-pf original and amended_return filed indicate that with a minor variance the financial information that reported on the forms 990-pf for the year ending december 20xx primarily belonged to co-2 org did not explain why co-2’s financial information was reported on its returns org name was changed to org without any legal documentation such as the amendment to articles of incorporation supporting the name change based on the statements made by president and the letter he wrote to his colleague org was used as a shell organization to report financial activities of co-2 additional requests to obtain missing documents and to clarify inconsistencies were not provided or answered ra-9 power_of_attorney stated that org declined to provide any further information org failed to comply with provisions of sec_6001 and sec_6033 and treasury regulations thereunder to keep books_and_records in support of its activities conclusion since org has not been operated exclusively for one or more exempt purposes under rc sec_501 its exempt status under such section is revoked effective january 20xx org is required for filing forms u s_corporation income_tax return for the tax_year ending december 20xx and all years there after form 886-a 1-19xx department of the treasury-internal revenue page of


internal_revenue_service number release date index number ----------------------- -------------------------------- -------------------------------- ----------------------- ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 plr-145696-07 date date legend ----------------------- x ------------------------------------------ country ------------ date ------------------- dear -------------------- requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an entity classification election under sec_301_7701-3 this letter responds to a letter dated date submitted on behalf of x the information submitted states that x was formed on date under the laws of sec_301_7701-3 provides that a business_entity that is not classified as a country x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity x intended to be treated as a disregarded_entity effective date due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as a disregarded_entity effective date corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that except as provided in sec_301 sec_301_9100-1 provides that the commissioner may grant a reasonable plr-145696-07 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 or 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 that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code sec_301_9100-2 provides the rules governing automatic extensions of time for except as specifically set forth above no opinion is expressed concerning the based solely on the information submitted and the representations made we sec_301_9100-3 provides the standards the commissioner will use to sec_301_9100-1 through provide the standards the plr-145696-07 provides that it may not be used or cited as precedent being sent to x's authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-136787-06 date august legend trust a ------------------------------------- grantor ----------------------- date ------------------------- date --------------------- date ---------------- date -------------------------- date ----------------------- spouse --------------------------- court --------------------------------------------------------------------------------------------------- --------------------------- this letter responds to your letter dated date and subsequent grantor created a revocable_trust on date the trust agreement was amended date ----------------------- dear ---------- correspondence submitted on behalf of trust a requesting rulings under sec_61 sec_1001 sec_1015 sec_2207a sec_2511 sec_2519 and sec_7520 of the internal_revenue_code on date date and date the trust agreement became irrevocable on grantor’s death on date survives grantor for five months the trustees shall divide the trust into two separate shares trust a and trust b sec_3_3 provides that trust b shall be funded with i all assets that are excluded from grantor’s gross_estate for federal estate_tax purposes ii all assets for which the federal estate_tax_marital_deduction is not allowable in the grantor’s estate and iii an amount that when added to the value of all sec_3_3 of the trust agreement as amended provides that if spouse plr-136787-06 interest in property included in the grantor’s federal taxable_estate will equal the largest taxable_estate on which no federal estate_tax is payable after deduction of the credits allowable to the grantor’s estate sec_3_3 provides that the residue of grantor’s estate shall be allocated to trust a sec_4 of the trust agreement governs the administration of trust a sec_4 provides that spouse shall receive the net_income from trust a at least annually sec_4 provides that the trustees may make discretionary distributions of principal to spouse for her support maintenance and medical_care sec_4 provides that spouse may disclaim her interest in trust a in whole or in part any disclaimed property shall be added to trust b and distributed as if originally a part thereof sec_4 provides that on spouse’s death the trustees shall distribute any accrued or undistributed_income to her estate and