im ae is s department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas release number release date pet sal org organization name address address xx date org address date date taxpayer_identification_number person to contact employee identification_number employee telephone number fi last date to file a petition in tax_court may 20xx certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated january 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes org fails to meet the operational_test the foundation promotes and advertises the private_foundation for non-exempt purposes org sole purpose is to attract business for the inn and restaurant the pf property is exclusively devoted to private interest the public benefits are incidental to the benefits received by co-1 the private_foundation is used to generate income for co-1 all income generated from private events inure to the benefit of the for profit business a charitable_organization is an organization whose primary activities are for the benefit of the general_public org specific purpose for which it is organized to educate and inspire individuals particularly the young about exotic and tropical ecosystems and their preservation has failed to materialize an organization fails to qualify for exemption under sec_501 c when they promote the private interest of a for profit business contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments 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 under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the ' day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also 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 see the enclosed notice taxpayer_advocate_service - your voice at the irs for taxpayer_advocate telephone numbers and addresses you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing acting director eo examinations enclosures publication publication tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service exempt_organizations examinations sw 6th court stop plantation florida date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position 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 the examination process and publication exempt_organizations appeal procedures for unagreed issues 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 you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code 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 the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely sunita lough director eo examinations letter catalog number 34809f form 886-a rev date name of taxpayer org schedule number or exhibit explanations of items a tax identification_number year period ended december 20xx legend org organization name xx date secretary president president emp-1 emp address address city city state state chairman chairman sect co-1 co-2 companies issues whether org is operated exclusively for purposes described in sec_501 of the internal_revenue_code more specifically charitable and educational_purposes are the educational activities conducted substantial in nature to be its primary activities whether private benefit exists by providing unlimited use and access to org by a private business to generate income background facts on september 19xx org filed original articles of incorporation with the state of state org is a private_foundation exempt under sec_501 the articles of incorporation provided that its purpose was in part to receive moneys and disburse them exclusively for charitable scientific literary or educational_purposes including the encouragement of art and the preservation of the environment the specific purpose for which org is organized is to educate and inspire individuals particularly the young about exotic and tropical ecosystems and their preservation to accomplish this purpose the corporation will create one or more botanical gardens of museum quality org submitted its form_1023 application_for recognition of exemption to the internal_revenue_service on december 19xx the following individuals are listed as current org directors names president president chariman chairman sect secretary treasurer org - overview and activities org is located at address city state the org is an acre of dense tropical gardens with over imported species of plants as african palms chestnut trees bay rum form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a cen dainty name of taxpayer org schedule number or exhibit explanations of items tax identification_number year period ended december 20xx plants allspice trees exotic fruits bamboos flowers and many more exotic plants org has footbridges leading to streams waterfalls and fresh water swimming ponds filled with tropical fish there are also gazebos and benches blended in throughout the garden with rare bamboos with asian sculptures rare bird’s and imported exotic fish the garden was designed by owner chairman an environmentalist and entrepreneur org is joined by co-1 a stylish boutique hotel a private business co-1 is a small resort a tropical jungle getaway the inn features luxury accommodations tucked away in org the inn has eleven guest rooms with balconies that over look org it also features a four-star restaurant with outdoor a bar and dinning overlooking org the principal attraction to co-1 is org which is featured as apart of the inn in travel literatures articles describe co-1's as having self-sustaining swimming pond the pond is akin to swimming in a large aquarium bathers are joined by a diverse fish habitat the pond is strictly limited to co-1 guest co-1 is listed in the national register of historical places as a historic landmark it’s the oldest house in city dating back to 19xx the gardens land is leased at no charge from co-2 org is funded exclusively by co- inn as a benefit of having access to org to enhance and attract business org receives dollar_figure annually in rent co-1 manages control and directs all activities carried on at org maintaining and beautifying the gardens as desired by co-1 is a significant private benefit the use of the garden to generate income from weddings bar mitzvahs ceremonies’ and other special events also is a private benefit to co-1 the gardens are regularly used for these social events org is open free of charge to the public the grounds supervisor gives tours and is responsible for general daily maintenance he is an employee of co-1 tours are offered four days a week guided tours can be pre-arranged by small groups visitors are allowed to wander through the garden freely tour guide emp-1 explained that most tours are given during cooler months not summer schools in city do not visit frequently due to the cost and budget cuts garden clubs and hotel guest visit the gardens regularly co-1 co-2 is owned by chairman he is a disqualified_person due to his substantial contributions he has contributed over one million dollars since org inception future plans are to expand the gardens and lodgings org is tucked away behind thick hedges off the main street you would never know it was there from the streets it appears to be a private business co-1 and org are inseparable on the property org have an entrance gate with a sign inviting the public org does not advertise to the public the general_public is for the most part unaware born 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a cregealsmuiaiy name of taxpayer org explanations of items tax identification_number year period ended december 20xx org exist no effort is made to advise the general_public of the gardens through publicity or advertisements law sec_501 of the code provides for the exemption of organizations that are organized and operated exclusively for charitable or educational_purposes as long as no part of the net_earnings inure to the benefit of any private shareholder or individuals sec_1 c -1 d i of the code provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization referred to in this section as its articles’ as defined in subparagraph of this paragraph a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages sec_1 c -1 c of the income_tax regulations states that an organization is not organized exclusively for exempt purposes if its net_earnings inure in whole or in part to the benefit of any private shareholder or individuals sec_1 a -1 c of the regulations states that the words private shareholder or individuals refer to persons having a personal or private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations states that an organization is not organized exclusively for exempt purposes unless it serves a public rather than private interest and that 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 or persons controlled directly or indirectly by such private interest revrul_74_600 states that where the placing of foundation paintings in the residence of a disqualified_person was held to be self-dealing sculptures are outside and the paintings were inside does not change the fact that each situation results in a significant benefit to the disqualified persons from the use of the the fact that the porn ss6-a catalog number 10w page publish no irs gov department of the treasury-internal revenue