internal_revenue_service number release date index number 468a ---------------------------- --------------------------------------- --------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b6 plr-114591-09 date date re subsequent special transfer --------------------------------------------- legend taxpayer parent plant location date method commission a commission b commission c1 commission c2 fund director dear ------------- ------------------------------------- ein ---------------- ---------------------------------- ein ---------------- --------------------------------------------- -------------------------------- ---------------------- ----------- ------------------------------------------------ ------------------------------------------------------------------- ----------------------------------------------------- --------------------------------------------------------------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- this letter responds to your request dated --------------------- for a schedule of deduction amounts for a subsequent special transfer pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t c of the temporary income_tax regulations and a mandatory review of a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-3t f iii of the temporary income_tax regulations with regard to a qualified nuclear decommissioning reserve fund that the taxpayer has established for the plant and associated facilities taxpayer was previously granted schedules of ruling amounts and schedules of deduction amounts most recently on ------------------ taxpayer submitted supplemental plr-114591-09 information by letter on -----------------and ------------------ information was submitted pursuant to sec_1_468a-3t e taxpayer represents the facts and information relating to its request for a schedule of deduction amounts and a schedule of ruling amounts as follows taxpayer a subsidiary of parent is included in a consolidated_return filed by parent taxpayer is the sole owner and operator of the plant the plant is situated at location plant’s amended operating license is scheduled to expire on date the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a commission b and commission c1 and commission c2 the jurisdictional percentages for these commissions are ----------- ----------- --------- and ----------- respectively none of the commissions have amended any aspects of taxpayer’s recovery_of decommissioning costs since the most recent schedule of ruling amounts based upon the assumptions used in taxpayer’s most recent schedule of ruling amounts as adopted by commission a commission b commission c1 and commission c2 it is estimated that fund assets will earn an after-tax rate of return of --- ---- percent the total cost of decommissioning plant is estimated to be dollar_figure------------------- ------- dollars this base cost of decommissioning plant is escalated at a ---- percent yearly rate resulting in a total future cost to taxpayer of decommissioning plant of dollar_figure----- ------------------- ------- dollars under ratemaking assumptions used during the first proceeding before commission a the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is --- years --------------- and the estimated period for which the fund is to be in effect is --- years --------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was -------- percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount plr-114591-09 included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying plr-114591-09 interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the plr-114591-09 temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year plr-114591-09 sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute --- -------- percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act plr-114591-09 thus taxpayer is able to contribute the additional -------- percent of the amounts necessary to decommission its ownership share of plant the original special transfer occurred in ------- and relates back to the ------- tax_year the value of this special transfer is dollar_figure----------------- ------- dollars this amount represents -------- percent of the amounts necessary for taxpayer to decommission its ownership share of the plant as a result the taxpayer is now able to contribute -------- percent of the amounts necessary to decommission its ownership of the plant taxpayer may deduct the amount of the subsequent special transfer in ------- the value of the subsequent special transfer is dollar_figure---------------- ------- dollars the total future cost of decommissioning the plant as of the date of this request is dollar_figure----------------- ------- dollars the value of that amount as of the date of this request is dollar_figure------------------ ------- dollars we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that because the useful_life of the plant as defined by sec_1_468a-3t c ended in ------- taxpayer may make a subsequent special transfer of dollar_figure--------------- ------- dollars in ----- ------- as set forth below schedule of deduction amounts year ------- deduction amount dollar_figure----------------- the subsequent special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for ------- in order to make an additional special transfer in a later year taxpayer must request a new schedule of deduction amounts and in that request must take the ------- transfer into account and recalculate the pre-2005 qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations plr-114591-09 thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations pursuant to sec_1_468a-3t a taxpayer has demonstrated that by following the assumptions approved by the commissions the proposed schedule of ruling amounts is consistent with the principles of sec_468a and the regulations thereunder and that such schedule is based on reasonable assumptions the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year each year ------------ comm a dollar_figure------------ comm b dollar_figure------------ comm c comm c-other dollar_figure---------- dollar_figure-------- total dollar_figure--------------- if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-114591-09 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office the original of this letter is being sent to the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the director and to the taxpayer pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


internal_revenue_service number release date index numbers --------------------------------------- ------------------------------- ---------------------------------- ---------------------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-115340-08 date date x -------------------------------------------------- ---------------------------------------- y --------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ a -------------------------- ---------------------------------------------------- ------------------------- b ---------------------------------------------------- country d1 --------- ------------------ dear -------------- this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 effective d1 facts according to the information submitted x was formed on or about d1 as a y under the laws of country at the time of its formation x was owned by two members plr-115340-08 a and b and was classified as an association_taxable_as_a_corporation for federal tax purposes the members of x intended that x be classified as a partnership for federal tax purposes effective d1 the members of x relied upon a qualified_tax professional to advise them concerning the election to classify x as a partnership however due to inadvertence the qualified_tax professional failed to advise x concerning the election and x failed to file timely form_8832 entity classification election law and analysis sec_301_7701-1 provides that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 sec_301_7701-3 and sec_301_7701-4 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under paragraph c i of that section will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-115340-08 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 the authorized representatives listed in your power_of_attorney sincerely william p o’shea william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 tege eoeg eo plr-138312-12 date date entity company -------------------------------------------------- -------------------------------------------- ------------------------ state --------------- jurisdiction -------------- agreement --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------- date ---------------------- dear ---------------- this letter responds to a letter from your authorized representative signed date submitted on behalf of the entity and company the taxpayers requesting a ruling that company’s income will be excluded from gross_income under sec_115 of the internal_revenue_code the taxpayers represent the facts as follows facts entity was created and is operated under state law as an agency of state its purpose is to provide professional investment management of various trusts and operating funds established under the laws of state entity has broad authority to invest and reinvest to collect income and rents to acquire manage and sell real_estate and to employ outside counsel and contractors plr-138312-12 entity formed company on date as a limited_liability_company under the laws of jurisdiction entity is the sole member of company the agreement provides that no party other than a state a political_subdivision of a state or an entity whose income is excluded from gross_income under sec_115 may be admitted as a member of company entity is the initial manager of company with full and exclusive authority to handle company’s business affairs in accordance with the agreement the manager may delegate any of its authority to another person as long as the manager retains the power to direct and control the delegate entity may select any legal entity to serve as a successor manager under an advisory agreement to be reached between the successor and company entity may remove a successor manager at any time with or without cause company’s purpose as stated in the agreement is to acquire hold and sell investments and to engage in any lawful business_company will engage in a variety of trading and investment strategies for entity including acquiring holding and selling public or private equities public or private debt commodities real_estate and interests in trading and investment partnerships company may use short_sales and leverage and certain derivative instruments such as total return swaps company may open in its own name bank accounts prime brokerage accounts custody accounts and other such financial accounts as it deems appropriate in executing its strategies it may enter into contracts with counterparties including isda agreements entity will contribute cash or other assets to company allowing it to engage in its trading and investment strategies entity or any third-party external manager selected by entity will identify trading opportunities obtain necessary accounts and execute trades as the sole member of company entity will be allocated all company profits and losses and will receive all distributions from company upon the company’s dissolution and after the satisfaction of its legal obligations all of company’s remaining assets will be distributed to entity entity will bear all risk of loss from company limited to the amount of its capital contributions law and analysis sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable plr-138312-12 from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the income of an organization formed funded and operated by political subdivisions to pool various risks arising from their obligations regarding public liability workers’ compensation or employees’ health is excludable from gross_income under sec_115 in this ruling private interests did not materially participate in the organization nor did they benefit more than incidentally from the organization company enables entity to invest a portion of the trusts operating funds capital funds and property of state and to engage in certain investment strategies while limiting entity’s exposure to the risks of such investments providing such means for investing public assets and for limiting investment risk constitutes the performance of essential governmental functions see revrul_90_74 and revrul_77_261 all of company’s income accrues to entity an agency of state entity is allocated all company profits and losses and receives all company distributions no private interests participate in or benefit from the operation of company other than as providers of goods or services the benefit to third-party investors is incidental to the public benefit upon company’s dissolution no assets remaining after winding up will be distributed to any entity other than a state a subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 see revrul_90_74 ruling based solely on the facts and representations submitted by the taxpayers we conclude that the income of company is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 consequently we rule that company’s income is excludable from gross_income under sec_115 plr-138312-12 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code under a power_of_attorney on file with this office we are sending copies of this letter to your authorized representatives this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely sylvia hunt assistant chief exempt_organizations branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b07- plr-137137-02 date date legend a b c d e f g h j k l agreement date date date date date date dollar_figurea dollar_figureb dollar_figurec x y site x site y site z dear this letter responds to a letter dated date submitted on behalf of a by its authorized representative requesting rulings under sec_29 and sec_702 of the internal_revenue_code facts the facts as represented by a and a's authorized representative are as follows a is a limited_liability_company wholly owned by b a delaware limited_partnership a is treated as a disregarded_entity for federal_income_tax purposes and its activities are treated in the same manner as a branch or division of its owner b which has two partners the partners of b c and d are members of the consolidated tax group of which e is the parent b has made and is expected to continue to make periodic cash capital contributions to a to enable it to pay its operating costs and other obligations on date a agreed to acquire a synfuel manufacturing_facility the facility from f pursuant to the terms of the agreement a agreed to pay a fixed amount in cash plus contingent payments over time for the facility the amount of the purchase_price was modified by a first amendment to the agreement effective as of date and a second amendment to the agreement effective as of date and a third amendment as of date approximately dollar_figurea of the fixed portion of the purchase_price had been paid_by date another dollar_figureb is to be paid when a favorable ruling is received from the service the remainder of the fixed portion will be paid over time at the rate of dollar_figurec a calendar_quarter until date the contingent payments are also made quarterly they are calculated as x of the sec_29 tax_credits from synfuel production but only on the first y tons a year of annual production a represents that based on the expected production level of y tons per year the net present_value of the cash and the fixed payment obligations of a will exceed of the net present_value of the total consideration payable by a to f in connection with the acquisition of the facility prior to closing f agreed to move the facility from a storage_facility in site x to site y which was leased by a from g f also had to run tests to show that the facility had been properly reassembled at the new site these conditions were satisfied and a acquired ownership of the facility on date on date an affiliate of f received plr which rules on certain issues similar to this letter the facility was constructed pursuant to a written contract entered into by h and j on date j assigned the contract to an affiliate of f which then reassigned the agreement to another affiliate both assignments occurred in then in the second affiliate contributed the contract to the capital of f the contract provides for liquidated_damages of at least five percent of the cost of the facility it also includes a description of the facility to be constructed a completion date and a price the construction_contract is valid under state law the facility was originally constructed in site z in and operated at the site through date f disassembled the plant starting in and moved it to the storage_facility at site x pending a sale and move to a new site the facility consists of the equipment necessary for the production of a solid synthetic_fuel from coal the facility can be moved from one site to another depending on the availability price and location of coal feedstock as well as other factors repairs were made and certain parts were replaced at the facility in connection with the move following the relocation to site y the fair_market_value of the original property comprising a part of the facility was more than of the facility's total value the cost of the new property plus the value of the original property a entered into a facility operating and maintenance agreement with k for the operation and maintenance of the facility certain feedstock and synfuel handling services are being provided by g under the terms of the site lease a pro forma attached to the ruling_request shows that project expenses are projected to exceed revenues a uses its parent b to buy feedstock for it in the spot market b currently has contracts to purchase feedstock from three suppliers but it may also buy from other sources the feedstock is coal or crushed coal comprised of particles the majority of which by weight are no larger than of an inch pursuant to a binder supply agreement l is the exclusive provider of chemical reagent to a although l has been promised that it will be the exclusive supplier a can go elsewhere after giving notice that its customers have complained of problems with the synfuel that are attributable to the reagent -- at least until l gives notice that it is again able to perform the output is sold by b or a to third parties either in the spot market or under contracts negotiated with customers most output sales agreements have a term of one year or less and cover increments of big_number to big_number tons of synfuel a has supplied a detailed description of the process employed in the facility for the production of synthetic_fuel as described the facility and the process implemented in the facility meet the requirements of revproc_2001_34 2001_22_irb_1293 a submitted a study comparing the chemistry of the feedstock to actual output from the facility at the new site the study concludes that there are significant differences in the chemical and molecular structure of the synfuel compared to the ingredients from which it was produced the limited_partnership agreement of b provides that tax_credits cash and taxable_income and loss are to be allocated between the members in the same ratio as their percentage interests in b the rulings requested by a are as follows the synfuel produced at a's facility is a qualified_fuel within the meaning of sec_29 the contract for the construction of the facility satisfies the requirement in sec_29 for a written binding contract before date provided the facility was placed_in_service within the meaning of sec_29 in time to qualify for tax_credits neither the relocations of the facility nor the replacement of parts of the facility described in the ruling_request will result in a new placed-in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed-in-service in addition subsequent relocations of the facility to different sites or the replacement of parts of the facility will not result in a new placed- in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed-in-service if the fair_market_value of the original property is more than of the facility's fair_market_value immediately following the relocation or replacement production of qualified_fuel from the facility will be attributable solely to b and b is entitled to all the sec_29 tax_credits on fuel produced at the facility and sold by a or b to unrelated persons if a becomes a partnership for tax purposes the sec_29 tax_credits to which a is entitled will pass through and be allocated among members of a under the principles of sec_702 if a becomes a partnership for tax purposes and a later terminates and is reconstituted under sec_708 after a sale_or_exchange of membership interests in a neither the conversion to a partnership nor the termination and reconstitution under sec_708 will preclude the reconstituted partnership from continuing to claim sec_29 tax_credits for synthetic_fuel that is produced at the facility and sold to unrelated persons ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer the credit for the taxable_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold sec_29 defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 and its regulations is relevant to the interpretation of the term under sec_29 former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel revrul_86_100 notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 of the income_tax regulations in revproc_2001_30 2001_19_irb_1163 the service announced that it will resume issuance of rulings under sec_29 for processes that do not go beyond the processes approved in the rulings issued prior to the service also reaffirmed its view that the significant chemical change standard of revrul_86_100 is the correct standard sec_3 of revproc_2001_34 2001_22_irb_1293 provides that the service will issue rulings that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 if the conditions set forth below are satisfied and evidence is presented that all or substantially_all of the coal used as feedstock undergoes a significant chemical change the conditions are that the feedstock coal consists of coal fines or crushed coal comprised of particles the majority of which by weight are no larger than inch the feedstock coal is thoroughly mixed in a mixer a with styrene or other monomers b with quinoline c9h7n or other organic resin and left to cure for several days c with ultra heavy hydrocarbons or d with an aluminum and or magnesium silicate binder following heating to a minimum temperature of degrees fahrenheit and the treated feedstock is subjected to elevated temperature and pressure that results in briquettes pellets or an extruded fuel product or the taxpayer represents that that omission of this procedure will not significantly increase the production of the facility over the remainder of the period during which the sec_29 credit is allowable based on the information submitted by a and a's authorized representative including the test results submitted by a we conclude that the conditions of revproc_2001_34 are met and that the process and reagents used in the facility as described in a's ruling_request produce a significant chemical change to the coal transforming the coal feedstock into a solid synthetic_fuel produced from coal therefore we conclude that the fuel produced at the facility using the process is a solid synthetic_fuel produced from coal that constitutes a qualified_fuel within the meaning of sec_29 ruling_request sec_29 and f provide that sec_29 applies with respect to qualified_fuels that are produced in a facility placed_in_service after date and before date and which are sold before date sec_29 modifies sec_29 in the case of a facility producing qualified_fuels described in sec_29 which qualified_fuels include solid synthetic fuels produced from coal or lignite sec_29 provides that for purposes of sec_29 a facility shall be treated as placed_in_service before date if the facility is placed_in_service before date pursuant to a binding written contract in effect before date sec_29 provides that if the facility is originally placed_in_service after date sec_29 shall be applied by substituting date for date a contract is binding only if it is enforceable under local law against a taxpayer and does not limit damages to a specified amount eg by use of a liquidated_damages provision a contract provision limiting damages to an amount equal to at least five percent of the total_contract_price for example should be treated as not limiting damages the construction_contract executed prior to date includes liquidated_damages of at least five percent as well as such essential features as a description of the facility to be constructed a completion date and a price therefore we conclude that the construction_contract is a binding written contract in effect before date within the meaning of sec_29 ruling_request to qualify for the sec_29 credit the facility must be placed_in_service before date pursuant to a binding written contract in effect before date while sec_29 does not define placed_in_service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit property is placed_in_service in the taxable_year in which it is placed in a condition or state of readiness and availability for a specifically assigned function sec_1 a - e i and d ii of the income_tax regulations placed_in_service has consistently been construed as having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 when property is placed_in_service is a factual determination and we express no opinion on when the facility was placed_in_service revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 has been interpreted to mean that for purposes of sec_45 a relocated facility will not get a new in-service date even though it contains some new property provided the fair_market_value of the used_property is at least percent of the facility's total value the cost of the new property plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 provided the facility was placed_in_service within the meaning of sec_29 in time to qualify for tax_credits neither the relocations of the facility or the replacement of parts of the facility described in the ruling_request will result in a new placed-in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed_in_service in addition subsequent relocations of the facility or the replacement of parts of the facility will not result in a new placed-in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed_in_service if the fair_market_value of the original property is more than percent of the facility's total fair_market_value immediately following the relocation or replacement ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer under sec_7701 taxpayer means any person subject_to any internal revenue tax furthermore sec_7701 generally provides that the term person includes an individual a_trust estate partnership_association company or corporation a owns the facility and through a contract operator a operates and maintains the facility a or b sells the resulting qualified_fuel however a is treated as a disregarded_entity within the meaning of regulations sec_301_7701-2 and a's activities are treated in the same manner as a branch or division of its owner b accordingly b is the taxpayer for purposes of sec_29 of the code because a partnership such as b is a taxpayer under sec_7701 therefore all production of qualified_fuel from the facility will be attributable solely to b within the meaning of sec_29 and b will be entitled to all the sec_29 credits for the production of qualified_fuel from the facility that is sold to unrelated persons ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer sec_7701 provides that taxpayer means any person subject_to any internal revenue tax generally under sec_7701 the term person includes an individual a_trust estate partnership_association company or corporation sec_702 provides that each partner determines the partner's income_tax by taking into account separately the partner's_distributive_share of the partnership's other items of income gain loss deduction or credit to the extent provided by regulations prescribed by the secretary sec_1_702-1 provides that the distributive_share is determined as provided in sec_704 and sec_1_704-1 sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit is except as otherwise provided in chapter of subtitle a of title_26 determined by the partnership_agreement sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit or item thereof is determined in accordance with the partner's_interest_in_the_partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner's_distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 provides that allocations of tax_credits and tax_credit recapture except for sec_38 property are not reflected by adjustments to the partners' capital accounts thus these allocations cannot have economic_effect under sec_1_704-1 and the tax_credits and tax_credit recapture must be allocated in accordance with the partners' interests in the partnership as of the time the tax_credit or credit recapture arises if a partnership expenditure whether or not deductible that gives rise to a tax_credit in a partnership_tax_year also gives rise to valid allocations of partnership loss or deduction or other downward capital_account adjustments for the year then the partners' interests in the partnership with respect to such credit or the cost giving rise to it are in the same proportion as the partners' respective distributive shares of the loss or deduction and adjustments see sec_1_704-1 example identical principles apply in determining the partners' interests in the partnership with respect to tax_credits that arise from receipts of the partnership whether or not taxable based on the information submitted and the representations made we conclude that if a becomes a partnership for tax purposes the sec_29 tax_credits to which a is entitled will pass through and be allocated among the members of a under the principles of sec_702 in accordance with each partner's interest in a as of the time the credit arises ruling_request the sec_29 credit has always been a time-sensitive credit in that eligibility for the credit is determined when facilities or wells producing qualified_fuels are placed_in_service and when the qualifying fuels are produced and sold to unrelated persons for example the sec_44d credit as originally enacted in the crude_oil windfall profit tax act of was generally available for the production and sale of alternative fuels after date and before january1 on property that first began production after date congress has extended the sec_29 credit four times the placed-in-service deadline and the period for claiming the sec_29 credit were extended in the technical_and_miscellaneous_revenue_act_of_1988 for placed_in_service omnibus budget reconciliation act of for placed_in_service and for the end of the credit_period energy policy act of for placed_in_service and for the end of the credit_period and small_business job protection act of date for placed_in_service if sec_29 were read as requiring facilities producing qualified_fuels to be placed_in_service by the taxpayer facilities placed_in_service before that are sold or transferred to a new taxpayer after would entitle the purchaser transferee to claim the sec_29 credit it is clear from the legislative_history of sec_44d that congress intended the credit to apply to facilities placed_in_service after and that the placed-in-service deadline in sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the owner of the facility the legislative_history of sec_44d clearly shows that congress wanted to encourage the production of new alternative fuels from facilities first placed_in_service after and not provide a tax incentive for production capacity in service before accordingly the determination of whether a facility has satisfied the placed-in- service deadline under either sec_29 or sec_29 is made by reference to when the facility is first placed_in_service not when the facility is transferred to a different taxpayer sec_708 provides that a partnership shall be considered as terminated if within a 12-month_period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either by the continuation of the business by the new partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date as discussed above the placed-in-service deadline in sec_29 and sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the taxpayer owning the facility accordingly the determination of whether a facility has satisfied the placed-in- service deadline under sec_29 and sec_29 is made by reference to when the facility is first placed_in_service not when the facility is placed_in_service by a transferee taxpayer therefore we conclude that if a becomes a partnership for tax purposes and it later terminates and is reconstituted under sec_708 such termination will not preclude the reconstituted partnership from claiming the sec_29 credit for the production and sale of synthetic_fuel from the facility to unrelated persons conclusions accordingly based on the information submitted and the representations of a and a's authorized representative we conclude as follows the synfuel produced at the facility using the specified reagent is a qualified_fuel within the meaning of sec_29 the contract for the construction of the facility satisfies the requirement in sec_29 for a written binding contract before date provided the facility was placed_in_service within the meaning of sec_29 in time to qualify for tax_credits neither the relocations of the facility nor the replacement of parts of the facility described in the ruling_request will result in a new placed-in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed-in-service in addition subsequent relocations of the facility to different sites or the replacement of parts of the facility will not result in a new placed- in-service date for the facility or otherwise prevent the facility from continuing to be treated as placed-in-service if the fair_market_value of the original property is more than of the facility's fair_market_value immediately following the relocation or replacement production of qualified_fuel from the facility will be attributable solely to b and b is entitled to all the sec_29 credits on fuel produced at the facility and sold by a or b to unrelated persons if a becomes a partnership for tax purposes the sec_29 tax_credits resulting from the production and sale of qualified_fuel by a from the facility will be attributable solely to a and the sec_29 credits will pass through and be allocated among the members of a under the principles of sec_702 if a becomes a partnership for tax purposes and a later terminates and is reconstituted under sec_708 after a sale_or_exchange of membership interests in a neither the conversion to a partnership nor the termination and reconstitution under sec_708 will preclude the reconstituted partnership from continuing to claim sec_29 credits for synthetic_fuel that is produced at the facility and sold to unrelated persons except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above specifically we express no opinion on when the facility was placed_in_service for purposes of sec_29 this ruling is directly only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see section dollar_figure of revproc_2002_1 2002_1_irb_1 however when the criteria in section dollar_figure of revproc_2002_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a's authorized representative this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely joseph h makurath senior technician reviewer office of associate chief_counsel passthroughs and special industries


internal_revenue_service te_ge technical_advice_memorandum release number release date uil code dec taxpayer's name taxpayer's address taxpayer's id no year s involved conference held legend taxpayer issue whether the commissioner te_ge should exercise discretion to grant the taxpayer relief under sec_7805 of the internal_revenue_code to limit the retroactive effect of the revocation of its exempt status under sec_501 ‘facts application_for exemption the taxpayer applied for tax-exempt status describing its activities on the form_1023 it stated that it was formed to educate the public about personal money management skills and assist needy predominantly low-income individuals and families with their financial problems to achieve this objective taxpayer stated that it would engage in the following activities when taxpayer submitted the form_1023 it also represented that it would initially spend about _ percent of its time effort and resources on activity relating to providing information it estimated that it would spend about percent of its time effort and recourses on activity relating to counseling it estimated that the remainder of its time and resources would be spent on activity relating to budget planning eventually these percentages would change to percent for activity and -_ percent for activity percent for activity taxpayer expected about _ percent of its revenue to come from voluntary payments from creditors and clients participating in its budget plans based upon these representations the service issued a favorable determination_letter to taxpayer examination the examination concluded that substantially_all of taxpayer's activities during the years under examination consisted of dmp sales conducted through telemarketing and use of lead providers it evaluated employees based on the number of dmps they sold furthermore taxpayer did not counsel or educate individuals or families about personal finance budgeting or credit the examination found that while taxpayer made a few presentations to local schools via the telephone it had little other educational activity the telemarketing calls taxpayer made only screened potential customers for the ability to make payments that met creditors’ requirements fora dmp taxpayer did not report these changes in operation to the service taxpayer appealed the proposed revocation appeals sustained the revocation following the appeals process the national_office received this request for relief from retroactive revocation as a mandatory tam - legal standard sec_7805 of the code provides that the secretary may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal ' frevenue laws shail be applied without retroactive effect sec_1_501_a_-1 of the income_tax regulations regulations state that an organization that has been determined by the commissioner to be exempt under sec_501 may rely upon such determination so long as there are no substantial changes in the organization’s character purposes or methods of operation and subject_to the commissioner’s inherent power_to_revoke rulings because of a change in the law or regulations or for other good cause sec_301_7805-1 of the procedure and administration regulations grants to the commissioner authority to prescribe the extent to which any ruling issued by his authorization shall be applied without retroactive effect revproc_2013_5 r b in section dollar_figure states that all requests for relief under sec_7805 of the code must be made through a request for technical_advice tam section dollar_figure states further that when during the course of an examination by eo examinations or consideration by the appeals area director a taxpayer is informed of a proposed revocation a request to limit the retroactive application of the revocation must itself be made in the form of a request for a tam and should discuss the items listed in section dollar_figure as they relate to the taxpayer's situation section of revproc_2013_5 lists the criteria necessary for granting sec_7805 relief as well as the effect of such relief section dollar_figure states in part that a tam that revokes a determination_letter is not applied retroactively if there has been no misstatement or omission of material facts the facts at the time of the transaction are not materially different from the facts on which the determination_letter was based there has been no change in the applicable law and the taxpayer directly involved in the determination_letter acted in good_faith in relying on the determination_letter and the retroactive revocation would be to the taxpayer’ s detriment revproc_2013_9 2013_2_irb_255 sets forth procedures for issuing determination letters from eo determinations and rulings on applications for recognition of exempt status by eo technical on the exempt status of organizations under sec_501 these procedures also apply to revocation or modification of determination letters or rulings section dollar_figure of revproc_2013_9 states in part that the revocation or modification of a determination_letter or ruling recognizing exemption may be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented in certain cases an organization may seek relief from retroactive revocation or modification of a determination or ruling under sec_7805 of the code using the procedures set forth in revproc_2013_4 which further refers to rev_proc and sec_12 of revproc_2013_9 states that where there is a material_change inconsistent with exemption in the character the purpose or the method of operation of an organization revocation or modification will ordinarily take effect as of the date of such material_change in 353_us_180 the supreme court held that the commissioner has broad discretion to revoke a it further held that a retroactive ruling may not be disturbed ruling retroactively uniess the commissioner abused the discretion vested in him u s pincite in 324_f2d_633 the court found far from convincing the foundation’s efforts to demonstrate that its information reports were adequate and sufficient to apprise the commissioner of its entry into the business activities which led to denial of its tax-exempt status shortly after receiving its tax-exempt ruling the foundation contracted with a for- profit company but failed to disclose this fact to the commissioner on its forms the court upheld the service's retroactive revocation in variety club tent no charities inc v commissioner 74_tcm_1485 the court held that petitioner operated in a manner materially different from that originally represented the organization represented in its exemption application and articles of incorporation that no part of its net_income would inure to the benefit of any private_shareholder_or_individual but the court found instances of inurement over several years and upheld the service's retroactive revocation for such years analysis during the years under exam taxpayer's operations were materially different from the description it provided in its exemption application see variety club tent no charities 74_tcm_1485 revproc_2013_9 sec_12 taxpayer's only substantial activity was marketing and enrolling individuals in dmps screening potential clients based on the creditors’ requirements although it had represented in its form_1023 that it would perform substantial educational activities taxpayer did not ascertain or provide education and services tailored to the financial needs and circumstances of the general_public finally taxpayer did not apprise the service of these material changes see stevens bros foundation f 2d pincite failure to adequately and sufficiently inform the service of material changes in operations therefore revocation may be retroactive to the year under examination when the service determined taxpayer had made material changes in its operations see automobile club of michigan u s pincite commissioner has broad discretion to revoke a ruling retroactively revproc_2013_8 sec_12 revocation ordinarily applies as of the date of material changes in operations - conclusion the commissioner tege has declined to exercise discretion to limit the retroactive effect of revocation of exempt status under sec_501 revocation is effective as of the first day of the first tax_year for which it was examined


internal_revenue_service department of the treasury sin -4941 contact tact p person no third party contacts washington dc telephone number in reference to date legend o t f o l i e i n i o i i h e o i o a f l u a u o t l d u o h i dear ladies and gentlemen this is in reply to your letter of date you have to rule on whether your proposed investment of funds asked us will constitute a direct or indirect act of self-dealing under sec_4941 of the internal_revenue_code asked us proposed investment advisory services will constitute self- dealing and whether the payment of such compensation will constitute inurement of your net_earnings to any private individual or entity to rule on whether your payment of compensation_for in addition you have you are a non-profit corporation and received a ruling that you have been classified as you are tax exempt under sec_501 within the meaning of sec_509 financial support has been and will continue to be contributions from your founder m received a contribution from n and may receive donations from employees of m through investment of contributions will be disbursed only to organizations which have qualified for exemption under sec_501 c these contributions plus the revenues produced a private_foundation your primary source of you state further that you have also the’ code on october of as a qo you propose to invest a substantial portion of your assets a family of retail by purchasing mutual_fund shares in mutual_fund companies legal entities organized as either corporations or business trusts you indicate that the number of separate funds under the umbrella of o may change periodically each separate_entity may have several different series with its own investment portfolio each series constitutes a fund which may issue one or more classes of shares report for each fund in which you propose to invest you have submitted a prospectus and annual currently consists of eleven separate is qo you also propose that a provide investment advisory services to manage your assets to the extent you invest in mutual funds to the extent you place assets in investments other than mutual funds b may provide investment advisory services would be paid compensation or advisory fees for services rendered based on the assets under management and rates would be no more than the customary fees and rates charged on a regular basis to m’s thousands of public customers you state that these fees both a and b you have supplied the following background information cc was created through the merger of m and d company that holds all of the stock of m holding_company c is a holding m is now a subsidiary neither m nor c conducts business operations a is a wholly-owned subsidiary of m your creator aisa e serves as underwriter to the funds and registered investment_advisor which provides investment advisory services to and receives an advisory fee from each separate fund based on the assets under management subsidiary of a receives a distribution fee from each fund based on the assets under management receive certain administrative fees from agreements between each fund and a and the underwriting agreements between each fund and e must be approved by the directors of each fund and may be cancelled upon days notice each advisory agreement and underwriting agreement will terminate automatically unless it a and f another wholly-owned subsidiary also is renewed annually by each fund a wholly-owned the advisory e is b provides advisory services to a and private accounts receives fees from a and each private account under separate service agreements based on assets under management 8b m appoints your board_of trustees serve as trustees for election as your day-to-day management is conducted by five officers appointed by the board_of trustees and c you have indicated that d will be nominated a trustee at the next appropriate board meeting your current officers are currently a b e 1g s c p e ran er id q g a president b vice president vice president e secretary treasurer and f executive director as of date b with his spouse owned of c’s common_stock b and his spouse owned an additional of c’s common_stock overall b and his spouse together with the family owned partnerships owned of c’s common_stock in addition two related partnerships owned by a with his spouse owned of c’s common_stock in addition several a family trusts owned of c’s common_stock overall a and his spouse together with the family trusts owned of c’s common_stock with his spouse owned of c's common_stock a related partnership owned an additional of the stock overall c c's common_stock his spouse and related partnership owned of d with her spouse owned of c's common_stock in addition a related d trust owned of the stock overall d her spouse and related entities owned of c's common_stock together a b and c collectively and together with their related parties owned of c’s common_stock included by virtue of her proposed election as individuals on your board_of trustees will hold collectively and together with their related parties of c’s common_stock a trustee if dis a serves on c’s board_of directors he is one of members and is ’s current vice president board_of directors of m and is its current chairman the chairman and a director of a chairman and a director of each of the funds required_by_law to have a majority of directors that are unaffiliated with m or any of its subsidiaries a is one of and f e he also serves as each fund i sec_4 members of the ais also is a member of c’s board_of directors he is one of the four members of the board_of m and is its current senior vice president president of each of the funds and may become a director in the future a director of e and f is senior vice c is he b serves on c’s board_of directors and on m's board b is the current president and chief_executive_officer of m managerial position addition b he is president and a director of each of the funds a director and president of a a director and senior vice president of e and f b is in is a senior q d e o i q t e r a dis the current vice president of m you indicate further that after the initial offering shares in each of m’s funds are owned by the investing public continuing ownership_interest in any given fund constitutes less that of the outstanding shares m's and potentially d your trustees a a b some of the funds b and c’s ownership interests together with their spouses and related parties constitute less than percent of the outstanding shares of any fund d’s ownership_interest in any of the funds is limited to less than you have stated that you will keep track of the ownership interests of your trustees and in m’s ownership of any of the funds in you will not invest or remain invested in any fund if the collective ownership_interest of your trustees and m equals or exceed sec_5 of the outstanding shares of such fund own shares in based on the above information you have requested the following rulings your purchase of shares in existing funds issued by q will not constitute a direct or indirect act of self-dealing between you and a disqualified_person under sec_4941 of the code your payment of compensation to a or b for investment advisory services will not constitute self-dealing under sec_4941 of the code provided that the compensation is not excessive in relation to the services provided by each of them your payment of compensation to a or b for investment advisory services will not constitute inurement of your net_earnings to the benefit of either a or b individual provided that the compensation paid is not excessive in relation to the services provided by them or any private sec_4941 of the code imposes a tax on each act of self-dealing between a private_foundation and a disqualified_person as defined in sec_4946 sec_4941 d a of the code defines the term self- dealing to mean any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person sec_4941 d of the code provides that the term self-dealing includes any direct or indirect payment of p e d c s e r e e w compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person sec_53_4941_d_-1 of the foundation and similar excise_tax regulations provides that for purposes of sec_4941 the term self-dealing means any direct or indirect transaction described in sec_53_4941_d_-2 of the regulations purposes of this section it results in a benefit or detriment to the private_foundation is immaterial whether the transaction for the regulations under sec_4941 restrict the application of the word indirect as found in sec_4941 by describing certain safe_harbor transactions that will not be treated as indirect self-dealing regulations provides in pertinent part as follows sec_53_4941_d_-1 of the a transactions with certain organizations transaction between a private_foundation and an erganization which is not controlled by the foundation within the meaning of subparagraph paragraph and which is not described in sec_4946 e a a percent of the total combined voting power of such organization shall not be treated as an indirect act of self-dealing between the foundation and such disqualified persons solely because of the ownership_interest of such persons in such organization because persons described in section own no more than of this b c d or control for purposes of this paragraph an organization is controlled by a private_foundation if the foundation or one or more of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing sec_4941 d e of the code provides in part that the payment of compensation by a private_foundation to a disqualified_person for personal services which are reasonable and necessary to carry out the exempt_purpose of the foundation shall not be an act of self-dealing if the compensation is not excessive sec_53_4941_d_-3 of the regulations provides that the payment of compensation and the payment of reimbursement of expenses including reasonable advances for expenses anticipated in the immediate future by a private_foundation to a o e y r e y e n a g y o r e s e disqualified_person for the performance of personal services which are reasonable and necessary to carry out the exempt purposes of the private_foundation shall not be an act of self- dealing if such compensation or payment or reimbursement is not excessive for purposes of this subparagraph the term personal services includes the services of a broker serving as agent for the private_foundation but not the services of a dealer who buys from the private_foundation as principal and resells to third parties excessive see sec_1_162-7 of the regulations paragraph applies without regard to whether the person who receives the compensation or payment or reimbursement is an individual for the determination whether compensation is this example of sec_53_4941_d_-3 of the regulations provides as follows a manager of private_foundation x c disqualified_person with respect to x owns an investment counseling business as an investment counselor c manages x's investment portfolio for which he receives an amount which is determined not to be excessive_compensation to c shall not constitute an act of self- dealing the payment of such acting in his capacity and hence a sec_4946 of the code states in pertinent part that the term disqualified_person means with respect toa private_foundation a person who is - a a substantial_contributor to the foundation b a foundation_manager an owner of more than percent of c combined voting power of a corporation which is substantial_contributor to the foundation i the total a a member_of_the_family including a spouse d children and grandchildren of any individual described in subparagraph a b c ox a corporation in which persons described in eb subparagraph a percent of the total combined voting power own more than b c d or sec_4946 of the code defines a foundation_manager as an officer director or trustee of individual having powers or responsibilities similar to those of a foundation or an o j o c o c q o e i q m a a r a officers directors or trustee and with respect to any act or failure to act the employees of the foundation having authority or responsibility with respect to such act to act or failure sec_4946 of the code states that a substantial_contributor is generally anyone individual corporate or entity who contributes or bequeaths more than dollar_figure toa private_foundation if total contributions and bequests received by the foundation before the close of its tax_year it amounts to more than two percent of the a e sec_4946 in determining a person’s stock holdings under section indicate that the ownership of stock by an individual’s family or by corporations partnerships or other entities in which the individual has an interest will be attributed to the stockholder and your first question whether your purchase of shares in existing funds will constitute a direct or indirect act of self-dealing falls within the purview of sec_4941 i a which includes a sale_or_exchange of property as an act of self-dealing the funds is determined to be a disqualified_person no act of self-dealing will occur unless any of the funds may be classified as disqualified persons with if i ii a a or they are substantial contributors a substantial_contributor and its since none of the funds has made any as determined by the attribution_rules of section respect to you if trustees own more than percent of the combined voting power a e contributions to you none of the funds is contributor a each of the funds is below the percent threshold addition sec_53_4941_d_-1 of the regulations provides a safe_harbor from any implication of indirect self-dealing between these parties disqualified persons your purchase of any of the existing funds in o will not constitute an act of direct or indirect self- dealing within the meaning of sec_4941 of the code because none of the funds are the combined holdings of m a substantial in and b a and din your second question is whether your payment of compensation to a or b for investment advisory services will constitute an act of self-dealing a and b are disqualified persons under sec_4946 because they are wholly owned subsidiaries of m substantial_contributor paid will be the same as those paid_by numerous unrelated members of the investing public on a regular basis for similar investment services investment advisory services are one type of personal you have stated that the fees to be a 1eseo5025 of the code and section similar services are of sec_53_4941_d_-3 services covered by sec_4941 e d -3 c of the regulations described in example the compensation you are to pay a and b for personal investment services is the same as those fees paid_by the general_public we conclude that the compensation is not excessive within the meaning of sec_53_4941_d_-3 such services also seem to be reasonable and necessary to carry out your exempt_purpose of generating funds for charitable_contributions through management of your investment portfolio payment of compensation to a and b will not constitute an act of self-dealing under sec_4941 accordingly your because your third question is whether your payment of compensation to a or b for investment advisory services constitutes inurement of your net_earnings to the benefit of either a or b private individual provided the compensation paid is not excessive in relation to the services provided c provides that inurement and undue private benefit are inconsistent with exemption and are prohibited of the code and the regulatory scheme thereunder section or any it is well established that an organization described in of the code is entitled to pay compensation_for sec_501 services rendered provided the compensation is reasonable in amount and not excessive in relation to the services provided see home oil mill v willingham aff'd 203_f2d_872 rev 5th cir cert_denied u s rul c b n d ala 181_f2d_9 5th cir f_supp as indicated above the compensation you propose to pay a and b for investment advisory services is not excessive you will be paying the same fees as members of the general_public purchasing shares of the funds because the compensation you will be paying is reasonable it will not constitute inurement nor undue private benefit and will not jeopardize your continued exemption under sec_501 of the code in conclusion based on the facts you have described we rule as follows your purchase of shares issued by will not constitute a direct or indirect act of self-dealing between you and a disqualified_person under sec_4941 of the code your payment of compensation to a or b for investment advisory services will not constitute self-dealing under section of the code provided that the compensation is not excessive in relation to the services provided by each of them advisory services will not constitute inurement of your net_earnings to the penefit of either a or b individual provided that the compensation paid is not excessive in relation to the services provided by them your payment of compensation to a or b for investment or any private this ruling is directed only to the organization that the code provides that it requested it may not be used or cited as precedent sec_6110 of we are informing the because this letter could help resolve any questions ep eo key district_office of this you should keep ruling about your exempt status and foundation status it in your permanent records if you have any immediate questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter including questions concerning reporting requirements please for other matters prot v back gerald v chief exempt_organizations sack technical branch


department of the treasury internal_revenue_service washington d c date contact person telephone number t eo ra t1 identification_number this letter responds to your request for general information on behalf of date date number info release date uil dear regarding the treatment of grants made by a united_states private_foundation or other grant-makers to a mexican charity determined by the government of mexico to be an article 70-b charity you further request information regarding what date united_states private_foundations or other grant-makers may begin to rely on a determination of article 70-b status mexican charity is governed by article of the united states-mexico income_tax convention treaty and paragraph of the accompanying protocol the current treaty was signed in and became effective on date for most provisions including article of the treaty and paragraph of the protocol each other's public_charities on a reciprocal basis with respect to exempting the organizations from tax paragraph of article allows for reciprocal recognition of exemption for organizations operated exclusively for religious scientific literary educational or charitable purposes to the extent that such organizations are exempt in the first contracting state income of these organizations is exempt from tax of a contracting state to the extent that it is exempt from tax in the other contracting state where it is a resident this allows for an organization formed in mexico that is determined by mexican authorities to be a religious scientific literary educational or charitable charity to be exempt from tax under united_states law the treatment of grants made by a u s private_foundation or other contributor to a article of the treaty provides that mexico and the united_states will recognize paragraph of the protocol stipulates that the united_states and mexico agree paragraph of article provides that if the united_states and mexico agree that mexican law requires standards essentially equivalent to u s standards for public_charities then an organization determined by mexican authorities to meet such standards shall be treated as a public charity under united_states law for purposes of grants by u s private_foundations and public_charities paragraph provides for similar treatment under mexican law for an organization determined to be a public charity by u s authorities that article 70-b of the mexican income_tax law and sec_509 and except for organizations described in sec_170 of the united_states internal_revenue_code provide essentially equivalent standards for organizations within their coverage within the meaning of paragraph sec_2 and of article of the treaty therefore a finding by the tax authorities of mexico that an organization qualifies under article 70-b or by the united_states tax authorities that an organization qualifies under sec_509 or except for an organization described in sec_170 shall be accepted by the other contracting state for the purpose of extending the benefits provided in article paragraph explains that article 70-b of mexican law and sec_509 and except for sec_170 are interpreted by the governing regulations and administrative rulings of mexico and the united_states respectively in effect on the date of the signing of the treaty it further cautions that if the competent_authority of the other contracting state determines that granting such benefits is inappropriate with respect to a particular organization or type of organization such benefits may be denied after consultation with the competent_authority of the first contracting state of the treaty and paragraph of the protocol accordingly if the mexican authorities have granted special authorization to a mexican charity as an organization described in article 70-b a u s private_foundation or other grant-maker may treat the mexican charity as equivalent to a sec_501 organization classified as a public charity described in sec_509 or except as an organization described in sec_170 mexican charities that have received article 70-b authorization are not at present listed in publication cumulative list of organizations described in sec_170 of the internal_revenue_code_of_1986 accordingly a u s private_foundation or other grant-maker will have to request such proof from the mexican charity such proof can be obtained either through a copy of a letter granting the special authorization from the mexican ministry of finance and public credit secretaria de hacienda y credito a u s private_foundation or other grant-maker may rely on the provisions of article publico to the mexican charity or by receipt of a copy of the current list of the mexican charities that have obtained the authorization as published in the official gazette el diario oficial de la federacion the date that u s private_foundations or other grant- makers may begin to rely on an article 70-b determination is the date that the mexican ministry of finance and public credit grants the authorization as determined by the date of the letter or date_of_issuance of the official gazette we hope this general information will be of assistance to you however this letter is not a ruling and may not be relied on as such if you have any questions about the contents of this letter please contact the person whose name and telephone number are shown in the heading of this letter marvin friedlander manager exempt_organizations technical group sincerely