t c no united_states tax_court michael and marla sklar petitioners v commissioner of internal revenue respondent docket no filed date ps paid tuition and fees of dollar_figure to two jewish day schools_for the religious and secular education of their five children in that amount includes dollar_figure that ps paid separately for an after-school orthodox jewish education class mishna for one of their children ps contend that they may deduct dollar_figure of those payments as a charitable_contribution under sec_170 i r c and that they are not liable for the accuracy- related penalty under sec_6662 i r c held none of ps’ payments for tuition fees and mishna classes in are deductible as charitable_contributions held further ps are not liable for the accuracy- related penalty under sec_6662 i r c jeffrey i zuckerman for petitioners louis b jack sherri wilder and julie e vandersluis for respondent colvin judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for and an accuracy-related_penalty of dollar_figure under sec_6662 after concessions the issues for decision are whether petitioners may deduct as a charitable_contribution dollar_figure of the dollar_figure in tuition and fees they paid in to orthodox jewish day schools_for the secular and religious education of their five children including dollar_figure they paid to one of the schools_for mishna classes we hold that they may not whether petitioners are liable for the accuracy-related_penalty for because they deducted tuition payments for their children’s secular and religious education we hold that they are not unless otherwise specified section references are to the internal_revenue_code as amended and rule references are to the tax_court rules_of_practice and procedure respondent concedes that petitioners are not liable for additional self-employment_tax thus petitioners are not entitled to a self-employment_tax deduction findings_of_fact some of the facts have been stipulated and are so found a petitioner sec_1 petitioners’ family and religion petitioners lived in north hollywood california when they filed the petition in this case during michael sklar petitioner was a self-employed certified_public_accountant petitioner marla sklar mrs sklar was a teacher petitioners are orthodox jews during petitioners had five children of school age we refer to them by their initials h s t s m s a s and another t s it is important to petitioners to pass to their children a devotion to their jewish faith schools attended by petitioners’ children petitioners have educated all of their children at emek hebrew academy emek and yeshiva rav isacsohn torath emeth academy yeshiva rav isacsohn private orthodox jewish day schools in the los angeles area that provide classes for boys and girls from preschool through eighth grade during the and school years the school years in issue petitioners’ children attended the schools and grade levels as follows child school attended school year jan -date sept -date h s yeshiva rav isacsohn 7th 6th t s 4th m s -- 1st none yeshiva rav isacsohn emek emek emek emek a s t s 8th 7th -- 5th 2d preschool petitioners’ educational goals and values petitioners did not consider sending their children to any school other than an orthodox jewish school petitioners sent their children to emek and yeshiva rav isacsohn because they deeply believe that they should provide their children with an orthodox jewish education in an orthodox jewish environment petitioners were primarily concerned with the religious component of their children’s education but they were also interested in the quality of their secular education b emek and yeshiva rav isacsohn general during emek and yeshiva rav isacsohn were exempt from federal_income_tax under sec_501 and qualified as organizations described in sec_170 ie an educational_organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted emek and yeshiva rav isacsohn gave their students daily exposure to jewish heritage and values students at emek and yeshiva rav isacsohn were required to adhere to traditional orthodox jewish dress codes in the bureau of jewish education of greater los angele sec_3 mandated that all jewish day schools in the los angeles area obtain academic accreditation by the western association of schools and colleges inc wasc is a regional association which accredits public and private_schools colleges and universities in the united_states yeshiva rav isacsohn became a candidate for academic accreditation by wasc on date emek became a candidate for academic accreditation by wasc on date wasc granted academic accreditation to both schools after they completed a 3-year self-study program yeshiva rav isacsohn was accredited as of date and emek was accredited on date both schools were engaged in the accreditation process during part or all of their accreditation was based in part on their programs during the bureau of jewish education of greater los angeles provides educational support services and financial assistance to jewish day schools in the los angeles area and imposes eligibility requirements on schools seeking its support accreditation certifies to other educational institutions and to the general_public that an institution meets established criteria or standards both schools earned accreditation for years which is the maximum period of accreditation awarded by wasc emek a general in emek believed its foremost goal was to help its students develop a devotion to jewish heritage and values emek sought to provide a thorough and well-balanced curriculum in both torah and secular studies so every student could succeed upon eighth grade graduation in the most rigorous yeshiva high schools and other institutions of higher learning boys and girls had separate classes lunch and recess at emek because of orthodox jewish religious considerations b religious studies the religious courses and periods of instruction at emek were virtually the same for both of the school years in issue on monday through thursday boys had prayers from to a m and religious classes from a m to p m the school day was compressed on friday to permit an early dismissal so that the students could be home in time for the sabbath which begins on friday at sunset on friday boys had religious classes from to a m girls had morning prayers each day from to a m on monday through thursday girls had four periods of judaic studies and afternoon prayers from to p m on friday girls had judaic studies from a m to p m followed by lunch from to p m and recess from to p m and three periods of judaic studies from to p m c secular studies emek aspired to provide a high-quality secular studies program on monday through thursday boys had five secular classes from to p m on friday boys had four secular classes from to p m on monday through thursday girls had four periods of secular studies from to a m after lunch and recess on monday through thursday girls had another period of secular studies from to p m on friday girls had four periods of secular studies from to a m emek had computer laboratories for its elementary and junior high school students emek did not have an elementary science enrichment teacher a music appreciation teacher or a full-time librarian emek’s elementary students did not have use of a gymnasium they shared outdoor facilities with a nearby synagogue emek’s junior high school students had athletic_facilities at sherman oaks california d standardized testing during emek administered the california test of basic skills ctbs to its students the ctbs is a grade-level- specific nationally normed test of language skills mathematics social studies history and science emek invited parents to come to the school to review their children’s ctbs scores so that they could learn their children’s strengths and needs emek also told each parent the percentile scores earned by each grade level e mishna class at emek one of petitioners’ children attended a mishna class at emek during the first half of for which petitioners paid a separate fee of dollar_figure mishna is part of the jewish oral law and is divided into six orders the goal was for each boy to complete one order each year and to complete all six orders before completion of eighth grade the mishna class was held for an hour after school and for an hour on sunday the mishna class at emek was not part of the regular curriculum yeshiva rav isacsohn a general in the primary goal of yeshiva rav isacsohn was to educate its students in the tenets of the jewish faith yeshiva rav isacsohn sought to provide a thorough and well-balanced curriculum consisting of orthodox judaism and secular studies an additional goal of yeshiva rav isacsohn was to prepare its students for matriculation to yeshiva high schools and to attend a college or seminary yeshiva rav isacsohn made a concerted effort to shelter its students from smoking alcohol and drugs boys and girls at yeshiva rav isacsohn occupied separate campuses with separate principals and had no classes together there were no joint programs and there was no time overlap in common facilities such as the library b religious studies in fifth grade boys had morning prayer and judaic studies from a m to p m on monday through thursday including an hour for lunch and recess from a m to p m on friday and from a m to p m on sunday with about minutes per day for prayer in eighth grade girls began the day pincite a m with prayer followed by classes in religious studies until p m on monday through thursday and until a m on friday c secular studies in fifth grade boys had secular studies from to p m on monday through thursday and from to or p m on friday depending upon the time of year in from monday to thursday seventh and eighth grade girls had four periods of secular studies per day from to p m with afternoon prayer from to p m and recess from to p m girls had two periods of secular study on fridays yeshiva rav isacsohn had no science laboratory the school had a cart with science materials yeshiva rav isacsohn had no computer room or gymnasium students played in school hallways and the parking lot students were sometimes taken to a nearby park tuition and fees at emek and yeshiva rav isacsohn during the school years in issue emek and yeshiva rav isacsohn required petitioners to pay tuition registration and certain other fees in order for their children to attend classes emek and yeshiva rav isacsohn required petitioners to sign an agreement promising to pay the tuition and to give to each school postdated checks covering all tuition and fees for the upcoming school year both emek and yeshiva rav isacsohn provided tuition discounts to families based on financial need both schools required parents seeking financial aid to submit detailed financial information to the scholarship committee for each school emek and yeshiva rav isacsohn provided early registration discounts sibling discounts and faculty discounts petitioners did not seek or receive financial assistance from emek or yeshiva rav isacsohn for the school years in issue an orthodox rabbinic ruling precluded either school from expelling students from the jewish studies program during the school year for nonpayment of tuition however the ruling did not apply to expulsion from secular studies or to registration for the following school year the schools could refuse to register a student whose tuition payments were delinquent if a student’s tuition payments became delinquent eg if a tuition check was not honored by the bank both emek and yeshiva rav isacsohn would send letters demanding payment or threatening to bar the student from attending secular classes the annual income from tuition and registration fees for both schools typically covers about to percent of that school’s annual operating_expenses the rest of the annual operating_expenses are funded with grants from the bureau of jewish education interest_income and other fundraising c petitioners’ payments of tuition and fees during petitioners paid a total of dollar_figure to emek and yeshiva rav isacsohn for tuition registration and other mandatory fees and mishna classes as follows payment emek yeshiva rav isacsohn tuition registration fees mishna classes other total dollar_figure big_number big_number dollar_figure -0- big_number d petitioners’ tax_return sec_1 petitioners filed an amended tax_return for in date in which they deducted as a charitable_contribution a portion of the tuition payments they made in to their children’s schools respondent apparently believed that petitioners were scientologists because in date respondent wrote to petitioners to request verification of their payments to the church of scientology by letter to respondent in date petitioner stated that the deductions were based on tuition he had paid for religious education for his children in date respondent sent a letter to petitioners again erroneously stating that petitioners’ payments were to the church of scientology petitioner telephoned the author of that letter to say that he was not a scientologist by letter dated date respondent told petitioners that respondent allowed in full their claim for a refund for petitioners filed an amended return and a return in which they deducted part of their children’s tuition as a charitable_contribution petitioners received a refund based on the amended return and respondent did not disallow the deduction claimed on their return petitioners deducted percent of their payments to emek and yeshiva rav isacsohn as a charitable_contribution_deduction for petitioners described the deduction on a form_8275 disclosure statement attached to their return respondent examined petitioners’ tax_return and disallowed the charitable_contribution_deduction litigation relating to petitioners’ return is discussed below at paragraph e petitioners timely filed their federal_income_tax return on date petitioners deducted dollar_figure as a charitable_contribution for including dollar_figure which petitioners attributed to the cost of their children’s religious education at emek and yeshiva rav isacsohn during that amount dollar_figure is dollar_figure percent referred to here a sec_55 percent of the total amount of tuition and fees that petitioners paid to emek and yeshiva rav isacsohn during petitioners did not file a form_8275 or otherwise describe their payment on their return respondent had petitioners’ return under examination when petitioners filed their return pursuant to petitioner’s request emek and yeshiva rav isacsohn issued letters to petitioner dated november and date respectively in which each school estimated that percent of the education provided to petitioners’ children was secular and percent was religious e litigation relating to petitioners’ return petitioners filed a petition with the court challenging respondent’s notice_of_deficiency for in sklar v commissioner tcmemo_2000_118 sklar i this court held that petitioners could not deduct as charitable_contributions amounts for tuition and fees that they paid for their children’s religious education that year our decision was affirmed on appeal by the u s court_of_appeals for the ninth circuit in 282_f3d_610 9th cir amending and superseding 279_f3d_697 9th cir opinion a whether petitioners may deduct tuition and fees they paid to orthodox jewish day schools during petitioners’ contentions petitioners contend that they may deduct as a charitable_contribution dollar_figure of the dollar_figure they paid to emek and yeshiva rav isacsohn in they deducted about percent of those payments because that was the portion of the school day that each school estimated was devoted to religious studies petitioners contend that a the religious education that emek and yeshiva rav isacsohn provided their children is an intangible_religious_benefit as defined in sec_170 and sec_6115 and payments for intangible religious benefits are made deductible by those sections and b respondent’s disallowance of their charitable_contribution_deduction for tuition and fees violates the establishment clause of the first amendment to the u s constitution because the commissioner allows members of the we separately discuss whether petitioners may deduct dollar_figure of this amount they paid for mishna classes see opinion par a- below church of scientology to deduct as charitable_contributions auditing and training payments whether petitioners’ tuition payments qualify for deduction under sec_170 pursuant to a dual payment analysis a introduction to put our consideration of petitioners’ contentions in context we first consider whether petitioners’ payment of tuition and fees is deductible under a dual payment analysis to the extent the payments exceed the value of the secular education received by their children see 477_us_105 sklar v commissioner supra pincite n we initially consider that issue without regard to the enactment of sec_170 and sec_6115 in and the commissioner’s settlement with the church of scientology on date we then consider the effect if any of those developments on our analysis b background in the commissioner issued revrul_67_246 1967_2_cb_104 in response to an increasing number of instances in which the public has been erroneously advised in advertisements or solicitations by sponsors that the entire amounts petitioners contend that sec_7491 requires respondent to bear the burden_of_proof on all factual issues in the case we need not decide the point because our findings and analysis in this case do not depend on which party bears the burden_of_proof paid for tickets or other privileges in connection with fund-raising affairs for charity are deductible the examples that the commissioner cited included tickets for charitable events such as banquets balls bazaars concerts and athletic events in revrul_67_246 supra the commissioner ruled that where a taxpayer receives an item of value for a payment to a charitable_organization the payment is not deductible unless the taxpayer intends to make a gift and any deduction is limited to the excess of the payment over the fair_market_value of what is received in exchange courts have also applied those two requirements thus a portion of a payment is deductible as a charitable_contribution under sec_170 if the following two conditions are met first the payment is deductible only if and to the extent it exceeds the market_value of the benefit received second the excess payment must be ‘made with the intention of making a gift ’ united_states v am bar endowment supra pincite quoting revrul_67_246 c b pincite sklar v commissioner supra pincite in united_states v am bar endowment supra pincite the supreme court said the sine qua non of a charitable_contribution is a transfer of money or property without adequate_consideration the taxpayer therefore must at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return a taxpayer may not deduct a payment as a charitable_contribution if the taxpayer receives a substantial benefit for a payment to a charitable_organization id pincite 699_f2d_1124 fed cir 449_f2d_413 s rept 83d cong 2d sess if the size of a taxpayer’s payment to a charity is clearly out of proportion to the benefit received the taxpayer may claim a charitable_contribution equal to the difference between a payment to the charitable_organization and the market_value of the benefit received in return on the theory that the payment has the dual character of a purchase and a contribution united_states v am bar endowment supra pincite to be deductible a charitable_contribution must be a gift ie a transfer of property without adequate_consideration sec_170 united_states v am bar endowment supra pincite sklar v commissioner supra pincite c dual payment theory and tuition paid for a secular and religious education it is well established that tuition paid to schools which provide both secular and religious education is not deductible as a charitable_contribution because it is not paid with detached and disinterested generosity and because the payor expects a substantial benefit in return 468_f2d_1000 1st cir affg tcmemo_1971_273 468_f2d_778 2d cir affg tcmemo_1971_290 309_f2d_373 9th cir affg 36_tc_896 55_tc_620 51_tc_233 affd per curiam without published opinion aftr 2d ustc par 1st cir bass v commissioner tcmemo_1983_536 ehrhart v commissioner tcmemo_1981_567 ryan v commissioner tcmemo_1969_212 casey v commissioner tcmemo_1965_282 451_fsupp_1087 w d mich see brotman v commissioner tcmemo_1977_65 in dejong v commissioner supra decided by the court_of_appeals for the ninth circuit the taxpayer made payments to a religious_organization which operated a school which imposed no explicit tuition charges part of the payment was deductible as a charitable_contribution because the payment exceeded the amount apparently expected to be paid_by the parent to cover the school’s estimated cost per student of operating the secular and religious educational programs of the school id pincite that kind of excess is not in dispute here the only amounts in dispute here were paid for tuition and fees the court_of_appeals in dejong did not allow a charitable_contribution_deduction for tuition paid for either the secular or the religious education d absence of charitable intent like the taxpayers in the cases just cited petitioners received a substantial benefit for their tuition payments we next consider whether petitioners had any charitable intent in paying their children’s tuition see united_states v am bar endowment u s pincite sklar v commissioner f 3d pincite petitioners do not so claim and as discussed next the record shows they could not have made that claim successfully in sklar v commissioner supra pincite the court_of_appeals said that petitioners did not show that any dual payments they may have made exceeded the market_value of the secular education their children received ie the cost of a comparable secular education offered by private_schools the court_of_appeals also said petitioners had failed to show that they intended to make a gift by contributing any such ‘excess payment’ and thus could not prevail under united_states v am bar endowment supra id the parties introduced into evidence information about tuition costs and qualitative aspects of private_schools primarily in the los angeles area the record supports the conclusion that tuition at emek and yeshiva rav isacsohn is higher than the average tuition at los angeles area catholic schools but equal to or lower than average tuition at other los angeles area orthodox jewish schools ohr eliyahu academy and yavneh hebrew academy other jewish day schools and private_schools which do not provide religious education petitioners’ expert opined about the market_value of a secular education provided by emek and yeshiva rav isacsohn he apparently was proceeding from the assumption that a dual payments analysis applies in this case ie that petitioners may deduct the excess of the tuition they paid over the market_value of a secular education at emek and yeshiva rav isacsohn however more fundamentally the record speaks to whether a dual payments analysis applies in this case at all petitioners must have a charitable intent to be entitled to a deduction under sec_170 for part of their tuition payments see sklar v commissioner supra pincite see also sec_170 united_states v am bar endowment u s pincite on the basis of evidence in the record regarding tuition at various los the record also suggests several factors that may bear on the value of an elementary and secondary education such as teachers’ salaries and seniority whether teachers are certified and student-teacher ratios the amount of time students spend in classes and whether classes are held in the morning or afternoon or at different levels of difficulty whether the school is accredited the quality of libraries and facilities such as computer science and language laboratories playgrounds and athletic_facilities and music and art facilities nearness of the school to the student’s home average standardized test scores dress codes personal safely of students and prevalence of disciplinary problems the success of the students at gaining admission to secular colleges whether the school teaches the religion of the parents and the percent of tuition devoted to administration costs angeles area schools we conclude some schools charge more tuition than emek and yeshiva rav isacsohn and some charge less and the amount of tuition petitioners paid is unremarkable and is not excessive for the substantial benefit they received in exchange ie an education for their children thus petitioners have not shown that any part of their tuition payments was a charitable_contribution and this case is indistinguishable from those cited at par b-2-c whether sec_170 and sec_6115 authorize charitable_contribution deductions for tuition payments to schools providing religious and secular education petitioners contend that under sec_170 and sec_6115 as enacted in a portion of tuition payments to schools providing a religious and secular education is deductible as a charitable_contribution a background sec_170 and sec_6115 were enacted under the omnibus_budget_reconciliation_act_of_1993 publaw_103_66 secs and 107_stat_455 to address difficult problems of tax_administration associated with taxpayers’ deductions of see h rept pincite 1993_3_cb_167 which states in pertinent part difficult problems of tax_administration arise with respect to fundraising techniques in which an organization that is eligible to receive tax deductible contributions provides goods or services in consideration for payments from donors organizations continued charitable_contributions in connection with fund-raising events involving quid pro quo transactions to enhance taxpayer compliance in this area congress imposed a a new substantiation requirement under sec_170 and b a continued that engage in such fundraising practices often do not inform their donors that all or a portion of the amount_paid by the donor may not be deductible as a charitable_contribution sec_170 provides in pertinent part a general_rule --no deduction shall be allowed under subsection a for any contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph b b content of acknowledgment --an acknowledgment meets the requirements of this subparagraph if it includes the following information i the amount of cash and a description but not value of any property other than cash contributed ii whether the donee organization provided any goods or services in consideration in whole or in part for any property described in clause i iii a description and good_faith estimate of the value of any goods or services referred to in clause ii or if such goods or services consist solely of intangible religious benefits a statement to that effect for purposes of this subparagraph the term intangible_religious_benefit means any intangible_religious_benefit which is provided by an organization organized continued new disclosure requirement on charitable organizations under section dollar_figure sec_170 generally requires a taxpayer claiming a charitable_contribution_deduction greater than dollar_figure to continued exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context sec_6115 provides sec_6115 disclosure related to quid pro quo contributions a disclosure requirement --if an organization described in sec_170 other than paragraph thereof receives a quid_pro_quo_contribution in excess of dollar_figure the organization shall in connection with the solicitation or receipt of the contribution provide a written_statement which-- informs the donor that the amount of the contribution that is deductible for federal_income_tax purposes is limited to the excess of the amount of any money and the value of any property other than money contributed by the donor over the value of the goods or services provided by the organization and provides the donor with a good_faith estimate of the value of such goods or services b quid_pro_quo_contribution --for purposes of this section the term quid_pro_quo_contribution means a payment made partly as a contribution and partly in consideration for goods or services provided to the payor by the donee organization a quid_pro_quo_contribution does not include any payment made to an organization organized exclusively for religious purposes in return for which the taxpayer receives solely an intangible_religious_benefit that generally is not sold in a commercial transaction outside the donative context substantiate the deduction by obtaining a contemporaneous written acknowledgment of the contribution from the charitable_organization including an estimate of the value of any goods or services that the charitable_organization provided to the taxpayer under sec_6115 a charitable_organization that receives a quid pro quo payment in excess of dollar_figure must inform the taxpayer that any charitable_contribution_deduction is limited to the difference between the value of any money or property transferred to the charitable_organization and the value of any goods or services that the taxpayer received from the charitable_organization sec_170 and sec_6115 except certain intangible religious benefits from the substantiation and disclosure requirements described above sec_170 and sec_6115 provide inter alia that if a charitable_organization is organized exclusively for religious purposes and provides solely an intangible_religious_benefit to a taxpayer in exchange for a payment the charitable_organization need not assign a value to the intangible_religious_benefit b petitioners’ contentions petitioners contend that sec_170 and sec_6115 make tuition payments to religious schools deductible to the extent the payments relate to religious education the religious education that emek and yeshiva rav isacsohn provided to their children was an intangible_religious_benefit as defined in those sections and their tuition payments are deductible to the extent that the payments exceed the value of the secular education their children receiveddollar_figure petitioners also contend that they need not show that they intended to make a gift or contribution to emek and yeshiva rav isacsohn c analysis we disagree congress did not change what is deductible under sec_170 in these statutory changes neither sec_170 and sec_6115 nor the accompanying legislative_history suggests that congress intended to expand the types of payments that are deductible as charitable_contributions under petitioners aver if a taxpayer pays dollar_figure to his church and receives in return a book that could be purchased in any bookstore for dollar_figure plus the right to sit in a certain pew at the church dollar_figure is deductible as a charitable_contribution to the church regardless of whether having the right to sit in that pew is worth dollar_figure or more to the taxpayer because that right is only an intangible_religious_benefit similarly here to the extent petitioners’ dual payments to the schools exceeded the value of the secular studies they purchased those payments are deductible as charitable_contributions notwithstanding that petitioners received religious educations for their children worth that excess because those religious educations are only intangible religious benefits section or that congress intended to overturn the long line of cases cited above holding that no part of tuition paid to religious schools is deductible as a charitable contributiondollar_figure we believe that if congress had intended to overturn decades of caselaw disallowing charitable_contribution deductions for tuition payments to schools providing a religious and secular education congress would have made such an intention clear it did not see h conf rept pincite 1993_3_cb_393 stating that the sec_6115 disclosure requirement does not apply to transactions that have no donative element eg sales of goods by a museum gift shop that are not in part donations thus a charitable_organization need not make a sec_6115 disclosure if the taxpayer did not intend to make a gift see h conf rept supra pincite n c b pincite stating that the exception to the substantiation requirement for an intangible_religious_benefit does not apply for example to tuition for education leading to a recognized degree travel services or consumer goods along the same lines h rept supra pincite n c b pincite states the committee intends that in the case of religious organizations a quid_pro_quo_contribution for purposes of the substantiation and disclosure requirements is limited to an exchange of goods or services that are generally available on a commercial basis or advertised for an established price eg tuition travel and entertainment and consumer goods no inference is intended however whether or not any contribution outside of the scope of the bill’s substantiation or reporting requirements is deductible in full or in part under the present-law requirements of sec_170 the exception to the substantiation and disclosure requirements in sec_170 and sec_6115 for intangible religious benefits does not apply to the educational_services at issue here the exception applies only where the organization is organized exclusively for religious purposes petitioners contend that emek and yeshiva rav isacsohn were organized and existed solely for the religious purpose of allowing jewish parents to fulfill their religious obligation to teach their children torah which includes providing a secular education in an orthodox jewish environment we disagree that emek and yeshiva rav isacsohn were organized exclusively for religious purposes emek and yeshiva rav isacsohn were organized and operated to provide both a secular and a religious education the commissioner granted both schools exemptions from tax under sec_501 and both schools qualify as charitable organizations described in sec_170 which pertains to educational organizations a substantial part of each day was spent on secular studies petitioners concede that the education their children received in at emek and yeshiva rav isacsohn met educational requirements imposed by the state of california both schools were accredited by nonreligious accrediting agencies based in part on their secular educational programs petitioners contend that emek and yeshiva rav isacsohn were organized exclusively as religious organizations because respondent excused both from filing forms return of organization exempt from income taxdollar_figure we disagree organizations exempt from tax under sec_501 generally are required to file forms sec_6033 however churches exempt_organizations with gross_receipts of not more than dollar_figure and exclusively religious activities of any religious_order are exempt from that requirement the commissioner may relieve any exempt_organization from filing a return where the commissioner determines that filing is not necessary to the efficient administration of the internal revenue laws sec_6033 emek and yeshiva rav isacsohn do not qualify for the exception to the general filing requirement provided in sec_6033 neither school is a church an exempt_organization with gross_receipts of not more than dollar_figure or a religious_order given that emek and yeshiva rav isacsohn were treated as charitable organizations described in sec_170 ie educational organizations we infer that the commissioner exercised discretion under sec_6033 to except emek and yeshiva rav isacsohn from filing forms petitioners rely in part on a letter from respondent’s counsel to petitioners’ counsel that petitioners attached to their reply brief because the letter in question was not offered into evidence at trial the letter was returned to petitioners unfiled and is not part of the record emek and yeshiva rav isacsohn provided a religious and secular education for their students regardless of petitioners’ reasons for choosing to educate their children at emek and yeshiva rav isacsohn those schools did not provide exclusively religious servicesdollar_figure whether the agreement reached between the internal_revenue_service and the church of scientology in affects the result in this case in 490_us_680 the u s supreme court held that the record did not support the taxpayer’s claim of entitlement to deduct as charitable_contributions payments to the church of scientology for what the church of scientology calls auditing and training however the parties stipulated that an agreement dated date between the commissioner and the church of scientology settled several longstanding issues according to a letter sent to petitioners in from the chief of the adjustments branch fresno service_center the settlement agreement between the commissioner and the church of scientology allows individuals to petitioners point out that the legislative_history states that the exception in sec_170 and sec_6115 for intangible religious benefits does not apply to education leading to a recognized degree petitioners contend that the secular education provided by emek and yeshiva rav isacsohn does not lead to a recognized degree in light of our conclusion that sec_170 and sec_6115 are substantiation and disclosure provisions we need not consider this contention further claim as charitable_contributions percent of the cost of qualified religious services petitioners contend that because of that closing_agreement the commissioner is constitutionally required to allow a deduction for tuition paid to schools that provide religious and secular education to the extent that the tuition paid exceeds the value of the secular education petitioners contend that the religious education that the jewish day schools provide in exchange for tuition is jurisprudentially indistinguishable from the auditing and training that the church of scientology provides to its members in exchange for a fixed fee the u s court_of_appeals for the ninth circuit previously rejected petitioners’ arguments about the church of scientology in sklar v commissioner f 3d pincite petitioners’ tuition payments were made to schools that in part provide secular educational_services not to exclusively religious organizations thus the analysis in 477_us_105 controls here we conclude that the agreement reached between the internal_revenue_service and the church of scientology referred to in the letter sent to petitioners in from respondent’s fresno service_center does not affect the result in this casedollar_figure in 282_f3d_610 n 9th cir affg tcmemo_2000_118 the u s court_of_appeals continued whether petitioners may deduct their payment for mishna classes petitioners contend that they may deduct as a charitable_contribution the dollar_figure that they paid for mishna classes that emek provided separately from its regular classes and charged separately from its regular tuition and fees we disagree petitioners’ payment for mishna classes at emek is not made deductible merely because emek offers those classes separately from their regular educational programs and emek charges and petitioners pay separately from emek’s other charges petitioners did not intend those payments to be a contribution or gift to emek within the meaning of sec_170dollar_figure conclusion we conclude that petitioners are not entitled to a charitable_contribution_deduction under sec_170 for any part continued said it is strongly inclined to the view that sec_170 was not amended in to permit deductions for which the consideration is intangible religious benefits and that 490_us_680 is still controlling that court also said that it need not rule definitively on this point because petitioners’ claims did not meet the requirements for partial deductibility of dual payments established by 477_us_105 similarly we have decided this case by applying united_states v am bar endowment supra emek is an educational_organization not a religious_organization we need not consider under what circumstances payments to a religious_organization for religious instruction are deductible of the tuition including the fee for mishna classes they paid to emek or yeshiva rav isacsohn in dollar_figure b whether petitioners are liable for the accuracy-related_penalty respondent contends that petitioners are liable for the accuracy-related_penalty under sec_6662 for deducting dollar_figure of their tuition we disagree taking into account respondent’s concession petitioners’ tax understatement is dollar_figure that amount is not substantial for purposes of sec_6662 because it does not exceed the greater of percent of the amount required to be shown or dollar_figure see sec_6662 respondent contends that petitioners knew that they lacked a reasonable basis for claiming the disallowed deductions because unlike the return they filed for petitioners did not file a form_8275 or otherwise call attention to the deduction we disagree respondent permitted similar deductions for petitioners’ and tax returns petitioners timely filed their return on date petitioners’ return was being audited when they filed their return pursuant to an extension on date petitioners filed their petition in sklar i on date in light of our conclusion we need not decide whether petitioners complied with substantiation requirements imposed by sec_170 decision was entered in that case on date and affirmed early in thus when they filed their return petitioners knew that respondent had allowed them to claim similar deductions for and they knew their return was being audited but they did not know they would not prevail on this issue for under these circumstances we conclude that petitioners had a reasonable basis for claiming the deductions that respondent disallowed and that petitioners believed in good_faith that they could deduct the dollar_figure for tuition and mishna payments on their return to reflect concessions and the foregoing decision will be entered under rule reporter’s note this opinion was amended by order dated date


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-111823-00 date date legend company state shareholder a b dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has one shareholder shareholder it is represented that company has intended to be an s_corporation since b however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on b sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the plr-111823-00 election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on b however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of b with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 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 specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours s robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------- --------------------------------------- -------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-127470-06 date date ---------------------------------------------------------- -------------- re request for extension of time to make the election not to deduct the additional re request for extension of time to make the election not to deduct the additional first year depreciation taxpayer state shareholder ---------------------------------------------- date1 date2 sbse official --------------------------------------------------- dear ------------ -------------------------- -------------------------- this letter responds to a letter dated date and supplemental correspondence submitted by taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 of the internal_revenue_code for all classes of qualifying property placed_in_service in the taxable years ended date1 and date2 facts taxpayer represents that the facts are as follows taxpayer is an s_corporation that is wholly owned by shareholder located in state and engaged in the business of short term automobile leasing shareholder files as a resident of state for tax purposes taxpayer timely filed its federal_income_tax return for the taxable years ended date1 taxpayer filed its federal_income_tax return for the taxable_year ended date2 late plr-127470-06 state adopts federal taxable_income as the starting point for determining state taxable_income including any election made by the taxpayer in accordance with the internal_revenue_code on these returns taxpayer based on the advice of its tax_return_preparer did not make the election not to deduct the additional first year depreciation for all qualifying property placed_in_service during each of the taxable years ended date1 and date2 and therefore did deduct the 30-percent additional first year depreciation for all qualified_property and the 50-percent additional first year depreciation for all 50-percent bonus_depreciation property placed_in_service during those taxable years however after taxpayer’s federal_income_tax return for the taxable_year ended date2 was prepared and after shareholder’s federal_income_tax return for that taxable_year was filed taxpayer’s tax_return_preparer determined that taxpayer should have elected not to deduct the additional first year depreciation for all qualifying property placed_in_service during each of the taxable years ended date1 and date2 due to state tax consequences prior to the date taxpayer filed its taxable return for the taxable_year ended date1 state enacted a statute that did not fully adopt retroactively to the taxable_year the additional first year depreciation allowed under sec_168 under the state tax statute it was disadvantageous for taxpayer to not make the election not to deduct the additional first year depreciation for each of the taxable years in question because of the effect it had upon shareholder’s state tax_liability ruling requested accordingly taxpayer requests an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 for all property placed_in_service during the taxable years ended date1 and date2 that qualifies for the additional first year depreciation law and analysis deduction for the taxable_year in which qualified_property is placed_in_service by a taxpayer sec_168 provides a 50-percent additional first year depreciation deduction for the taxable_year in which 50-percent bonus_depreciation property is placed_in_service by a taxpayer sec_168 provides a 30-percent additional first year depreciation sec_168 provides that a taxpayer may elect not to deduct the percent additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 of the income_tax regulations as meaning in general each class of property described in sec_168 for example 5-year_property plr-127470-06 sec_168 provides that a taxpayer may elect to deduct 30-percent instead of 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year if this election is made sec_1_168_k_-1 provides that the allowable additional first year depreciation deduction is determined as though the class of property is qualified_property under sec_168 sec_1_168_k_-1 further provides that a taxpayer may elect not to deduct both 30-percent and 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the taxable years ended date1 and date2 provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer’s timely filed tax_return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election sec_1_168_k_-1 further provides that the election is made separately by each person owning qualified_property or 50-percent bonus_depreciation property for example for each member of a consolidated_group by the common parent of the group by the partnership or by the s_corporation under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' sec_301_9100-3 provides that requests for relief under ' will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions plr-127470-06 based solely on the facts and representations submitted we conclude that the requirements of and have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the election not to deduct the additional first year depreciation under sec_168 for all property placed_in_service by taxpayer during the taxable years ended date1 and date2 that qualify for the additional first year depreciation this election must be made by taxpayer by filing an amended federal tax_return for each of these taxable years with a statement indicating that taxpayer is electing not to deduct the additional first year depreciation for all property placed_in_service during that taxable_year except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service in the taxable years ended date1 and date2 is eligible for the additional first year depreciation deduction further this letter_ruling does not grant an extension of time for filing taxpayer’s federal tax_return for the taxable_year ended date2 in accordance with the power_of_attorney we are sending copies of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the sbse official this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely william p o’shea william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person contact number identification_number number release date se t eo ra t date dear ------------ we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as a church described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption as a church the basis for our conclusion is set forth below corporation law of your state your articles provide that you are organized to preach and teach the word of god you were incorporated on december under the nonprofit religious employer_identification_number uil facts you have applied for recognition of exempt status as a church you conduct religious services on sunday mornings -------------------------------- you state that between ------------- people generally attend many of these are described as ------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- people in addition a group of ------ people regularly attend bible study on friday evenings you publicize your activities and attract new members by word of mouth and flyers that you attach to the free bibles you distribute at the worship services at this time you do not perform life cycle rituals such as baptisms or weddings you do not expect anyone to sever ties with any other church or ministry you hope to acquire a building in the future donations from attendees constitute your entire income your board_of directors consists of three directors your pastor and two unrelated your pastor volunteered at a ------------------------ under the guidance of a pastor and persons your revised bylaws adopted on november grant all authority to the board which is self-perpetuating and specify that you have no members the bylaws state that directors may not be compensated by the organization for rendering services in any capacity completed ------------------------------------------ he did not receive formal training or ordination --- -------------------------------------------- you say that he was ordained by the pastor on an unspecified date but there was no course of study they agreed that he had the biblical marks of a pastor you submitted certificates of ordination dated ----------------------- from you stated that the request for the ordination certificates was the only contact that you had with rehabilitation program you did not describe a program or factors that were considered in deciding to award the grant this is the only activity other than weekly bible study and worship services that you described you paid over dollar_figure------- for an unidentified person or persons to attend a drug the agent in the field suggested twice that you consider applying for exempt status as a sec_501 of the code exempts from taxation any corporation organized and religious_organization rather than a church until you have an established congregation you stated in a letter that it is not your intention to qualify for exemption as a public charity described in sec_509 and sec_170 1a vi of the code law operated exclusively for religious purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual legislative_history of sec_170 o f the code that congress intended church to be a more limited concept than religious_organization more in the sense of a denomination or sect in that case the court found that the evangelical organization was not a church because the members maintained affiliations with other churches the organization was interdenominational and it did not ordain ministers the fact that it conducted religious services was not conclusive the basic principles distinguishing a church from other religious organizations that the service 490_fsupp_304 set out in 48_tc_358 the court determined by examining the and the courts have used for over years the principles are often referred to as the points and include a distinct legal existence a recognized creed and form of worship a definite ecclesiastical government a formal code of doctrine a distinct religious history a membership not associated with any other church an organization of ordained ministers ordained ministers selected after completing prescribed studies a literature of its own established places of worship regular congregations regular religious services sunday schools_for religious instruction of the young and schools_for the preparation of its ministers the court in american guidance foundation held that the core requirement for a church is a body of believers or communicants that assembles regularly in order to worship analysis of the characteristics set out in american guidance foundation supra to describe a church you have only a distinct legal existence and regular religious services you conduct weekly bible study and weekly sunday services about -- people regularly attend the bible study many of the --------------------------------------------------------------------------------------------------- ----------------------- transients who do not probably cannot attend regularly cannot be described as a regular congregation further you do not have any requirements for membership your only method of attracting new members is to pass out flyers at the services at this time the small number of people cannot be described as a body of believers who assemble regularly in order to worship your pastor has had no formal training and his ordination did not follow a prescribed course of study nor was it conducted according to the rules of an organization of ordained ministers ---------------------------------------------------------- the training and organization of the ministers are factors that the service considers in applications for exempt status as a church and no instruction for children your self-perpetuating board_of directors is extremely limited the pastor and two other people you do not conduct rituals such as baptisms weddings or funerals at this time supra because your purpose is evangelical and nondenominational you do not require attendees to sever ties with other churches and except for the small_group that studies bible together you do not have a body of believers who assemble regularly in order to worship you are similar to the organization that was the subject of chapman v commissioner your organization has no ecclesiastical government no code or doctrine or literature in addition to the finding of the service that your organization does not qualify as a church the nature of your governance raises some problems you do not have any members your limited board is composed of your pastor and two other people and is self-perpetuating you have spent a very large percentage of your revenue to provide rehabilitation services for unidentified individuals without any written policy or procedure you have not established that you have the right to protest this ruling if you believe it is incorrect to protest you should you must file federal_income_tax returns contributions to you are not deductible under you will operate exclusively for charitable purposes and not for the benefit of any private individuals you have applied for exemption under sec_501 of the code as a church within the meaning of sec_170 while you satisfy some of the criteria that the service uses to determine whether an organization is a church you do not meet the minimum requirements of a church as discussed in american guidance foundation inc supra therefore you do not qualify as a church under sec_170 you stated that it is not your intention to qualify for exemption as a public charity as described in sec_509 and sec_170 accordingly we are unable to conclude that you are exempt under sec_501 sec_170 of the code submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements revenue service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with sec_6104 of the code if you do not protest this ruling in a timely manner it will be considered by the internal if you have any questions please contact the person whose name and telephone number when sending additional letters to us with respect to this case you will expedite their receipt by faxing to or by using the following address are shown in the heading of this letter joseph chasin manager exempt_organizations technical group sincerely


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi -- plr-164146-02 date may number release date index numbers legend taxpayer partnership general_partner corporation lender limited_partner agency state a b c plr-164146-02 d e f g h i j k l m n dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of the taxpayer involving sec_42 of the internal_revenue_code the relevant facts and representations are set forth below facts the taxpayer is a state limited_partnership the taxpayer’s general_partner is a for-profit wholly-owned state subsidiary of corporation general_partner owns a a percent interest in the taxpayer and limited_partner owns the remaining b percent interest in the taxpayer new limited partners may invest in the taxpayer the partnership received a dollar_figured carryover allocation under sec_42 for 70-percent present_value credits percent credits on c from agency under sec_42 with a reasonably expected basis of dollar_figuree under sec_42 for a building located in a state qualified_census_tract the building is one of two condominium units condominium a contains commercial space and condominium b which is the building for purposes of sec_42 consists of f units the taxpayer represents that the partnership placed condominium b in service on g the taxpayer represents that after condominium b was placed_in_service the partnership incurred approximately dollar_figureh in rehabilitation_expenditures during i in an plr-164146-02 amount that met or exceeded the minimum expenditures required by sec_42 the rehabilitation_expenditures were financed by lender by means of a modification of the construction loan the taxpayer will acquire condominium b and the property attributable to the rehabilitation_expenditures the rehabilitated property before the partnership places the rehabilitation_expenditures in service after the closing date the taxpayer anticipates that it will incur approximately dollar_figuren in rehabilitation_expenditures the taxpayer represents that the total cost for rehabilitation will not exceed dollar_figurem the taxpayer further represents that these rehabilitation_expenditures will not be included in the calculation of the eligible_basis of condominium b the taxpayer will finance at least percent of the purchase_price of the rehabilitated property with the proceeds of state tax-exempt volume_cap exempt facility bonds issued by agency or other instrumentatility of state the bonds with a face_amount of not less than dollar_figurel the contract for sale the bonds and conduit loan documents will refer to or incorporate a certification by the partnership of the amount of rehabilitation_expenditures incurred by it and will expressly attribute the use of the proceeds of the bonds to the rehabilitation_expenditures under sec_42 the sources of the remaining amount of the purchase_price for the acquisition of condominium b will be the assumption of the partnership’s outstanding debt plus other available amounts the taxpayer represents that the issuance of the bonds and the conduit loan to the taxpayer are independent of the allocation of percent credits by the agency to the partnership and the transactions are not conditioned upon or other related to one another pursuant to sec_42 the taxpayer plans to place the total rehabilitation_expenditures in service on or about j according to the taxpayer the 24-month look-back period for the rehabilitation_expenditures will extend back to on or about k the taxpayer has requested the following rulings the expenses_incurred and deemed to be incurred by the taxpayer for purposes of sec_42 in connection with the rehabilitation of condominium b will constitute a separate new_building within the meaning of sec_42 provided the taxpayer chooses a 24-month period pursuant to sec_42 which begins before the closing date and which ends after such date for purposes of sec_42 the rehabilitation_expenditures are considered placed_in_service as a separate new_building on the last day of the 24-month period chosen by the taxpayer to aggregate its rehabilitation expenses that portion of the purchase_price of condominium b financed with the proceeds of the bonds and paid_by the taxpayer on the closing date shall for purposes of sec_42 be attributed to the aggregate rehabilitation_expenditures determined pursuant to sec_42 and a the taxpayer is entitled to claim percent low-income_housing tax_credits pursuant to sec_42 with respect to sec_42 rehabilitation_expenditures where the bonds will be issued to finance the rehabilitation portion of the purchase_price to acquire condominium b and by virtue of its acquisition of condominium b the taxpayer pursuant to sec_42 may claim percent credits for the remaining credit_period plr-164146-02 law and analysis sec_42 provides a tax_credit for investment in low-income_housing buildings placed_in_service after date for any taxable_year in a 10-year credit_period the amount of credit is equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building in the case of any qualified_low-income_building placed_in_service by the taxpayer after sec_42 provides in part that the term applicable_percentage means the appropriate percentage prescribed by the secretary for the month applicable under sec_42 or ii sec_42 provides that the percentages prescribed by the secretary for any month shall be percentages that will yield over a 10-year period amounts of credit that have a present_value equal to i percent of the qualified_basis of new buildings that are not federally_subsidized for the taxable_year 70-percent present_value credit and ii percent of the qualified_basis of existing buildings and of any new buildings that are federally_subsidized for the taxable_year 30-percent present_value credit sec_42 provides that the qualified_basis of any qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction defined in sec_42 of the eligible_basis of such building in general under sec_42 the eligible_basis of a new_building is its adjusted_basis as of the close of the first taxable_year of the credit_period sec_42 provides that rehabilitation_expenditures paid_or_incurred by the taxpayer with respect to any building are treated for purposes of sec_42 as a separate new_building sec_42 provides that the term rehabilitation_expenditures means amounts chargeable to capital_account and incurred for property or additions or improvements to property of a character subject_to the allowance for depreciation in connection with the rehabilitation of a building however under sec_42 such term does not include the cost of acquiring any building or interest therein under sec_42 rehabilitation_expenditures with respect to any building may be treated as a separate new_building only if i the expenditures are allocable to one or more low-income units or substantially benefit such units and ii the amount of such expenditures during any 24-month period meets the greater of the following requirements i the amount is not less than percent of the adjusted_basis of the building or ii the qualified_basis attributable to such amount when divided by the low-income units in the building is dollar_figure or more sec_42 provides that for purposes of applying sec_42 with respect to expenditures which are treated as a separate building by reason of sec_42 such plr-164146-02 expenditures are treated as placed_in_service at the close of the 24-month period referred to in sec_42 the taxpayer has requested rulings on whether the rehabilitation_expenditures paid_or_incurred by the partnership and the taxpayer qualify as a separate new_building under sec_42 question and answer in revrul_91_38 1991_2_cb_3 addresses a situation in which a taxpayer purchases a building before the prior owner placed_in_service rehabilitation_expenditures that qualified under sec_42 that the owner paid_or_incurred for the building because the taxpayer acquired the property attributable to the rehabilitation_expenditures before such property was placed_in_service the taxpayer is treated as having paid_or_incurred the rehabilitation_expenditures to the extent of the lesser_of the rehabilitation_expenditures paid_or_incurred before the acquisition or the taxpayer’s cost or other basis attributable to the rehabilitation_expenditures when the taxpayer places the rehabilitated property in service that property’s original_use is considered to begin with the taxpayer in addition question and answer in revrul_91_38 demonstrates that a taxpayer who purchases a building before the prior owner places in service the rehabilitation_expenditures may also incur its own rehabilitation_expenditures for purposes of sec_42 in the instant case because the taxpayer will purchase condominium b and the rehabilitated property before the partnership places the rehabilitation_expenditures in service the taxpayer is treated as having paid_or_incurred such expenditures to the extent of the lesser_of the rehabilitation_expenditures paid_or_incurred before the acquisition or the taxpayer’s cost or other basis attributable to the rehabilitation_expenditures as the taxpayer represents that the expenditures meet or exceed the minimum expenditures requirements under sec_42 and the taxpayer not the partnership will place those expenditures in service the rehabilitated property will be a treated as new_building under sec_42 after g during i the partnership rehabilitated the building the placed-in-service date for rehabilitation_expenditures treated as a new_building under sec_42 is based on the 24-month period a taxpayer chooses to aggregate its rehabilitation_expenditures under sec_42 the 24-month period chosen by the taxpayer under sec_42 and a will start after g on or about k the taxpayer has chosen on or about j as the end of the 24-month period under sec_42 the taxpayer represents that the rehabilitation of condominium b as a separate new_building under sec_42 will not result in any double counting of expenses_incurred by the partnership in connection with the construction of condominium b accordingly once the taxpayer places the rehabilitated property in service on or about j the building will be a separate new_building under sec_42 the taxpayer also requests rulings as to whether the bonds are attributable to the rehabilitated property for the 30-percent present_value credit percent credit on the rehabilitated property under sec_42 plr-164146-02 sec_42 provides that the amount of credit determined under sec_42 for any taxable_year with respect to any building shall not exceed the housing_credit_dollar_amount allocated to such building under sec_42 sec_42 provides that sec_42 shall not apply to the portion of any credit allowable under sec_42 that is attributable to eligible_basis financed by any obligation the interest on which is exempt from tax under sec_103 if such obligation is taken into account under sec_146 and principal payments on such financing are applied within a reasonable period to redeem obligations the proceeds of which were used to provide such financing sec_42 provides that for purposes of sec_42 if percent or more of the aggregate basis of any building and the land on which the building is located is financed by an obligation exempt from tax under sec_103 sec_42 shall not apply to any portion of the credit allowable under sec_42 with respect to such building in order to satisfy sec_42 sec_50 percent or more of the aggregate basis of any building and the land on which the building is located must be financed by an obligation exempt from tax under sec_103 we believe that the 50-percent test under sec_42 is calculated based upon the aggregate basis of all residential_rental_property financed by the proceeds of tax-exempt_bonds for example in the case of an acquisition of an existing_building and rehabilitation using a common plan of financing the 50-percent test is calculated on the aggregate cost of the existing_building and rehabilitation in comparison the taxpayer’s acquisition of condominium b relate to costs previously allocated sec_42 credits under sec_42 by agency on c consequently for purposes of sec_42 the bonds are attributable solely to the rehabilitated property the taxpayer represents that the face amounts of the bonds to be issued for the rehabilitated property will not be less than dollar_figurel the taxpayer has represented that it will treat approximately dollar_figureh incurred by the partnership for the rehabilitation as rehabilitation_expenditures under sec_42 the taxpayer further represents that the total cost of the rehabilitated property will not exceed dollar_figurem based on the taxpayer’s representations the amount of the bonds will be greater than percent of all the costs and therefore satisfy the requirements under sec_42 the final ruling requested involves whether the taxpayer is entitled to claim the percent credit on condominium b by virtue of sec_42 which treats the purchaser of a sec_42 project as stepping into the shoes of the seller’s allowable credits sec_42 generally provides that in the case of a building described in sec_42 or interest therein that is acquired by the taxpayer i sec_42 does not apply but ii the credit allowable by reason of sec_42 to the taxpayer for any period after the acquisition is equal to the amount of credit which would have been allowable plr-164146-02 under sec_42 for such period to the prior owner referred to in sec_42 had such owner not disposed of the building sec_42 provides that a building is described in sec_42 if i a credit was allowed by reason of sec_42 to any prior owner of such building and ii the taxpayer acquired the building before the end of the compliance_period for the building with respect to such prior owner determined without regard to any disposition by such prior owner sec_42 provides that except as otherwise provided in sec_42 a new_building shall be treated as federally_subsidized for any taxable_year if at any time during such taxable_year or any prior taxable_year there is or was outstanding any obligation the interest of which is exempt from tax under sec_103 or any below market federal loan the proceeds of which are or were used directly or indirectly with respect to such building or the operation thereof while taxpayer is stepping into the shoes of the partnership’s percent credit it is also using tax-exempt_bond financing the proceeds of which will be used indirectly for condominium b because sec_42 applies at any time during the compliance_period the taxpayer is subject_to its provisions for the allowable years of the credit_period for condominium b accordingly based solely on the above representations of facts and law as set forth above we rule that the rehabilitated property may be treated a separate new_building under sec_42 the bonds are solely attributable to the rehabilitated property for purposes of satisfying the requirements of sec_42 and pursuant to sec_42 condominium b shall be treated as federally_subsidized for the taxpayer’s allowable 30-percent present_value credits for condominium b under sec_42 no opinion is expressed or implied regarding the application of any other provisions of the code or regulations further no opinion is expressed or implied on the calculation of the eligible bases of condominium b and the rehabilitated property this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-164146-02 in accordance with the power_of_attorney on file this letter is being sent to you as taxpayer's authorized legal representatives also a copy of this letter is being sent to the taxpayer sincerely yours susan j reaman chief branch office of associate chief_counsel passthroughs and special industries enclosures copy copy of letter 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 psi b01 plr-150540-05 date january ----------- legend x -------------------------------------------------- y ------------------------------------------------ country date dear ------------------ --------- --------------------------- -------------------------------------------------------------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to treat y as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted and representations made within the request x is the ultimate parent of an affiliated_group_of_corporations among this affiliated_group is y which is an entity that was formed under the laws of country on date due to inadvertence a form_8832 entity classification election to treat y as an entity disregarded as separate from its owner effective date was not filed plr-150540-05 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat y as disregarded as an entity separate from its owner for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-150540-05 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_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 sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries letter will be sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes cc