department of the treasury internal_revenue_service washington d c government entities sin - no third party contacts division date feb - contact person identification_number contact number fax - j eo br employer_identification_number legend x zz dear applicant this refers to your request for an extension of time on a set-aside under sec_4942 of the internal_revenue_code the code you are exempt under sec_501 of the code you are classified as an operating_foundation under sec_4942 per ruling dated date your primary activity is the preservation and housing of historical maps documents and objects the collection of which is housed in historical buildings that you operate as research centers and museums available for public visitation and study in a ruling dated date we approved a set-aside of dollar_figurex for fiscal_year ending date the set-aside funding will be used to construct a building for storage of your collection of research materials and historic objects and it will function as meeting rooms staff office space and parking you anticipate then that the construction will cost approximately dollar_figurey and be completed in several years you represent that the planned building is now estimated to cost more than of the original estimate to complete also you have increased your collections by obtaining two major collections of research materials and historic objects in addition your securities portfolio decreased by dollar_figurez from date through date you are requesting a two year extension on the set-aside in order not to jeopardize the continuity of your charitable and educational programs and to allow you with additional time for financial recovery am page sec_4942 of the code provides that an amount set_aside for a specific project which comes within one or more purposes described in sec_170 may be treated as a qualifying_distribution sec_53_4942_a_-3 of the income_tax regulations provides that for good cause shown the period for paying the amount set_aside may be extended by the commissioner the suitability of the set-aside of funds for the construction of the building was approved in our ruling letter of date you have shown good cause why the period of time for paying the amounts set-aside should be extended by a period of two years you have given your assurances that the set-aside will be spent for your intended purposes within this time based on the information provided we have granted your request for an extension of two years on your approved set-aside our approval of the extension of your approved set-aside is based upon our understanding that your set-aside will in fact be pledged for the specific project indicated and in the amount indicated that the program can be better accomplished through a set-aside than through an immediate payment of funds for the reasons stated and that the pledged funds will be expended within the two-year period you established please keep a copy of this ruling in your permanent records also include a copy in filing your form_990-pf for the particular years if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter for filing_requirements excise employment or other federal taxes please contact the ohio te_ge customer service office pincite-5500 a toll free number or correspond with that office its mailing address is internal_revenue_service te_ge customer service p o box cincinnati oh this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely aligned robert c harper jr robert c harper jr manager exempt_organizations technical group


t c no united_states tax_court dennis and dorinda j jelle petitioners v commissioner of internal revenue respondent docket no filed date ps are the owners of agricultural property which prior to the transactions at issue was subject_to outstanding mortgages held by the farmers home administration fmha after ps became unable to meet payment obligations under these mortgages ps and fmha negotiated an alternative arrangement pursuant thereto ps in paid to fmha the dollar_figure net recovery value of their property fmha in that year wrote off the remaining loan balance of dollar_figure and ps entered into a net recovery buyout recapture agreement to repay to fmha amounts written off in the event that they disposed of the land within a 10-year period held ps are required to recognize income in under sec 6l1 a i r c on account of a dollar_figure discharge_of_indebtedness in that year held further ps must report as income percent of amounts they received in the form of social_security_benefits in accordance with sec_86 i r c -- - held further ps are liable for the sec_6662 i r c accuracy-related_penalty on grounds of a substantial_understatement_of_income_tax gregory w wagner for petitioners michael j calabrese and mark j miller for respondent opinion nims judge respondent determined a federal_income_tax deficiency for petitioners’ taxable_year in the amount of dollar_figure respondent further determined an accuracy-related_penalty of dollar_figure pursuant to sec_6662 the issues for decision are whether petitioners are required to recognize income in from cancellation of indebtedness whether petitioners must report as income amounts received in the form of social_security_benefits and whether petitioners are liable for the sec_6662 a accuracy-related_penalty on account of a substantial_understatement_of_income_tax unless otherwise indicated all section references are to sections of the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure background this case was submitted fully stipulated in accordance with rule and the facts are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time the petition was filed in this matter petitioners resided in the state of wisconsin prior to and during the year at issue petitioners operated a 235-acre farm in dane county wisconsin a principal activity of petitioners’ agricultural enterprises was the production of milk in however petitioners’ milk production fell to the point that they were no longer able to make monthly payments due under two outstanding mortgages on their farm real_estate these mortgages were held by the farmers home administration fmha and encumbered acres of petitioners’ property the first had been entered on date in the amount of dollar_figure the underlying loan had originally borne interest at a rate of percent which rate had subsequently been reduced to dollar_figure percent the second mortgage in the amount of dollar_figure had been executed on date to secure a loan bearing 5-percent interest faced with the above-mentioned inability to meet payment obligations on these mortgages petitioners contacted richard a guenther county supervisor and agriculture credit manager of the dane county office of the farm service agency to explain their q4e- situation and to consider payment alternatives between and petitioners explored with mr guenther two alternatives to foreclosure of the fmha mortgages the first of these options involved a debt restructuring and the second entailed a buyout of the mortgages by petitioners at net recovery value net recovery value was calculated as the amount that would be realized from liquidation of the mortgaged collateral reduced by prior liens and certain costs in april and may of fmha advised petitioners that they did not qualify for debt restructuring that fmha intended to foreclose on its mortgages and that petitioners could avoid foreclosure by buying out the fmha loans at net recovery value a debt and loan restructuring system analysis report dated date contained the following language you may buy out your fmha loans for the net recovery value of dollar_figure if you pay the net recovery value any remaining balance on your fmha accounts will be written off the debt written off may be subject_to recapture a notice of intent to accelerate or to continue acceleration and notice of borrowers’ rights dated date further detailed the terms of these arrangements and informed petitioners if you are eligible and pay the recovery value fmha will write off the rest of your debt up to dollar_figure if you are eligible to pay the recovery value fmha will require you to sign a recapture agreement this agreement would allow fmha to require you to pay the difference between the recovery value and the current --- - market_value of your real_estate securing the loan if you sell it within years of the agreement fmha can never recapture more than it wrote off petitioners elected to proceed with the buyout at net recovery value in order to do so they obtained a loan from the state bank of mt horeb on date petitioners paid to fmha the net recovery value of dollar_figure prior to the making of this remittance the balance owed by petitioners to fmha was dollar_figure in exchange for the payment fmha wrote off the remaining dollar_figure of indebtedness then on date petitioners and fmha entered into a net recovery buyout recapture agreement pursuant to this agreement petitioners covenanted as follows if i we do sell or convey any part or all of this real_estate within years of this agreement i we must pay fmha the recapture_amount for that part sold or conveyed which is the smaller of a b orc a the fair_market_value of the real_estate parcel at the time of the sale or conveyance as determined by an fmha appraisal minus that portion of the recovery value of the real_estate or b the fair_market_value of the real_estate parcel at the time of the sale or conveyance as determined by an fmha appraisal minus the unpaid balance of prior liens at the time of the sale or conveyance minus the net recovery value of the real_estate if this amount has not been accounted for as a prior lien or cc the total amount of the fmha debt written off for loans secured_by real_estate i we agree that this amount is the outstanding balance of principal and interest owed on the fmha farmer programs loans s as of the date of this agreement without taking into account the related payment of recovery value -- - minus the net recovery value of the real_estate this amount is dollar_figure and is the maximum amount that can be recaptured to secure the foregoing recapture agreement and in accordance with its terms petitioners gave fmha a mortgage on the acres of their farmland secured_by the original fmha mortgages the recapture agreement provided that fmha would release this lien with respect to subject property sold or conveyed within years upon payment of the recapture_amount due with respect to portions of the encumbered real_estate not disposed of during the agreement’s 10-year term the lien would be released at the expiration of such period the lien was secondary to liens held by russell v jelle in the amount of dollar_figure and by the state bank of mt horeb in the amount of dollar_figure for the taxable_year the u s department of agriculture farm service agency issued to petitioners a form 1099-c cancellation of debt showing an amount of debt canceled of dollar_figure petitioners did not report this amount as income on their tax_return and provided thereon no reference to the buyout transaction or explanation of its treatment petitioners additionally received social_security_benefits during in the amount of dollar_figure no portion of these benefits was disclosed by petitioners on their return for - discussion i discharge_of_indebtedness as a general_rule the internal_revenue_code imposes a federal tax on the taxable_income of every individual see sec_1 sec_61 defines gross_income for purposes of calculating taxable_income as all income from whatever source derived and further specifies that income_from_discharge_of_indebtedness is included within this broad definition sec_61 the underlying rationale for such inclusion is that to the extent a taxpayer is released from indebtedness he or she realizes an accession to income due to the freeing of assets previously offset by the liability see 284_us_1 statutory exceptions to the above rule are set forth in sec_108 sec_108 excludes from the operation of sec_61 indebtedness which is discharged ina title_11_case which is discharged when the taxpayer is insolvent which consists of qualified_farm_indebtedness or which consists of gualified real_property business indebtedness additional circumstances in which no income from cancellation of indebtedness need be recognized are established by case law for instance the refinancing of a debt may operate as an exception to the reguirement of inclusion see 81_tc_77 when one obligation has merely been --- - substituted for another there has been no consequent freeing of assets so as to justify application of the rule in united_states v kirby lumber co supra the parties here do not contest the viability of these general principles petitioners in fact concede that the subject net recovery buyout transaction could result in a cancellation of indebtedness they further do not argue that any of the exceptions of sec_108 should operate to shield resultant income from recognition for the sake of completeness we note petitioners have stipulated that neither the qualified_farm_indebtedness nor the insolvency provision is at issue in this case and no evidence in the record would suggest that either bankruptcy or qualified_real_property_business_indebtedness could support exclusion petitioners contend however that any relevant discharge regquiring reporting of income can occur under the recapture agreement only upon the conveyance of encumbered land or the passing of years according to petitioners until such time their potential obligation to repay some part or all of the dollar_figure written off precludes a finding that the debt has been forgiven they view receiving a discharge and the amount thereof as contingent on eventually obtaining the release of their property from the recapture agreement --- - conversely respondent maintains that the net recovery buyout transaction effected a discharge_of_indebtedness in within the meaning of sec_61 respondent further asserts that the recapture agreement is too contingent and indefinite to constitute a substitution continuation or refinancing of the original debt so as to delay recognition respondent relies particularly on the fact that petitioners have no definite obligation to make any further payments in essence then the principal disagreement between the parties centers on whether the recapture agreement executed by petitioners continues their obligation to fmha in a manner such that there was in no discharge_of_indebtedness within the meaning of the internal_revenue_code furthermore as their respective contentions reveal the two sides reach opposing answers to this guestion in large part because each characterizes a different aspect of the buyout arrangement as contingent petitioners view the cancellation itself as contingent asserting that the subject transaction merely generated an agreement to cancel their debt at a future time respondent on the other hand styles the instant scenario as involving a present cancellation with a contingent future obligation to repay if there exists only an agreement to cancel prospectively the debt is discharged not at the time the agreement is made but at the time conditions specified therein are satisfied see -- - 88_f2d_170 5th cir affg 34_bta_424 shannon v commissioner tcmemo_1993_554 for example walker v commissioner supra pincite involved a settlement entered in whereby the creditor agreed to cancel the balance of a debt after payments totaling a prescribed amount were made by the debtor this payment level was reached in and the discharge was held to have occurred in that year see id in contrast if an arrangement effects a present cancellation of one liability but imposes a replacement obligation the mere chance of some future repayment does not delay income_recognition where the replacement liability is highly contingent or of a fundamentally different nature see 82_tc_888 affd 823_f2d_33 2d cir 81_tc_77 specifically we stated in zappo v commissioner supra pincite that a note or obligation will not be treated as a true debt for tax purposes when it is highly unlikely or impossible to estimate whether and when the debt will be repaid we explained that highly contingent obligations should not be treated in_pari_materia with their more conventional counterparts and we further found that this reasoning applies with equal force to the issue of refinancing an indebtedness id pincite in addition we described the manner in which this precept was to be employed in a discharge setting as follows when an obligation is highly contingent and has no presently ascertainable value it cannot refinance or substitute for the discharge of a true debt the very uncertainty of the highly contingent replacement obligation prevents it from reencumbering assets freed by discharge of the true debt until some indeterminable date when the contingencies are removed in a word there is no real continuation of indebtedness when a highly contingent obligation is substituted for a true debt consequently the rule in kirby lumber applies and gain is realized to the extent the taxpayer is discharged from the initial indebtedness id the original debt in zappo v commissioner supra pincite had been characterized by a fixed amount a stated rate of interest and a due_date certain the replacement liability was for an amount that could not be ascertained until the end of years did not bear interest and would be credited with amounts paid_by a third party see id in those circumstances we held that the foregoing rule precluded treatment of the new obligation as replacement indebtedness see id see also carolina clinchfield ohio ry v commissioner supra turning to the matter at bar we believe that the precedent discussed above counsels a finding that petitioners’ indebtedness to fmha was discharged in for the simple reason that whether and when petitioners would ever be required to make any further payments to fmha rested totally within their own control if petitioners chose to sell their property within years from the inception of the net recovery buyout recapture agreement then in accordance with the terms of that agreement petitioners could be required to repay part or all of the dollar_figure written off by fmha if petitioners chose not to dispose_of their property then of course nothing further would be due petitioners’ obligation was thus highly contingent in every sense of the word this state of affairs fits perfectly within the precept formulated in zappo v commissioner supra that a highly contingent obligation will not be treated in_pari_materia with a more conventional counterpart petitioners’ initial debt to fmha the conventional counterpart in this case was fixed in amount bore a stated rate of interest and required periodic_payments in contrast petitioners’ liability under the recapture agreement had no certain amount was not interest bearing and mandated no definite payments an enforceable financial obligation may in fact never materialize at all faced with these differences we cannot reasonably view the latter alleged debt as a mere substitute for the former we are convinced that the rationale of 284_us_1 is particularly applicable here where the recapture agreement leaves petitioners in complete control of their assets and free to arrange their affairs so that none of their property’s value need ever be delivered to fmha - we hold that petitioners received discharge_of_indebtedness income in when fmha wrote off dollar_figure of petitioners’ outstanding loan obligation il social_security_benefits the second question raised by this litigation is whether a portion of the social_security_benefits received by petitioners is includable in their gross_income although this issue is largely computational we address it briefly to ensure lucidity the parties stipulated that petitioners received such benefits in the amount of dollar_figure of this total respondent contends that percent or dollar_figure must be reported as gross_income petitioners have offered no argument related to their social_security_benefits income_tax treatment of social_security_benefits is governed by sec_86 sec_86 applies to require inclusion of payments if the taxpayer’s adjusted_gross_income with certain modifications not relevant here plus one-half of the social_security_benefits received exceeds a specified base_amount see sec_86 this base_amount in the case of taxpayers filing a joint_return is dollar_figure see sec_86 b since petitioners reported adjusted_gross_income of dollar_figure and we have just held that they must include an additional dollar_figure from discharge_of_indebtedness the base_amount threshold is clearly exceeded -- in general then sec_86 provides that gross_income includes the lesser_of one-half of the social_security_benefits received during the year or one-half of the excess of the sum of a modified_adjusted_gross_income plus b one- half of the social_security_benefits over the base_amount the includable percentage is increased however if modified_adjusted_gross_income plus one-half of the social_security_benefits exceeds an adjusted_base_amount of for a joint_return dollar_figure see sec_86 c b accordingly petitioners are subject_to the greater inclusion which on these facts would be calculated pincite percent of the social_security_benefits received see sec_86 we therefore sustain respondent’s determination that dollar_figure percent of the stipulated dollar_figure in social_security_benefits must be included in petitioners’ gross_income for itil accuracy-related_penalty subsection a of sec_6662 imposes an accuracy-related_penalty in the amount of percent of any underpayment that is attributable to causes specified in subsection b among the causes so enumerated is any substantial_understatement_of_income_tax see sec_6662 a substantial_understatement is defined in sec_6662 to exist where the amount of the understatement exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or -- - dollar_figure for purposes of this computation the amount of the understatement is reduced to the extent attributable to an item if there existed substantial_authority for the taxpayer’s treatment of the item or if the relevant facts affecting the treatment of the item were adequately disclosed on the taxpayer’s return or an attached statement and there was a reasonable basis for the taxpayer’s treatment of the item see sec_6662 d b an exception to the sec_6662 penalty is set forth in sec_6664 and reads no penalty shall be imposed under this part with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion the taxpayer bears the burden of establishing that this reasonable_cause exception is applicable as respondent’s determination of an accuracy-related_penalty is presumed correct see rule a regulations interpreting sec_6664 state the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case- by-case basis taking into account all pertinent facts and circumstances generally the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability sec_1_6664-4 b income_tax regs applying these principles to the matter at hand we are constrained to rule that petitioners have failed to meet their -- - burden of showing the sec_6662 penalty inappropriate here again petitioners have offered no discussion or argument on this issue petitioners reported on their return a tax_liability of dollar_figure and disclosed neither the cancellation of debt income for which they received a form 1099-c nor their social_security payments based on our holdings above however they in fact owe taxes for well in excess of the level constituting a substantial_understatement furthermore none of the avenues of relief provided in the statutory text 1s open to petitioners there exists no substantial_authority for their complete failure to report or disclose so the amount of their understatement is not subject_to reduction under sec_6662 d b additionally due to the absence of explanation or evidence by petitioners on this issue we lack any grounds upon which to conclude that their treatment was a product of reasonable_cause and good_faith for purposes of the sec_6664 exception petitioners therefore are liable for the accuracy-related_penalty to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c tax exempt ando government entities division number release date date date uil contact person identification_number telephone number employer_identification_number legend center group network health this is in reply to your letter of date in which you request a ruling on the effect to your tax-exempt status of your proposed ownership through a wholly-owned disregarded_entity in a for-profit subchapter_s_corporation you are tax-exempt under sec_501 and a sec_509 supporting_organization of the center and its school of medicine the center is part of a state-chartered university system you are a faculty group practice that assists the center in carrying out its mission particularly as it relates to the center’s clinical practice function you consist of the faculty of the clinical departments of the center through you the center’s faculty is able to enter into contractual relationships with health_plans community providers and businesses to provide health care services and thereby operate a health care delivery system the health care delivery system which you facilitate promotes the charitable educational and research programs of the center by providing it with the clinical programs and patient populations with which to educate its students and conduct research while also providing healthcare services to the public regardless of ability to pay you are the sole member of the group a wholly owned subsidiary that is treated as a disregarded_entity for federal tax purposes the group provides professional medical services as a participating independent physician association ipa in the network the network is organized as a for-profit corporation and serves as a third party administrator providing medical dear facts necessity review organization services to its clients under state licenses the group owns percent of the issued and outstanding common shares of the network the network has six additional ipa shareholders that are unrelated to the group the network is currently a c_corporation for federal_income_tax purposes these six additional ipa shareholders comprise for-profit corporations and a partnership the network has four wholly owned subsidiaries three of the subsidiaries are limited_liability companies that are disregarded as separate entities for federal_income_tax purposes the fourth subsidiary health is a c_corporation and insurance_company for federal_income_tax purposes all four wholly owned subsidiaries are involved in healthcare or healthcare related_services in addition to being a participant ipa in and shareholder of the network the group has an exclusive management agreement with the network under which the network provides certain administrative and contract services to the group these services include collecting revenue paying claims contracting with healthcare providers and performing other administrative functions necessary to manage the group for its services the network collects collected revenues at the year-end the network reconciles its actual management costs incurred on behalf of the group and remits any overpayments to the group the group remits to you the overpayments it receives from the network of all proposed restructuring transaction in order to achieve an ownership structure that is eligible for s_corporation status the following restructuring transaction is proposed e e e e anewentity the holding_company will be established and will make an s election as of the date of formation the group and the other shareholders of the network will contribute their shares of the network to the capital of the holding_company thus making the network a wholly owned subsidiary of the holding_company the holding_company will make a qualified_subchapter_s_subsidiary qsss election for the network the network will distribute its membership interests in its three subsidiaries that are disregarded entities for federal tax purposes to the holding_company the network will continue to own all of the issued and outstanding common shares of health once the proposed transaction is completed the group will hold company the remaining other shareholders of the network all of the entities involved in the proposed transaction will continue to operate for the same business purposes as they did prior to the transaction will be owned by the individuals that currently own the six of the holding the holding_company will have a board or directors consisting of seven members the group will have the right to elect one board member and the other unrelated shareholders will elect the remaining six board members the network will have a board_of directors consisting of members the group will have the right to elect two board members and the other unrelated shareholders will elect the remaining board members health will have a board_of directors consisting of six members three of the members will be selected by the network’s board_of directors from among its members and the other three members will be selected from the network's senior management team the three subsidiaries of the holding_company that are disregarded entities for federal_income_tax purposes will be managed by a non-shareholder manager selected by the holding_company the hoiding company and its subsidiaries will each develop maintain and manage its own financial systems independent of you and the group the holding_company and its subsidiaries will each by operated by a professional staff with expertise in the relevant business areas which are independent and unrelated to you neither you nor the group will be involved in the day-to-day management of the holding_company or any of its subsidiaries ruling requested you have requested the following ruling your ownership through your wholly-owned disregarded_entity group in a for-profit subchapter_s_corporation together with the flow-through allocation of s tax items subject_to the unrelated_business_income_tax has no effect on the your tax exempt status law sec_501 provides for the exemption from federal_income_tax of organizations that are organized and operated exclusively for religious charitable scientific or educational_purposes provided no part of the net_earnings inure to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to qualify as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section organizational_test or the operational_test it does not qualify for exemption if an organization fails to meet either the sec_1_501_c_3_-1 provides that an organization will be regarded as operated it is engaged primarily in activities which exclusively for one or more exempt purposes only if 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 r c sec_511 imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 sec_512 provides that if an organization described in sec_1361 holds stock in a ss corporation- a such interest shall be treated as an interest in an unrelated_trade_or_business and b notwithstanding any other provisions of this part- i all items of income loss or deduction taken into account under sec_1366 and ii any gain_or_loss on the disposition of the stock in the s_corporation shall be taken into account in computing the unrelated_business_taxable_income of such organization sec_1361 provides that for purposes of subsection b b which defines the term small_business_corporation an organization which is a described in sec_401 or sec_501 and b exempt from taxation under sec_501 may be a shareholder in an s_corporation in 319_us_436 the supreme court said that it he doctrine_of corporate entity fills a useful purpose in business life whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator's personal or undisclosed convenience so long as that purpose is the equivalent of business activity or is followed by the carrying on of business in general in matters by the corporation the corporation remains a separate taxable entity in relating to the revenue the corporate form maybe disregarded where it is a sham or unreal in response to the argument that a such situations the form is a bald and mischievous fiction corporation is a mere agent of its sole stockholder the court said that the mere fact of the existence of a corporation with one or several stockholders regardless of the corporation's business activities does not make the corporation the agent of its stockholders d pincite in 336_us_422 the supreme court said that a finding of a true agency’ relationship turns on several factors whether the corporation operates in the name and for the account of the principal binds the principal by its actions transmits money received to the principal and whether receipt of income is attributable to the services of employees of the principal and to assets belonging to the principal are some of the if the corporation is a true relevant considerations in determining whether a true agency exists agent its relations with the principal must not be dependent upon the fact that it is owned by the principal if such is the case its business purposes must be the carrying on of the normal duties of an agent in 144_f2d_466 2nd cir the court said that to be a separate jural person for purposes of taxation a corporation must engage in some industrial commercial or other activity besides avoiding taxation in other words that the term ‘corporation’ will be interpreted to mean a corporation which does some ‘business’ in the ordinary meaning and that escaping taxation is not ‘business’ in the ordinary meaning in 431_f2d_227 5th cir the court said that business activity is required for recognition of the corporation as a separate taxable entity the activity may be minimal in 483_f2d_1098 5th cir the court said that the control required for liability under the ‘instrumentality’ rule amounts to total domination of the subservient corporation to the extent that the subservient corporation manifests no separate corporate interests of its own and functions solely to achieve the purposes of the dominant corporation analysis for taxable years beginning before date tax exempt_organizations described in sec_501 could not be shareholders in an s_corporation in congress enacted the small_business job protection act pub_l_no 110_stat_1755 authorizing the ownership of s_corporation stock by tax-exempt organizations described in sec_501 the joint_committee on taxation’s general explanation of tax legislation enacted in the 104th congress jcs-12- date sec p describes the reason for the change in law as follows- the congress believed that the present-law prohibition of certain tax-exempt organizations being s_corporation shareholders may have inhibited employee ownership of closely-held businesses frustrated estate_planning discouraged charitable giving and restricted sources of capital for closely-held businesses the congress sought to lift these barriers by allowing certain tax-exempt organizations to be shareholders in s_corporations however the provisions of subchapter_s were enacted in and substantially_modified in on the premise that all income of the s_corporation including all gains on the sale of the stock would be subject_to a shareholder-ievel income_tax this underlying premise allows the rules governing s_corporations to be relatively simple because of the lack of concern about transferring income to non- taxpaying persons consistent with this underlying premise of subchapter_s the provision treats all the income flowing through to a tax-exempt shareholder and gains and losses from the disposition of the stock as unrelated_business_taxable_income as a result of the legislation tax-exempt organizations described in sec_501 are allowed to be shareholders in an s_corporation under sec_1361 furthermore under sec_512 items of income or loss of an s_corporation will flow through to tax-exempt shareholders as unrelated_business_taxable_income regardless of the source or nature of such income in addition gain_or_loss on the sale_or_other_disposition of stock of an s_corporation will be treated as unrelated_business_taxable_income these provisions however do not cause the for-profit activities of the s_corporation to be attributed to the tax-exempt shareholder see moline properties inc in determining whether the activities of a for-profit s_corporation subsidiary is u s pincite attributable to its tax-exempt parent the separate identity principles annunciated in moline properties inc v comm’r should apply lest the intent of congress to remove barriers for investment in s_corporations by tax-exempt entities be frustrated for federal_income_tax purposes a parent_corporation and its subsidiaries are treated as separate and distinct taxable corporate entities as long as each entity has a valid business_purpose and engages in at least a minimal amount of business activity see moline properties inc u s pincite national investors corp f 2d pincite britt f 2d pincite however where the parent_corporation so controls the affairs of the subsidiary that it is merely an instrumentality of the parent the corporate identity of the subsidiary may be disregarded see krivo f 2d pincite hence the activities of a for-profit subsidiary will not be attributed to its tax-exempt parent unless the subsidiary lacks a business_purpose or the subsidiary is an arm or agent of the parent in your case your relationship with the holding_company does not fail the first prong ie that the subsidiary have a business_purpose and conduct some amount of business activity the holding_company and its four subsidiaries have been or will be organized to perform bona_fide and substantial business functions the holding_company and all of its subsidiaries maintain activities that are separate distinct and independent from you therefore their existence may not be disregarded for tax purposes additionally your relationship with the holding_company does not fail the second prong ie that the parent not control the day-to-day operations of the subsidiary the holding_company has its own corporate identity and interests and its own independent board_of seven directors only one of which is chosen by you the other six directors are chosen by unrelated shareholders furthermore each of the holding company's subsidiaries has its own management and employees independent of you furthermore neither your investment in the holding_company nor your management agreement with the network exhibits any of the attributes of a true agency’ relationship identified in national carbide corp u s pincite therefore neither the holding_company nor its subsidiaries can be considered a sham or under your total domination consequently the activities of the holding_company and its subsidiaries would not be attributable to you conclusion in light of the foregoing we rule as follows your ownership_interest in the holding_company a for-profit subchapter_s_corporation through group together with the flow-through allocation of the holding company's ss tax items subject_to the unrelated_business_income_tax would have no effect on your tax-exempt status as an organization described in sec_501 this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept 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 in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely peter a holiat acting manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number ------------------------------------ -------------------------------------------------- -------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ----------------- telephone number -------------------- refer reply to cc ita b04 plr-119785-12 date date ty date ty date legend taxpayer parent state a z-dealer non-z-dealer qi system dear --------------- --------------------------------------------------------------------------------- --------------------------------------------------- ------------- -------------------------- --------------------------------- ----------------------------------------- ------------------------------------------------------- this responds to your request for a private_letter_ruling dated date regarding the procedures for giving notice of assignments of rights in deferred exchanges of like- kind property under sec_1031 of the internal_revenue_code sec_1 k -1 g of the income_tax regulations and revproc_2003_39 2003_1_cb_971 facts taxpayer is a state a corporation that is a subsidiary of parent taxpayer is primarily engaged in the business of leasing vehicles and issuing loans for the purchase of vehicles it uses an accrual_method of accounting and has a fiscal_year ending march plr-119785-12 in its leasing business taxpayer exchanges tangible_personal_property under sec_1031 by transferring vehicle s coming off-lease to unrelated parties and acquiring vehicles subject_to leases from unrelated z-dealers taxpayer utilizes one qualified_intermediary qi as defined in sec_1_1031_k_-1 of the regulations to effectuate these exchanges under sec_1031 in order to establish its exchange program taxpayer entered into a master exchange_agreement the mea with qi as provided in sec_1_1031_k_-1 and revproc_2003_39 the mea includes a blanket assignment clause by which taxpayer assigns its rights but not its obligations in its existing and future vehicle sales and purchase agreements to qi assignment taxpayer uses all vehicles exchanged in this exchange program in its business of leasing vehicles to customers lessees at the end of each lease_term or during the lease_term if the lease ends earlier taxpayer will transfer the vehicle an off-lease vehicle through qi to i customers lessees ii unrelated z- dealers and iii non-z- dealers the sales to dealers including z-dealers and non-z-dealers can occur by way of the internet and through auction sales and direct sales when a vehicle is sold or purchased in an exchange under its exchange program taxpayer provides blanket notice notice of its assignment of its rights in its existing and future vehicle sales and purchase agreements as follows situation when taxpayer transfers off-lease vehicles as its relinquished_property rq to existing customers lessees it includes the notice on the credit applications and on the lease agreements with its lease customers also because some leases were already in effect prior to the start of the exchange program taxpayer provides a one- time notice to all existing customers lessees through monthly invoice statements situation when taxpayer transfers off-lease vehicles as rq to unrelated z-dealers it provides the notice separately in its sales invoice certificate of title and purchase confirmation provided to the unrelated z-dealer purchasing the off-lease vehicle this is in addition to notice included in its lease agreement also taxpayer provides one- time notice to each unrelated z-dealer situation when taxpayer transfers off-lease vehicles as rq to unrelated z-dealers through an internet vehicle purchase system system it provides the notice on the log on the system’s website screen it also provides the notice as one of the terms of purchase on the terms of purchase website screen the notice also appears on the bill of sale sent to the unrelated z-dealer taxpayer also acquires vehicles subject_to leases from related_party z-dealers when acquired from a related_taxpayer taxpayer does not treat the acquired vehicle s as qualified_replacement_property eligible for matching in a like-kind_exchange under sec_1031 plr-119785-12 situation when taxpayer transfers off-lease vehicles as rq to unrelated z-dealers through the system when the respective vehicle has been consigned to auction but the auction date has yet to occur it provides the notice on the log on the system’s website screen the notice is also included as one of the terms of purchase on the terms of purchase screen on the system’s website taxpayer also sends a fax to the auction listing each consigned vehicle and including the notice to the auction situation when taxpayer transfers off-lease vehicles as rq at auction it sends a fax to the auction that lists each vehicle consigned to the auction the fax also contains the notice the auction then includes the notice in the vehicle's description which is provided to all bidders who attend the auction the sales packet as provided to the purchaser when the purchaser acquires the vehicle from the auction includes the notice situation sometimes taxpayer transfers vehicles to non-z-dealers eg when a non- z-dealer acquires the vehicle in a trade-in with lessee and purchases the vehicle from taxpayer when this occurs taxpayer provides the notice to each purchasing non-z- dealer the initial notice in addition each year taxpayer will resend the notice to each non-z-dealer to whom it has sold a vehicle the annual notice also taxpayer will provide the notice to each non-z-dealer that was not included in the annual notice or initial notice on learning of its purchase of a vehicle from taxpayer on the transfer of each vehicle to a non-z-dealer taxpayer will follow up this notice to the non-z- dealer with a specific notice each time the non-z-dealer purchases a vehicle from taxpayer taxpayer will also include the notice in the bill of sale documents sent to the purchaser situation when taxpayer acquires vehicles subject_to leases from unrelated z- dealers taxpayer i provides a stand-alone announcement to each participating unrelated z-dealer that contains the notice ii provides the notice in the z-dealer agreements with the respective unrelated z-dealers iii includes the notice in the credit application utilized in each purchase transaction including credit applications available through taxpayer's website iv includes the notice on its website v includes the notice in its lease agreement and vi provides the notice in its acceptance confirmation sent to a selling unrelated z-dealer ruling requested taxpayer will maintain a list of all non-z-dealers to whom it provides the blanket notice if a vehicle is sold to a non-z-dealer without prior notice taxpayer will recognize gain on such sale and taxpayer will send a blanket notice to such dealer and add such dealer to the list of dealers who receive the annual blanket notice taxpayer’s like-kind_exchange program involves non-z-dealers only if they receive blanket notice on or before the date of sale plr-119785-12 taxpayer requests a ruling that its notification procedures satisfy the requirements of sec_1_1031_k_-1 and revproc_2003_39 for transfers of off-lease vehicles to existing customers lessees transfers of off-lease vehicles to unrelated z-dealers when a vehicle is returned to a dealer transfers of off-lease vehicles to unrelated z- dealers through the system transfers of off-lease vehicles to unrelated z-dealers through the system when a vehicle has been consigned to auction but the auction date has yet to occur transfers of off-lease vehicles at auction transfers of vehicles to non-z-dealers eg non-z-dealer acquires vehicle in a trade-in with lessee and purchases the vehicle from taxpayer occurring on or after the day such dealer has received notice and acquisitions of vehicles subject_to leases from unrelated z- dealers statement of law sec_1031 of the code provides that no gain_or_loss is recognized on the exchange of property held for productive use in a trade_or_business or for investment if the property is exchanged solely for property of like_kind to be held either for productive use in a trade_or_business or for investment sec_1031 provides with respect to a transaction in which the exchange of property between a taxpayer and a third party are not simultaneous a deferred_exchange that for purposes of sec_1031 any property received by the taxpayer is treated as property that is not like-kind_property if-- a the property is not identified as property to be received in the exchange on or before the day that i sec_45 days after the date on which the taxpayer transfers the property relinquished in the exchange or b the property is received after the earlier of-- i days after the date on which the taxpayer transfers the property relinquished in the exchange or ii the due_date determined with regard to extension for the transferor's tax_return for the taxable_year in which the transfer of the relinquished_property occurs sec_1_1031_k_-1 of the regulations provides rules for the application of sec_1031 in the case of a deferred_exchange sec_1_1031_k_-1 defines a deferred_exchange as an exchange in which pursuant to an agreement the taxpayer transfers rq and subsequently receives qualifying replacement_property rp sec_1_1031_k_-1 provides that in a deferred_exchange if a taxpayer actually or constructively receives money or other_property before the taxpayer actually receives the rp then gain_or_loss may be recognized further if the taxpayer actually or constructively receives money or other_property in the full amount of the consideration for the rq before the taxpayer receives the rp the transaction will constitute a sale and not a deferred_exchange even though the taxpayer may ultimately receive the rp sec_1_1031_k_-1 establishes safe harbors the use of which result in a determination that a taxpayer is not in actual or constructive receipt of money or other_property for purposes of sec_1031 specifically sec_1_1031_k_-1 provides that in the plr-119785-12 case of a taxpayer's transfer of rq involving a qi the taxpayer's transfer of rq and subsequent receipt of rp is treated as an exchange and the determination of whether the taxpayer is in actual or constructive receipt of money or other_property before the taxpayer receives the rp is made as if the qi is not the agent of the taxpayer sec_1_1031_k_-1 clarifies that the qi will not be considered the taxpayer's agent only if the agreement between the taxpayer and the qi expressly limits the taxpayer's rights to receive pledge borrow or otherwise obtain the benefits of money or other_property held by the qi sec_1_1031_k_-1 defines a qi as a person who is not the taxpayer the agent of the taxpayer or a person who bears a relationship to the taxpayer as described in either sec_267 or sec_707 substituting for in each subsection and enters into an agreement with the taxpayer that requires the person to acquire the rq from the taxpayer transfer the rq acquire the rp and transfer the rp to the taxpayer sec_1_1031_k_-1 generally provides that regardless of whether a qi acquires and transfers property under general tax principles solely for purposes of sec_1_1031_k_-1 b -- a a qi is treated as acquiring and transferring property if the qi acquires and transfers legal_title to that property b a qi is treated as acquiring and transferring the rq if the qi either on its own behalf or as the agent of any party to the transaction enters into an agreement with a person other than the taxpayer for the transfer of the rq to that person and pursuant to that agreement the rq is transferred to that person and c a qi is treated as acquiring and transferring rp if the qi either on its own behalf or as the agent of any party to the transaction enters into an agreement with the owner of the rp for the transfer of that property and pursuant to that agreement the rp is transferred to the taxpayer sec_1_1031_k_-1 provides that solely for purposes of sec_1_1031_k_-1 and g iv a qi is treated as entering into an agreement if the rights of a party to the agreement are assigned to the qi and all parties to that agreement are notified in writing of the assignment on or before the date of the relevant transfer of property for example if a taxpayer enters into an agreement for the transfer of rq and thereafter assigns its rights in that agreement to a qi and all parties to that agreement are notified in writing of the assignment on or before the date of the transfer of the rq the qi is treated as entering into that agreement if the rq is transferred pursuant to that agreement the qi is treated as having acquired and transferred the rq revproc_2003_39 provides guidance on the qualification of programs involving ongoing exchanges of tangible_personal_property using a single qi hereinafter referred plr-119785-12 to as an lke program under sec_1031 as provided in section dollar_figure of revproc_2003_39 an lke program is an ongoing program meeting certain requirements and involving multiple exchanges of or more properties for purposes of this letter the most relevant requirements are that the taxpayer uses a single unrelated qi to accomplish the exchanges in the lke program enters into a written_agreement master exchange_agreement with the qi assigns to the qi in the master exchange_agreement the taxpayer's rights but not necessarily its obligations in some or all of its existing and future agreements to sell rq and or to purchase rp and provides written notice of the assignment to the other party to each existing and future agreement to sell rq and or to purchase rp section dollar_figure of revproc_2003_39 provides that the taxpayer's assignment in the master exchange_agreement to the qi of the taxpayer's rights but not necessarily its obligations in some or all of its existing and future agreements to sell rq and or to purchase rp and the taxpayer's written notice of the assignment to the other party to each agreement to sell rq and or to purchase rp on or before the date of the relevant transfer of property will be effective to satisfy the notice requirement in sec_1 k - g v analysis for qi to be treated as the party receiving and transferring rq and rp under sec_1_1031_k_-1 and revproc_2003_39 the notice must be to all parties to the agreements for sale or purchase of the rq or rp it must be in writing and it must be given on or before the date of the relevant transfer there is no requirement however that the notice identify or contain a description of the specific property being transferred by sale or purchase for example as provided in revproc_2003_39 if a blanket assignment to qi occurs then blanket notice of such assignment satisfies the notice requirement under the regulations and the revenue_procedure provided all parties to each sale or purchase agreement receives written notice of the assignment on or before the date of transfer however if all parties to a sale or purchase agreement do not timely receive the blanket written notice of the blanket assignment then the notice is ineffective and the safe_harbor provided pincite k -1 g v is inapplicable for that transaction taxpayer provides blanket written notices of its blanket assignments to qi of sale and purchase agreements of rq and rp to the parties to those agreements through a wide variety of mediums and documents pertaining to each transaction each notice appears specifically designed to comply with the requirements that notice be given to all parties to the agreement in writing and in a timely manner notices as described in each of plr-119785-12 the aforementioned forms and mediums are sufficient to treat qi as receiving and transferring rq and rp ruling as described taxpayer’s notice procedures satisfy the notification requirements of sec_1_1031_k_-1 and revproc_2003_39 for transfers of off-lease vehicles to existing customers lessees transfers of off-lease vehicles to unrelated z-dealers when a vehicle is returned to a dealer transfers of off-lease vehicles to unrelated z- dealers through the system transfers of off-lease vehicles to unrelated z-dealers through the system when a vehicle has been consigned to auction but the auction date has yet to occur transfers of off-lease vehicles at auction transfers of vehicles to non-z-dealers occurring on or after the day such dealer has received notice and acquisitions of vehicles subject_to leases from unrelated z-dealers caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 s a copy of this letter must be attached to any income_tax return to which it is relevant taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely michael j montemurro chief branch income_tax accounting cc


internal_revenue_service number release date index number ------------------------- ------------------------------------ ---------------------------------------- ---------------------------- ---------------------------------------- in re ---------------------------------------- ---------------------------- ---------------------------------------- department of the treasury washington dc person to contact -------------------------------- ---------------------- telephone number --------------------- refer reply to cc corp b05 - plr-140094-03 date november legend distributing controlled sub1 sub2 sub3 sub4 ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------ ------------------------------------------------------------------------ ----------------------------- ------------------------------------------------------------------------ --------------------------- ------------------------------------------------------------------------ -------------------------- ------------------------------------------------------------------------ -------------------------- plr-140094-03 sub5 sub6 sub7 sub8 sub9 sub10 sub11 sub12 sub13 shareholdera shareholderb shareholderc shareholderd shareholdere ------------------------------------------------------------------------ --------------------------- ------------------------------------------------------------------------ -------------------------- ------------------------------------------------------------------------ -------------------------- ------------------------------------------------------------------------ ------------------------------ ------------------------------------------------------------------------ ----------------------------- ------------------------------------------------------------------------ ----------------------------- ------------------------------------------------------------------------ ------------------------------- ------------------------------------------------------------------------ ----------------------------- ------------------------------------------------------------------------ ----------------------------- ------------------- ------------------------------------------------------------------------ ------------------------------------------- ---------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------------------------------------------- plr-140094-03 shareholderf shareholderg shareholderh shareholderi shareholderj shareholderk shareholderl shareholderm bank1 bank2 x y date1 date2 date3 a b ------------------------------------------------------------------------ --------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------------------------------------------- ------------------------------------------------------------------------ ---------------------------------- ------------------------------------------------------------------------ -------------------------------------------------------------- ------------------------------------------------------------------------ ----------------------------------------------------------------------- ------------------------------------------------------------------------ ----------------------------------------------------------------------- --------------- ------------------------------ ------------------------------ ------------------- -------------------------- ----------------------- ------------------- ------------------- --------- ----------- plr-140094-03 c d e f g h i j k l m n ----------- ----------- ----------- --------- --------- --------- --------- --------- --------- --------- ----------- --------------- dear ------------- this letter responds to your date request submitted on behalf of distributing for rulings on certain federal_income_tax consequences of a proposed transaction additional information was received in subsequent letters submitted by mail and facsimile the rulings in this letter are based on the facts and representations submitted under penalties of perjury in support of the request verification of that information may be required as part of the audit process the material information is summarized below distributing is a u s_corporation that was incorporated on date1 more than years ago distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return plr-140094-03 distributing wholly owns sub1 and sub9 each of distributing sub1 and sub9 is a financial services holding_company sub1 owns all the stock of sub2 and sub8 sub2 owns directly or indirectly all of the stock of sub3 sub4 sub5 sub6 and sub7 sub9 owns all of the stock of sub10 which owns all of the stock of sub11 sub12 and sub13 distributing is engaged in two primary businesses through its subsidiaries the x business and the y business the x business is conducted by sub1 through its direct and indirect subsidiaries the y business is conducted by sub9 through its direct and indirect subsidiaries financial information has been submitted indicating that the x business and the y business each have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past years distributing has only one class of voting common_stock outstanding and only one class of preferred_stock outstanding all of the distributing voting common_stock is held by shareholders a b c d e f g h i j k and l in the respective amounts of a b c d e f g h i j k and l all of the distributing preferred_stock is held by shareholder m as nominee for bank1 bank1 in turn is the custodian for bank2 which is the trustee of a grantor_trust established by sub8 for the payment of amounts due in connection with the settlement of a class action lawsuit controlled is a corporation incorporated on date2 all of the stock of controlled will be held by distributing immediately prior to the distribution of the stock of controlled distributing has provided sufficient documentation indicating that shareholdera is a valuable employee of distributing shareholdera will cease to serve in such capacity unless i shareholdera is permitted to focus exclusively on distributing’s x business without having any relation to or responsibility over distributing’s y business and ii shareholdera receives an increased ownership_interest in distributing’s x business but not distributing’s y business for the foregoing reasons distributing has proposed the following transaction distributing will contribute to controlled all of the stock of sub9 in exchange for all of the controlled stock and a note issued by controlled in favor of shareholderb the controlled note sub1 will contribute all of the stock of sub8 to sub2 in constructive exchange for additional shares of sub2 stock i ii plr-140094-03 iii distributing will distribute all of the controlled stock on a non pro-rata basis to shareholders c-l in exchange for an amount of distributing common_stock approximately equal to the fair_market_value of the controlled stock that shareholders c-l each receive iv distributing will distribute the controlled note to shareholderb in exchange for an approximately equal amount by value of shareholderb’s distributing common_stock as a result of the foregoing transaction the percentage of outstanding distributing common_stock owned by shareholdera shall increase from a to m prior to the distribution of controlled stock distributing and controlled plan to enter into a separation and distribution agreement a tax_sharing_agreement an employee_benefits agreement and a transition services agreement on terms similar to those that would be agreed to by parties bargaining at arm’s-length after the proposed transaction distributing and controlled will continue certain transitional arrangements and practices for a limited time on terms similar to those that would be agreed to by parties bargaining at arm’s-length in addition sub9 paid a cash dividend of dollar_figuren to distributing on date3 and distributing anticipates that sub9 will pay additional cash dividends to distributing prior to the contribution of the stock of sub9 to controlled collectively referred to herein as the sub9 dividend distributions in connection with the proposed transaction it has been represented that the fair_market_value of the controlled stock to be received by shareholders c-l and the controlled note to be received by shareholderb will be approximately equal to the fair_market_value of the distributing stock surrendered by the shareholders in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation immediately after the distribution of controlled stock at least percent of the fair_market_value of the gross assets of distributing will consist of the stock of sub1 a controlled_corporation engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 a b c plr-140094-03 immediately after the distribution of controlled stock at least percent of the fair_market_value of the gross assets of sub1 will consist of the stock of sub2 a controlled_corporation engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of distributing sub1 and sub2 is representative of the present operations of distributing sub1 and sub2 and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted immediately after the distribution of controlled stock the fair_market_value of the gross assets of the x business directly conducted by sub2 will equal at least five percent of the total fair_market_value of the gross assets of sub2 immediately after the distribution of controlled stock at least percent of the fair_market_value of the gross assets of controlled will consist of the stock of sub9 a controlled_corporation engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the distribution of controlled stock at least percent of the fair_market_value of the gross assets of sub9 will consist of the stock of sub10 a controlled_corporation engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the five years of financial information submitted on behalf of sub9 and sub10 is representative of the present operations of sub9 and sub10 and with regard to such corporations there have been no substantial operational changes since the date of the last financial statements submitted immediately after the distribution of controlled stock the fair_market_value of the gross assets of the y business directly conducted by sub10 will equal at least five percent of the total fair_market_value of the gross assets of sub10 following the distribution of controlled stock distributing and controlled will each continue independently and with its separate employees the active_conduct of the x business and the y business respectively d e f g h i j k plr-140094-03 l m n o p q r s the distribution of controlled stock will be carried out for the following business_purpose to retain a key_employee the distribution of controlled stock is motivated in whole or substantial part by the corporate business_purpose there is no plan or intention by the shareholders or security holders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in or securities of either distributing or controlled after the transaction there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of revproc_96_30 sec_4 b there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business except in connection with continuing transactions under the intercompany agreements no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled stock immediately before the distribution of controlled stock items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing’s excess_loss_account if any with respect to the controlled stock will be included in income immediately before the distribution of controlled stock see sec_1_1502-19 payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm s length no two parties to the transaction are investment companies as defined in sec_368 and iv plr-140094-03 t u v for purposes of sec_355 immediately after the distribution of controlled stock no person determined by applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution of controlled stock for purposes of sec_355 immediately after the distribution of controlled stock no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution of controlled stock or ii attributable to distributions on distributing stock that were acquired by purchase as defined by sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution of controlled stock the distribution of controlled stock is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled entitled to vote or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled based solely on the information submitted and the representations set forth above we rule as follows regarding the transaction the sub9 dividend distributions as described above shall be treated in the manner provided in sec_301 sec_301 the transfer by distributing of assets in exchange for controlled stock and the controlled note followed by the distribution of controlled stock and the controlled note will be a reorganization within the meaning of sec_368 distributing and controlled each will be a party to a plr-140094-03 reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the transfer of assets to controlled in exchange for controlled stock and the controlled note sec_357 and sec_361 no gain_or_loss will be recognized by controlled on the receipt of assets from distributing in exchange for controlled stock and the controlled note sec_1032 the basis of each asset received by controlled from distributing will equal the basis of such asset in the hands of distributing immediately prior to the transaction sec_362 the holding_period of each asset received by controlled from distributing will include the period during which distributing held such asset sec_1223 no gain_or_loss will be recognized by distributing upon the distribution to its shareholders of the stock of controlled and the controlled note in exchange for distributing stock held by such shareholders sec_361 sec_355 sec_355 no gain_or_loss will be recognized by and no amount will be includible in the income of the shareholders of distributing on the receipt of stock of controlled in exchange for distributing stock sec_355 shareholderb will recognize the entire amount of gain_or_loss as determined under sec_1001 on the exchange of distributing stock for the controlled note sec_1001 the aggregate basis of the distributing stock and the controlled stock held by each of shareholders c-l immediately after the distribution of controlled stock will equal the aggregate basis of each of such shareholder’s distributing stock held immediately before the distribution of controlled stock allocated in the manner described in sec_1_358-2 sec_358 sec_1_358-1 the holding_period of the controlled stock received by shareholders c-l will include the holding_period of the distributing stock surrendered in exchange therefor provided the distributing stock is held as a capital plr-140094-03 asset by such shareholders on the date of the distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 and sec_1_1502-33 except as expressly provided herein no opinion is expressed or implied a copy of this letter must be attached to any income_tax return to which it is concerning the tax treatment of the transaction under any other provision of the code or with respect to consequences of any aspect of any transaction or item discussed or referenced in the rulings contained in this letter relevant the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative this ruling is directed only to the taxpayer s requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this sincerely thomas i russell assistant to the branch chief branch office of associate chief_counsel corporate


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date conex-105364-07 office_of_chief_counsel number info release date uil the honorable bill nelson united_states senator landmark two east robinson street suite orlando fl dear senator nelson i am responding to your inquiry dated date on behalf of --------------- -------- --------- ---------------is engaging in a reverse_like-kind_exchange of real_property an exchange in which a taxpayer acquires replacement_property and subsequently disposes of like-kind_property relinquished_property she has only a month remaining to sell the relinquished_property to complete the exchange she states that given current conditions in florida she will probably not be able to make a timely sale she requests relief from capital_gains taxes when she sells the property to complete the exchange generally taxpayers must include in income all gain on the disposition of property an exception to this general_rule provides that taxpayers do not recognize gain_or_loss when they exchange property held for use in a trade_or_business or for investment for like-kind_property to be held for such uses sec_1031 of the of the internal_revenue_code the code we have issued guidance which provides a safe-harbor assuring that taxpayers will qualify for nonrecognition of gain under sec_1031 of the code if they complete a reverse_like-kind_exchange within days and meet other requirements revenue_procedure 2000_2_cb_308 modified by revproc_2004_51 c b i am enclosing copies of this guidance in reverse exchanges we can postpone the 180-day and other timeliness requirements of the safe-harbor in certain circumstances such as a transaction affected by a presidentially_declared_disaster sec_7508 and sec_7508a of the code -----------------exchange does not seem to qualify for a postponement however she may qualify to defer the gain on the disposition of the property she is trying to sell even if she does not complete the reverse exchange in the time set forth in the safe-harbor she can do this by entering into a deferred_like-kind_exchange that meets certain requirements including acquiring different like-kind replacement_property by the earlier of 180th day after the date she transfers the relinquished_property or the conex-105364-07 due_date of her tax_return for the tax_year that she transfers the relinquished_property i am enclosing a copy of publication sales_and_other_dispositions of assets which explains the rules applying to like-kind_exchanges including reverse like-kind_exchanges and deferred like-kind_exchanges i hope this information is helpful if we can assist you further please contact me or -- ----------------------------at --------------------- sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting enclosures


internal_revenue_service number release date index number --------------------- ------------------------------------------------------- ------------------------------- ---------------------------- ---------------------- -------------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc intl plr-109246-07 date date -------------------------------------------------------------- ----------------------------------- ----------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- taxpayer ------------------------------------------------------------------------------- entity ----------------------------------------------------------------------------- entity year ------------------------------------------------------------------ year ------------------------------------------------------------------ year ------------------------------------------------------------------ year ------------------------------------------------------------------ country a cpa firm -------- --------------------------- in re plr-109246-07 dear --------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 to file elections under sec_1_1503-2 or sec_1_1503-2t g i elections as applicable for year sec_1 through with respect to dual consolidated losses attributable to taxpayer’s and entity 1’s separate units owned indirectly through taxpayer’s and entity 1’s interests in entity as described below the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer a domestic_corporation was the common parent of a consolidated_group that included entity a domestic_corporation for year sec_1 through for year sec_1 through taxpayer and entity owned in the aggregate percent of the interests in entity entity an entity organized under the laws of country a is a partnership for u s tax purposes the interests in entity are separate units described in sec_1_1503-2 and hybrid_entity separate units described in sec_1_1503-2 during year sec_1 through entity conducted activities in country a that constituted a foreign_branch entity branch within the meaning of sec_1_367_a_-6t taxpayer’s and entity 1’s interests in entity branch owned indirectly through their interests in entity are separate units described in sec_1 c i a dual consolidated losses were attributable to taxpayer’s and entity 1’s interests in entity branch in year sec_1 through no dual consolidated losses were attributable to the interests in entity for year sec_1 through during year sec_1 through taxpayer relied on cpa firm for preparing and reviewing its federal_income_tax returns and to advise them regarding all forms elections and agreements required to be included in its federal_income_tax returns taxpayer also relied on cpa firm to determine whether any losses_incurred by entity were dual consolidated losses as described in sec_1_1503-2 based on advice received from cpa firm that the losses_incurred by entity were not dual consolidated losses because of the exception contained sec_1_1503-2 taxpayer did not file the elections with its federal_income_tax return for dual consolidated losses attributable to the interests in the entity branch for year sec_1 through in re plr-109246-07 sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the elections are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time to make these filings provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer and entity satisfied sec_301_9100-3 accordingly taxpayer on its own behalf and on behalf of entity is granted an extension of time of days from the date of this ruling letter to file the elections with respect to the dual consolidated losses attributable to the interests in entity branch for year sec_1 through taxpayer is not required to file annual certifications with respect to losses attributable to its or entity 1’s interest in entity branch because such interests are separate units described in sec_1_1503-2 sec_1_1503-2 therefore an extension of time is not necessary in this regard for taxable years prior to year taxpayer and entity failed to file the regulatory elections and agreements under sec_1_1503-2 with respect to dual consolidated losses attributable to taxpayer’s and entity 1’s interests in entity branch taxpayer and entity did not request relief for such filings however because the period for assessment and collection of tax for such years has expired under the rules of sec_6501 and no portion of the dual consolidated losses was included in a net_operating_loss that carried forward to a taxable_year for which such period has not expired the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the elections in re plr-109246-07 a copy of this ruling letter should be associated with the elections that are the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representatives ____________ john j merrick special counsel office of associate chief_counsel international enclosure copy for purpose-s sincerely


t c summary opinion united_states tax_court allan l blank petitioner v commissioner of internal revenue respondent docket no 1928-09s filed date allan l blank pro_se nathan h hall for respondent ruwe judge the petition in this case was filed pursuant to the provisions of section of the internal_revenue_code and in response to a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination this case is before the court on respondent’ sec_1 unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure motion for summary_judgment pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case petitioner resided in california at the time he filed the background petition on date a partially illegible but timely petition was filed contesting a notice_of_determination concerning petitioner’s tax_year a copy of which was attached to his petition on date petitioner filed an amended petition contesting the notice_of_determination stating irs never supplied documentation as requested at no time did irs produce documents as regards income after this case had been calendared for trial at the date san francisco california trial session of this court respondent filed a motion for summary_judgment captioned motion for partial summary_judgment motion for summary_judgment in the preamble thereof however respondent moves for summary adjudication in respondent’s favor upon all issues presented in this case a few weeks later respondent filed a supplement to the motion for summary_judgment clarifying that respondent is seeking summary adjudication for the year dealing with petitioner’s collection_due_process in the motion for summary_judgment respondent alleges that petitioner’s only dispute is with the underlying tax_liability that respondent sent to petitioner’s last_known_address a notice_of_deficiency for taxable_year and that petitioner filed a petition with the tax_court that the tax_court entered a decision resolving petitioner’s underlying liability for the taxable_year and that respondent’s appeals officer took into consideration the full administrative record before sustaining the final notice--notice of intent to levy attached to the motion for summary_judgment was a declaration by respondent’s appeals officer wherein she states that her determination to proceed with collection was based on a full review of the administrative record before me attached to the appeals officer’s declaration were exhibits the last of which was a form_4340 certificate of assessments payments and attached to the amended petition was a notice_of_deficiency dated date regarding petitioner’s tax_year respondent in his answer to the amended petition alleges that the petition in this case is timely with respect to both the collection action for tax_year and the deficiency action for tax_year in the light of the impropriety of filing one petition to contest both a notice_of_determination and a notice_of_deficiency the court by order dated date severed the deficiency and collection cases the deficiency case has been returned to the court’s general docket for further proceedings and assigned docket no 31250-09s other specified matters for petitioner’s tax_year that was current through date in respondent’s motion for summary_judgment respondent indicates that petitioner objects to the granting of the motion discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted where there is no genuine issue as to any material fact and a decision may be rendered as a matter of law rule a and b see also 98_tc_518 affd 17_f3d_965 7th cir 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 naftel v commissioner supra pincite however if there exists any reasonable doubt as to the facts at issue the motion must be denied wells v commissioner tcmemo_2010_5 citing 78_tc_412 respondent’s allegation that petitioner’s underlying tax_liability for has been assessed pursuant to a decision of this court would if true normally preclude petitioner from contesting his underlying tax_liability however the form_4340 attached to respondent’s motion for summary_judgment appears to be inconsistent with respondent’s allegation that the assessment was made pursuant to a decision of this court the form_4340 gives no indication that a notice_of_deficiency was mailed to petitioner or that the assessment was made pursuant to a decision of this court rather the form_4340 indicating an assessment_date of date states additional tax assessed by examination agreed audit deficiency prior to or day letter this statement on the form_4340 seems to contradict respondent’s allegation that respondent mailed to petitioner a statutory_notice_of_deficiency for taxable_year on date and that the tax was assessed pursuant to a decision of this court the apparent inconsistency between respondent’s allegation and the form_4340 raises sufficient doubt about the factual basis for respondent’s motion for summary_judgment so as to require us to deny the motion form_4340 is normally a readable and understandable history of transactions and events concerning a taxpayer’s account for a particular taxable_period see tufft v commissioner tcmemo_2009_59 and is ‘generally regarded as being sufficient proof in the absence of evidence to the contrary of the adequacy and propriety of notices and assessments that have been made ’ 123_tc_1 quoting 962_f2d_555 6th cir affd 412_f3d_819 7th cir in lien and levy cases under sec_6320 and sec_6330 we have encouraged respondent to include a form_4340 when making a motion for summary_judgment the chief_counsel of the internal_revenue_service has recognized the importance of submitting a form_4340 to the court when filing motions for summary_judgment and has instructed his attorneys as follows a certified copy of an updated form_4340 transcript should also be submitted with all summary_judgment motions the form_4340 transcript has been consistently requested by tax_court judges in summary_judgment cases even though this transcript is prepared after the issuance of the notice_of_determination submission of the form_4340 is not a violation of the record rule because it generally contains the same information originally reviewed by the appeals or settlement officer in making the cdp determination see bowman v commissioner tcmemo_2007_114 chief_counsel notice cc-2009-010 date of course it is of equal importance that any form_4340 used to support a motion for summary_judgment be verified as correctly describing the events and assessment shown on the form_4340 thus the chief_counsel has instructed his attorneys the form_4340 should be reviewed thoroughly and any issues raised by entries on the form_4340 or inconsistencies with other documents should be explained in the motion id we agree on the basis of the record before us we will deny respondent’s motion for summary_judgment as supplemented this case remains calendared for trial at the court’s date san francisco california trial session where the parties will have an opportunity to clarify and attempt to support their positions to reflect the foregoing an appropriate order will be issued