internal_revenue_service number release date index number ---------------------------------------- ------------------------ ---------------------------------------------- re --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-138138-16 date june legend decedent spouse date date ------------------------------------------------ -------------------------- --------------------------- ---------------------------- dear ----------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime plr-138138-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-138138-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may 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 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 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 that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-138138-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-138138-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner ________________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court cynthinie joane mccasland petitioner v commissioner of internal revenue respondent docket no 9841-09s filed date frances h thompson and jessica rammelsberg student for petitioner inga c plucinski for respondent gerber judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case the case was submitted fully stipulated under rule petitioner resided in utah at the time her petition was filed respondent denied petitioner’s request for relief under sec_6015 the sole issue for our consideration is whether petitioner’s request for relief under sec_6015 is time- barred because it was filed more than years approximately 4½ years after respondent mailed petitioner a notice_of_determination to proceed with collection under sec_6330 respondent concedes that petitioner otherwise meets the qualifications for relief from joint_and_several_liability under sec_6015 the sole reason for respondent’s denial of relief is that petitioner’s request for relief was not timely-- within years from the time of the notification respondent understands that this court’s precedent in lantz v commissioner t c __ a court-reviewed opinion is on point and would provide petitioner with the opportunity to 1unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure seek relief even though her request for relief was without the year period respondent however notes that lantz is on appeal and that he disagrees with this court’s holding in that case in lantz v commissioner supra this court held invalid the secretary’s regulation limiting the right to seek relief under sec_6015 to years the holding of that case did not establish any time within which a request for relief would be considered reasonable and or timely respondent concedes that the only reason for denial was that petitioner’s request exceeded years respondent does not argue that the amount of time by which petitioner’s request exceeded years is a reason for denial of equitable relief under sec_6015 accordingly there is no reason for this court to further analyze or decide whether an approximately 4½-year period is reasonable and or timely in view of the foregoing decision will be entered for petitioner 2respondent sought to have the small_tax_case designation removed from this case in an attempt to be able to appeal any adverse decision for the purpose of overturning our holding in lantz v commissioner t c __ respondent’s motion was denied for reasons stated in the record


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 ------------- ---------------- identification_number employer_identification_number contact person ------------------- telephone number --------------------- release number release date date date uil ----------------------------- -------------------------------- ---------------------------------------- ----------------------------- ------------------------- legend y ---------------------------- z ------------------------ a ----------------------- b ------------ c ------- dear we have considered the request of y and z dated date for a ruling concerning the federal income and excise_tax consequences of a proposed transfer of one-half of y’s net assets to z facts a incorporated y in and incorporated z in both organizations are recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code and are private_foundations under sec_509 a has two sets of four grandchildren the b grandchildren and the c grandchildren currently a and one member of each of the two sets of grandchildren control y a’s grandchildren have developed diverging charitable interests so a proposed that y transfer one-half of its assets comprised of corporate stocks and bonds to z after the transfer a and the b grandchildren will control y and a and the c grandchildren will control z both y and z state that they will make grants to organizations that are exempt under sec_501 of the code y states that it will continue its charitable activities does not intend to terminate and has never participated in an act or activity that would give rise to liability under chapter of the code y represents that its assets do not constitute excess_business_holdings as described in sec_4943 and has promised to exercise expenditure_responsibility with regard to the transferred assets and has drafted a written_agreement that will ensure that z will ---------------------------------- use the transferred funds properly you have requested the following rulings the transfer of assets will not affect the tax-exempt status of either of the foundations under sec_501 of the code the transfer of assets will qualify as a transfer under sec_507 of the code y will neither terminate nor incur a termination_tax on the transfer under sec_507 of y will not incur an excise_tax on net_investment_income under sec_4940 of the code the code due to the transfer of assets the basis of the assets received in the transfer by z will be y’s basis in the assets the transfer will not be an act of self-dealing under sec_4941 of the code y will not incur a tax on undistributed_income under sec_4942 of the code y will not incur a tax_on_excess_business_holdings on the transfer under sec_4943 of the code the transfer will not constitute an investment that jeopardizes y’s exempt purposes under sec_4944 of the code the transfer and the reasonable and necessary expenses in making such transfer will not constitute taxable_expenditures under sec_4945 of the code provided appropriate expenditure_responsibility requirements are satisfied law sec_501 of the code exempts organizations that are organized and operated exclusively for charitable and other exempt purposes from federal_income_tax sec_507 of the code states that the status of any organization as a private_foundation is terminated only if it notifies the secretary of its intent to terminate or there have been either willful repeated acts or a willful and flagrant act giving rise to liability for tax under chapter and the secretary notifies the organization that it is liable for termination_tax under sec_507 sec_507 of the code permits one private_foundation to transfer its assets to another private_foundation without treating the transferee foundation as a newly created organization sec_507 of the code imposes a tax on a private_foundation that terminates its private_foundation_status by notifying the service of its intent to terminate or that has made willful repeated acts or failures to act or a willful and flagrant act or failure to act that results in tax under chapter and the service has notified the organization that it is liable for the tax and either the organization has paid the tax or the tax was abated sec_509 of the code describes exempt_organizations that are exempt from federal_income_tax under sec_501 and that are private_foundations sec_4940 of the code imposes an excise_tax on certain net_investment_income of private_foundations ---------------------------------- sec_4940 of the code defines net_investment_income as the amount by which the sum of the gross_investment_income and the capital_gain_net_income exceeds the allowable deductions sec_4940 of the code defines gross_investment_income as the gross amount of income from interest dividends rents payments_with_respect_to_securities_loans and royalties sec_4941 of the code imposes an excise_tax on acts of self-dealing between a private_foundation and its disqualified persons as described in sec_4946 sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation for the taxable_year it requires a private_foundation to pay annual qualifying distributions as defined in sec_4942 to accomplish one or more exempt purposes a qualifying_distribution includes any amount_paid to accomplish one or more purposes described in sec_170 sec_4943 a of the code imposes a tax on the excess_business_holdings of a private_foundation during the tax_year sec_4944 of the code imposes a tax on any investment that jeopardizes an exempt organization’s charitable purpose sec_4945 of the code imposes a tax on the taxable_expenditures of a private_foundation sec_4945 of the code defines the term taxable_expenditure as any amount_paid or incurred by a private_foundation as a grant to an organization unless the organization is described in paragraph or of sec_509 or is an exempt_operating_foundation or the private_foundation exercises expenditure_responsibility with respect to the grant sec_1_507-1 of the income_tax regulations states that a transfer of assets made by a private_foundation as described in sec_507 of the code does not constitute a termination of the transferor foundation’s private_foundation_status under sec_507 sec_1_507-3 of the regulations requires a private_foundation to meet the distribution_requirements of sec_4942 for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation under sec_507 of the code sec_1_507-3 of the regulations provides that where the transferor has transferred all of its assets during any period during in which the transferor has no assets sec_4945 and h shall not apply to the transferee or the transferor with respect to any expenditure_responsibility grants made by the transferor sec_1_507-3 of the regulations states that the tax basis and holding_period of the assets will carry over to the transferee foundation for purposes of sec_4940 of the code ---------------------------------- sec_1_507-3 of the regulations states that if a private_foundation transfers all of its net assets to one or more private_foundations which are effectively controlled by the same person or persons which effectively control the transferor private_foundation for purposes of chapter and part ii of subchapter_f of chapter of the code such a transferee private_foundation shall be treated as if it were the transferor sec_1_507-3 of the regulations defines the term significant disposition of assets to one or more private_foundations as any disposition or series of dispositions where the cumulative total of dispositions i sec_25 percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year sec_53_4945-6 of the foundation and similar excise_taxes regulations provides that a private foundation’s payment of administrative expenses including compensation consultant fees and other fees for services rendered is not a taxable_expenditure depending upon whether such expenses are reasonable sec_53_4946-1 of the regulations states that for purposes of sec_4941 only the term disqualified_person shall not include any organization which is described in sec_501 analysis the proposed transactions involve a private foundation's transfer of a significant part of its assets to an entity that qualified for exemption under sec_501 of the code and not a notification of its termination as a private_foundation accordingly the proposed transfer is not a transfer described in sec_507 of the code which is subject_to tax under sec_507 also because z is exempt under sec_501 of the code the transfer of y’s assets to z will constitute a distribution for a charitable purpose and will not adversely affect the exempt status of y or z nor will it be treated as investment_income an act of self-dealing a jeopardizing investment or taxable_expenditure within the meaning of sec_4940 sec_4941 sec_4944 and sec_4945 in addition y’s payment of reasonable expenses_incurred in connection with the transfer will not be treated as acts of self-dealing under sec_4941 or taxable_expenditures under sec_4945 based on the foregoing we rule as requested as follows the transfer is a transfer described in sec_507 of the code because the transfer is a transfer described in sec_507 of the code a the transfer shall not affect y’s qualification as an organization described in sec_501 of the code b z will not be treated as a newly created organization as provided in section ---------------------------------- b of the code and sec_1_507-3 of the regulations c z will succeed to the aggregate tax_benefit of y in proportion to the assets transferred to it by z as provided in sec_1_507-3 of the regulations d if y incurs liability for any taxes imposed by chapter or any penalty resulting therefrom prior to or as a result of the transfer in any case where transferee_liability applies z shall be treated as receiving the transferred assets subject_to such liability to the extent that foundation does not satisfy such liability as provided in sec_1_507-3 of the regulations e y will be required to meet its distribution_requirements for the year or years in which the transfer takes place in accordance with sec_1_507-3 of the regulations and f the provisions of sec_1_507-3 through g of the regulations will apply to z with respect to the assets transferred from z the transfer will not cause the termination of y’s status as a private_foundation the transfer will not cause the imposition of a termination_tax under sec_507 in the year or years in which the transfer takes place the transfer will not give rise to net_investment_income for either y or z and will not result in the imposition of tax under sec_4940 of the code the transfer will not constitute an act of self-dealing under sec_4941 of the code for y or z the transfer will not constitute a jeopardy investment under sec_4944 of the code with respect to y or z the transfer will not constitute a taxable_expenditure under sec_4945 of the code as y will exercise expenditures responsibility under sec_4945 with respect to its transfer to z the payment or reimbursement by y of all the transfer and related expenses if reasonable in amount will not constitute taxable_expenditures within the meaning of sec_4945 of the code ---------------------------------- this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice debra j kawecki manager exempt_organizations technical group sincerely


2uyf jb0-3 department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil index tax_exempt_and_government_entities_division release date date legend a name of individual b name of individual c name of individual d name of individual m name of state n name of entity o name of entity p name of publication q name of newsletter r name of newsletter s name of entity t name of entity u name of entity v name of entity w name of entity x name of entity’s publication y title of published article package name of package package name of package package name of package date date date date date date t o w letter cg catalog number 47630w v8 a number b number c dollar amount d dollar amount e dollar amount f dollar amount g dollar amount h dollar amount i dollar amount j dollar amount k dollar amount dollar amount m dollar amount n dollar amount o dollar amount p dollar amount gq dollar amount t dollar amount w_i t e l c l a o h u o l o y d i d x i i i k n i b i i b e r number dollar amount dollar amount dollar amount dollar amount dollar amount dollar amount dollar amount l l o h i dollar amount ollar amount ollar amount o o number dear applicant we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue does your organization qualify for exemption under internal_revenue_code sec_501 as a charitable or educational_organization letter cg catalog number 47630w 2uu8 facts you were incorporated in the state of m on date your articles of incorporation state that you are organized exclusively for the purpose of serving as a resource center for compliance materials and services for the agribusiness industry you submitted form_1023 application_for recognition of exemption under sec_501 of the code as a charitable and educational_organization in the attachment to part iv of form_1023 you state that you are organized to help agricultural businesses comply with the myriad of osha epa and dot regulatory requirements your mission is the same mission as your predecessor n a for-profit corporation except that you will be able to provide services to a substantially greater number of agricultural businesses through an alliance with national regional and state trade associations you are a successor to a for-profit organization n your predecessor n started in date with just a number of clients it grew to b number of clients prior to the conversion to a non-profit entity the owners of the for-profit entity were a b and c a and b are husband and wife the prior owners of n are now members of your board_of directors in item 1a of the attachment to schedule g you provided that the three shareholders in n will become key employees in your organization a will now serve as your president b as your secretary treasurer and c as your vice president since your form_1023 submission n has been dissolved based on the information submitted on the form_1023 your projected budget expenses showed total salaries as follows officers directors other salaries total salaries dollar_figure dollar_figure cc d g cc e h cc f i compared to compensation expenses shown on the form filed for n your predecessor organization salaries paid were as follows officer directors salaries and wages total salaries dollar_figure dollar_figure j k m j n letter cg catalog number 47630w 20u806091 while your employees are identical to the employees of the predecessor n your compensation expense has increased significantly subsequent to the conversion to a non-profit entity by over dollar_figure annually and primarily to officers and directors according to form_1023 the officers and directors receiving compensation from you are a b c d president secretary treasurer vice president advisor dollar_figure oo p q dollar_figurer thus subsequent to your conversion compensation expense has increased to account for the additional compensation paid to your current three key board members who were also owners of the prior for- profit entity on schedule g you explained that the owners of n donated its assets including supplies furniture computers and printers valued at approximately dollar_figure to you and no liabilities were transferred as a result of the non-profit conversion on date however the owners of the predecessor did not transfer to you ownership of the facility you use or copyrights to any intellectual properties developed or produced prior to the non-profit conversion moreover the proprietary softwate copyrighted materials and facility are to be updated and improved at your expense in fact in addition to being a successor to a for-profit company you are also related to o which is a for-profit holding_company for certain properties relating to the predecessor’s operation such properties include office building with s number of acres and training complex from which the organization will conduct its activities a forklift and tractor loader video subjects and ptoprietary software and other intellectual_property you also stated that the three principals of n also own o it was indicated in the attachment to part v of the form_1023 that you have entered into a lease agreement with o o has leased these same assets to n for the past six years for dollar_figuret per year o would continue to own these assets and lease them to you for dollar_figuret a year in part viii of the form_1023 you indicated you will have full use of these materials through the annual lease all intellectual_property o owns certain intellectual properties which are protected by united_states trademark and copyright laws developed by n prior to date of conversion date will remain the property of o including any revisions updates modifications or versions that may occur beyond that date all intellectual_property developed after date of conversion date will be the property of your organization the representative sample of your contracts with national and state associations and clients indicated that letter cg catalog number 47630w affiliates and clients shall recognize and comply with all applicable trademarks copyrights and rights of ownership of your materials including but not limited to proprietary computer_software applications website applications audio visual materials printed publications and any other form of media displaying your copyright or trademark your lease agreement with o provision seven stated you may at your sole expense decorate and remodel the leased premises so long as such remodeling does not disturb the structural integrity of the building and may not alter decorate or improve the premises which might possibly affect the structural integrity of the building without o’s prior written consent however in any event if any alterations decorations ot improvements to the premises ate made the same shall become a part of the leased premises unless the written consent expressly grants the right of removal or restoration normal maintenance and repair and the reasonable installation of removal fixtures equipment and similar items incident to the your use are not covered by this provision based on your financial statements all of your income is derived from fees for services rendered your proposed budgets showed gross_receipts from fees for services rendered projected for calendar years ending date and at dollar_figureu dollar_figurev and dollar_figurew respectively you receive zero income ftom grants and donations you indicated on your form_1023 that you have no intentions of conducting any fundraising program you advertise to the public in order to expand your client base for example in one of your brochures you indicated that achieve a better bottom line with your state association and our organization on your side you benefit from our comprehensive system of tracking and reporting data our clients reap the benefits from the reports we provide to monitor the status of drivers training participation and respiratory qualification once seen solely as overhead our clients now report savings associated with the reduction of violations accidents worker compensation claims and insurance premiums safety in numbers clients take comfort from the broad distribution of our services and materials an inspection or audit at any of our client’s locations benefits every other client when a regulating agency asks for more than is required_by_law our clients have allies in our organization and trade associations with the resources to help bring fairness to the enforcement action in an article published in p your president credited the internet as out secret weapon for efficiency the sophisticated online system provides retailers a complete package for a fraction of what it would cost to complete forms in-house we’ve been letter cg catalog number 47630w able to take virtually everything you need for compliance and reproduce it on the internet for less than dollar_figurex a year we can replace dollar_figurey on-site staff person he explains your services also compete with those of other for-profit compliance consulting companies in the same article your president went on to comment we’re different from other compliance services because we complete the reports track the status and remind them action is necessaty in your date response item you stated that n was considered a consulting firm which specialized in compliance for agricultural businesses in your representative sample of your contract with state associations you indicated this agreement may be terminated by either party with three hundred sixty five days notice or at an earlier date that is agreed upon by you and the affiliate this termination contract provision makes it difficult for state associations to cease its revenue sharing arrangement with you you do not operate a substantive ongoing public education program your compliance educational materials are provided on a retainer fee basis you indicated on page of your description of activities that even the compliance information provided through your website is available only as part of your retainer services furthermore you stated that the manner in which you operate your business is identical to your predecessor for-profit entity with the exception that now you will service more clients by partnering with national and state association you have five levels of membership membership fees appear to be based on the services to be provided by you membership levels and descriptions as described in article ii of your bylaws are as follows educational - shall be a domestic not-for-profit institution of higher learning not otherwise eligible for membership that is interested 1n your work government - a government member shall be a department authority or agency of the united_states government or of any state interstate regional or local_government interested tn your work association -- an association member shall be any entity or individual of a state or national industry or trade_association organization not otherwise eligible for membership that is interested in your work regular a regular member shall be any member admitted to your organization after the date of your creation and not fitting any other category of membership charter - a charter member shall be an entity or individual for whom services are contracted prior to the date you began operation letter cg catalog number 47630w 2uvus0609 you outlined the benefits offered to each membership level in item of your date response the membership benefits and any applicable fees are as follows educational and government members -- no fees are assessed the benefit offered at these levels includes basic communications consisting of newsletter q r and updates assocation members - no fees are assessed the benefits offered in this category include basic communications as described previously and package level of service regular and charter members - fees are assessed based on level of service purchased besides receiving basic communications these categories are entitled to receive package and package levels of service service packages and fees offered by you are as follows package - includes a variety of resources free to the association to support membership efforts it also provides the association access to certain services as required on an individual basis by its members package - available to state associations for use as an intermediate level of service it is specifically designed as a tool for the state association member who prefers to administer their own compliance program but desires certain assistance state association personnel receive training from the organization and the associations’ personnel would be the ptimary point_of_contact to their members contracted for this level of service no fees are chatged to the state associations however the cost to the members is dollar_figurez per manned facility per year package - it is comparable to the n’s retainer which includes access to all services products and materials offered by the organization the package includes proven systems of monitoring and maintenance of driver qualification files integrated return tracking and maximum cost-control efficiency from group purchasing and reimbursement rates for the materials necessary to compliance this is a proven comprehensive package of services designed for the state association member who wants needs or requires a more complete approach to compliance and the timely prompting and reminders offered no fees ate assessed to the state association members costs to your members for package are dollar_figureal per manned facility with no on-site visit and dollar_figureb1 per manned facility requiting an on-site visit per year state association personnel would receive training from you and be expected to set up new members and conduct the annual compliance visit the state associations’ personnel would provide a secondary point_of_contact to its members contracted for this level of service you retain between - of fees depending on the service package the balance is distributed to the participating state association and dollar_figurec1 per facility to s operational net_income is shared with national and state associations in order for these associations to promote your services among its membership a number of these national and letter cg catalog number 47630w 2uv8060923 state associations are trade or agricultural organizations described under sec_501 or sec_501 of the code but none of them appear to be described under sec_501 of the code according to your bylaws the criteria for board membership are members of the board_of directors shall be knowledgeable and actively involved in environmental health or safety activities the makeup of the board_of directors shall be such that all members of the board at any given time shall be representatives of charter regular or association members of our organization or representatives from the producers of fertilizers or agrichemicals or those entities manufacturing or supplying equipment and machinery to the fertilizer and agrichemical industty if a member of the board_of directors terminates his her employment with a charter regular or association members or is transferred to a division of a charter regular or association member company having no reference to the agribusiness industry then said director shall be disqualified to serve as director and immediately tender his her resignation from the board_of directors and a replacement director shall be elected by the board_of directors according to your bylaws the term of board membership 1s each director shall serve a three year term and until the election and qualification of his her successor officers may be re-elected to consecutive terms your board consists of your prior predecessor owners representatives of the national and state associations and client representatives the motivation to convert from a for-profit entity to a non-profit entity was explained as in item of your date response in your letter you stated a profit organization must be protective of its trade secrets in n’s situation they are protective of their technologies and resources the profit organization is financially harmed if a sufficient number of non-payers gain free access to those technologies and resources n limits the number of customers they handle so that their technologies can be controlled and protected many customers could mean publication of their technologies there are not any patents or copyrights for these types of technologies everything they developed is from public records you continued in the same response as for passing up opportunities the owners did not believe in expanding beyond the farm centers that were paying them as business owners and knowing their customers and potential customers they believed the tisk of expanding as a profit organization was letter cg catalog number 47630w 2q0ug05021 not viable they would not be able to protect the technologies they developed as a nonprofit organization they would no longer have this concern on page attachment to part iv of the form_1023 you stated your predecessor developed expertise in understanding government regulations affecting agriculture business and became their resource center by providing educational material training programs on-site inspections and from their database filing timely client reports with government agencies you further stated by switching from a for-profit to a nonprofit you have the opportunity to benefit industry and continue development of technologies to meet the changing regulatoty requitements you will work in harmony with t u v and d1 number of other state associations and expand as a resource center more agricultural businesses can participate in the programs and come into compliance with regulations because costs will be lower you continued the associations will publicize the your educational materials compliance aids informational meetings and services to an industry of approximately big_number agricultural businesses located throughout the agricultural producing regions of the united_states the associations will benefit because they will become a sponsor to the services you provide and receive revenue for their participation the association’s members will have a greater availability to resources and will receive their regulatory solutions at a lower cost the u s government benefits as more businesses are in compliance with regulations on page of the same attachment you indicated you will retain the employees employed by n and continue the same regulatory services but to a greater number of agricultural businesses the cost of the program services is based on time and material the average annual expense of the program per client is less than dollar_figure the cost structure for you will be similar to n except operational net_income will be shated with the national and state associations you defend businesses in the agricultural industry from regulatory enforcement actions by governmental agencies in the w industry news quarterly article your president stated i can’t count the number of times we’ve been called by retailers searching for a quick fix to get them out of a jam for a regulatory requirement that has been on the books for over yeats in practically all cases a little good_faith effort would have prevented the retailer’s dilemma in every case the retailer already knew they should have been addressing the issue but for whatever letter cg catalog number 47630w 20ur06093 reasons had not gotten around to it the regulatory climate has changed over the past three years we have witnessed a marked increase in the actions of the regulating agencies regulators are becoming more bold and even aggressive in pursuing their goals it is our belief that state associations such as w will be the first line of defense their members will look to for guidance and protection our industry has an exemplary record in legislative activities but has suffered when it came to helping members with even the most basic regulatory issues or providing assistance in cases of uneven enforcement in your date response item you provided that one of the first opportunities presented to you was to provide technical assistance and guidance in a case of uneven enforcement by a particular region of epa one of the objectives of your organization is to fulfill the role of protecting the retail farm centers when ovet-reaching regulatory agencies abuse their power most of the retail farm centers are considered small_business and located in rural settings they do not have vast resources to contest or even fight uneven enforcement most are scared of regulatory agencies such as the epa and will not contest a violation even whey they know it is unjust in item of the same response you indicated consolidation is taking its toll on our family farms and the effect trickles down to every agricultural business the state and national associations that were organized many years ago to promote and protect the agricultural businesses have more recently felt the impact of consolidation these associations are the first line of defense for retailers and other agricultural businesses yet each time one retailer consolidates and buys another the association’s revenue from membership is reduced by half consider the fact that compliance costs more than doubled from billion to billion in article attached and the state and national associations are being asked to provide more of everything for less it is an impossible scenario to sustain the twelve state associations in so far have embraced the idea of having a quality resource to help them service their member’s needs in the article from x titled y it stated that while epa investigated fewer environmental crimes enforcement penalties jumped up from to epa says that’s because the agency is successful prosecuting some of the largest environmental crimes in history law sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual letter cg catalog number 47630w 20u806091 sec_1_501_a_-1 of the regulations defines a private_shareholder_or_individual as persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 iii of the regulations provides that an organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on otherwise than as an insubstantial part of its activities activities which are not in furtherance of one ot more exempt purposes even though such organization is by the terms of such articles created for a purpose that is no broader than the purposes specified in sec_501 sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 d ii of the regulations provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest thus to meet the requirements of this subsection it is necessary for an organization to establish that it is not organized and operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1 c -1 d of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a non- exempt commercial purpose rather than for a tax-exempt purpose among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include znter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations in 70_tc_352 the court found that a corporation letter cg catalog number 47630w 20uvu800021 formed to provide consulting services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit its primary purpose was not charitable educational nor scientific but rather commercial additionally the court found that the organization’s financing did not resemble that of the typical 501_c_3_organization it had not solicited nor had it received voluntary contributions ftom the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than ‘cost and finally the corporation did not limit its clentele to organizations that were sec_501 exempt_organizations in easter house v united_states 846_f2d_78 fed cir affg cl_ct the court found an organization that operated an adoption agency was not exempt under sec_501 of the code because it operated for a substantial commercial purpose rather than for the exempt purposes of providing educational and charitable services to unwed mothers and children the setvices for unwed mothers and children were merely provided incident to the organization’s adoption service business the agency’s operation was funded completely by the fixed fees charged adoptive parents it relied entirely on those fees and sought no funds from federal state or local sources nor engaged in fund raising programs nor did it solicit contributions moreover the court found that adoption services do not in and of themselves constitute an exempt_purpose in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 276_f2d_476 cir the court denied tax exemption to an organization in part because its net_earnings were distributed to its shareholders for their personal benefit the founder of the organization and his two sisters were the only shareholders these three and two of their spouses were the organization’s trustees the court found that the organization was operated as a business ultimately producing substantial revenues for its operators in church of scientology of california v c lr ustc p the appellate court agreed with the tax_court that the royalty payments supported a finding of inurement royalty payments made by the church to its founder on sales of books recordings and electronic devices were excessive and thus supported the determination that church's net_income inured to benefit of individual the founder used the church to generate copyrighted literature and market his products in addition church policy mandated that any book on subject be copyrighted in the name of founder and a number of publications copyrighted by founder were actually written by church employees in 30_tc_642 aff'd 272_f2d_168 5th cir a school operated on property leased from the corporation’s officers and made expensive improvements to property which became a part of the officers’ property the court ruled that the excessive and letter cg catalog number 47630w 2u unreasonable rent payments and improvements made by the organization resulted in inurement to its officers in international postgraduate medical foundation v commissioner tcmemo_1989_36 the tax_court concluded that when a for-profit organization benefits substantially from the manner in which the activities of a related nonprofit organization were carried on the latter organization was not operated exclusively for exempt purposes within the meaning of sec_501 even if it furthers other exempt purposes in revrul_61_170 1961_1_cb_112 an association composed of professional private duty nurses and practical nurses which supported and operated a nurses’ registry primarily to afford greater employment opportunities for its members was not entitled to exemption under sec_501 of the code although the public received some benefit from the organization’s activities the primary benefit of these activities was to the organization’s members according to revrul_85_1 an activity is a burden of government if there is an objective manifestation by a governmental_unit that it considers the activities of the organization to be its burden whether an objective manifestation exists may be shown by a variety of factors such factors include the following whether an organization is formed pursuant to a state statute the statute clearly defines the organization’s structure and purposes interrelationship with a governmental_unit - the stronger the control a government has over the organization’s activities the more an objective manifestation exists a governmental_unit previously conducted the organization’s activity payment of governmental expenses if the organization defrays the general or specific expenses of a local_government or pays part of the government’s debt is evidence of a governmental burden sources of funding - if an organization regularly receives funding from the government in the form of general grants as opposed to fees for services there is indication that the government considers the activity to be its burden whether an activity is one that could be performed directly by a governmental_unit revrul_85_2 provides that the activities of the organization rather than its purpose must be examined to determine whether the organization actually lessens the burdens of government also the fact that an organization is engaged in an activity that is sometimes undertaken by the government is insufficient to establish a burden of government similarly the fact that the government or an official of the government expresses approval of an organization and its activities is also not sufficient to establish that the organization is lessening the burdens of government letter cg catalog number 47630w 20ur060921 application of law sec_501 of the code sets forth two main tests for qualification for tax exempt status an organization must be both organized and operated exclusively for purposes described in sec_501 your purposes as provided in your articles of incorporation are board and vague you state that your purpose is to serve as a resource center for compliance materials and services for the agribusiness industry your purpose of providing services to the agribusiness industry is not an inherently charitable activity and is often achieved in a commercial manner therefore we can not conclude that you are organized exclusively for exempt purposes as provided in sec_1 c - b at of the regulations to satisfy the operational_test you must be operated exclusively for one or more exempt purposes as provided in sec_1 c -1 b it of the regulations we hold that you not satisfy the operational requirements to be recognized as exempt under sec_501 c of the code in fact the administrative record demonstrates that you will operate for the substantial non-exempt purpose of operating a commercial business in addition you have not established that your income will not inure to the benefit of your three key board members and owners of your predecessor for-profit organization furthermore your revenue sharing contracts give rise to impermissible private benefits to the national and state associations which are not recognized under sec_501 of the code evidence that you are operated in the manner of a commercial business is reflected in the fact that your operations have not changed as a result of your conversion to a non-profit entity you still retain the same employees provide the same services and continue charging the same level of fees as you did when you operated as a for-profit consulting firm your revenue will come exclusively from fees received from the sale of compliance consulting services you provide to for-profit businesses in the agricultural industry you are remarkably like the organization described in airlie foundation v commissioner supra you ate operated for a non-exempt commercial purpose rather than for a tax-exempt purpose as shown in the article published in p your compliance consulting services directly compete with other compliance service businesses one of the factors considered in assessing commerciality was the extent and degree of below cost services provided you have provided no evidence that your clients teceive free services or services according to their ability or pay you have not provided any evidence that your fees will bear any relation to the costs of providing your services and are not purely a profit-making tool individuals in fact your clients are primarily for-profit businesses in the agricultural industry moreover the language used in your advertising efforts including your brochures clearly demonstrates that you will aggressively market your services to businesses in the agricultural industry in the manner of an ordinary for-profit business furthermore your revenue sharing contracts with in addition your clients are not limited to a charitable_class of letter cg catalog number 47630w 90u8000 the national and state associations are executed in order for these associations to promote your compliance consulting services among its membership and expand your client base thus because of the commercial manner in which your activities are conducted you are operated for a non- exempt commercial purpose you are similar to the organization described in b s w group inc v commissioner supra your activities constitute the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit your primary purpose is not charitable or education but rather commercial you have not shown that you will receive any support from contributions from the general_public government or private_foundation grants or public contributions in fact you have no fundraising program to solicit such contributions by comparison for-profit business enterprises are supported by fees paid_by those who receive services like a for-profit business all of your revenues are from fees paid_by those who receive compliance consulting services from you while charitable institutions often do provide services to individuals the cost is generally subsidized by contributors who do not receive anything in return your fees however are set high enough to recoup all projected costs and to produce a profit your fees have not changed since your conversion from a for-profit to a non-profit entity organizations that are exemption under sec_501 of the code finally you also do not limit your clientele to you have not provided any information to indicate that you plan to dedicate significant revenue to activities involving educational and or charitable programs in having a paid staff with no volunteer help and having no direct expenditures_for charitable and educational_purposes you are similar to the organization described in easter house v united_states supra where the court determined that the organization was not exempt because its conduct of adoption services activity was in furtherance of a non-exempt commercial purpose similar to adoption services your provision of compliance consulting services do not in and of themselves constitute an exempt_purpose contracts makes it difficult for national and state associations to cease its revenue sharing arrangement with you in a way that is more typical of a trade_or_business you do not operate a substantive public education program your educational materials are available on a retainer service basis even the compliance materials provided through your website is available only as part of your retainer services your board_of directors rather than being representative of a broad cross section of the community is effectively controlled by individuals with a vested interest in you your board consists of the three owners of your predecessor organization and representatives of the national or state associations or client representatives of yours your board is not representative of the public interest thus the totality of the facts and circumstances show that you will be operated for the substantial non-exempt business_purpose of selling compliance consulting services for retainer fees to agricultural businesses the termination provision in your like better business bureau of washington d c inc v united_states supra you have an underlying commercial motive that distinguishes your educational program from that carried out by a university in addition you have not establish that your income will not inure to the benefit of your three key board members who were also owners of your predecessor entity in accordance with section letter cg catalog number 47630w 2uvu8 c -1 d ai of the regulations and sec_501 of the code your motivation to convert to a non-profit entity appears to be primarily profit driven it appears that your predecessor for-profit business had reached its maximum growth potential and the business owners of your predecessor organization and your current three key board members recognized that there was an increasing risk of possible non-payers having access to their proprietary software thus continuing as a for-profit entity was no longer viable as they were losing their ability to control and protect the technologies they had developed your current manner of operations and employees are identical to that of your predecessor with the exception that you now have entered into revenue sharing contracts with national and state association your revenue sharing contracts with the national and state enables you to widely expand your client base and increase your level of business without fear of losing control_over your proprietary resources by having the national and state associations promoting your compliance consulting packages you now have the potential to expand your consulting services to possibly every agricultural business in the nation similar to revrul_61_170 your primary purpose appears to be providing employment opportunities for your three key board members and predecessor owners the owners of your predecessor organization are now the three highest paid directors officers of your organization it is also unclear given the fact that your employees are identical to of your predecessor why compensation to directors officers increased significantly following the conversion to a non-profit entity therefore like birmingham business college inc v commissioner supra you have not shown that your earnings do not inure to the benefit of your board members particularly the three key board members who were the owners of your predecessor organization like church of scientology of california v c lr supra inurement results to the benefit of your three key board members who own o a for-profit title_holding_company the three owners of o personally enriched when you pay the expenses for modifying and updating the copyrighted intellectual properties proprietary software and technologies including the professionally produced videos created prior to the date of conversion these materials are owned by o but are now marketed or sold as part of your retainer service contracts are similar to texas trade school v commissioner supra inurement also results to owners of o due to the fact that any capital improvements made by you to the property you lease from o will become the property of o the permanent increase in the value from any improvement you make on the property constitutes inurement to your three key board members who also are the owners of o furthermore your revenue sharing contracts give rise to impermissible private benefits to the national and state associations which are not entities recognized under sec_501 of the code like international postgraduate medical foundation v commissioner supra the state and national association are substantially benefiting from the revenue sharing contracts with you the state associations ate receiving from to of the retainer fees per client these benefits to the national and state associations are substantial and constitute impermissible private benefits under sec_501 of the code and sec_1_501_c_3_-1 of the regulations therefore we hold that you ate not operated exclusively for exempt purposes under sec_501 of the code letter cg catalog number 47630w 2uysu0091 organization's position on page of your date correspondence you indicated in support of your position that by helping agricultural businesses comply with the myriad of osha epa and dot regulatory requirements the instant taxpayer clearly provides a public benefit and lessens the burden of governmental agencies charted with overseeing and enforcing compliance in view of the foregoing it would appear undeniable that the taxpayer is advancing the charitable purpose for which was formed and for which it is obligated to advance by its articles of incorporation in the attachment to item of your date response you stated all of the regulatory requirements were promulgated to protect either the public or the farm center’s employees in all you are equipped to help farm center’s address over regulatory requirements in the same attachment you listed various examples of how the general_public benefits if retail farm centers comply with various governmental regulatory requirements such benefits include identifying vulnerabilities to potential terrorist activities preventing uncontrolled release of harmful chemicals which could be harmful not only to the public but the ozone disclosing facilities’ stored hazardous materials to the public providing safer road travel etc to further defend your position you cited the following revrul_81_278 should be revenue_ruling 1981_2_cb_128 - it describes an organization that was established to perform the services of a professional standards review organization psro the organization was formed pursuant to sec_249f of the social_security amendments of and designated as a psro for a particular area by the department of health and human services its primary activity was to review the professional activities of physicians and other health care practitioners as well as institutional and non- institutional providers of health care services the organization developed and applied professional norms of care diagnosis and treatment and determined whether services were medically necessary the quality of services met professional standards and when proposed services were to be on an inpatient basis if the services could have been effectively provided on an outpatient basis or more economically provided at a different inpatient care facility generally payments for medical services ot items cannot be made under medicare or medicaid unless they are reviewed and approved by the organization membership into the organization is open without charge to all licensed practicing physicians in the organization’s area all of the organization’s income came from contracts with the department of health and human services this organization qualified for exemption under internal_revenue_code sec_501 c 466_fsupp_1164 dc - the specifics in this case is similar to activities described in the previous revenue_ruling this organization’s purpose was to assume the responsibilities and duties of a support center for psros letter cg catalog number 47630w the support center was authorized by guidelines promulgated under the auspices of the secretary of the united_states department of health education and welfare or to perform similat functions this organization had contracts with the department of health education and welfare and was responsible for carrying out affirmative education programs for physicians and assisted physician groups to form psros all of the organization’s financial support came from income from contracts with the department of health education and welfare the court determined that the organization was exempt as a charitable_organization revrul_70_79 1970_1_cb_127 - this revenue_ruling described an organization that assisted local governments of a metropolitan area that conducted research to develop solutions for common regional problems qualified for internal_revenue_code sec_501 exemption as a charitable_organization because it lessened the burdens of government the organization’s membership consisted of chief elected officers of several local jurisdictions this organization received financial support from federal grants membership dues and assessments from the local jurisdictions revrul_76_455 1976_2_cb_150 - this revenue_ruling describes an organization that was formed to encourage and assist in the establishment of nonprofit regional health data systems conduct studies and propose improvements relating to the quality utilization and effectiveness of health care and health care agencies and to educate those involved in furnishing administering and financing health care the organization’s membership consisted of active and associate members their active members were nonprofit operators of a regional health data collection program which cooperated with health care agencies in a geographically identifiable area and regularly disseminated regional health data for that area associate members were hospital associations medical associations medical record associations health insurance associations etc this organization’s financial support came from membership dues and grants from other organizations and governmental agencies this organization was determined to be exemption under sec_501 of the code the previous revenue_ruling was compared to revrul_74_553 1974_2_cb_168 revenue tuling it held that an organization formed by members of a state medical association that operated peer review boards and conducted other related research and oversight functions for the ptimary purpose of establishing and maintaining standards for quality quantity and reasonableness of medical service_costs qualified for exemption under internal_revenue_code sec_501 rather than sec_501 in this on page of your date correspondence you indicated we respectfully disagree with your analysis of the effect of revenue rulings and on the instant application the list of factors referred to in your letter is not all- inclusive the ruling do refer to the need for a determination that the involved governmental agency consider whether the organization’s activities involve part of the governmental agency’s burden and whether the organization’s activities lessen the letter cg catalog number 47630w 20u8060903 burden of the subject governmental agency we respectfully submit that both tests are satisfied in this case thus compliance with the governmental regulations is clearly an objective manifestation that the governmental agencies mentioned previously view compliance with their rules and regulations to be their burden otherwise there would be no need for those agencies to promulgate their rules and regulations it is also clear that those governmental agencies have a duty to oversee and enforce with the threat of sanctions those businesses failing to comply service’s response to organization’s position you do not lessen the burdens of government unlike the organizations described in the revenue rulings and court case in the previous section your income is not from governmental or public sources your sole source of financial support is come from fees for services rendered to businesses in the agricultural industry unlike the organizations described in revrul_81_276 and the court case virginia professional standards review foundation v blumenthal supra you do provide services on behalf of a governmental agency you were also not created by congress or established by a governmental agency to oversee the professional standards of a particular industry instead you are a successor to a for-profit consulting business that operated in an identical manner to you in fact you have not established that you share any collaborative relationship with the epa osha or dot in section iv of virginia professional standards review foundation v blumenthal supra it stated to the extent that such an intent may be presumed to exist it must be attributed to the congress which established the psro program in part at least to spare the government the difficulties and expense occasioned by government overview a task better suited for physicians themselves you have not provided evidence to show that your activities are an objective manifestation of government you do not meet a majority of the factors listed in revenue rulings to demonstrate that you are lessening the burdens of government including e e e e e e you are not formed pursuant to a state statue governmental agencies do not have any level of control_over the internal operations of your organization a governmental_unit has never conducted your organization’s activity you do not pay expenses related to activities of a governmental agency you do not receive any form of funding from governmental grants and all of your income is from fees for services you are not engaged in an activity that could be performed by a governmental_unit you are not lessening the burdens of government the fact that there is no interrelationship between you and a governmental function is a strong indication that governmental agencies do not consider your activity to be its burden in addition you do not actually lessen the burdens of government as provided in revrul_85_2 the role of the governmental agencies such as letter cg catalog number 47630w 20ur060921 epa osha and dot is one of enforcement it is the obligation and burden of the individual businesses to comply with the established regulatory requirements in so far as you assist these for- profit retailers for a fee to come into compliance with the law you are helping your clients to meet their obligations your objective appears to be the protection of agricultural retail businesses from enforcement actions by regulatory agencies since your viability is dependent on the services you provide to your clients your ultimate aim is the protection of the business interests of your clients this is the exact opposite function of the regulatory agencies which is formed to protect the public interest and to ensure compliance for the benefit of the community as a whole thus your activities ate directed at decreasing the farm centers’ burden in complying with numerous and complex regulatory requirements imposed by various governmental agencies rather than enforcing the established regulatory requirements furthermore your clients individual businesses in the agricultural industry benefit more than incidentally from your activities in direct contravention of sec_1 c - d of the regulations the private interests served by your activities outweigh the public interests served therefore exemption on the basis of lessening the burdens of government 1s inappropriate during a telephone discussion with you on date it was noted that the your activities are similar to those performed by certified public accounts cpas and tax attorneys in that the tax professionals exist to help their clients understand and comply with the complex internal_revenue_code also during the telephone discussion on date you inquired if granting the organization exemption under sec_501 was an option internal_revenue_code sec_501 is defined as business_leagues chambers_of_commerce real-estate boards boards_of_trade or professional_football_leagues whether or not administering a pension fund for football players not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual regulations sec_1_501_c_6_-1 states a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons an otganization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit even though the business is conducted on a cooperative basis ot produces only sufficient income to be self sustaining is not a business league exemption under internal_revenue_code c was considered but quickly dismissed for the following reasons letter cg catalog number 47630w 2uvu8v00 your primary activity is to perform services for your members clients your services are aimed at assisting the members comply with regulatory requirements rather than promote a common business_interest or improve business conditions as a whole unlike most business_leagues your sole support of financial support will be derived from gross_receipts for services rendered and or merchandise sold for business_leagues their primary sources of revenue come from membership dues and assessments you are operated in the manner of a for-profit trade_or_business and is therefore not a business league as described under sec_501 of the code conclusion based on the information you presented you do not qualify for exemption under internal_revenue_code sec_501 as a charitable or educational_organization or under any other section within the internal_revenue_code you are operated for a substantial non-exempt purpose of operating a commercial business you have not shown that your earnings do not inure to the benefit of your three key board members who were the owners of your predecessor for-profit business your revenue sharing contracts give rise to impermissible benefits to the national and state associations which are not entities recognized as exempt under sec_501 of the code you do not lessen the burdens of government as you do not share an interrelationship with any of the regulatory agencies which would demonstrate that your activity is a burden of government additionally you seek to protect your clients businesses in the agricultural industry from enforcement actions by the regulatory agencies which is an activity that serves the private interests of your clients more than incidentally you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal these items include the organization’s name address and employer_identification_number a statement that the organization wants to appeal the determination the date and symbols on the determination_letter a statement of facts supporting the organization’s position in any contested factual issue a statement outlining the law or other authority the organization 1s relying on and a statement as to whether a hearing is desired n o y p m a letter cg catalog number 47630w the statement of facts item must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of perjury i declare that i have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if an organization’s representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www its gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree 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 all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnat oh you may fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm that he ot she received your fax letter cg catalog number 47630w 20v8g000 2i if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations rulings agreements enclosure publication letter cg catalog number 47630w internal_revenue_service appeals_division n robinson suite ms oklahoma city ok release date date b uil code department of the treasury certified taxpayer_identification_number cc person to contact ae ple fax refer reply to ap in re exempt status tax years last day to file a petition with the united_states tax_court dear this is a final adverse determination as to your application_for exempt status under sec_501 as an organization described under sec_501 of the internal_revenue_code our adverse determination was made for the following reason s you are not organized or operated for an exclusive exempt_purpose as required by intemal revenue code sec_501 c you did not meet the organizational or operational tests as required by sec_4 c -1 b and c -1 c1 of the treasury regulations you have not established that your income will not inure to the benefit of individuals and shareholders which is prohibited by internal_revenue_code sec_501 c you are operated for a substantial private purpose which is prohibited by intemal revenue code sec_501 x contributions to your organization are not deductible under code sec_170 you are required to file federal form_1120 for the year s shown above if you decide to contest this determination under the deciaratory judgment provisions of code sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed before the ninety-first day after the date this determination of the appropriate court for rules for filing petitions was mailed to you contact the clerk for declaratory_judgment to secure a petition form from the united_states tax_court write to the-united states tax_court second street n w washington d c you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals procedures etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations or extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate that may not have been resolved through normal can however see that a tax matter channels gets prompt and proper handling your exempt status as required by code sec_6104 we will notify the appropriate state officials of this final adverse determination of if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely charles f fisher appeals team manager