shall distribute the principal to the trustees of trust b to be held administered and distributed as a part of trust b the executor of grantor’s estate elected to treat the trust a assets as qualified_terminable_interest_property qtip under sec_2056 trust b provides for grantor’s children and their descendants under the terms of the trust agreement trust b was divided into three subtrusts upon grantor’s death one for the benefit of each of grantor’s children each child has a testamentary limited_power_of_appointment over the trust b subtrust assets held for his or her benefit received a ruling from court that determined that the disclaimed property will be distributed as if originally a part of trust b spouse represents that she will pay any gift_taxes arising from her disclaimer of the income_interest in trust a spouse will exercise her right of recovery for gift_tax relating to the transfer of the remainder_interest pursuant to sec_2207a market_value spouse has requested the following rulings spouse’s disclaimer when effective will constitute a completed net_gift of the remainder_interest in trust a for federal gift_tax purposes provided spouse exercises her right of recovery under sec_2207a spouse’s disclaimer when effective will constitute a completed_gift of spouse’s income_interest in trust a under sec_2511 for federal gift_tax purposes the disclaimed interests in trust a will not be includable in spouse’s gross_estate at her death for federal estate_tax purposes the appropriate sec_7520 annuity factor used to value the income and remainder_interest is the standard sec_7520 annuity factor spouse will incur no income_tax_liability arising from the disclaimer and guidance on determining the transferees bases in the disclaimed property spouse represents that the current basis of the trust a assets exceeds their fair spouse wishes to disclaim her interest in trust a the trustees of trust a have sec_2044 provides that the value of the gross_estate shall include the sec_2056 allows an estate_tax_marital_deduction for qualified terminable plr-136787-06 rulings value of any property in which the decedent had a qualifying_income_interest_for_life sec_2044 provides that sec_2044 applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 and sec_2519 did not apply with respect to a disposition by the decedent of part or all of such property interest property under sec_2056 the term qualified_terminable_interest_property means property that passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which the qualified terminable_interest election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals and no person has a power to appoint any part of the property to any person other than the surviving_spouse during the surviving spouse’s life with respect to any person by reason of property treated as transferred by such person under sec_2519 such person shall be entitled to recover from the person receiving the property the amount by which the total_tax for the year under chapter exceeds the total_tax that would have been payable under the chapter for the year if the value of the property had not been taken into account for purposes of chapter individual is treated as transferring an interest in property by reason of sec_2519 the individual is entitled to recover from the person receiving the property the amount of gift_tax attributable to that property the value of property to which this paragraph applies is the value of all interests in the property other than the qualifying_income interest the right of recovery arises at the time the federal gift_tax is actually paid_by the transferor subject_to sec_2519 transfer the person receiving the property is the trustee and any person who has received a distribution of the property prior to the expiration of the right of recovery if the property does not remain in trust under sec_2502 the gift_tax imposed under sec_2501 is the liability of the donor sec_2207a provides that if for any calendar_year tax is paid under chapter sec_25_2207a-1 provides that if the property is in a_trust at the time of the sec_2501 imposes a tax on the transfer of property by gift by an individual sec_25_2207a-1 of the gift_tax regulations provides in part that if an sec_25_2519-1 provides in part that if a donee spouse makes a sec_2519 provides that for gift_tax purposes any disposition by the surviving plr-136787-06 sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 provides that the gift_tax is a primary and personal liability of the donor is an excise upon his act of making the transfer is measured by the value of the property passing from the donor and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable spouse of all or part of a qualifying_income_interest_for_life in any property for which a deduction was allowed under sec_2056 is treated as a transfer by the surviving_spouse of all interests in the property other than the qualifying_income interest the transfer of the qualifying_income interest is a transfer subject_to gift_tax under sec_2511 disposition of all or part of a qualifying_income_interest_for_life in any property for which a deduction was allowed under sec_2056 the donee spouse is treated for purposes of chapter sec_11 and sec_12 of subtitle b of the code as transferring all interests in property other than the qualifying_income interest if the donee spouse makes a disposition of part of a qualifying_income_interest_for_life in trust corpus the spouse is treated under sec_2519 as making a transfer subject_to chapter sec_11 and sec_12 of the entire trust other than the qualifying_income_interest_for_life therefore the donee spouse is treated as making a gift under sec_2519 of the entire trust less the qualifying_income interest and is treated for purposes of sec_2036 as having transferred the entire trust corpus including that portion of the trust corpus from which the retained income_interest is payable a transfer of all or a portion of the income_interest of the spouse is a transfer by the spouse under sec_2511 sec_2519 upon a disposition of all or part of a qualifying_income_interest_for_life in qualified_terminable_interest_property is equal to the fair_market_value of the entire property subject_to the qualifying_income interest determined on the date of the disposition including any accumulated income and not reduced by any amount excluded from total gifts under sec_2503 with respect to the transfer creating the interest less the value of the qualifying_income interest in the property on the date of the disposition the gift_tax consequences of the disposition of the qualifying_income interest are determined separately under sec_25_2511-2 sec_25_2519-1 is further reduced by the amount of gift_tax the donee spouse is entitled to recover under sec_2207a if the donee spouse is entitled to recover gift_tax under sec_2207a the amount_of_the_gift tax recoverable and the value of the remainder_interest treated as transferred under sec_2519 are determined by using the same sec_25_2519-1 provides that the amount treated as a transfer under sec_25_2519-1 provides that the amount treated as a transfer under revrul_75_72 1975_1_cb_310 holds that if at the time of the transfer a gift is plr-136787-06 interrelated computation applicable for other transfers in which the transferee assumes the gift_tax liability the gift_tax consequences of failing to exercise the right of recovery are determined separately under sec_25_2207a-1 made subject_to a condition that the gift_tax is to be paid_by the donee or out of the transferred property then the donor receives consideration for the transfer in the amount_of_the_gift tax to be paid_by the donee thus under sec_2512 the value_of_the_gift is the fair_market_value of the property passing from the donor less the amount_of_the_gift tax to be paid_by the donee or from the property itself revrul_81_223 1981_2_cb_189 holds that in determining the amount_of_the_gift tax_liability that is to be subtracted from the value of the transferred property the donor’s available unified_credit must be used to reduce the gift_tax liability that the donee has assumed to the extent the unified_credit is available the assets of trust a qualify under sec_2056 and grantor’s estate elected to treat the assets as qtip on grantor’s estate_tax_return spouse intends to disclaim her entire_interest in trust a accordingly under sec_2519 spouse will be deemed to have made a transfer of all of trust a’s assets other than her qualifying_income interest spouse is treated as making a gift under sec_2519 of the fair_market_value of trust a determined on the date of disposition including any accumulated income and not reduced by any amount excluded from total gifts under sec_2503 with respect to the transfer creating the interest reduced by the value of spouse’s qualified income_interest and further reduced by the amount spouse is entitled to recover under sec_2207a the amount_of_the_gift tax recoverable and the value of the remainder_interest treated as transferred under sec_2519 are determined by using the same interrelated computation applicable for other transfers in which the transferee assumes the gift_tax liability the transfer of spouse’s income_interest in trust a resulting from the disclaimer is a transfer by spouse under sec_2511 the amount_of_the_gift will be the value of spouse’s qualified income_interest on the date of disposition after spouse disclaims her entire_interest in trust a no portion of the trust a assets that are deemed transferred under sec_2519 will be included in spouse’s gross_estate pursuant to sec_2044 ruling date except as otherwise provided in paragraph b and sec_25_7520-3 relating to exceptions to the use of prescribed tables under certain circumstances if the valuation_date for the gift is after date the fair_market_value of annuities life estates terms of years remainders and reversions transferred after date is the present_value of such interests determined under sec_25_2512-5 and by use of the standard or special sec_7520 actuarial factors sec_25_2512-5 provides that with respect to actuarial valuations after sec_25_7520-3 provides that an ordinary remainder or based upon the representations made and information submitted a standard plr-136787-06 sec_25_7520-3 provides that an ordinary_income interest is the right to receive the income from or the use of property during one or more measuring lives or for some other defined period a standard sec_7520 income factor for an ordinary_income interest represents the present worth of the right to receive the use of dollar_figure for a defined period using the interest rate prescribed under sec_7520 for the appropriate_month reversionary_interest is the right to receive an interest in property at the end of one or more measuring lives or some other defined period a standard sec_7520 remainder factor for an ordinary remainder or reversionary_interest represents the present worth of the right to receive dollar_figure at the end of a defined period using the interest rate prescribed under sec_7520 for the appropriate_month sec_7520 income factor and a standard sec_7520 remainder factor respectively should be used to determine the value of the disclaimed income_interest and the value of the remainder_interest ruling indebtedness property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in ' for determining gain and the loss shall be the excess of the adjusted_basis provided in ' for determining loss over the amount_realized the supreme court in 457_us_191 held that in a net_gift situation where a donor makes a gift of property on condition that the donee pay the resulting gift_taxes the donor realizes taxable_income to the extent that the gift_taxes paid_by the donee exceed the donor's adjusted_basis in the property a net_gift transfer is treated as if the donor sells the property for less than fair_market_value the sale price is the amount_of_the_gift tax paid_by the donee and the remaining value of the property is treated as a gift the donor’s gain is equal to the excess of the gift_tax liability over the donor’s adjusted_basis in the property spouse intends to recover the gift_tax paid under sec_2207a relating to the deemed transfer of spouse’s remainder_interest in trust a pursuant to sec_2519 based upon the information submitted and the representations made spouse’s basis in the disclaimed property is equal to or greater than the gift_tax recovered from grantor’s children accordingly spouse will not be liable for income_tax as a result of the disclaimer sec_61 provides that gross_income includes income from discharge of sec_1001 provides that the gain from the sale_or_other_disposition of plr-136787-06 ruling sec_1015 provides that with respect to property acquired by gift after date the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift except that if such basis adjusted for the period before the date of the gift as provided in sec_1016 is greater than the fair_market_value of the property at the time of the gift then for the purpose of determining loss the basis shall be such fair_market_value if the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee the secretary shall if possible obtain such facts from such donor or last preceding owner or any other person cognizant thereof if the secretary finds it impossible to obtain such facts the basis in the hands of the donor or last preceding owner shall be the fair_market_value of the property as found by the secretary as of the date or approximate date at which according to the best information that the secretary is able to obtain the property was acquired by the donor or last preceding owner sec_1015 provides that if property is acquired by a transfer in trust other than a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer sec_1015 provides that with respect to property acquired by gift after date the basis shall be the basis determined under subsection a increased but not above the fair_market_value of the property at the time of the gift by the amount of gift_tax paid with respect to the gift and in part a gift the unadjusted_basis of the property in the hands of the transferee is the sum of whichever of the following is the greater i the amount_paid by the transferee for the property or ii the transferor’s adjusted_basis for the property at the time of the transfer and the amount of increase if any in basis authorized by sec_1015 for gift_tax paid case the basis of the trust a assets exceed their fair_market_value accordingly the basis of the trust a assets is not increased under sec_1015 and for the purpose of determining gain the basis of the trust a assets in the hands of the persons receiving the property will be the same as the basis of the trust a assets at the time of transfer for the purpose of determining loss the basis of the trust a assets is limited to the fair_market_value of those assets at the time spouse disclaims her interest based upon the information submitted and representations made in the present sec_1_1015-4 provides that where a transfer of property is in part a sale the rulings contained in this letter are based upon information and except as expressly provided herein no opinion is expressed or implied plr-136787-06 concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 being sent your attorney provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer s requesting it sec_6110 sincerely melissa c liquerman melissa c liquerman senior technician reviewer branch passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index numbers ----------------- ------------------------------------ ------------------------------------------------ ------------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number -------------------- refer reply to cc corp b02 plr-131480-08 date date legend parent sub sub sub ---------------------------------- ------------------------------- ---------------------- - ----------------------- ------------------------------- ---------------------- ----------------------- ------------------------------- ---------------------- ------------------------------------------------- ------------------------------- ---------------------- state a ------------- accounting firm -------------------------- date date ------------------ ------------------- plr-131480-08 date date date dear ---------------- -------------------------- --------------------- --------------------------- this letter responds to your date letter requesting that the commissioner make a determination under sec_1_1502-75 of the income_tax regulations the regulations that sub sub and sub collectively the subsidiary corporations have joined in the filing of a consolidated federal_income_tax return filed by parent for the taxable_year ending on date the information submitted in that request and in later correspondence is summarized below facts parent is a state a corporation incorporated on date it is a calendar_year taxpayer that uses the accrual_method of accounting immediately after its formation parent formed a wholly-owned transitory merger subsidiary specifically for the purpose of effectuating parent’s cash acquisition of of the stock of sub from an unrelated party sub was formerly the common parent of an affiliated_group_of_corporations the old consolidated_group that joined in the filing of a consolidated federal_income_tax return the old consolidated_group comprised of the subsidiary corporations was a calendar_year taxpayer that used the accrual_method of accounting on date a series of transactions resulted in parent acquiring all of the outstanding shares of sub the acquisition transaction sub filed a short_year final tax_return as the common parent of the old consolidated_group parent retained accounting firm to prepare its consolidated federal_income_tax return accounting firm understood that that parent and the subsidiary corporations intended to file a consolidated federal_income_tax return for the taxable_year ending on date parent timely filed a form_7004 application_for automatic_extension of time to file corporation income_tax return on date a date prior to the due_date of parent’s initial consolidated federal_income_tax return parent’s form_1120 was prepared by accounting firm including a form_851 affiliations schedule identifying and including parent sub and sub but inadvertently failing to include sub additionally accounting firm inadvertently failed to file any forms authorization and consent of subsidiary_corporation to be included in a consolidated_return parent’s form_1120 was timely filed on date a plr-131480-08 date prior to the extended due_date for the taxable_year ending on date the statute_of_limitations under sec_6501 of the internal_revenue_code the code has not expired for tax returns filed for the taxable_year ending on date representations parent has made the following representations except for the failure to timely file forms parent sub sub and sub were eligible to file a consolidated federal_income_tax return with parent as the common parent for the taxable_year ending on date for the taxable_year ending on date and for all taxable years thereafter all of the income and deductions of parent and each of the subsidiary corporations for the portion of the taxable_year during which each corporation was an affiliated_corporation of parent were included in the federal_income_tax return filed by parent none of the subsidiary corporations filed a separate_income tax_return for the taxable_year ending on date or for any taxable_year thereafter sub and sub each was included on the form_851 attached to parent’s return for the taxable_year ending on date and for all taxable years thereafter applicable law sec_1_1502-75 of the regulations provides in part that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member during any part of the taxable_year for which the consolidated_return is to be filed consents pursuant to sec_1_1502-75 to the regulations issued under sec_1502 of the code in order to exercise the privilege of filing a consolidated_return such return must be filed by an affiliated_group not later than the last day prescribed by law including extensions for the filing of the common parent's tax_return with regard to a group’s first consolidated_year sec_1_1502-75 provides that a corporation’s consent shall be made by such corporation joining in the making of the consolidated_return for such year a corporation shall be deemed to have joined in the making of a consolidated_return if it files a form_1122 in the manner specified in sec_1_1502-75 sec_1_1502-75 provides that if a group wishes to file a consolidated_return then a form_1122 must be executed by each subsidiary for taxable years relevant to this case the group must attach to the consolidated_return for the taxable_year either the executed forms or the unsigned copies of the completed forms plr-131480-08 and retain the signed originals in its records in the manner required by sec_1 e form_1122 is not required for a taxable_year if a consolidated_return was filed or was required to be filed by the group for the immediately preceding tax_year sec_1_1502-75 provides that the consolidated_return shall be made on form_1120 for the group by the common parent_corporation the consolidated_return with form_851 attached shall be filed with the district_director with whom the common parent would have filed a separate_return sec_1_1502-75 provides that if a member of the group fails to file form_1122 the commissioner may under the facts and circumstances determine that such member has nevertheless joined in the making of a consolidated_return by such group the circumstances among others that will be taken into account in making this determination include i whether or not the income and deductions of the member were included in the consolidated_return ii whether or not a separate_return was filed by the member for that taxable_year and iii whether or not the member was included in the affiliations schedule form_851 if the commissioner determines under the facts and circumstances presented that the member has joined in the making of the consolidated_return such member shall be treated as if it had filed a form_1122 for such year for purposes of sec_1_1502-75 sec_1_1502-75 provides that if any member has failed to join in the making of a consolidated_return under either sec_1_1502-75 or b then the tax_liability of each member of the group shall be determined on the basis of separate returns unless the common parent_corporation establishes to the commissioner’s satisfaction that the failure of such member to join in the making of the consolidated_return was due to a mistake of law or fact or due to inadvertence in such case such member shall be treated as if it had filed a form_1122 for such year for purposes of sec_1_1502-75 and thus joined in the making of the consolidated_year for such year ruling based solely on the information submitted and representations made we rule that for purposes of sec_1_1502-75 sub sub and sub each shall be treated as if it had filed a form_1122 with parent’s consolidated federal_income_tax return for the taxable_year ending on date and thus joined in the making of the consolidated_return for such year sec_1_1502-75 within days of the date of this letter parent shall file amended returns for the initial short tax_year and all subsequent years necessary to include sub on parent’s form_851 caveats plr-131480-08 no opinion is expressed or implied about the tax treatment of any other aspect of any transaction or item discussed or referenced in this letter or about the tax treatment of any condition existing at the time of or effects resulting from any transaction or item that is not specifically covered by the above ruling 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 this office has not verified any of the materials submitted in support of the taxpayer’s ruling_request verification of this material may be required as part of the audit process procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter must be attached to each federal_income_tax return to which it is relevant alternatively if parent files its returns electronically this requirement may be satisfied by attaching a statement to the return that provides the date and the control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ___________________________ alison g burns branch chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-155231-02 date date x a properties b i j l m state d1 d2 d3 d4 dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling that x’s rental income from the properties is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code plr-155231-02 facts x was incorporated under the laws of state on d1 x elected to be treated as an s_corporation effective d2 x has accumulated subchapter_c_earnings_and_profits x owns leases and manages a commercial rental properties the properties to various tenants x represents that it spends approximately b hours per year providing services with respect to the properties through x’s employees and independent contractors x provides the following services with respect to the leasing of its properties inspects the properties on a periodic basis handles tenant disputes oversees tenant improvements purchases equipment maintains common areas provides janitorial and cleaning services removes trash and hazardous materials provides security services contracts for heat water and other utilities and provides marketing and advertisement services x also handles the usual leasing and administrative functions involved in managing real_estate x received or accrued approximately i in rents and paid_or_incurred l in relevant expenses for taxable_year ending d3 for taxable_year ending d4 x received or accrued approximately j in rents and paid_or_incurred m in relevant expenses law and analysis sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation plr-155231-02 conclusion based solely on the facts submitted and representations made we conclude that the rental income x receives from the properties is not passive_investment_income under sec_1362 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 internal_revenue_code specifically we express or imply no opinion on whether x is an s_corporation further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 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 we are sending a copy of this letter to your authorized representative sincerely yours mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes