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-113791-06 date date x legend dear ---------------- state date1 ---------------------------------- ----------------------- -------------------------- ------------- this letter responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated on date1 under the laws of state the shareholder of x intended that x be treated as an s_corporation effective date1 but the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation's plr-113791-06 taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective date1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective date1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely dianna k miosi branch chief branch passthroughs special industries copy of this letter copy of this letter for sec_6110 purposes enclosures cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul t eo b4 lit lge ein contact person identification_number telephone number dear sir or madam this is in reference to your letter of date requesting advance approval of your grant procedures under sec_4945 of the intemal revenue code the information submitted shows that the grants will be administered by f a publicly_supported_organization under its b program organizations operating under the b program may elect the c and or the d option ‘ for purposes of the c scholarship awards option f selects individual scholarship recipients in the b program through a competition the initial phase of the competition is the x test which is given annually in participating high schools by high school officials after the test f identifies and honors students scoring in a group that represents the top two percent of graduating high school seniors nationwide and designates a number that represents less than one percent of the graduating high school seniors in each state as semifinalists the semifinalists then take a second test y to confirm their earlier performance those who repeat their prior performance who demonstrate high academic standing in high school and who meet other standard requirements are designated as finalists f's selection procedures in its d scholarship awards option generally parallel those applied in the c option however eligibility in the d option is limited to the top-scoring black students semifinalists in the d option are designated in at least four geographic regions each consisting of several states according to the distribution of the black population throughout the united_states you have entered into an agreement with f whereby you have agreed to sponsor a specific number of scholarships each year to be awarded to children and or relatives of employees of full-time permanent employees of e under the b program f may award scholarships only to students who are designated as finalists the actual number of b scholarships to be supported by you will not exceed the number of employees’ children who qualify as finalists in their respective competitions after the list of finalists is obtained f reviews the finalist group to determine which students are eligible for grants under an employer related scholarship program no application is required from the students to enter the b program therefore neither you nor f can determine the number of eligible applicants if there is an insufficient number of employees’ children who qualify as finalists the total number of scholarships to be awarded in a particular year is automatically reduced or some foundations may permit scholarships to be offered to finalists who are not children of employees f monitors participating employers to ensure a sufficiently large base of employees’ children from which at least one or more b finalists would ordinarily be expected to emerge this is necessary since fewer than one out of one hundred seventy-five students in a senior class achieves the b finalist jevel the selection of individual grant recipients is made by selection committees designated by f the members of the selection committee are totally independent and separate from you f confirms the individual scholarship recipient's enrollment at the educational_institution makes payment of the award through the appropriate financial aid office of the educational_institution and supervises and investigates the use of the grant funds by the recipients in their educational program the scholarships will not be used as a means of inducement to recruit employees nor will a grant be terminated if an employee parent leaves the company scholarships will only be awarded to students who plan to enroll in an institution that meets the requirements of sec_170 of the code and which may further be limited by f after the scholarship is awarded the recipient will not be restricted in his her course of study in rare cases sponsors may ask f to give preference in selection to individuals who propose to study in certain broad fields f will supply statistical information to you which will enable you to maintain the records required by rev_proc 1976_2_cb_670 sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure 2s approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant subject_to the provisions of sec_117 if a private foundation's program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in sec_4 the service will assume the grant will be subject_to the provisions of sec_117 section dollar_figure of revproc_76_47 provides a percentage_test guideline it states that in the case of a program that awards grants to children of employees of a particular employer the program meets the percentage_test if the number of grants awarded under that program in any year to such children does not exceed percent of the number of employees’ children who i were eligible ii were applicants for such grants and iii were considered by the selection committee in selecting the recipients of grants in that year or percent of the number of employees’ children who can be shawn to be eligible for grants whether or not they submitted an application in that year as stated in sec_4 of revproc_76_47 if a sponsor's program satisfies the seven conditions set forth in sections dollar_figure through but does not meet the percentage_test of section dollar_figure applicable to grants to employees’ children the question whether the grants are scholarship or fellowship grants subject_to the provisions of sec_117 of the code will be resolved on the basis of all the facts and circumstances in making this determination the service will consider as a substitute for the percentage_test of section dollar_figure all the relevant facts and circumstances to determine whether the primary purpose of the program is to provide extra compensation or other employment incentive or whether the primary purpose is to educate recipients in their individual capacities these facts and circumstances will be considered in the context of the probability that a grant will be available to any eligible applicant such relevant facts and circumstances could include the history of the program such as the source of the program's funding the courses of study for which the grants are available any eligibility requirements imposed by the program other than employment of the applicants or their parents and the age and grade level prerequisites for the studies for which the grants are available the publicity given the grant program the degree of independence of the selection committee the particular standards used for selection the specific means used to determine whether those standards have been met the precise nature of the employee limitation or preference the number of grants available the number of employees or their children who would be eligible for them the percentage of eligible employees or their children applying for grants who normally eg on an average basis receive grants under the program and whether and how many grants are awarded to individuals who do not qualify as employees or children of employees in this instance the following facts and circumstances are considered relevant aside from the employment preference f a public charity operates its private_foundation sponsored b program in a substantially_similar manner to its nationwide college scholarship program for academically talented high school students no application is required individuals must achieve finalist status in their respective competitions recipients are chosen by selection committees totally independent of the private_foundation or the employer involved no limitations are placed on the recipients’ choice of course of study after the grant is awarded the number of actual grants made may not exceed the number of employees' children who qualify as finalists employees children in its programs in f provided an average of one scholarship for every big_number under the facts and circumstances as stated above there is only an insignificant probability that any particular employee's child will be selected and thus the grant's primary purpose is not one of providing extra compensation or other emptoyment incentive and the facts_and_circumstances_test of revproc_76_47 sec_4 is met accordingly based upon the information presented and assuming your scholarship program will be conducted as proposed with a view to providing objectivity and non-discrimination in the awarding of scholarship grants we rule that your grants to f for the awarding of scholarship grants to children of employees of e comply with the requirements of sec_4945 of the code thus such expenditures made in accordance with those procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code the recipient of the scholarship is responsible for determining whether all or part of the scholarship is includible in gross_income under sec_117 of the code we understand that f will advise the recipient that amounts granted are taxable_income if the aggregate scholarship amounts received by the recipient exceed tuition and fees not including room and board required for enrollment or attendance at the educational_institution and fees books supplies and equipment required for courses of instruction this ruling will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of revproc_76_47 please note that this ruling is only applicable to grants awarded under the b program before you enter into any other scholarship or educational loan program you should submit a request for advance approval of that program your procedures for awarding grants under the b program are considered to satisfy the facts_and_circumstances_test of revproc_76_47 and therefore will not be counted in determining whether the percentage_test of revproc_76_47 is met with respect to any other such program for which prior approval has been granted we are informing the ohio te_ge office of this ruling please keep a copy of this ruling with your organization's permanent records -5- this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent sincerely serato v becok gerald v sack manager exempt_organizations technical group zf


t c no united_states tax_court james d and beverly h turner petitioners v commissioner of internal revenue respondent docket no filed date p a real_estate investor purchased acres of unimproved land in a historical overlay district dollar_figure acres of which were located within a designated floodplain property development was subject_to county regulations that were more stringent for property within a historical overlay district among the regulations were zoning and rezoning requirements as well as limitations on development of designated floodplain areas thirty lots were permissible under current zoning county approval would be required for denser zoning usage p claiming that he was entitled to develop up to residences on smaller lots executed a deed to fairfax county purporting to limit development of the property to residences on their federal_income_tax return ps claimed a contribution deduction for a qualified_conservation_easement under sec_170 sec_1 held p did not make a contribution of a qualified_conservation_easement under sec_170 i r c because the attempted grant did not satisfy the conservation purposes required under sec_170 i r c specifically the deed did not preserve open space or a historically important land area or certified historical structure held further ps are liable for a 20-percent penalty for negligence under sec_6662 i r c j carlton howard jr for petitioners john m altman and linda r averbeck for respondent gerber chief_judge respondent determined a dollar_figure income_tax deficiency and a dollar_figure accuracy-related_penalty under section for petitioners’ taxable_year after concessions the issues remaining for our consideration are unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the parties settled the portion of respondent’s income adjustments or penalties relating to the determination of an increase in the net gain from fac co l c and a decrease in a home mortgage interest_deduction the parties agree that the dollar_figure home mortgage interest_deduction that petitioners claimed and which respondent determined was dollar_figure should be dollar_figure the parties also agree that the portion of a dollar_figure gain that petitioners reported on their return from fac co l c an entity in which petitioners have a 60-percent interest and which respondent determined was dollar_figure should be dollar_figure finally respondent concedes the portion of the penalties attributable to the home mortgage interest_deduction and the net gain from fac co l c whether petitioners made a contribution of a qualified_conservation_easement under sec_170 if qualified we must decide the value of the easement and in the absence of a qualified_contribution or alternatively if the easement’s value was substantially overstated whether petitioners are liable for the accuracy-related_penalty under sec_6662 findings of fact3 general background at the time their petition was filed petitioners resided in alexandria virginia petitioner4 is an attorney whose practice is concentrated on real_estate transactions in the vicinity of alexandria virginia part of petitioner’s business activity was the conduct of real_estate closings through a title insurance_company he owned petitioner was also an investor in real_property at all relevant times he was a 60-percent member and general manager of fac co l c fac a limited_liability_company formed for the purpose of acquiring rezoning and developing real_property during and petitioner individually or through fac embarked on a plan to acquire several contiguous parcels of land located in woodlawn heights 3the parties’ stipulation of fact is incorporated herein by this reference 4petitioners are husband and wife and they filed a joint_return for the year in issue references to petitioner alone are to petitioner james d turner fairfax county virginia the unimproved realty was situated in a historical district in the general area of mount vernon the home of president george washington and adjacent to president washington’s grist mill grist mill acquisition of the land for development through several transactions a 3-acre parcel was conglomerated by petitioner and or fac one transaction involved the future farmers of america ffa which owned five lots within this historical district one of these lots approximated acres and was the situs of the ffa’s office building although the acres was zoned for residential classified as r-2 ffa had a special use exception for its commercial office building but for the special use the property was zoned residential if ffa sold the land and building the special use would not automatically pass to the new owner the remaining four lots acquired by petitioner were adjacent to the grist mill during his negotiations for the purchase of the ffa property petitioner’s written offer included his belief that the highest_and_best_use for the property was for either commercial or a combined commercial and residential town homes petitioner expressed the further belief that the highest_and_best_use would require rezoning for increased density but that the realities of local politics will not allow the highest_and_best_use the developer of the acquired property would face several obstacles to development including compliance with fairfax county’s ordinances and regulations concerning such land development on date and date fac acquired the lots from ffa for dollar_figure million on august and petitioner through another entity purchased from sellers other than ffa three additional lots in the woodlawn heights historical overlay district for dollar_figure and then contributed them to fac on date fac sold the 9-acre parcel including the ffa building for dollar_figure million prior to that sale fairfax county supervisor gerald hyland hyland assisted in the rezoning of the 9-acre site to a c-2 classification that would permit continued the use of the commercial building on that property as of the date of the trial in this case petitioner continued to own one of the acquired unimproved parcels lot and the remaining parcel sec_5 that were conglomerated into a acre parcel for development that became known as the grist mill woods subdivision grist mill property slightly more than half of the property dollar_figure acres is situated in a designated year floodplain and not available for residential development 5the grist mill woods subdivision therefore consisted of parcel sec_15 exclusive of the acres of parcel that included the ffa building and the 3-acre grist mill property was once owned by president washington and is located within the woodlawn heights historical overlay district historical overlay districts are subjected to special requirements by the county president washington beginning in operated the grist mill for the purpose of grinding flour and cornmeal for use at his mount vernon residence and also for sale along the east coast of the united_states portugal and the west indies also located in close proximity to the site was the woodlawn plantation that was built in on land also owned by president washington the grist mill woodlawn plantation and the future farmers of america ffa realty were all located relatively near to mount vernon president washington’s 500-acre residential estate at the time of trial mount vernon was owned and maintained by the mount vernon ladies’ association mvla a private nonprofit organization slightly more than half of the grist mill property dollar_figure acres is situated within a designated 100-year floodplain at all relevant times the grist mill property was zoned r-2 for residential use development of the project the first prerequisite to the proposed development was the need to conform to the general guidelines of fairfax county the governance of fairfax county is vested in its board_of supervisors the board which inter alia establishes county government policy passes resolutions and ordinances and approves land use plans the board consists of a chairman and nine additional members called supervisors elected by the citizens of nine fairfax county districts at all relevant times hyland was the supervisor who had been elected by the citizens of the mount vernon district as of the time of trial hyland had served as a supervisor for years the grist mill property was located in fairfax county which had a comprehensive zoning plan defining the permitted uses for county property two pertinent fairfax county residential zoning plans are r-2 zoning and planned development housing pdh zoning under an r-2 zoning an owner would by-right be permitted to build two single-family dwelling units per acre the term by-right denotes the property uses available to an owner without requesting a new zoning designation greater residential per acre density is permitted under a pdh zoning classification if certain requirements are met such as the preservation of open space an owner of property zoned r-2 who wishes to build three units per acre would have to ensure that the comprehensive plan permitted it and then apply to the board for a rezoning to a pdh or r-3 classification during the conglomeration and development of the 3-acre parcel petitioner and others made the representation that dwellings or residences could have been built in reality only approximately could be built under the existing county zoning for the property it was petitioner’s plan to grant a conservation_easement to the county that would limit the number of building lots to the claimed conservation_easement and the underlying supporting appraisal were based on the assumption that dwellings could be built and the potential for was being given up by the easement ultimately the acres were sold without application_for or change in the zoning at the time of the claimed conservation_easement there was only the possibility that the number of buildings or dwellings could have been increased from to a larger number the rezoning process can be time consuming costly and involves compliance with numerous regulations for example even with hyland’s assistance it took months to obtain a c-2 zoning classification for the ffa property and building in some instances there may be a need to employ experts such as engineers and surveyors the rezoning process is initiated by the filing of an application and may involve a public hearing before the planning commission and or the board the board considers the rezoning request and makes its decision based upon the planning commission recommendations staff reports and public testimony at hearings the cost to pursue a rezoning application in fairfax county during the late 1990s could have been as much as dollar_figure-dollar_figure in their review of a rezoning request the board considers whether the environmental sensitivity of the property and the surrounding area would be adversely affected by an increased number of dwelling units per acre the variation would be consistent with the current use of the neighborhood and surrounding properties the storm water runoff can be effectively managed and the neighbors’ reaction would be favorable organizations or citizen groups concerned about a particular zoning change may attempt to stop or slow the rezoning process an applicant may be forced to negotiate differences with adverse interests before proceeding with the application process in addition fairfax county may seek some public benefit in the rezoning process occasionally the rezoning request is coupled with a proffer a proffer is a form of compensation to the county for increased needs such as transportation or public improvement that are necessitated by the rezoning the fairfax county office of public works must also review development and construction plans to ensure that they meet ordinance requirements and public facilities guidelines one of the concerns of the office of public works is to ensure that the design of developments provides for proper drainage of storm water and certain other safety-related factors under certain circumstances detention ponds are required to ensure a development does not encroach on or overburden designated floodplain areas a developer’s obligation to comply with the requirements of the office of public works is called best management practice requirements bmp requirements because the grist mill property was located within a historical overlay district it was subject_to more stringent regulations than otherwise required by the basic zoning regulations the board has established such historical overlay districts within fairfax county fairfax county seeks to conserve and improve these historical districts where new structures are being developed within those districts the county attempts to ensure they comport with the district’s historical character to assist in the administration of these regulations the county created an architectural review board the arb consisting of residents with expertise and interest in the preservation of historical sites applications for rezoning and special exceptions or permits within historical overlay districts must be submitted for the arb’s review the arb in turn provides its recommendations to fairfax county agencies for further consideration and review at all relevant times the grist mill property was zoned r-2 and was limited to a maximum development of residences of the acres dollar_figure acres were in a floodplain and could not be developed accordingly under an r-2 zoning two homes per acre the grist mill property would have been limited to home lots additional residential units and or lots could have been developed under a pdh-3 zoning although pdh-3 zoning was permitted under the comprehensive plan it would have required rezoning approval a change to pdh-3 zoning would have required the approval of the planning commission the mount vernon council the planning and zoning committee and the board and would likely not have been approved without an accompanying proffer a successful rezoning application would likely have taken at least months and as much as a year for approval due to the historical nature of the subject property petitioner might have faced additional requirements including review by the arb county supervisor hyland was actively involved in the development of the grist mill property as part of fairfax county’s revitalization efforts he was keenly interested in this development because of its potential impact on the surrounding historical sites for example during date petitioner received an offer from the u s postal service to purchase lot for dollar_figure million petitioner was enthusiastic about that offer and was inclined to accept it but hyland was against the idea and negotiations failed the mount vernon ladies association was interested in the grist mill property development for several reasons it was concerned about increased future parking needs for the grist mill and it was planning to renovate the grist mill during if it was unable to acquire the grist mill property mvla was concerned that an unrelated buyer might operate it in a manner that would interfere with the historical nature of the grist mill and other nearby related historical sites mvla was specifically concerned about negative impact on the grist mill caused by commercial development and to a somewhat lesser extent by possible residential development after ffa decided to sell its property mvla inquired about some of the ffa property but the negotiations were unsuccessful and fac later contracted to purchase all five ffa lots around this same time petitioner made assurances to mvla that the proposed development plan would include consideration of mvla’s needs for the preservation and the possible expansion of mount vernon and the grist mill although mvla’s first preference would have been to have no development on the property adjacent to the grist mill it realized that expectation was unrealistic therefore mvla believed the grist mill would be better off with the development of a lesser number of more expensive homes as opposed to a larger number of less expensive homes another concern of mvla was the maintenance of a sufficient buffer between the grist mill and any adjacent development in order to protect the historical view and surroundings of the grist mill in a letter dated date mvla expressed the mistaken view that petitioner could develop the grist mill property into at least single-family homes and requested that development be limited to single-family homes mvla pointed out that a more expansive development would further impinge upon the historical nature of the grist mill in addition in a letter dated date petitioner advised mvla that he would be willing to donate lot to mvla for a buffer zone and parking facility if his development proceeded as planned mvla however had hoped for a larger buffer between petitioner’s development and the grist mill than the amount it ultimately received woodlawn plantation wished to protect its historical view so that a visitor’s view from the plantation resembled as closely as possible the 18th century view until the view from the plantation was limited to the grist mill trees and water and a small portion of a nearby road woodlawn plantation was concerned about any impact on its view from the development of the grist mill property petitioner’s sales activity - grist mill property beginning sometime in mid-1998 petitioner began to actively pursue the sale of the 3-acre grist mill property while attempting to sell the property petitioner was also attempting to obtain the necessary local_government approval for the grist mill property development in a letter dated date petitioner requested a waiver of the fairfax county on-site stormwater detention requirements the county granted the request on date so long as petitioner provided channel protection from storm sewer outfalls to dogue creek this was accomplished by a floodplain easement the required protection could not have been satisfied by means of a conservation_easement notwithstanding petitioner indicated in his development plans that he intended to use a conservation_easement to satisfy those bmp requirements during date petitioner began discussions for the sale of the grist mill property to nvhomes petitioner provided nvhomes with a sketch depicting a 62-lot and a 30-lot proposal for development during date nvhomes sent petitioner a proposed purchase agreement for the grist mill property envisioning the purchase of approximately fully developed single-family lots the parties’ negotiations collapsed because nvhomes wanted fully developed lots and petitioner’s business partner wished to sell the property more quickly than it would take to make the desired improvements during date centex homes offered to purchase acres of petitioner’s property for dollar_figure conditional on a pdh-2 rezoning that yielded approximately single-family detached lots but not fewer than also during date batal builders inc offered to purchase approximately acres of petitioner’s property for dollar_figure subject_to rezoning that would yield a minimum of lots in date the terms of batal builders inc ’s offer was modified to approximately acres for dollar_figure not subject_to rezoning both purchasers were aware that the subject property might be subjected to a conservation_easement on date petitioner entered into an agreement with carl bernstein manager of mount vernon development llc mvd for the sale of the grist mill property the agreement provided for the sale of lots comprising acres for dollar_figure the sale was subject_to the possibility that petitioner would donate lot to the mvla the sale was also subject_to a conservation_easement or donation in fee simple of the outlots for recreational use but the parties recognized that the donation of the outlots shall not reasonably impair the value of the lots contained within the subdivision of grist mill woods despite these express plans for lots in a letter dated the next day date hyland requested petitioner consider limiting development of the grist mill property to single-family homes the letter inferred that petitioner could have built lots by-right the letter contained the statement that limiting the development to residential units would preserve the historical nature of the grist mill and might provide tax benefits the parties to this proceeding acknowledge that the reference to building lots by-right was incorrect and would have required rezoning although hyland signed this letter petitioner and his advisers had prepared it and requested hyland to sign it hyland relied on petitioner for the truth or accuracy of the statements in the letter at the time hyland signed the letter he was unaware that petitioner had plans to develop and sell lots petitioner intended to use the letter to substantiate a tax deduction he planned to take for a conservation_easement ultimately the grist mill property was subdivided into residential lots some of the homes built on the grist mill property could be seen from the woodlawn plantation especially during the winter and spring months when there is less foliage the grist mill woods subdivision plan was approved by the fairfax county plan control section with an r-2 zoning classification on date in a letter dated date mvla agreed to the plan and asked the arb to support petitioner’s proposed development of a 30-residence subdivision mvla also stated its understanding that petitioner would donate lot to mvla for parking at the grist mill mvla’s letter was based on the language recommended and supplied by petitioner on date the arb reviewed petitioner’s application_for the grist mill woods subdivision the arb understood that the development plan provided a sufficient buffer between the subdivision and the grist mill and that lot would be donated to the grist mill although the arb was concerned about the potential for tree loss ultimately the plans were approved the conservation_easement and income_tax deduction on date the same day fac closed on its sale of the grist mill property to mvd fac executed a conservation_easement deed which was recorded on date the deed contained a description of the historical sites adjacent to the grist mill property and indicated that mvla and the board wished fac to limit construction of the property to single-family residential lots it contained the further statement that even though fac could have built lots based on a pdh subdivision it voluntarily agreed to limit developing the grist mill property to lots to better serve the historic and scenic nature of the grist mill despite the assertion that lots could have been built the grist mill property was zoned r-2 and no plan for pdh zoning had been approved or was pending before fairfax county neither the fairfax county attorney’s office nor mvla reviewed the deed and the purported grantee of the conservation_easement did not sign or acknowledge the deed petitioners claimed a dollar_figure charitable_contribution deduction6 on their federal_income_tax return the deduction dollar_figure was based on a 40-percent7 share of the conservation_easement to fairfax county which had been valued at dollar_figure the dollar_figure value was based on the date appraisal report prepared by frank petroff petroff and was referenced on petitioners’ form_8283 noncash charitable_contributions attached to their return the appraisal was based in part on the date letter signed by hyland in addition the appraisal was based on the erroneous assumption that the entire grist mill property could have been fully developed including the area consisting of the floodplain on the donee acknowledgment part of form_8283 fairfax county board_of supervisors was shown as the intended charitable donee but the acknowledgment signature line was not executed and left blank opinion petitioners claimed a deduction for a contribution of a qualified_conservation_easement under sec_170 6the deduction was reduced by dollar_figure due to an adjusted_gross_income limitation 7we note that petitioners claimed a deduction based upon a 40-percent share of fac although documentary_evidence reflected that petitioner was a 60-percent member of fac due to the outcome in this case the difference between the ownership percentage and claimed contribution deduction percentage need not be reconciled or considered further respondent determined that petitioners were not entitled to the contribution deduction if we decide that there was a qualified_conservation_easement then we must decide its value in order to arrive at the amount of the deduction to which petitioners are entitled respondent contends that petitioners have failed to show that their donation satisfies the statutory definition and requirements for a conservation_easement deduction in that regard respondent contends that there were defects in the conservation_easement deed and petitioners’ form_8283 attached to their return and no acceptance of the deed or an easement by fairfax county the donee named by petitioners alternatively if the court decides that there was a valid donation respondent contends that the grist mill property was developed according to its highest_and_best_use and there was therefore nothing remaining to contribute as a conservation_easement petitioners contend that they have either complied or substantially complied with the reporting requirements for a conservation_easement deduction they also contend that the grist mill property had the potential for additional development and that such potential was foregone to preserve the historic nature of the surrounding properties if we decide that there was no contribution of a qualified_conservation_easement we must then decide whether petitioners are subject_to an accuracy- related penalty under sec_6662 the grounds underlying respondent’s determination for the penalty are alternatively that petitioners did not make a qualified_contribution or if a contribution was made its value was substantially lower than the amount reported on their return a the burden_of_proof generally the burden of proving or showing error in respondent’s determination is upon the taxpayer see rule a the burden_of_proof may shift to respondent in certain situations see sec_7491 petitioners concede that they bear the burden of showing their entitlement to a conservation_easement deduction conversely respondent concedes that he bears the burden of production with respect to the sec_6662 penalty see sec_7491 b the conservation_easement background sec_170 allows a deduction for a charitable_contribution made during the taxable_year generally sec_170 does not permit a deduction for a charitable gift of property consisting of less than the donor’s entire_interest in that property an exception applies in the case of a qualified_conservation_contribution see sec_170 a contribution of real_property may constitute a qualified_conservation_contribution if the real_property is a qualified_real_property_interest the donee is a qualified_organization and the contribution is exclusively for conservation purposes sec_170 see also sec_1 170a- a income_tax regs to be a qualified_conservation_contribution all three requirements must be met a qualified_real_property_interest must consist of the donor’s entire_interest in real_property other than a qualified_mineral_interest or consist of a remainder_interest or of a restriction granted in perpetuity concerning way s the real_property may be used sec_170 a restriction granted in perpetuity on the use of the property must be based upon legally enforceable restrictions such as by recording the deed that will prevent uses of the retained_interest in the property that are inconsistent with the conservation_purpose of the contribution see sec_1_170a-14 income_tax regs a qualified_organization is defined in sec_170 and a contribution is made exclusively for conservation purposes if it meets the tests of sec_170 and this requirement has two parts first a contribution is for a conservation_purpose if it preserves land for the general public’s outdoor recreation or education protects a relatively natural habitat of fish wildlife or plants or similar ecosystem the natural habitat requirement preserves open space either for the scenic enjoyment of the general_public or pursuant to a federal state or local governmental conservation policy and yields a significant public benefit the open space requirement or preserves a historically important land area or a certified_historic_structure the historic preservation requirement sec_170 see also sec_1_170a-14 income_tax regs secondly the exclusively for conservation purposes requirement may be met only if the conservation_purpose is protected in perpetuity sec_170 discussion a generally respondent agrees that the intended donee fairfax county is a qualified_organization under sec_170 the parties continue to dispute whether there was a qualified_real_property_interest and whether the contribution is exclusively for conservation purposes if petitioners are unsuccessful in showing either that they contributed a qualified_interest or that a qualified_interest was contributed exclusively for conservation purposes they will not be entitled to the claimed deduction if petitioners satisfy both of those two requirements then we shall decide the value of the conservation_easement with respect to the third requirement petitioners contend only that they met the open space and historic preservation 8whether the contribution is made exclusively for conservation purposes requirements we accordingly begin our discussion of the third requirement by considering those two aspects b satisfaction of the third requirement in 124_tc_258 which also involved the contribution of a conservation_easement this court considered the requirement that a contribution be made exclusively for conservation purposes the discussion in that case however was directed to whether the taxpayer satisfied the natural habitat requirement that discussion accordingly did not focus on the requirements we consider heredollar_figure accordingly we proceed to consider and analyze the two elements in dispute in this case open space requirement petitioners allege that they satisfy the open space requirement of sec_170 satisfaction of this requirement requires both the preservation of open space and the inurement of a significant public benefit sec_170 the 9because we ultimately hold that petitioners have not satisfied the third requirement there is no need to consider the first requirement or the easement’s value 10in addition because we hold that petitioners do not satisfy either the open space or the historic preservation requirement we need not consider whether the contribution was exclusively for conservation purposes as we did in 124_tc_258 legislative_history underlying this statute contains the following relevant examples of uses that may satisfy the open space requirement the preservation of land as a public garden the preservation of farmland pursuant to a state program for flood prevention and control the preservation of a unique natural land formation for the enjoyment of the general_public the preservation of woodland along a federal highway pursuant to a government program to preserve the appearance of the area so as to maintain the scenic view from the highway and the preservation of a stretch of undeveloped oceanfront property located between a public highway and the ocean so as to maintain the scenic ocean view from the highway s rept pincite 1980_2_cb_599 generally the examples provided in the legislative_history concern the preservation of the natural state of land petitioners’ argument addresses this requirement from their viewpoint that the limiting of the grist mill property development to lots rather than lots enables it to have a distinctly open quality respondent counters that even if the deed effectively limited development to lots there were no restrictions placed on open space within the buildable area further there could be no building on the remaining acreage because it was designated floodplain accordingly we agree with respondent’s argument petitioners do not contend nor was it feasible that residential units could have been built on the floodplain portion of the property therefore a conservation_easement if any could only have been carved from the somewhat less than developable acres outside of the dollar_figure acre floodplain area assuming arguendo that the deed limited petitioner’s development of the grist mill property to lots that limitation by itself does not provide additional land that would have been available if the same developable acreage had been divided into lots such as by use of pdh zoning permitting more housing units per lot nothing in the deed limits the size of the homes either in square footage to protect the amount of buildable land that each can cover or in height to protect the view from any nearby historical area or any other development that could have taken place on or adjacent to the grist mill property moreover nothing in the deed limits the landowner’s ability to seek rezoning to denser development classifications accordingly neither petitioner nor the builder was prohibited from building homes twice the size of those planned for development finally petitioner’s contention that the development did not infringe on any view is without merit the deed contained no specific provisions to protect the views from the grist mill and the woodlawn plantation or any other location the view from those properties were not any more protected if instead of residential units were to be built the natural state was not protected by the development of rather than units accordingly petitioners have not satisfied the open space requirement of sec_170 historic preservation we now consider whether petitioners satisfied the third requirement by showing that their contribution comes within the historic preservation requirement of sec_170 the historic preservation requirement may be met by showing the preservation of a historically important land area or certified_historic_structure the legislative_history underlying this aspect of the statute describes a historically important land area as one that is important in its own right or in relation to historic structures the term historically important land area is intended to include independently significant land areas for example a civil war battlefield and historic sites and related land areas the physical or environmental features of which contribute to the historic or cultural importance and continuing integrity of certified_historic_structures such as mount vernon or historic districts such as waterford virginia or harper’s ferry west virginia s rept supra pincite c b pincite emphasis added see also sec_1_170a-14 income_tax regs petitioners argue that limiting the development of the grist mill property promoted the preservation of the historic grist mill on this point petitioners reference the open floodplain the quiet and peaceful atmosphere of limited 11petitioners’ arguments with respect to giving up the right continued development and the requests of hyland and the mvla to limit development respondent does not dispute that the grist mill property was an historically important land area respondent contends that there was no historic_structure on the grist mill property that petitioners could have preserved in addition respondent contends that the conservation_easement did not preserve the grist mill property’s historically important land area or its natural state respondent also references the loss of trees on the development portion of the grist mill property as demonstrating that in fact there was a loss of historical importance after the grist mill property’s development conversely petitioners strongly deny that they contributed to any loss of historical importance by the removal of trees during the development of the grist mill property the parties’ disagreement about tree loss or removal is irrelevant if the trees contributed to the historical importance of the grist mill property the measure should be based on the potential use of the property before and after the contribution of a conservation_easement even if no trees were removed by petitioner such restraint was not mandated by the terms of conservation_easement which failed to reference preservation of trees or the view but merely referenced a continued to develop and or to preserve the floodplain ring hollow as no homes could have been built on that land development limit of lots accordingly petitioner’s action or inaction with respect to the trees is irrelevant in considering whether the purported conservation_easement satisfies the requirements of sec_170 the attempted easement did not satisfy the historic preservation requirement of sec_170 because it did not preserve a historic_structure or historically important land area first there was no historical structure on the grist mill property to preserve and the easement’s limitation on development on land near the grist mill or woodlawn plantation does not preserve the historical structures on those properties that remains so despite any ancillary benefit of limited development because petitioners did not own or control those historical structures the legislative_history is explicit that land surrounding a historical structure like mount vernon makes that land historically important but proximity alone does not provide a basis to support a claim of protection of a historical structure petitioner has not shown how his proposed limitation in the conservation_easement preserved any historical structure we also note that petitioners are not in a position to claim that the grist mill property is independently significant like a civil war battlefield as there is no evidence that anything on the property was historically unique the grist mill property is thus a historically important land area only because of its proximity to the grist mill and the woodlawn plantation its physical feature which contributed to the historic or cultural importance of the surrounding historical properties was its natural state because that natural state provided the separation of the modern world from the 18th century that mvla and the woodlawn plantation were attempting to preserve the mere possibility or conjecture of a quieter and more peaceful atmosphere that might have been engendered by limited development did not preserve this historic characteristic to be sure there was a more peaceful environment before any development occurred the requests by hyland mvla or any other influential groups to limit development simply indicate their desire for a development that would limit the quantity or amount of interference with the historic nature of the communitydollar_figure the influence exerted by these groups only serves to illustrate some of the difficulties that petitioner would encounter in the development of the grist mill property mvla received a smaller buffer than it had hoped for and no more than would have been mandated by petitioner’s inability to build on the defined floodplain therefore petitioners fail to qualify on the basis that they had preserved a historically important land area 12the requests by hyland and mlva are also entitled to less probative value because of petitioner’s role in drafting those letters c conclusion the senate report on the enactment of the legislation pertaining to conservation easements contains the following explanation t he committee believes that provisions allowing deductions for conservation easements should be directed at the preservation of unique or otherwise significant land areas or structures the committee bill would restrict the qualifying contributions where there is no assurance that the public benefit if any furthered by the contribution would be substantial enough to justify the allowance of a deduction s rept supra pincite c b pincite with respect to the grist mill property the record does not support a finding that any public benefit would be furthered by petitioners’ claimed13 conservation_easement we need not decide whether petitioner’s choice not to pursue a rezoning for more intense development was due to the realization that the rezoning would not get approved his business partner’s desire to quickly sell the property or a desire to benefit the community here there has been no preservation of open space nor have petitioners preserved anything that is historically unique about the grist mill property or the surrounding historical areas petitioner simply developed the grist mill property to its maximum yield within the property’s zoning classification 13in effect petitioner was attempting to self-impose a limitation that was already imposed by the zoning classification and requirements of fairfax county petitioners have therefore satisfied neither the open space requirement nor the historic preservation subdivision requirements of the third requirement for qualification as a deductible conservation_easement accordingly petitioners are not entitled to a deduction for a qualified_conservation_easement under sec_170 because the attempted grant did not satisfy the conservation purposes required under sec_170 c penalty respondent determined that petitioners were liable for a percent accuracy-related_penalty under sec_6662 due to negligence or disregard of rules or regulations a substantial_understatement_of_income_tax or a substantial_valuation_overstatement and to the extent that a portion of the underpayment was attributable to a gross_valuation_misstatement an increased penalty of percent under sec_6662 respondent has conceded for the purposes of this case that if we find that petitioners have not made a qualified_conservation_contribution under sec_170 that the gross_valuation_misstatement penalty does not apply and that only the negligence or substantial_understatement_penalty applies because we have found that petitioners have not made a qualified_conservation_contribution we consider only whether petitioners are liable for either the negligence or substantial_understatement_penalty sec_6662 provides that if any portion of an underpayment is due to negligence then a taxpayer will be liable for a penalty equal to percent of the underpayment that is attributable to negligence negligence is defined as the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 99_tc_202 negligence includes a failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code id sec_1 b income_tax regs respondent concedes that he has the burden of production with respect to the penalty in that regard respondent must come forward with sufficient evidence indicating that it is appropriate to impose the accuracy-related_penalty 116_tc_438 conversely petitioners’ contend that they are not liable for the sec_6662 penalty because they satisfied all of the reporting requirements for a contribution deduction with the perfunctory exception that the donee did not sign the acknowledgment on the form_8283 petitioners also contend that there was no person in fairfax county who was authorized to sign the form_8283 however petitioners’ failure to obtain a signature is not the sole basis for respondent’s determined penalty as a basis to support the determined penalty respondent places heavy reliance upon the invalid premise in hyland’s date letter that lots could have been developed respondent argues that petroff the appraiser in arriving at his property valuation relied on the false premise in the february letter that petitioner could have built lots by-right more significantly however respondent argues that petroff’s assumption was that petitioner could have built the additional lots in the floodplain petitioners represented to respondent through petroff’s appraisal report that the entire grist mill property could be developed and that the conservation_easement had been placed on the floodplain which in fact petitioner knew was unavailable for development the evidence shows without doubt that the property was zoned r-2 and limited to units and approximately one-half of the grist mill property was floodplain on which no development was permitted most importantly petitioner knew at the time of filing the return that the assumption that the existing r-2 zoning allowed the development of lots on the grist mill property was false petitioners have shown a lack of care and due regard in claiming a deduction based on assumptions known to be false or erroneous the accuracy-related_penalty may be avoided by showing that there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to such underpayment sec_6664 whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis based on the facts and circumstances reliance on an appraisal of the value of property does not necessarily demonstrate reasonable_cause and good_faith depending on the assumptions made in the appraisal sec_1_6664-4 income_tax regs for example the appraisal may not be based on an assumption that the taxpayer knows or has reason to know is unlikely to be true sec_1_6664-4 income_tax regs respondent argues that petitioner knew the statement in the letter was incorrect when supplying the letter to the appraiser respondent therefore argues that petitioner did not in good_faith rely on petroff’s appraisal of the grist mill property petitioners’ counter respondent’s argument by contending that the conservation_easement deed contains no references to a donation of floodplain property but instead a limitation to build on lots or less and that petitioners have not attempted to take a donation based on an assertion that homes could have been built in the floodplain we agree that the issue of whether petitioner could have built lots by-right is of less concern if the valuation was conducted on the theory that the property could have been rezoned however despite petitioners’ contentions by submitting petroff’s appraisal petitioners indicated to respondent that they could have built on the floodplain irrespective of their position at trial we must consider the reasonableness of petitioners’ position based upon their position at the time the return was filed petroff’s appraisal report does contain the premise that the floodplain could have been developed in the absence of the easement and it was this report that petitioners relied upon and presented to respondent to support their contribution although the report does not contain the express statement that the entire plus acres could have been developed in the absence of the easement or that the conservation_easement was placed on the floodplain it can be readily inferred from petroff’s report that he assumed these to be facts petroff’s report contains the statement that the by-right subdivision plan allowed lots to be built on the total acres a development that we can infer petroff believed was permitted under the r-2 classification the report also contains the statement that the conservation_easement was donated on a acre portion of the acre grist mill property which is the same acreage as the existing floodplain the report further notes that this constitute sec_51_4 percent of the grist mill property representing lots it also refers to the entire acres of the grist mill property before the easement the acres of the conservation_easement and then the area of remainder after conservation_easement of acres insinuating that only acres of buildable land are available because of the placement of the conservation_easement however petitioner acknowledges that the conservation_easement did not restrict any more buildable land in total than what was available before the purported easement finally the report assumes the same 11-unit-per-acre yield for both and lots before and after the donation of the conservation_easement petitioners argue that the deed attached to both petroff’s report and the form_8283 does not make any reference to lots that could be developed by-right while that is correct neither does the deed state where the easement is located accordingly petroff would have assumed that lots could have been built on the entire acres absent the easement and that the floodplain on which there could be no development was where the conservation_easement was placed the only part of petroff’s report that could possibly support petitioners’ position that the valuation of the lots was based on rezoning was petroff’s reference to the valuation’s being based on the 62-lot sketch in the addendum to his appraisal this is the same 62-lot rezoning sketch of the buildable area upon which petitioners’ trial experts based their opinions of the value of the grist mill property however a lot sketch was not provided in petroff’s appraisal and there is no indication in his report that the 62-lot sketch was based on a rezoning of the buildable area thus the sketch in the addendum by itself was not sufficient to provide the correct circumstances to petroff more importantly the report and addendum did not inform respondent of these matters or intention petroff’s appraisal is filled with a sufficient number of instances showing that he relied on the incorrect or false assumption that the entire plus acres could be developed in the absence of the easement and that the conservation_easement had been placed on the unbuildable plus acres of floodplain petitioner who was familiar with and heavily involved in the development of the grist mill property knew that the floodplain could not be developed and that any conservation_easement would have to be placed on the buildable land a casual review of petroff’s report would have alerted petitioner to the fact that the valuation was based on erroneous assumptions petitioners cannot therefore rely on this report as reasonable_cause for taking the position they did on their income_tax return see sec_1_6664-4 income_tax regs in addition petitioners cannot rely on the expert reports prepared in anticipation of trial to show reasonable_cause because these reports are not evidence of petitioners’ position at the time of the filing of their return accordingly the sec_6662 negligence_penalty is sustained decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-103465-99 date date x a date year dear this letter responds to a date letter and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date of year with the intent to be an s_corporation x’s president a represents that x’s attorney prepared but failed to file form_2553 election by a small_business_corporation believing that form_2553 had been properly filed x’s accountant prepared and filed form_1120s u s income_tax return for an s_corporation for year and each year thereafter x’s shareholder has included in form_1040 u s individual_income_tax_return the income from schedule_k-1 of x’s form_1120s sec_1362 of the code provides that if-- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours h grace kim assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ------------------------------------ -------------------- -------------------------------------------- legend 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-103897-09 date date x --------------------------------------------------- ------------------------------------- trust --------------------------------------------------- ---------------------------------------------- state date date year --------------- ---------------- ---------------------- ------- dear ------------------ this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on date under the laws of state x elected to be treated as an s_corporation effective date prior to date shares of x were transferred to trust x represents that trust complies with the requirements for a qualified_subchapter_s_trust qsst under sec_1361 however the beneficiary of trust inadvertently failed to timely file a qsst election for trust the failure_to_file a qsst election for trust was discovered in year additionally the trustee plr-103897-09 of trust not the beneficiary signed the consent for form_2553 election by a small_business_corporation as a result of the failure_to_file a qsst election for trust as well as the fact that the consent form was signed by trust’s trustee rather than its beneficiary x’s s_corporation_election was ineffective x represents that there was reasonable_cause for the failure_to_file a qsst election for trust and for the failure of the beneficiary of trust to sign the consent form for the s election x further represents that these failures were inadvertent oversights and were not motivated by tax_avoidance or retroactive tax planning x further represents that x has treated itself consistent with being an s_corporation since date and that the beneficiary of trust has consistently included her distributive_share of x’s income on her federal_income_tax returns for the year of the invalid election and for all subsequent years as if trust had timely filed a qsst election finally x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst’s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1362 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary plr-103897-09 and b all of the income with the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which it was made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x’s s election was ineffective because trust was an ineligible shareholder due to the failure of trust’s beneficiary to make a qsst election and to consent on behalf of trust to x’s election to be an s_corporation in addition we conclude that the ineffectiveness was inadvertent within the meaning of sec_1362 therefore x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election was otherwise valid and was not otherwise terminated under sec_1362 this ruling is conditioned on trust’s consent to x’s s election signed by trust’s beneficiary being filed with the appropriate service_center indicating that the consent is to be associated with the originally filed form_2553 within days of this letter this ruling is further conditioned on the beneficiary of trust filing a qsst election for trust with the appropriate service_center effective date within days of the date of this letter a copy of this letter should be attached to the consent and to the qsst election this letter_ruling will be null and void if these conditions are not satisfied except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether x is otherwise eligible to be an s_corporation or whether trust is otherwise eligible to be a qsst plr-103897-09 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely david r haglund david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111370-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch