internal_revenue_service appeals_office number release date date date org certified mail dear department of the treasury taxpayer_identification_number person to contact tax period s ended uil this is a final adverse determination regarding your exempt status under sec_501 c of the internal_revenue_code the code it is determined that you do not qualify as exempt from federal_income_tax under sec_501 c of the code effective january 20xx our adverse determination is based on the following reasons you have not demonstrated that you are operated exclusively for exempt purposes within the meaning of sec_501 and sec_1 c -1 d you did not engage primarily in activities that accomplish one or more of the exempt purposes specified in sec_501 c you are operated for a substantial non-exempt purpose which is not an exempt_purpose you are operated for the benefit of private rather than public interests your activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms for the tax periods stated in the heading of this letter and for all open tax years thereafter file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of revocation you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions 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 see also publication you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information we will notify appropriate state officials of this action you should contact your state officials if you have any questions about how this final_determination may affect your state requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours nan shimizu appeals team manager enclosure publication internal_revenue_service department of the treasury uil date date taxpayer_identification_number form tax_year s ended person to contacuid number contact numbers phone fax org certified mail - return receipt requested dear we propose to revoke our recognition of your exempt status as an organization described in section c of the internal_revenue_code the cqde we enclose our report of examination explaining why we are proposing this action if you accept our proposal please sign and return the enclosed form_6018 consent to proposed action - section unless you have already provided us a signed form_6018 we will issue a final revocation letter determining you are not an organization described in sec_501 c after the issuance of the final revocation letter we will publish an announcement that you have been deleted from the cumulative list of organizations contributions to which are deductible under sec_170 of the code if you do not respond to this proposal we will similarly issue a final revocation letter failing to respond to this proposal may adversely impact your legal standing to seek a declaratory_judgment because you may be deemed to have failed to exhaust administrative remedies if you do not agree with our proposed revocation and wish to protest our proposed revocation to the appeals_office of the internal_revenue_service then you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision this written request is called a protest for your protest to be valid it needs to contain certain specific information which generally includes a statement of the facts the applicable law and arguments in support of your position for the specific information needed for a valid protest please refer to page of the enclosed publication the examination process and page of the enclosed publication how to appeal an irs decision on tax-exempt status if you do submit a valid protest then an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly ttie enclosed publication and publication explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation services referred to in publication generally do not apply after issuance of this letter you may also request that we refer this matter for technical_advice as explained in publication and an annual revenue_procedure please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the eo rulings and agreements function then no further administrative appeal will be available to you within the irs on the matter if you receive a final revocation letter you will be required to file federal_income_tax returns for the tax period s shown above as well as for subsequent years you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate if you have any questions please call the contact person at the telephone number hown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosure publication publication form_6018 report of examination form886-a rev date name of taxpayer org legend explanations of items tax identification_number schedule number q exhibit forrn year period ended decennber31 20xx december 20xx org - organization name county - county treasurer - contractor- through - contractor- through president - president treasurer xx - date secretary - secretary trainee- through - trainee- through city - city state - state issues is the organization operated primarily for exempt purposes as required to qualify for exemption under sec_501 c facts background the organization currently under audit is org a state nonprofit corporation ein under sec_501 of the internal_revenue_code irc as an organization described in sec_501 the current te_ge examination is for the years ending december 20xx and december 20xx all details below unless otherwise noted are based on facts learned concerning the year ending december 20xx the taxpayer indicated that subsequent years were not materially different org is exempt org' articles of incorporation were filed with the state secretary of state in september 20xx the secretary of state endorsed them in march 20xx org received its final_determination letter from the irs in july 20xx the final_determination found the organization to be exempt under sec_501 c and excepted from private_foundation classification under sec_509 sec_509 indicates that the organization expected to receive at least one third of its support from contributions and from activities related to its exempt_function org' only filing requirement was for the form_990 the 20xx form_990 was received by the return_due_date on may 20xx the amended 20xx return provided during the audit gave the following information income equipment rental contributions received lease refund loan dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure expense rent dollar_figure equipment purchase dollar_figure salaries dollar_figure consultants dollar_figure transportation dollar_figure form 886-a catalog number ow page_1_ publish no irs gov department of the treasury-internal revenue service forms86-a rev date name of taxpayer org explanations of items tax identification_number equipment rental dollar_figure legal fees dollar_figure office expenses dollar_figure other dollar_figure dollar_figure net_income dollar_figure schedule number or exhibit form_990 year period ended december 20xx december 20xx a few items were inappropriately recorded as income expense items the adjusted_income statement showed adjusted_income and expenses income equipment rental contributions received expense rent equipment purchase salaries consultants transportation equipment rental legal fees office expenses other dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure board the 20xx board was o president president o secretary secretary o treasurer treasurer o- member member the form_990 indicated that all volunteered hours a week however in the interview treasurer stated that he volunteered tuesday wednesday and thursday from about 5am-11 pm hours and the others volunteered approximately hours weekly on the weekends member passed away in 20xx purpose the purpose noted in the articles of incorporation and bylaws was empowering city area performing artists to reach a broader audience in the community and expanding access for the general_public to free art events in the city area's public spaces the purpose noted on the form_1023 application_for recognition of exemption was empower emerging distressed and displaced arlists in the city area expand public access to arl events form 886-a catalog number 20810w page_2_ publish no irs gov department of the treasury-internal revenue service form s86-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibit form_990 year period ended decennber31 20xx decennber31 20xx provide employment opportunities to an economically disadvantagep labor pool activities proposed activities the proposed activities indicated on the exemption application were community events and org concert series a to address the ongoing economic crisis of the city area performing arts community by providing performance opportunities to emerging artists and artists evicted from their arts spaces b to educate involve and entertain the public through free arts performances in public spaces c to build communities and support for public spaces by hosting free arts events in public spaces including isolated neighborhoods d to work with business and agencies who hire the homeless and economically disadvantaged by providing employment opportunities through work as stage crew and as security while receiving vocational training at their places of employment fundraising a grants b sponsorships c governmental grants d special fundraising events e raffles and auctions f direct-mail arts advocacy to expand public awareness and support of emerging artists and public spaces through a public performances b working with other arts organizations c hosting events d outreach to org distribution list e press releases f speaking at public hearings actual activities in the initial interview treasurer org treasurer described the following activities 20xx o event-1 -one free public concert used to raise donations of school supplies o event-2 - a giveaway program of two new band instruments procured from another giveaway program 20xx o event-3 - one free public broadcast of the obama inauguration used to raise donations of two cargo vans of new socks and underwear o donation of audio visual service and equipment for a play at elementary_school 20xx o donation of audio visual service and equipment for a play at elementary_school 20xx o none form 886-a catalog number 20810w page_3_ publish no irs gov department of the treasury-internal revenue service form886-a rev date name of taxpayer org 20xx explanations of items tax identification_number schedule number or exhibit form_990 year period ended decernber31 20xx decernber31 20xx o donation of audio visual service and equipment for a play at elementary_school o illumination of one church each on easter weekend and palm sunday weekend in county county all years o rental of audio visual service and equipment to the public for-profit businesses and non-profit entities o production of e-mail newsletter o stage crew training program providing job skills training and an above minimum wage to transitional homeless individuals o design and rental of new equipment including a non-flammable luminaria and a silent batterypak power system the oraanization's website indicates that org collects - indicated above each of these activities only happened once in 20xx and 20xx as audionisua rentals in the primary year under audit org made about rentals of audio visual equipment and services bringing in dollar_figure in income the organization's website declares orgas your city area specialists in event planning management and equipment rental the website describes audio visual and lighting rental options it also lists drapery carpets stages tables chairs tents and additional event production items available for rent in the words of treasurer the organization rents everything but the dishes customers must email the organization for a quote the website also states org is a charity non-profit that uses the equipment we own to raise funds for our programming org does most of its advertising on google treasurer stated that advertising on google started in 20xx or 20xx when they got a grant for ads from google ln 20xx they hired a consultant to manage search engine optimization search engine optimization techniques include listing org services and events on blogs face book and twitter to ensure that their website comes out at the top of web searches newsletters org em ails a short monthly newsletter to approximately big_number recipients the newsletter promotes org's equipment rental and services as a means to raise funds to support the organization's programming there is little substantial information in the newsletters they list the companies the organization has worked with and tells brief anecdotes about interesting jobs the organization has worked stage crew training program the purpose of the program was to hire transitional homeless workers on a part time basis and train them in employable and universal skills as they continued rehabilitation programs education or to seek full-time employment the program was described as a hands-on immersion program in production technologies through practical exercise treasurer stated the purpose of the program is two-fold to get the work we need done and to help the_ economically disadvantaged reintegrate into society and the workforce initially treasurer stated that workers were selected from the foundation free meal food line they chose individuals who looked relatively responsible and respectable - wearing clean clothes and maybe reading a book this indicated that the workers were making every effort to get out of homelessness eventually form 886-a catalog number 20810w page _a_ publish no irs gov department ofthe treasury-internal revenue service form886-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibit form_990 year period ended december 20xx decernber31 20xx org went through the formal foundation's work placement program but many of the workers provided were 'straight off the street' - unclean and poorly behaved even going through the garbage at events org switched to church where they got good workers the placement specialist left church and moved to the state of state employment development department but org stayed with her because of her good placements in the years under audit org trainees came via word of mouth because of the nature of the trainees selected no event attendees or other independent contractors could recognize that they were homeless treasurer explained that trainee work included setting up for events moving equipment monitoring trashcans setting up loudspeakers running cables not hooking them up setting up vip areas making food for the crew getting supplies hours worked varied with need part of the intent of the program was to keep the homeless workers busy during high risk times such as nights and weekends compensation was between dollar_figure and dollar_figure per hour treasurer described in response to lor how very few of the potential workers actually entered the program placement was based on aptitude willingness to work jearn and conform being on time being cognizant of the surroundings being well kempt and having dexterity and good hand eye coordination essentially placement was based on good job skills and potential to succeed in the field treasurer stated that about of people who worked stayed on for the program the structure of the training program was very loose treasurer said there was no graduation date set for participants participants moved on when they felt they were ready for a better job and wanted more money in the past participation lasted between three months and three years participants were welcome to use org' fax machines computers and printers in their job searches treasurer was the participants' coach he had degrees in physics and electrical engineering and he had taught at the high school and college levels he worked with participants and noted their progress the taxpayer stated that treasurer's experience since founding org has strengthened his qualifications to successfully work with program participants the program had no job counselors or social workers no evaluation system no benchmarks of progress no classroom training no unemployment placement services no timeline for completion of the program no schedule of participation and no regularly enrolled body of trainees stage crew training program participants in the year under audit treasurer indicated eight trainees these matched eight of the nine individuals indicated under the stage crew training program on the organization's general ledger name pmts title trainee-1 trainee-2 trainee-3 trainee-4 trainee-5 trainee-6 trainee-7 trainee-s trainee-9 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total stage crew training program stage crew training program stage crew training program stage crew training program stage crew training program stage crew training program stage crew training program stage crew training program stage crew training program as indicated on gl not included in tp's list of participants form 886-a catalog number 2o sec_1ow page_ __ publish no irs gov department of the treasury-internal revenue service form886-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibit form_990 year period ended december 20xx december 20xx eight of the nine trainees were only paid once only one appears to have actually been enrolled in the program receiving compensation in seven months of the year the trainee who received over dollar_figure in compensation received a form_1099 contractors the general ledger shows the following other regular workers of the organization name contractor -1 contractor-2 contractor -3 contractor -4 contractor -5 contractor-s contractor -7 contractor -8 contractor -9 gu1099 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure pmts title stage crew training program graduate stage crew training program graduate lead technician technician lead technician business development coach consultant search engine optimization and business development consultant technician technician na delinquent volunteers treasurer stated in the interview that there were often many volunteers for big events and usually eight to ten on a regular basis the organization's website and newsletter both make requests for volunteers treasurer stated that there are volunteers at the organization's facilities every day working on rental events the board members all work for no compensation all workers paid or not receive free meals sec_501 c provides for federal_income_tax exemption for corporations organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing ofstatements any political campaign on behalf of or in opposition to any candidate for public_office sec_1 c -1 d says that the term charitable is used in its generally accepted legal sense and it not to be construed as limited charitable includes the relief of the poor and form 886-a catalog number 20810w page_ _ publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibil form_990 year period ended december 20xx december xx distressed or of the under-privileged the advancement of education or science promotion of social welfare lessening of neighborhood tensions and other like purposes sec_1 c -1 d i a of the regulations defines the term 'educational' as including the instruction or training of the individual for the purpose of improving or developing their capabilities sec_1 c - a says organizational and operational tests in order to be exempt as an organization described in sec_501 c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1 c - c says operational test- primary activities an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 c 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_53_4942_b_-1 defines primarily as at least sec_53_4942_b_-1 defines substantially_all a sec_85 or more therefore insubstantial means less than15 sec_511 imposes a tax on the unrelated_business_taxable_income of an organization exempt under the provisions of sec_501 c of the code sec_512 defines unrelated_business_taxable_income as the gross_income derived by an organization from an unrelated_trade_or_business regularly carried on by it less the deductions allowed which are directly connected with the carrying on of such trade_or_business sec_513 defines unrelated_trade_or_business as any trade or businessthe conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 provides that an activity does not lose its identity as trade_or_business merely because it is carried on within a larger complex of other endeavors which may be related to the exempt purposes of the organization sec_1_513-1 says that unrelated_trade_or_business does not include any trade_or_business in which substantially_all the work is performed by volunteers which is carried on for the convenience of its members users or employees or which is the selling of substantially_all donated merchandise sec_1_513-1 a of the treasury regulations states that the gross_income of an exempt_organization subject_to the tax imposed by section of the code is includible in the computation of unrelated_business_taxable_income if the following apply it is income from a trade_or_business sec_1_513-1 of the treasury regulations provides that the term trade_or_business generally includes any activity carried on for the production_of_income such trade_or_business is regularly carried on by the organization sec_1_513-1 of the treasury regulations provides that specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and form 886-a catalog number 20810w page_ _ publish no irs gov department of the treasury-internal revenue service - form886-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibit form_990 year period ended december 20xx december 20xx are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations the conduct of such trade_or_business is not substantially related to the organization's performance of its exempt functions sec_1_513-1 d of the regulations provides that trade_or_business is related to exempt purposes where the conduct of the business activities has a causal relationship to the achievement of exempt purposes it is substantially related only if the causal relationship is a substantial one and the conduct of the trade_or_business contributes importantly to the accomplishment of the organization's exempt purposes sec_1_513-1 states that a trade_or_business is 'related' to exempt purposes only where the conduct of the business activity has causal relationship to the achievement of an exempt_purpose and is 'substantially related' for purposes of sec_513 only if the causal relationship is a substantial one sec_1_513-1 d states that in determining whether activities contribute importantly to the accomplishment of an exempt_purpose the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt_function which they purport to serve sec_1 c -1 e states that an organization may meet the requirements of sec_501 c although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization's exempt_purpose or purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated_trade_or_business as defined in sec_513 in determining the existence or nonexistence of such primary purpose all the circumstances must be considered including the size and extent of the trade_or_business and the size and extent of the activities which are in furtherance of one or more exempt purposes an organization which is organized and operated for the primary purpose of carrying on an unrelated_trade_or_business is not exempt under sec_501 c revrul_72_369 1972_2_cb_245 states that an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations does not qualify for exemption under irc section c providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit furnishing services at cost lacks the donative element necessary to establish this activity as charitable as the organization is not operated for charitable purposes the organization does not qualify for exemption from federal_income_tax under irc section c sec_1_512_a_-1 states that expenses depreciation and similar items attributable solely to the conduct of unrelated business activities are proximately and primarily related to that business activity and therefore are deductible in computing unrelated business activities they are directly connected with the conduct of that activity for example depreciation of a building used entirely in the conduct of unrelated business activities would be an allowable deduction sec_1_512_a_-1 c explains that where facilities are used both to carry on exempt_activities and to conduct unrelated_trade_or_business activities expenses depreciation and similar items attributable to such facilities must be allocated between the two uses on a reasonable basis for example where personnel are used both to carry on exempt_activities and to conduct unrelated_trade_or_business activities expenses and similar items attributable to such personnel must also be allocated between the two uses on a reasonable basis the portion of any such item so allocated to the unrelated trade or form 886-a catalog number 20a1ow page___ll publish no irs gov department of the treasury-internal revenue service ' ' form886-a rev date name of taxpayer org explanations of items tax identification_number schedule number or exhibit form_990 year period ended december 20xx december 20xx business activity must be proximately and primarily related to that business activity and shall be allowable as a deduction in computing unrelated_business_taxable_income taxpayer position a draft report of preliminary findings and analysis of the case was sent to org's executive director and treasurer treasurer and to the organization's power_of_attorney attorney on date attorney replied on august 20xx that treasurer did not want to respond to the draft and would provide additional documentation during the appeals process government position is the organization operated primarily for exempt purposes as required to qualify for exemption under sec_501 while the proposed activities would have furthered org' charitable purpose the actual activities did not public arts events the organization hosted only one public art event since 20xx according to the description of events given during the initial interview by treasurer org' proposed primary activity was using free public art events to give performance opportunities to artists provide free arts events to the public showcase public space and offer employment opportunities to economically distressed individuals vetted by other agencies in the years under audit the organization has once provided free audio visual equipment and serves to an elementary_school play these activities do not match the sort for which the organization was granted tax exempt status in 20xx treasurer stated that they conducted no charitable activity stage crew training program what the organization lacked in public arts events it could make up with its vocational training program however there was little evidence that this program was anything more than a euphemism for cheap labor for the organization there was no formal training program no benchmarks no formal counselor and no formal review even if the program did operate with the structure intent and formality that treasurer implied it was a very small portion of overall programming based on wages paid to trainees the stage crew training program constituted an insubstantial expense and an insubstantial number of hours out of the nine trainees listed on the gl only one was paid on a somewhat ongoing basis of total salaries and contractor fees total expense stage crew training program compensation per gl single ongoing trainee per gl total salaries and contractor fees excluding accounting and legal per form_990 dollar_figure dollar_figure dollar_figure form 886-a catalog number ow page_9_ publish no irs gov department of the treasury-internal revenue service - - ----- -- ' r '-------------- --------- ___ _ _- - swche du l - e nu mbe ror e- xh ibi t _ _ form886-a rev date name of taxpayer org explanations of items tax identification_number total expense per form_990 dollar_figure form_990 year period ended decennber31 20xx decennber31 20xx j stage crew training program compensation paid to all trainees including the eight who only worked for one pay_period constituted of total compensation and of total expenses wages paid to the only regularly enrolled trainee constituted only of all wages paid because wages are based on hours worked this also indicates that little time was devoted to the program for profit business org' primary activity the rental of audio visual equipment and services to the public is not recognized as a charitable or educational purpose within the meaning of sec_501 and sec_1_501_c_3_-1 or -1 d although the nature of a vocational on-the-job training program would require an operational retail business the actual purpose of the business is evidenced by the scale of retail operations the scale is much larger than necessary to train the single long term trainee and the eight single pay_period trainees in the primary year under audit the organization made over rentals equipment and event supplies rental and service brought in dollar_figure of all the organization's income the organization promotes itself to the public as specialists in event planning management and_equipment rental over time the organization has increased its rental stock to include other typipal event items such as drapery carpets stages tables chairs tents and additional event production items org hires search engine optimization specialists to ensure that their organization comes out at the top of internet searches conclusion the organization's primary purpose operation of a retail business is not a recognized charitable purpose with in sec_501 accordingly the organization does not qualify for recognition of exemption from federal_income_tax under sec_501 c revocation of the organization's tax exempt status should be effective january 20xx the earliest date audited to show that the organization was not operated primarily for exempt purposes form 886-a catalog number 20810w page_jq publish no irs gov department of the treasury-internal revenue service


internal_revenue_service department of the treasury index number u i l no washington dc number release date legend person to contact telephone number refer reply to cc dom p si plr-106582-99 date date company state shareholder a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has one shareholder shareholder it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly since a after the end of its taxable_year beginning on a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year plr-106582-99 then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc corp 1-plr-122910-01 date date number release date index number distributing controlled_corporation x target ccc date date date date a b we respond to a letter from your authorized representative dated date requesting a ruling supplementing and affirming the rulings granted in plr-114099-99 prior letter_ruling and plr-124544-00 prior supplemental ruling specifically rulings under sec_355 of the internal_revenue_code the code and other code sections as to the federal_income_tax consequences of a transaction on date distributing distributed controlled to its shareholders as described in the prior letter_ruling step of the prior letter ruling’s description of the transaction provided that controlled would issue stock in a public offering or acquisition not to plr-122910-01 exceed percent of the total outstanding_stock of controlled by vote and value within one year date of the distribution of controlled on date a date before date controlled signed a merger agreement with target providing that target will merge with and into corporation x a wholly owned subsidiary of controlled the merger acquisition in the merger acquisition which is intended to qualify as a reorganization under sec_368 and sec_368 of the code the shareholders of target will receive cash and up to ccc percent of the outstanding_stock of controlled controlled had filed applications with regulators a and b seeking regulatory approval of the merger acquisition on date controlled anticipates that all the conditions to the completion of the merger acquisition including the receipt of the required regulatory approvals will be satisfied no later than date a date later than date accordingly the taxpayer proposes that on or before date controlled will issue stock not exceeding percent of the total outstanding_stock of controlled by vote or value in the merger acquisition based solely on the information and representations submitted in connection with the prior letter_ruling request the prior supplemental ruling_request and this ruling_request we rule that the merger acquisition will have no adverse effect on the rulings contained in the prior letter_ruling and the prior supplemental ruling and that all such rulings remain in full force and effect this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer affected by the prior letter_ruling the prior supplemental ruling and this ruling should attach a copy of all three ruling letters to its federal_income_tax return for the taxable_year in which the transactions covered by these letters are completed under a power_of_attorney on file in this office copies of this supplemental letter are being sent to your authorized representatives sincerely associate chief_counsel corporate by mark s jennings chief branch


internal_revenue_service number release date index number ------------------------------------------ ----------------------------------------- ---------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-135320-07 date date ty ------- ty ------- ------------------------------------------------------------------------------ legend trust ----------------------------------------------------------------------------------------------------------- llc ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------- decedent year state a corporation date a date b date c date d date e date f date g date h date i successor entity --------------------------- ------- --------- ------------------------------------------------------------------ ----------------------- ---------------------- -------------------------- ------------------------- --------------------- -------------------------- -------------------------- -------------------------- ----------------------- ------------------------------------------------------------------------------ ---------------------- -------------------------------------- -------------------------------------- -------------- -------------------- --------------------------------------- ---------------------------------------- ------------------------------------------------------------------------------ w percent x percent y percent z percent relinquished_property replacement_property seller -------------------------------------------------------------------------------------------------------- de --------------------------------------- ------------------------------------------------- --------------------------------------------------------------- plr-135320-07 eat buyer dear ---------------- this is in response to your request for a ruling dated date and submitted by your authorized representatives on behalf of the trust specifically a ruling has been requested that the termination of llc under sec_708 of the code resulting from the distribution of trust assets pursuant to the termination plan will not preclude the replacement_property from being held for investment or for the productive use in a trade_or_business within the meaning of sec_1031 facts trust was established as a private testamentary_trust by decedent’s will upon his death in year to administer his assets and to provide income to its beneficiaries at the present time trust has real_property assets located in numerous states all of the trust’s directly-owned properties are held for investment purposes trustees of trust created an operational structure though which trust engaged in various real_estate investment activities this operational structure included llc which is owned y percent by trust with the remaining percentage owned by corporation which is itself wholly owned by trust the real_estate investment activities carried out by llc include like- kind exchanges of real_estate investment properties under the terms of decedent’s will trust terminated at midnight on date a prior to date a trustees formulated a termination plan which outlined a plan and mechanism for distributing trust’s assets to its remainder beneficiaries upon termination state a probate_court approved termination plan on date b under termination plan trust assets equal to w percent of the remainder beneficiaries’ stirpital interests were distributed in cash and through in-kind distribution to certain remainder beneficiaries the remaining trust assets equal to x percent of the remainder beneficiaries’ stirpital interests was contributed by trustees prior to termination to successor entity the assets contributed to successor entity included trust’s y percent membership interest in llc and its percent stock interest in corporation upon termination of trust all shares of successor entity were distributed among certain but not all remainder beneficiaries successor entity is intended to continue trust’s real_estate investment operations on a going forward basis consistent with past practice with much of the same managerial and operational structure remaining intact trustees have determined that it is prudent for llc to dispose_of relinquished_property in an exchange that will meet the requirements for like-kind_exchange treatment under plr-135320-07 sec_1031 as replacement_property it was determined that llc should acquire a z percent interest in replacement_property the acquisition of replacement_property and the disposition of the relinquished_property were structured as a reverse_like-kind_exchange pursuant to revproc_2000_37 c b on date c trust entered into a contract for the purchase of replacement_property from seller on date d trust assigned a z percent interest in the purchase contract to llc llc immediately assigned the entire z percent interest to de a disregarded_entity whose sole member was eat on the same date llc entered into a qualified_exchange_accommodation_agreement with eat pursuant to which eat agreed to act as exchange accommodation titleholder within the meaning of revproc_2000_37 with respect to replacement_property seller transferred title to a z percent interest in replacement_property to de on date d on date e llc entered into a contract for the sale of relinquished_property to buyer on date f llc and eat entered into an exchange_agreement pursuant to which eat agreed to act as qualified_intermediary with respect to relinquished_property on date g llc assigned its rights under the contract for sale of relinquished_property to eat on date h llc directly deeded relinquished_property to buyer eat then assigned the membership units in de to llc to complete the exchange the submission states that llc has at all times intended to hold the replacement_property solely to generate additional rental income and has no plans whatsoever to develop or construct any improvements on such property or to sell replacement_property or any portion thereof at any time it has continued to own this property for investment purposes and has continued to manage it in precisely the same way there has been no change in the beneficial_ownership of llc on date i pursuant to the termination plan the trust distributed all of its shares in successor entity which then held almost all of the trust’s real_estate and other investment operation assets including its interests in llc to its remainder beneficiaries under revrul_99_5 1999_1_cb_434 the distribution of the shares to the remainder beneficiaries is treated as a distribution of trust’s assets followed by a recontribution of those assets by the remainder beneficiaries to successor entity because assets held by successor entity include a greater than percent interest in llc this distribution and deemed recontribution of the shares resulted in a sec_708 termination of llc in a sec_708 termination llc is deemed to have contributed its assets to a new partnership in exchange for an interest in the new partnership and then to have made a liquidating_distribution of that new partnership_interest to its members sec_1_708-1 the trust makes the following representations the relinquished_property was held by llc for investment purposes at all times during its ownership thereof plr-135320-07 the disposition of the relinquished_property and the acquisition of the replacement_property was accomplished in a manner that in all respects aside from the issues raised in this ruling_request qualify the transaction as tax-free_exchange within the meaning of sec_1031 and the regulations thereunder and the replacement_property was like_kind to the relinquished_property for purposes of sec_1031 and was held by the llc for investment purposes aside from the issues raised in this ruling_request in addition trust represents that there was a valid exchange of property under the reverse exchange safe harbors of revproc_2000_37 law and analysis sec_1031 provides that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if the property is exchanged solely for property of a like_kind which is to be held either for productive use in a trade_or_business or for investment under sec_1_1031_a_-1 of the income_tax regulations relating to the meaning of the term like_kind real_property is generally considered to be of like_kind to all other real_property whether or not any of the real_property involved is improved or unimproved sec_1031 contains a holding requirement that is both the relinquished_property and the replacement_property must be held either for productive use in a trade_or_business or for investment as stated above you have requested a ruling that the replacement_property will not be precluded from being held for investment or for the productive use in a trade_or_business within the meaning of sec_1031 because of the termination of llc under sec_708 resulting from the distribution of trust assets pursuant to the termination plan in revrul_75_292 1975_2_cb_333 an individual taxpayer in a prearranged transaction transferred land and buildings used in the taxpayer's trade_or_business to an unrelated corporation in exchange for land and an office building owned by the corporation and used in its trade_or_business immediately thereafter the individual taxpayer transferred the land and office building to the individual's newly created corporation in exchange for the stock of the same corporation in a transaction that qualified for nonrecognition of gain under sec_351 revrul_75_292 concludes that the individual taxpayer did not exchange the real_estate for other real_estate to be held either for productive use in a trade_or_business or for investment by that taxpayer but that the taxpayer acquired the replacement_property for the purpose of transferring it to the new corporation as a result the exchange did not qualify for nonrecognition under sec_1031 in revrul_77_337 1977_2_cb_305 in a prearranged plan an individual taxpayer liquidated all of the stock of a corporation and transferred the corporation's sole asset a shopping center to a third party in exchange for like-kind_property revrul_77_337 plr-135320-07 noted that under revrul_75_292 a newly created corporation’s eventual productive use of property in its trade_or_business is not attributable to its sole shareholder consequently the individual taxpayer did not hold the shopping center for use in a trade_or_business or for investment because the corporation's previous trade_or_business use could not be attributed to its sole shareholder and the exchange did not qualify for nonrecognition_of_gain_or_loss under sec_1031 sec_1031 was designed in part to postpone the recognition of gain_or_loss when property used in a trade_or_business or held for investment is exchanged for other_property in the course of the continuing operation of that trade_or_business or in the course of investment in those circumstances the taxpayer has not received any gain or suffered any loss in a general and economic sense nor has the exchange of property resulted in the termination of one venture and assumption of another the business venture operated before the exchange continues after the exchange without any real economic change or alteration and without realization of any cash or readily liquefiable asset see 385_f2d_238 5th cir 269_f2d_453 cir cf 109_f2d_479 cir cert den 310_us_650 see generally sec_1_1002-1 t he underlying assumption of these exceptions eg sec_1031 is that the new property is substantially a continuation of the old investment still unliquidated in this case trust terminated involuntarily by its own terms after many years in existence because trust was a testamentary_trust the termination_date was fixed by decedent and could not be modified or changed the plan of termination was approved by the state a probate_court and would have occurred without regard to whether this exchange of properties had been consummated consequently the like- kind exchange in this case was wholly independent from termination of trust and thus llc’s acquisition of the replacement_property in a reverse_like-kind_exchange was wholly independent of its sec_708 termination moreover there has been no change either in the beneficial_ownership of llc or in the way it holds or manages the replacement_property it has continued to own this property for investment purposes thus the facts in this ruling_request are distinguishable from those in revrul_75_292 and revrul_77_337 which involve voluntary transfers of properties pursuant to prearranged plans we therefore conclude that the termination of llc under sec_708 resulting from the distribution of trust assets pursuant to the termination plan will not preclude the replacement_property from being held for investment or for the productive use in a trade_or_business within the meaning of sec_1031 no determination is made by this ruling letter as to whether the described transaction otherwise qualifies for deferral of gain realized under sec_1031 we express no opinion except as specifically ruled above as to the federal_income_tax treatment of the transaction under any other provisions of the code and regulations that may be plr-135320-07 applicable or under any other general principles of federal income_taxation neither is any opinion expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above ruling this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the 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 sincerely william a jackson branch chief branch office_of_chief_counsel income_tax accounting


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 form tax years contact person telephone number identification_number employer_identification_number number release date se t eo ra t4 date date uil numbers dollar_figure dear ------------- this letter constitutes a final adverse_ruling with respect to your claim of exemption from federal income_taxation under sec_501 of the internal_revenue_code we make our ruling for the following reason s in sec_501 of the code part of your net_earnings has inured to the benefit of private shareholders or individuals more than an insubstantial part of your activities furthers private purposes rather than purposes described in sec_501 never executed they are therefore not effective lapham foundation inc v commissioner tcmemo_2002_293 private_foundation because you failed to establish that you meet the requirements under sec_509 b and c of the code donors may not deduct contributions to your organization under sec_170 of the code the code and the regulations issued thereunder require that you file federal_income_tax returns based upon the financial information that you furnished you should file returns on the form and for the tax years indicated above within days from the date of this letter unless you request and are granted an extension of time to file the returns you should attach a copy of this letter to the returns you file questions concerning the filing of returns should be directed to the ohio tax exempt and government entities te_ge office pincite-5500 a toll free number you have failed to establish that you are organized and operated exclusively for purposes described the organizational_test was not satisfied in this case because the amended trust documents were we also rule that even if you did qualify under sec_501 of the code you would be a if you decide to contest this ruling under the declaratory_judgment provisions of sec_7428 of the code you must initiate a suit in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia before the 91st day after the date that we mailed this ruling to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment the filing of a declaratory_judgment suit under sec_7428 does not stay the processing of income_tax returns and assessment of any taxes in accordance with sec_6104 of the code we will notify the appropriate state officials of this action 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 if you have any questions concerning the reasons for this ruling please contact the person whose name and telephone number appear in the heading of this letter enclosure notice martha sullivan director exempt_organizations bill brockner sincerely


internal_revenue_service number release date index ----------------------- ----------------------------- ------------------------------------ - - department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc ita - plr-136324-03 date date -------------- --------------------- a b date ----------------- date ------------------------- dear -------------- correspondence of date regarding the income_tax consequences under sec_1001 of the internal_revenue_code the code of the proposed partition of a tenants-in-common interest in property into three separate individually-owned parcels you have requested a ruling that the partition does not constitute a sale exchange or other_disposition that would cause you to recognize any gain_or_loss under sec_1001 of the code this letter responds to your submission of date and supplemental facts the property at issue the property is a parcel of real_estate owned by you a and b the owners as tenants-in-common the owners received their tenants-in- common interests in the property by way of gifts from their now deceased mother the owners’ mother gifted the entire property by transferring small undivided interests in the property to the owners in many separate transactions each owner has since transferred their interest in the property to a grantor_trust for their benefit you have made the following representations the owners’ one-third tenants-in-common interests are identical in every respect the property is a single parcel the owners will institute a proceeding to partition the property under applicable state law pursuant to the partition proceeding each of the owners will acquire legal ownership of one of three separate parcels an unrelated professional appraiser will value each parcel and the boundaries will be adjusted accordingly to make certain that the parcels are approximately equal in value none of the owners will benefit disproportionately from the partition and no gift will result from the partition there is no mortgage or debt on the property immediately prior to the partition and there will be no mortgage or debt on the separate parcels immediately after the partition you have asked us to rule that the partition of the property as described above will not constitute a sale exchange or other_disposition that would cause a recognition of any gain_or_loss under sec_1001 of the code law and analysis sec_1001 of the code provides that the gain from the sale or other sec_1001 of the code provides that except as otherwise provided in sec_61 of the code provides that gross_income includes gains derived from dealings in property disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 of the code for determining gain and the loss is the excess of the adjusted_basis over the amount_realized subtitle a of the code the entire amount of the gain_or_loss determined under sec_1001 of the code on the sale_or_exchange of property must be recognized gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained corporate stock into a tenancy_in_common for the purpose of eliminating a survivorship feature is a nontaxable_transaction for federal_income_tax purposes similarly the severance of a joint_tenancy in stock pursuant to an action under state law to compel sec_1_1001-1 of the income_tax regulations provides generally that the revrul_56_437 1956_2_cb_507 holds that the conversion of a joint_tenancy in partition and the issuance of two separate stock certificates in the names of each joint tenant is a nontaxable_transaction revrul_56_437 concludes that in both cases there was no sale_or_exchange and the taxpayers neither realized a taxable gain nor sustained a deductible loss three separate parcels rearrange their interests so that each party becomes the sole owner of one of the parcels an exchange occurs so that gain_or_loss is realized although some or all of any realized gain might be deferred under sec_1031 revrul_79_44 1979_2_cb_265 reaches the same conclusion on similar facts revrul_73_476 1973_2_cb_300 holds that if three tenants-in-common of conclusion except as expressly provided herein no opinion is expressed or implied the property is owned as tenants-in-common by you a and b because the this ruling is directed only to the taxpayer requesting it sec_6110 of property is a single parcel that will be partitioned pursuant to an action under state law the result in revrul_56_437 rather than in revrul_73_476 applies based on the facts presented including the representations made we conclude that the partition of the property will not be treated as a sale_or_exchange accordingly no gain_or_loss will be realized under sec_1001 of the code as a result of the partition concerning the tax consequences of any aspect of any item discussed or referenced in this letter the code provides that it may not be used or cited as precedent sending a copy of this letter_ruling to the taxpayer’s authorized representative enclosures sincerely john aramburu senior counsel branch office of associate chief_counsel income_tax and accounting in accordance with the provisions of a power_of_attorney currently on file we are copy of this letter copy for sec_6110 purposes