service form 886-a bea romy explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended december 20xx org foundation’s assets with the limited use by others this benefit to disqualified persons cannot be considered to be incidental or tenuous therefore the placing of a foundation's assets on the grounds of a disqualified person’s property is self-dealing within the meaning of sec_4941 of the code is the service’s position that org primarily benefits the interest of co-1 a for profit government’s position it business the garden is used to promote the business and its assets to generate income for restaurant and inn co-1 advertises org as its principal attraction the advertisement is aimed toward inn and restaurant patrons only co-1 controls org by leasing the garden co-1 determines the activities carried on and derives substantial income from a private_foundation access to org bestows substantial non-exempt private benefits on a for profit business more so than public benefits an organization does not qualify under sec_501 if organization that is not exempt under sec_501 the private_foundation appears to be organized exclusively to enhance and generate income for a non-exempt entity the lease payments paid to the private_foundation although used for maintenance and repairs provides substantial benefits for the inn and restaurant it serves substantial private interest of an in furtherance of co-1 business_purpose which is to generate income the the serene atmosphere of org helps attract customers and businesses to co-1 that would otherwise not be there the advertising and promotion of org as apart of co-1 is foundation’s assets help to generate business for the inn and restaurant the foundation’s educational activity to the public specifically children and youth about the environment is insubstantial conclusion based on the examination its’ the irs's position that org fails to meet the operational_test the foundation promotes and advertises the private_foundation for non-exempt purposes org sole purpose is to attract business for the inn and restaurant the pf property is exclusively devoted private interest the public benefits are incidental to the benefits received by co-1 the private_foundation is used to generate income for co- a charitable_organization is an organization whose primary activities are for the benefits of the general_public org specific purpose for which it is organized to educate and inspire individuals particularly the young about exotic and tropical ecosystems and their preservation has failed to materialize an organization fails to qualify for exemption under sec_501 c when they promote the private interest of a for profit business all income generated from private events inure to the benefit of for profit business born 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service december 20xx schedule number or exhibit explanations of items form 886-a rev date ‘name of taxpayer tax identification_number year period ended org - it is recommended that the service’s letter to org dated january 20xx that recognizes exemption from federal_income_tax under sec_501 be revoke effective january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


internal_revenue_service number release date index number ---------------- - ------------- ------------------------------------------ -------------------------- re --------------------------------- 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 plr-101785-15 date date legend husband wife child child child accountant accountant financial advisor attorney trust trust trust trust trust partnership partnership partnership date year year year year year year year year year year state ------------------------------------------------ -------------------------------------------- --------------------- ---------------------- ------------------ -------------------------- ---------------------------- --------------------- ----------------------- --------------------------------------------- --------------------------------------------- ------------------------------------------ ----------------------------------------------- ------------------------------------------------------ ---------------------------------------------- ----------------------------------------- -------------------------------------------- ---------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------- plr-101785-15 dear --------------- this letter responds to your authorized representative’s letter dated date and subsequent correspondence requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate husband and wife’s generation-skipping_transfer gst tax exemptions to certain transfers to trusts and rulings that the automatic allocation rules of sec_2632 and e apply to certain transfers to trusts facts the facts and representations submitted are summarized as follows husband and wife live in a community_property_state state on date in year a date prior to date husband and wife executed three irrevocable trusts trust trust and trust children’s trusts for the lifetime benefit of child child and child respectively each trust provides that during the grantor’s life the trustee shall distribute to the child so much of the income or principal of the trust as the trustee deems reasonably required for his or her maintenance and support in health and reasonable comfort if a child predeceases one of the grantors the remaining assets in his or her trust are held for the benefit of that child’s descendants if the child beneficiary survives the last to die of husband and wife then in addition to a continued right to receive the discretionary distributions of income and principal during his lifetime the child shall have a testamentary limited_power_of_appointment over the trust assets if the child fails to exercise his power_of_appointment the trust assets shall pass to the child’s then living issue and if none to grantor’s then living issue on date husband and wife also formed three partnerships partnership partnership and partnership in year husband and wife transferred units in partnership and partnership to trust and trust and units in partnership and partnership to trust husband and wife each reported his or her respective portion of the year transfers on timely filed form sec_709 united_states gift and generation-skipping_transfer_tax return husband and wife retained accountant to prepare their year form sec_709 husband and wife intended to allocate their gst_exemption to the year transfers however accountant failed to allocate husband’s and wife’s gst_exemption to the year transfers in year husband died husband’s will created and funded trust trust provides that if wife survives husband the trustee shall distribute to wife for her life so much of the income and principal of the trust as the trustee deems reasonably required for her maintenance and support in health and reasonable comfort upon wife’s death the trustee is to distribute the remaining principal and accumulated income to the plr-101785-15 children’s trusts as specified in trust wife as the executor of husband’s estate timely filed a form_706 united_states estate and generation-skipping_transfer_tax return wife retained accountant to prepare husband’s form_706 husband intended to allocate his gst_exemption to the transfer to trust however accountant failed to allocate husband’s gst_exemption to the transfer to trust in year a year prior to date wife created and funded trust an irrevocable_trust trust provides that the trustee shall divide the principal of trust and any accumulated income or additions to trust into three equal funds -- one fund to benefit each of child child and child during wife's lifetime the fund established for a child is to be held for the benefit of that child and his or her children upon wife’s death each fund in trust is to be distributed to the appropriate children’s trust wife did not file a form_709 to report the year transfer to trust and accordingly she did not allocate her gst_exemption to this transfer in year a year prior to date wife transferred units in partnership to trust wife did not file a timely form_709 to report the year transfer to trust and accordingly she did not allocate her gst_exemption to this transfer in year wife filed a form_709 to report the year transfer to trust however she did not make a late allocation of her gst_exemption to this transfer in year sec_4 through years prior to date wife made cash gifts to trust wife did not file a form_709 to report the year sec_4 or transfers to trust and accordingly she did not allocate her gst_exemption to these transfers in year a year after date wife made an additional cash gift to trust wife did not file a form_709 to report this transfer to trust and accordingly she did not allocate her gst_exemption to this transfer in year a year after date wife transferred units in partnership to trust wife timely filed a form_709 to report this transfer to trust however she did not allocate her gst_exemption to this transfer wife relied upon financial advisor attorney and accountant to advise her regarding the filing of form sec_709 for year sec_2 through for the transfers to trust and trust financial advisor and attorney relied upon accountant to prepare wife’s form sec_709 for year sec_2 through and to properly allocate wife’s gst_exemption to these transfers wife intended to allocate her gst_exemption to these transfers however accountant failed to prepare the form sec_709 for wife for these years it is represented that husband and wife have sufficient gst_exemption to allocate to the year through year transfers rulings requested plr-101785-15 wife requests an extension of time to allocate her gst_exemption to the year transfers to the children’s trusts to the year transfer to trust and to the year and year sec_4 through transfers to trust these allocations are effective on the date of the transfers and are based on the value of the transferred property as finally determined for purposes of chapter wife as executor of husband’s estate requests an extension of time to allocate husband’s gst_exemption to the year transfers to the children’s trusts these allocations are effective on the date of the transfers and are based on the value of the transferred property as finally determined for purposes of chapter husband’s gst_exemption was automatically allocated under sec_2632 to the year transfer to trust wife’s gst_exemption was automatically allocated under sec_2632 to the year transfer to trust and the year transfer to trust law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2631 as in effect for the tax years at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under plr-101785-15 sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_2632 is effective for transfers subject_to chapter or made after date and in this case years and sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust sec_2632 provides that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the trust is described in sec_2632 through vi sec_2632 provides that any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated first to property which is the subject of a direct_skip occurring at such individual’s death and second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death sec_26_2632-1 provides in relevant part that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing form_706 or form_706 na to the extent not otherwise allocated by the decedent’s executor on or before that date the automatic allocation occurs whether or not a return is actually required to be filed unused gst_exemption is allocated pro_rata subject_to the rules of sec_26 b on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the chapter value of the nonexempt_portion of the trust property or in the case of trusts that are not included in the gross_estate on the basis of the date of death value of the trust to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made plr-101785-15 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2632 shall be its value as finally determined for purposes of chapter and such allocation shall be effective on and after the date of such transfer and if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2632 shall be its value as finally determined for purposes of chapter and such allocation shall be effective on and after the due_date of the death of the transferor sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 plr-101785-15 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 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 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly wife is granted an extension of time of days from the date of this letter to allocate wife’s gst_exemption to the year transfers to children’s trusts to the year transfer to trust and to the year and year sec_4 through transfers to trust wife as executor of husband’s estate is granted an extension of time to allocate husband’s gst_exemption to the year transfers to children’s trusts these allocations are effective on the date of the transfer and are based on the value of the transferred property as finally determined for purposes of chapter based on the facts submitted and the representations made we rule that husband’s gst_exemption was automatically allocated to the transfer to trust on the due_date for filing form_706 for husband’s estate further we rule that wife’s gst_exemption was automatically allocated to the year transfer to trust and the year transfer to trust on the date of the transfers wife allocations of gst_exemption should be made on supplemental form sec_709 for year and year and on original form sec_709 filed for year and year sec_4 through husband’s allocations of gst_exemption should be made on a supplemental form_709 for year the supplemental and original returns should be filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each supplemental and original return a copy of this letter is enclosed for this purpose 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 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-101785-15 the ruling contained in this letter is based upon information and representations submitted by the taxpayers 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_ruling it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries _______________________________ lorraine e gardner senior counsel 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 washington d c tax_exempt_and_government_entities_division date jun contact person identification_number contact telephone te0 bq uil codes legend p q r dear this is in response to the request for rulings on the consequences of a re- organization involving three corporations the transactions are described in detail below q was incorporated to construct own and operate a senior living community the internal_revenue_service irs issued a ruling letter recognizing it as exempt from federal_income_tax as an organization described in sec_501 of the internal_revenue_code the code q has continued to own and operate the senior living center consisting of independent living units assisted living units and a skilled nursing facility q’s business is managed by a thirteen-member board_of directors all of whom are volunteer community leaders the apartments that comprise the independent living section are located in two apartment buildings connected to a central building that houses various common areas including a living room dining room kitchen lounges recreation rooms and administrative offices the assisted living portion consists of apartments and associated special common areas in a separate building also connected to the central building the nursing home facility contains intermediate and skilled nursing beds and its own common areas altogether this facility provides for the varying levels of care that elderly residents may need it addresses the physical social psychological and emotional needs of the elderly and includes many features such as lever hardware emergency call response systems monitored hours per day special bathing facilities and front control appliances that accommodate the physical limitations of the elderly the buildings meet the building codes of the americans with disabilities act and the health and life safety codes of the state the health needs of the residents of the independent living units are addressed in a number of ways the residency agreement contains a contractual obligation to provide life care services if necessary the facility also conducts a number of wellness and preventive health maintenance programs its residents have access to transportation services for medical appointments on site vaccination clinics and accommodations for special diets extensive support from the nursing facility and staff is available to independent living residents who need it temporarily a recent market study conducted by an independent consultant shows that q’s independent living facility an expansion of which was under consideration is affordable to of the households with residents age or over in its primary market area the residency agreement contains a commitment to maintaining in residence those who become unable to pay to the extent financially feasible applications are considered without regard to marital status race sex creed or national origin over the past few years q states that it has encountered increasing difficulty in procuring professional liability insurance and umbrella insurance in suitable amounts at a reasonable cost insurance carriers have refused to submit separate quotes for different types of coverage to multiple facilities operated by a single corporation q states that from a regulatory compliance perspective it makes sense to separate the assisted living and nursing home operations which are regulated by state and federal authorities and thus operate in a very different business environment from the independent living portion which is not regulated by the state furthermore reorganization could allow flexibility for new business ventures such as a new senior living center or a drop-in senior day care center such new ventures could be pursued without creating risk for the existing facilities therefore q decided to reorganize its corporate structure into three affiliated corporations a new nonprofit corporation p has been organized to act as the parent and sole member of both the original entity q and another new exempt_organization r which will operate the assisted living and nursing home facilities the two new organizations have been recognized as exempt under sec_501 of the code the board_of directors of q will also be elected and will serve as the directors of all three organizations the bylaws of the three affiliated corporations authorize joint meetings but require that actions taken in the name of each corporation be done separately and reflected in the separate minutes maintained for each corporation r will lease the facility real and personal_property and equipment from q q will also provide administrative services under contract to r the three organizations have requested the following rulings regarding the reorganization q will continue to be recognized as an organization exempt from federal_income_tax under sec_501 a of the code as an organization described in sec_501 and not a private_foundation under sec_509 r will continue to be recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and not a private_foundation by reason of being an organization whose principal source of financial support will be payments for exempt services as described in sec_509 p will continue to be recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and not a private_foundation by reason of being a supporting_organization described in sec_509 transfers of payments from q to either p to provide initial capitalization organizational_expenses and allocated operational expenses or to r upon implementation of the reorganization will constitute unusual grants within the meaning of sec_1_509_a_-3 and of the regulations therefore the transfers shall be excluded for the purposes of applying the support tests described in sec_509 of the code to r insofar as applicable q's provision of management administrative and support services to r substantially at cost will not constitute unrelated_trade_or_business and compensation_for it will not constitute unrelated_business_taxable_income to q rental payments under the lease of facilities and equipment to r will not constitute unrelated_business_taxable_income to q under sec_512 of the code or be treated as income from debt-financed_property taxable as unrelated_business_taxable_income to q under sec_514 all three corporations will continue to qualify as organizations described in sec_501 and sec_509 of the code to which contributions are deductible as provided in sec_170 sec_501 of the code recognizes as exempt from federal_income_tax entities that are organized and operated exclusively for charitable purposes no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual sec_509 of the code defines private_foundation as an organization described in sec_501 other than organizations that demonstrate public support in specific ways sec_509 of the code excludes from the definition of private_foundation organizations that normally receive more than one-third of their support from any combination of i gifts grants contributions and membership fees ii gross_receipts from admissions sales performance of services or furnishing of facilities and normally receives not more than one-third of its support in each taxable_year from gross_investment_income and unrelated_business_income sec_511 of the code imposes a tax on the unrelated_business_taxable_income defined in sec_512 of organizations described in sec_501 sec_512 of the code provides that the term unrelated_business_taxable_income means the gross_income derived from any unrelated_trade_or_business which it carries on regularly sec_512 of the code excludes from unrelated_business_taxable_income rents_from_real_property sec_513 of the code defines the term unrelated_trade_or_business as one that is not substantially related to the exercise or performance by an organization of its charitable purpose or function constituting the basis for its exemption sec_514 of the code requires that with respect to each debt-financed_property a proportion of the income derived from an unrelated_trade_or_business be included in gross_income sec_514 of the code excludes from the term debt-financed_property the income from which must otherwise be included in gross_income property that is substantially related to the exercise or performance of the organization's charitable function sec_1_170a-9 of the income_tax regulations permits the exclusion of unusual grants from the analysis of support to determine whether an organization is -5- publicly supported no single factor is determinative but the service may consider factors similar to those listed in sec_1_509_a_-3 among those listed as favorable factors are grants that are purpose of the organization whether the organization may reasonably be expected to attract a significant amount of public support subsequent to the particular contribution and whether the organization has a representative governing body in the form of assets which further the exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities are not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not organized and operated exclusively for exempt purposes unless it serves a public rather than a private interest sec_1_501_c_3_-1 of the regulations states that an organization exempt under sec_501 of the code may operate a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt purposes exemption will be denied to an organization that is organized or operated for the primary purpose of carrying on an unrelated_trade_or_business sec_1_502-1 of the regulations explains that a subsidiary of a tax-exempt_organization that provides a service to the exempt_organization will not lose its exemption because as a matter of accounting between the two the subsidiary derives a profit however the subsidiary must not have a primary purpose of carrying_on_a_trade_or_business that would be an unrelated business if regularly carried on by the parent an example distinguishes between an organization that furnishes electric power for a parent university and furnishing electric power for several unrelated organizations sec_1_509_a_-3 of the regulations define unusual grants that may be excluded from the support calculation as those that are i attracted by the publicly supported nature of the organization ii are unusual or unexpected and iii would by reason of their size adversely affect the status of the organization as normally meeting the one-third support_test for any of the applicable periods described in sec_1_509_a_-3 d or e sec_1_509_a_-3 of the regulations provides that in determining whether a particular contribution may be excluded all pertinent facts and circumstances will be taken into account including a whether the contribution was made by a disqualified_person b whether the contribution was in the form of cash or assets which further the exempt purposes of the organization and c whether the organization may reasonably be expected to attract a significant amount of public support subsequent to the particular contribution sec_1_509_a_-4 of the regulations describes a supporting_organization that derives its exempt status from being supervised or controlled in connection with a publicly_supported_organization the control or management of the two organizations must be vested in the same persons sec_1_513-1 of the regulations state that a trade_or_business is related to exempt purposes only where the conduct of the business activities has causal relationship to the achievement of exempt purposes and it is substantially related for the purpose of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_1_513-1 provides that gross_income derived from charges for the performance of exempt functions does not constitute gross_income from the conduct of an unrelated_trade_or_business revrul_72_124 c b finds that operating a home for the elderly can be an exempt_purpose if it meets the needs of the elderly for housing health care and financial security revrul_79_18 c b elaborates on the provision of financial security by a retirement home it found that it was sufficient to meet the definition of charitable that a retirement home have a policy to maintain in residence those who can no longer afford to pay the full price and that the retirement home be reasonably available to a significant portion of the elderly in the community revrul_81_19 1981_1_cb_353 concerns an organization formed to support and assist a particular university by receiving contributions providing financial management to the academic departments and managing vending machines the university may operate vending facilities for the convenience of its students and faculty thus operating the vending facilities is part of the educational program and the organization was fulfilling its exempt_purpose of furthering the university’s educational program by performing for it various administrative functions including operating the vending machines the rev_rul pointed out that it the organization provided convenience items to another organization income would be subject_to unrelated business income_tax however performing the tasks for an affiliated entity is substantially related to the organization’s exempt_purpose in 70_tc_352 the court found that a corporation formed to provide consulting services was not exempt under sec_501 of the code because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit primary purpose was not charitable educational nor scientific but rather commercial its - the court explained that the corporation had completely failed to demonstrate that its services were not in competition with commercial businesses also the organization's financing did not resemble that of the typical organization described in sec_501 of the code it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation had failed to limit its clientele to organizations that were sec_501 exempt_organizations issue q the independent living home for the elderly will continue to be recognized as an organization described in sec_501 of the code because it meets the requirements of providing charitable housing for the elderly revrul_72_124 supra establishes the service position that the elderly comprise a separate charitable_class therefore housing for the elderly may be a charitable purpose even if the residents are not in financial distress charitable housing for the elderly must accommodate the special physical needs of the elderly and provide healthcare and financial security q has described a number of physical features designed to support and assist its elderly residents these include adaptations in the living units such as grab bars emergency call buttons and more convenient locations for appliances it has also integrated social recreational and physical support and activities within its facility to meet the health care concerns of the residents q provides a number of preventive and supportive programs such a sec_24 hour emergency access to the nurses transportation to medical appointments on-site wellness programs and access to the nursing facility for temporary conditions q has demonstrated that its facility is reasonably available to a significant portion of the elderly in the community from which most of its residents move q also has a policy of maintaining in residence people who lose the ability to pay the required fees to the best of its ability together these facts demonstrate that q provides a level of financial security to the elderly as required by revrul_79_18 supra q's primary activity of operating a housing facility for the elderly is closely related to its exempt_purpose sec_1_501_c_3_-1 of the regulations says that an exempt_organization may operate a business as a substantial part of its operations so long as it is in furtherance of the exempt_purpose of the organization issue the newly organized assisted living and nursing care entity r is recognized as an organization exempt from federal_income_tax under sec_501 a of the code as an organization described in sec_501 and is not a private_foundation by reason of being a home for the elderly and an organization whose principal source of financial support will be payments for exempt services provided as described in sec_509 in addition to being elderly the residents of this facility will all have some health problems and thus also be regarded as a charitable_class because of their physical distress both facilities expect to earn more than the required of their total support from fees and performance of services for related activities and to receive less than of their total support from investment_income and unrelated businesses issue the newly organized parent_corporation p is recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and is not a private_foundation by reason of being a supporting_organization described in sec_509 its governing documents restrict its purposes to benefiting two specified supported organizations and other such affiliated organizations addressing the housing healthcare psychological or social needs of senior citizens p’s activities consist of providing educational programs and other charitable activities to q and r as well as administrative management financial advisory and other services it will be operated solely as a supporting_organization by making payments to and providing services to the supported organizations p is supervised or controlled in connection with q and r as described by sec_1 a - h of the regulations the relationship described in this subsection is characterized by common supervision and control between the controlled and controlling organizations the governing instruments of q and r provide that the members of their boards will be identical to the board_of p this meets the requirement that the management of the supporting_organization be vested in the same persons that perform the function for the supported organizations the supporting_organization will be responsive to the needs of the publicly supported organizations and will clearly maintain a significant involvement in their operations finally p is not controlled directly or indirectly by disqualified persons issue transfers of payments from q to either p to provide initial capitalization organizational_expenses and allocated operational expenses or to r upon implementation of the reorganization will constitute unusual grants within the meaning of sec_1_509_a_-3 and of the regulations the grants are from related_organizations not from outside persons the transfers to r will consist of assets that further the exempt_purpose of the recipient this substantiates the claim that the grant is for a charitable purpose in addition r is expected to attract significant public gupport in the form of fees for services in the future it will not be dependent upon a repetition of the unusual grant the transfers to p are for specific start-up purposes which are not expected to recur therefore the transfers are excluded for the purposes of applying the support tests described in sec_509 of the code to p and r insofar as applicable - issue q’s provision of management administrative and support services to r substantially at cost will not constitute unrelated_trade_or_business the services are substantially related to the exempt purposes of both organizations and contribute directly and importantly to their accomplishment revrul_81_19 supra explains that services performed for affiliated organizations which would be exempt if performed by the recipient organization and which contribute importantly to the accomplishment of the exempt purposes are treated as related therefore compensation_for them will not constitute unrelated_business_taxable_income to q issue rental payments under the lease of facilities and equipment to r will not constitute unrelated_business_taxable_income to q under sec_512 of the code because the property is used to accomplish the exempt_purpose of an affiliated entity that is also closely connected to q and that furthers its exempt_purpose like the organization in the example used by sec_1_502-1 of the regulations and that in revrul_81_19 supra q will provide services and equipment to an organization that q supports and that furthers q’s exempt_purpose the situation in bsw group supra is different from this proposed transaction there the organization provided services to unrelated albeit exempt_organizations the recipients were not connected to bsw group and did not further its exempt_purpose however in this case the elderly persons served are often the same people at different stages of their lives the rent that q receives from leasing property to r will also be excluded from the definition of income from debt-financed_property taxable as unrelated_business_taxable_income to q under sec_514 because it is substantially related to q’s purpose issue for the reasons described above both q and r are recognized as exempt under sec_501 of the code and as public_charities under sec_509 therefore contributions to q and r will be deductible under sec_170 p is recognized as exempt under sec_501 as described in sec_509 and therefore contributions to it will also be deductible under sec_170 for these reasons based on the facts presented we rule as follows q will continue to be recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and not a private_foundation under sec_509 rwill continue to be recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and not a private_foundation by reason of being an organization whose principal source of financial support will be payments for exempt services provided as described in sec_509 p will continue to be recognized as an organization exempt from federal_income_tax under sec_501 of the code as an organization described in sec_501 and not a private_foundation by reason of being a supporting_organization described in sec_509 transfers of payments from q to either p to provide initial capitalization organizational_expenses and allocated operational expenses or to r upon implementation of the reorganization will constitute unusual grants within the meaning of sec_1_509_a_-3 and of the regulations therefore the transfers shall be excluded for the purposes of applying the support tests described in sec_509 of the code to r insofar as applicable q’s provision of management administrative and support services to r substantially at cost will not constitute unrelated_trade_or_business and compensation_for it will not constitute unrelated_business_taxable_income to q rental payments under the lease of facilities and equipment to r will not constitute unrelated_business_taxable_income to q under sec_512 of the code or be treated as income from debt-financed_property taxable as unrelated_business_taxable_income to q under sec_514 all three corporations will continue to qualify as organizations described in sec_501 and sec_509 of the code to which contributions are deductible as provided in sec_170 these rulings rely on the understanding that there will be no material changes in the facts upon which they are based any such change should be reported to the ohio tax exempt and government entities te_ge customer service office a copy of this ruling is being forwarded to the ohio te_ge customer service office this ruling is directed only to the organizations that requested it sec_6110 of the code provides that it may not be used or cited as precedent except as we have specifically ruled herein we express no opinion as to the consequences of these transactions under the cited provisions or under other provisions of the code we also express no opinion as to the future activities that p q and r intend to implement because this letter could help resolve any future questions about your income_tax responsibilities please keep a copy of this ruling in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely cha joseph chasin manager exempt_organizations technical group


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br1-plr-101594-99 date date ty legend a country b date c date d year e dear this is in response to the letter of date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a a former long-term_resident of the united_states within the meaning of sec_877 relinquished her u s lawful permanent resident status expatriated during the month ending on date c by returning her green card to a u s embassy or consulate in country b or a substantially_similar act a has been a citizen of country b during all of plr-101594-99 her life by reason of her birth on date d in country b a’s parents were also born in country b she became a permanent resident of the u s and obtained her green card during year e on the date of a’s expatriation her net_worth exceeded dollar_figure or her average annual tax_liability for the five-year period prior to expatriation exceeded dollar_figure sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed on u s source income as modified by sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because she is described in two categories of individuals eligible to submit ruling requests first on the date of a's expatriation a was and continues to be a resident fully liable to income_tax in country b the country where a was born second a is also eligible to submit a request because her parents were born in country b a submitted all the information required by notice_98_34 including any additional plr-101594-99 information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of tax_avoidance however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 a and a a based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her loss of permanent resident status or to tax periods after her loss of permanent resident status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely allen goldstein reviewer office of associate chief_counsel international


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-139013-10 number release date index uil no case-mis no ---------------------- lb i-nrc east taxpayer's name taxpayer's address taxpayer's identification no year s involved --------------------------------- ------------------------------------------------ ---------------------------- ---------------- --------------- legend taxpayer date letter date date date issues --------------------------------- ---------------------- ---------------------------------------------------- -------------------------- -------------------------- ---------------------- are costs paid_or_incurred for constructed and acquired carbon dioxide co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities qualified_tertiary_injectant_expenses under sec_193 of the internal_revenue_code the code if costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities are not qualified_tertiary_injectant_expenses under sec_193 does the taxpayer tam-139013-10 qualify for relief under sec_7805 from retroactive application of this technical_advice_memorandum tam conclusions costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities do not qualify as tertiary_injectant_expenses under sec_193 taxpayer’s request for relief under sec_7805 from retroactive application of this tam is granted as described below facts taxpayer is the parent of an affiliated_group of domestic corporations engaged in the business of oil_and_gas exploration development and production taxpayer owns and operates co2 and oil production and extraction facilities taxpayer purchases and develops mature oil properties with the intention of using tertiary recovery methods to extract additional oil from those properties taxpayer uses co2 injection as its primary tertiary_recovery_method taxpayer owns significant co2 reserves and also operates co2 producing wells production and dehydration facilities and gathering pipelines allowing taxpayer access to the quantities of co2 necessary for its tertiary oil production program taxpayer extracts co2 from its reservoirs gathers the co2 through its gathering pipelines processes the co2 at its production facilities and transports the co2 through its pipelines to its oil fields taxpayer compresses or pumps the co2 until it becomes a dense fluid and taxpayer then injects the co2 into an oil reservoir depending on the reservoir fluids and conditions such as temperature and pressure the co2 will act in either a miscible or immiscible process the co2 acts as a type of solvent for the oil causing it to expand and become mobile allowing it to move through the reservoir into the well and up to the surface where taxpayer recovers the oil along with the co2 construction costs paid_or_incurred by taxpayer include the costs of constructing co2 processing facilities including dehydration facilities and glycerol glycol recycling facilities co2 pipelines compression facilities oil processing facilities and co2 recovery and recycling facilities acquisition costs include costs to acquire existing co2 reservoirs oil_and_gas reservoirs existing wells existing dehydration purification and recycling facilities and existing pipelines development costs include the costs of preparing reservoir well sites drilling co2 reservoir wells drilling or re-entering co2 injection and producing wells and installing gathering and distribution lines tam-139013-10 taxpayer submitted a form_3115 application_for change in accounting_method on date requesting consent to change from its method of capitalizing and depreciating the costs of constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities to its proposed method of deducting those costs under sec_193 beginning with the taxable_year ending date taxpayer also requested consent to change from its method of capitalizing and depreciating the costs of drilling co2 source wells to its proposed method of deducting those costs under sec_616 subject_to the percent amortization required under sec_291 beginning with the taxable_year ending date the internal_revenue_service irs national_office issued letter granting taxpayer consent to change from its method of capitalizing and depreciating the costs of constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities to its proposed method of deducting those costs under sec_193 beginning with the taxable_year ending date letter also granted permission for taxpayer to change from its method of capitalizing and depreciating the costs of drilling co2 source wells to its proposed method of deducting those costs under sec_616 subject_to the percent amortization required under sec_291 beginning with the taxable_year ending date the irs later examined taxpayer for the taxable_year ending date during its examination of taxpayer the irs examination team exam concluded that it would like the irs national_office to reconsider whether sec_193 applies to costs of tangible equipment specifically exam wanted the irs national_office to reconsider whether costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities are qualified_tertiary_injectant_expenses under sec_193 the sec_616 costs are not at issue in the tam law and analysis issue are costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities qualified_tertiary_injectant_expenses under sec_193 sec_193 allows as a deduction for the taxable_year an amount equal to the qualified_tertiary_injectant_expenses of the taxpayer for tertiary injectants injected during the taxable_year sec_193 defines the term qualified_tertiary_injectant_expense as any cost paid_or_incurred whether or not chargeable to capital_account for any tertiary_injectant other tam-139013-10 than a hydrocarbon_injectant that is recoverable that is used as a part of a tertiary_recovery_method sec_193 defines the term tertiary_recovery_method as any method that is described in subparagraphs through of sec_212 c of the date energy regulations as defined by b c as in effect before its repeal or any other method to provide tertiary enhanced recovery that is approved by the secretary for purposes of sec_193 sec_1_193-1 of the income_tax regulations does not allow a deduction under sec_193 for any expenditure for which the taxpayer has made an election under sec_263 or for which a deduction is allowed_or_allowable to the taxpayer under any other provision of chapter sec_1_193-1 of the income_tax regulations provides in part that there shall be allowed as a deduction from gross_income an amount equal to the qualified_tertiary_injectant_expenses of the taxpayer the regulation allows this deduction for the later of the taxable_year in which the taxpayer injects the injectant or the taxable_year in which the taxpayer pays or incurs the expenses sec_43 generally provides an enhanced_oil_recovery_credit equal to percent of qualified_enhanced_oil_recovery_costs paid_or_incurred by the taxpayer during the taxable_year sec_43 provides in part that the term qualified_enhanced_oil_recovery_costs means any of the following a any amount_paid or incurred during the taxable_year for tangible_property which is an integral part of a qualified_enhanced_oil_recovery_project and with respect to which depreciation or amortization in lieu of depreciation is allowable under chapter b any intangible_drilling_and_development_costs which are paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and with respect to which the taxpayer may make an election under sec_263 for the taxable_year and c any qualified_tertiary_injectant_expenses as defined in sec_193 which are paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and for which a deduction is allowable for the taxable_year the legislative_history underlying sec_193 provides insight into the costs that were the intended target of sec_193 sec_193 was enacted as part of the crude_oil windfall profit tax act of publaw_96_223 94_stat_229 1980_3_cb_2 the senate_finance_committee report indicates that one reason congress enacted sec_193 was to clarify the recovery_of tertiary_injectant_expenses congress was concerned about the disparate treatment of tertiary_injectant_expenses depending upon the effect of the injectant on the reservoir see s rep no 96th cong 1st sess 1980_3_cb_131 in discussing the tax treatment of tertiary_injectant_expenses at the time sec_193 was enacted the senate_finance_committee looked at a number of tertiary_injectant_expenses and noted the disparate treatment of those costs for example generally taxpayers could currently deduct costs of injectants with a transitory effect on tam-139013-10 production such as alkaline solutions and co2 similarly taxpayers could currently deduct costs related to injecting a substance with a transitory effect on production in contrast generally taxpayers were required to capitalize and recover through depreciation over the period for which they affected production the expenditures_for some injectants which affected production for more than one year this legislative_history indicates that sec_193 was not intended to apply to tangible equipment costs first there is no discussion of the treatment of the costs of tangible equipment costs in the senate_finance_committee report the senate report indicates that sec_193 was directed toward those costs whose tax treatment could differ depending upon the life of the injectant that is the period over which the injected affected production there would have been no disparate treatment of tangible equipment costs based on the life of the tertiary_injectant because taxpayers would have used tangible assets to produce transport or recycle tertiary injectants for more than one year these assets would have been capital assets the costs of which taxpayers always would have recovered through depreciation without regard to the injectant’s effect on production therefore no uncertainty existed concerning the tax treatment of tangible equipment costs second prior to the enactment of sec_193 the effect of the injectant on the reservoir dictated the tax treatment of tertiary_injectant_expenses if the injectant affected production for more than one year the injectant was a capital_asset the costs of which taxpayers recovered through depreciation on the other hand if the injectant had a transitory effect on the reservoir taxpayers deducted the costs of the injectant currently thus the legislative_history underlying sec_193 suggests that the language whether or not chargeable to capital_account contained in sec_193 refers to the costs that prior to the enactment of sec_193 would have been capitalized to and recovered through depreciation of the injectant the equipment however is a separate capital_asset the cost of which would have been recovered through depreciation of the equipment in addition the sec_43 regulations support the position that tangible equipment costs are not deductible under sec_193 when sec_43 originally was enacted in the omnibus budget reconciliation act of publaw_101_508 104_stat_1388 it defined the term tertiary_injectant_expenses to mean any qualified_tertiary_injectant_expenses that are paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and for which a deduction is allowable under sec_193 emphasis added in date sec_317 - of the consolidated appropriations act of publaw_106_554 114_stat_2763 amended sec_43 to define the term tertiary_injectant_expenses as any qualified_tertiary_injectant_expenses as defined in sec_193 that are paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and for which a deduction is allowable emphasis added accordingly for purposes of the amended sec_43 credit the tertiary_injectant_expenses must only be defined in sec_193 and deductible under any code provision tam-139013-10 sec_1_43-4 was finalized prior to the amendment of sec_43 and thus provides guidance about the costs included in the category of tertiary_injectant_expenses for which a deduction is allowable under sec_193 emphasis added as well as guidance about the costs included in the category of tangible_property costs the regulation defines qualified_tertiary_injectant_expenses and tangible_property costs separately sec_1_43-4 defines tangible_property costs as amounts paid_or_incurred during a taxable_year for tangible_property that is an integral part of a qualified_enhanced_oil_recovery_project and that is depreciable or amortizable under chapter sec_1_43-4 provides in part that tangible_property is an integral part of a qualified_enhanced_oil_recovery_project if the property is used directly in the project and is essential to the completeness of the project according to sec_1_43-4 generally property used to acquire or produce the tertiary_injectant or property used to transport the tertiary_injectant to a project site is property that is an integral part of the project - thus it falls within the category of tangible_property accordingly examples of costs for such property as gas processing equipment and pipelines are included in the category of tangible_property costs and not as tertiary_injectant_expenses deductible under sec_193 example of sec_1_43-4 illustrates this in the context of an enhanced oil recovery project that uses steam the example concludes that the cost of water to produce steam is a tertiary_injectant expense but property such as the equipment to remove the gas and water from the oil after it is produced and the water storage tanks are tangible_property although guidance issued by the irs subsequent to the amendment of sec_43 indicates that the definition of the term qualified_tertiary_injectant_expenses is broader than the costs deductible under sec_193 the guidance does not indicate that tangible equipment costs are tertiary_injectant_expenses revrul_2003_82 2003_2_cb_125 holds that the term tertiary_injectant_expenses includes both the cost of acquisition whether produced or acquired by purchase of the tertiary_injectant and also certain operating_expenses related to the use of the tertiary_injectant under the facts of revrul_2003_82 the costs at issue included costs to inject recover and reinject the purchased and produced tertiary injectants thus the revenue_ruling applies only to operating_expenses that is the costs of using the injectant revrul_2003_82 does not state or suggest that tangible equipment costs are considered qualified_tertiary_injectant_expenses under sec_193 therefore qualified_tertiary_injectant_expenses under sec_193 do not include tangible equipment costs accordingly taxpayer may not deduct as qualified_tertiary_injectant_expenses under sec_193 costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities this document was written for purposes of sec_43 but revrul_2003_82 held that the term qualified_tertiary_injectant_expenses for purposes of sec_43 as amended has the same meaning as for purposes of sec_193 tam-139013-10 issue if costs paid_or_incurred for constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities are not qualified_tertiary_injectant_expenses under sec_193 is taxpayer entitled to relief under sec_7805 from retroactive application of this tam sec_7805 provides that the secretary may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect under section dollar_figure of revproc_97_27 1997_1_cb_680 a taxpayer that changes to a method_of_accounting pursuant to this revenue_procedure may be required to change or modify that method_of_accounting for the following reasons the enactment of legislation a decision of the united_states supreme court the issuance of temporary or final regulations the issuance of a revenue_ruling revenue_procedure notice or other statement published in the internal_revenue_bulletin the issuance of written notice to the taxpayer that the change in method_of_accounting was granted in error or is not in accord with the current views of the service or a change in the material facts on which the consent was based under section dollar_figure of revproc_97_27 except in rare or unusual circumstances if a taxpayer changes its method_of_accounting under revproc_97_27 and is subsequently required under section of revproc_97_27 to change or modify that method_of_accounting the required change or modification will not be applied retroactively provided that the taxpayer complied with all the applicable provisions of the consent agreement and this revenue_procedure there has been no misstatement or omission of material facts there has been no change in the material facts on which the consent was based there has been no change in the applicable law and the taxpayer to whom consent was granted acted in good_faith in relying on the consent and applying the change or modification retroactively would be to the taxpayer’s detriment under section dollar_figure of revproc_97_27 as modified by revproc_2009_39 2009_38_irb_371 the director must apply a ruling obtained under this revenue_procedure in determining the taxpayer’s liability unless the director recommends that the ruling should be modified or revoked the director will ascertain if the representations on which the ruling was based reflect an accurate statement of the material facts the amount of the sec_481 adjustment was properly determined the change in method_of_accounting was implemented as proposed in accordance with the terms and conditions of the consent agreement and this revenue_procedure there has been any change in the material facts on which the ruling was based during the period the tam-139013-10 method_of_accounting was used and there has been any change in the applicable law during the period the method_of_accounting was used under section dollar_figure of revproc_97_27 if the director recommends that the ruling other than the amount of the sec_481 adjustment should be modified or revoked the director will forward the matter to the national_office for consideration before any further action is taken such a referral to the national_office will be treated as a request for technical_advice and the provisions of revproc_97_27 or any successor will be followed under section dollar_figure of revproc_2010_2 the holdings in a tam are applied retroactively whether they are initial holdings or they are later holdings that modify or revoke holdings in a prior tam the associate chief_counsel with jurisdiction over the tam however may exercise the discretionary authority under sec_7805 to limit the retroactive effect of any holding the associate chief counsels exercise this authority in rare and unusual circumstances under section dollar_figure of revproc_2010_2 a tam may be used to seek revocation or modification of an earlier tam or revocation or modification of a private_letter_ruling generally a tam that revokes or modifies a letter_ruling or an earlier tam will not be applied retroactively if the applicable law has not changed the taxpayer directly involved in the letter_ruling or earlier tam relied in good_faith on it and revocation or modification would be detrimental to the taxpayer the new tam will be applied retroactively to the taxpayer whose tax_liability was directly involved in the letter_ruling or tam if controlling facts have been misstated or omitted or the facts at the time of the transaction are materially different from the controlling facts on which the letter_ruling or earlier tam was based if a letter_ruling or a tam is modified or revoked with retroactive effect the notice to the taxpayer except in fraud cases should set forth the grounds on which the modification or revocation is being made and the reason why the modification or revocation is being applied retroactively section dollar_figure of revproc_2010_2 provides that under sec_6110 a taxpayer may not rely on a tam issued by the service for another taxpayer in addition retroactive or non-retroactive treatment to one member of an industry directly involved in a letter_ruling or tam does not extend to another member of that same industry and retroactive or non-retroactive treatment to one client of a tax practitioner does not extend to another client of that same practitioner under section dollar_figure of revproc_2010_2 a taxpayer to whom a tam is issued or for whom a tam request is pending may request that the appropriate associate chief_counsel limit the retroactive effect of any holding in the tam or of any subsequent modification or revocation of the tam for a pending request for technical_advice the taxpayer should make the request for relief under sec_7805 as part of the initial request tam-139013-10 for advice the associate office will consider a request for relief under sec_7805 made at a later time if there is justification for having delayed the request under section dollar_figure of revproc_2010_2 when a tam grants a taxpayer relief under sec_7805 the director may not request reconsideration of the sec_7805 issue unless the director determines there has been a misstatement or omission of controlling facts by the taxpayer in its request for sec_7805 relief sec_601_201 of the procedural regulations provides in part that a ruling except to the extent incorporated in a closing_agreement may be revoked or modified at any time in the wise administration of the taxing statutes if a ruling is revoked or modified the revocation or modification applies to all open years under the statutes unless the commissioner or_his_delegate exercises the discretionary authority under sec_7805 of the code to limit the retroactive effect of the revocation or modification under sec_601_201 of the procedural regulations a ruling found to be in error or not in accord with the current views of the irs may be modified or revoked modification or revocation may be effected by a notice to the taxpayer to whom the ruling originally was issued or by a revenue_ruling or other statement published in the internal_revenue_bulletin under sec_601_201 of the procedural regulations except in rare or unusual circumstances the revocation or modification of a ruling will not be applied retroactively with respect to the taxpayer to whom the ruling was originally issued or to a taxpayer whose tax_liability was directly involved in such ruling if i there has been no misstatement or omission of material facts ii the facts subsequently developed are not materially different from the facts on which the ruling was based iii there has been no change in the applicable law iv the ruling was originally issued with respect to a prospective or proposed transaction and v the taxpayer directly involved in the ruling acted in good_faith in reliance upon the ruling and the retroactive revocation would be to his detriment a letter granting consent to a change in accounting_method is a letter_ruling a letter_ruling found to be in error or not in accord with the current views of the irs may be revoked or modified see sec_601_204 of the procedural regulations see also dollar_figure of revproc_2010_1 2010_1_irb_1 when a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations unless the irs exercises its discretionary authority under sec_7805 to limit the retroactive effect of the revocation see id based on the circumstances in this case we conclude that the criteria for sec_7805 relief have been satisfied and taxpayer is entitled to relief therefore this tam will be applied without retroactive effect taxpayer may continue to rely on the letter from the taxable_year ending date through the taxable_year ending date commencing with tam-139013-10 the taxable_year beginning date that portion of the letter granting taxpayer consent to change from capitalizing and depreciating the costs of constructed and acquired co2 transportation assets including pipelines and co2 injection field assets including co2 injection and recycling facilities to deducting those costs under sec_193 is revoked accordingly commencing with the taxable_year beginning date taxpayer may rely only on that portion of the letter granting consent for taxpayer to change from capitalizing and depreciating the costs of drilling co2 source wells to deducting those costs under sec_616 subject_to the percent amortization required under sec_291 beginning with the taxable_year ending date caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent