internal_revenue_service department of the treasury significant index nos washington dc contact person telephone number in reterence to op e ep a date sep in re legend plan_sponsor x plan q plan e on behalf of plan_sponsor x representative you have asked us issues for whom you are the authorized to rule on the following two whether the establishment adoption and operation of plan e causes plan q and or the fund in the caption to lose tax-qualification or tax-exemption and whether the method of funding of plan e jeopardizes the tax-qualified and tax-exempt status of plan q and or the fund facts plan q which currently covers approximately big_number employees pincite companies is a qualified multiemployer defined benefit pen- sion plan that has been in existence since september has been amended on a number of occasions since then to providing benefits beginning at normal_retirement_age plan q also offers certain early retirement pensions for those with specified periods of service desired liberalizations in and in addition oo o72 these latter provisions have however been restricted by the requirements of sec_415 of the internal_revenue_code hereinafter the code that imposes limitations on the amounts of benefits that can be provided by a qualified_plan to deal with this situation plan_sponsor x proposes to establish plan e which will essentially provide the excess of the full amount that plan q would provide were it not for the limitations over vide taking into account the restrictions so that the two plans ie viding what is intended is meant to be an excess_benefit_plan that is given in sec_3 employee_retirement_income_security_act_of_1974 in all respects consistent with the definition of plan q and plan e together will end up pro- the amount that plan q will actually pro- plan e clearly a non-qualified plan of the is expected that for all practical purposes plan e will be when a participant in plan q retires with a the amount of this reduction will thereupon become payable it an unfunded plan monthly benefit that was initially calculated in accordance with the main benefit formula of plan q but was then reduced to comply with those provisions in plan q that are required by code sec_415 from plan e first month and each month thereafter withdraw from contribu- tions currently being received by plan q ie paid in by the various employers in accordance with the collective bargaining agreement s the amount of the aforementioned reduction and transmit only the balance to plan q this amount will go first to plan e and then immediately be paid_by plan e to the participant to enable this the plan_administrator will for the no possibility of thus there will be no build-up of unexpended funds in plan e furthermore there is plan q to plan e to meet obligations of plan e since the only source from which plan e benefits can be paid is funds that are simply withdrawn from the stream of current contributions being made in accordance with the collective bargaining agreement s also to plan q since the only funds ever paid to plan f place are immediately designated for the payment of benefits from plan e and cannot be diverted for any other purpose is impossible for any funds in plan e to be transferred in the first a transfer of funds from it law of the employee retirement income security act of sec_3 defines an excess_benefit_plan as one maintained solely for the purpose of providing benefits for certain plan partici- pants in excess of the limitations imposed by sec_415 of the internal_revenue_code without regard to whether the plan is ae -3- funded with respect to excess_benefit plans there is no corresponding section in the code itself code sec_412 provides minimum_funding requirements that must be satisfied in pension plans code sec_415 in particular subsection b thereof sets out limitations on benefits payable from a qualified defined_benefit_plan_code sec_401 provides that a_trust shall not consti- tute a qualified_trust if the plan of which the trust is a part provides for benefits or contributions which exceed the limita- tions of code sec_415 sec_1 -1 b of the income_tax regulations states that a plan is on an ongoing basis all of the plan assets are available to pay benefits to plan participants a single_plan if and only if argument under the definition of a single_plan in the regulations plan q and plan e considered together do not constitute a single_plan since there is no possibility of transfer of assets from either one ie plan q or plan e to pay benefits provided by the other is since plan e ately from plan q and merely provides for certain supplementation to benefits that are payable from plan q the existence of plan e does not affect the qualified status of plan q a non-qualified unfunded plan operating separ- it as to the funding of plan e and the impact if any that it has on the funding of plan q is noted first that the level of contributions being made overall is set by the collective bar- gaining agreement s and thus is determined only indirectly if at all funding requirements of code sec_412 must be satisfied independently of the contribution required under the collective bargaining agreement s thus minimum_funding requirements for plan q are unaffected by amounts paid to plan e by actuarial calculations in any case the minimum it is also the case that any impact on the actual contributions which are made to plan q but which might seem to be attributable to plan e would not affect the qualified status of plan q plan is or is not qualified according to whether it complies with sec_401 through sec_412 code sec_412 of the code whereas funding issues are addressed in and other sections not including a -4- conclusions the establishment and adoption of plan e does not cause plan q and or the fund associated therewith to lose tax qualification or tax-exemption the method of funding of plan e does not jeopardize the tax-qualified and tax-exempt status of plan q or of the fund associated therewith notes this ruling does not consider the more general issue of plan q’s qualified status --specifically whether plan q complies with all the relevant requirements of the internal_revenue_code for qualification this letter addresses only the impact if any of the adoption of plan e along with its funding method on the purportedly otherwise qualified status of plan q this ruling is directed only to the organization that requested it not be used or cited by others as precedent code sec_6110 provides that it may sincerely yours nhu - hegp martin l pippins acting chief actuarial branch oa


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 intl b05 plr-138831-07 date date parent subsidiary ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------ ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------------------- subsidiary ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------------------- ------------ ---------- ------ -------------------------------------------------------------- state a foreign countries currency currency dear ------------------------- this is in response to your letter dated date in which you request a ruling under sec_1_985-1 that subsidiary and subsidiary each a subsidiary and together the subsidiaries may each use a currency other than the u s dollar as its functional_currency specifically you request a ruling that permits the subsidiaries to determine their functional currencies by applying the principles used to determine the functional_currency of a qualified_business_unit a qbu that is not required to use the dollar as set forth in sec_1_985-1 the ruling contained in this letter is predicated upon facts and representations submitted by parent and accompanied by a penalties of perjury statement executed by the appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of factual information representations plr-138831-07 and other data may be required as part of the audit process parent has represented the facts described below facts the subsidiaries are direct subsidiaries of parent parent and subsidiaries are each state a corporations and each intend to qualify as real_estate_investment_trusts reits under subchapter_m of the internal_revenue_code parent formed subsidiaries to acquire and own loans that are denominated in currencies other than the u s dollar from obligors located in the foreign countries and to acquire and own real_estate located outside the u s that will be leased to third party tenants parent intends to cause the subsidiaries to finance the acquisition and ownership of these foreign obligations and foreign assets through non-u s dollar denominated borrowings each of the subsidiaries will operate its business in the currency of the foreign assets it owns and foreign obligations it incurs in particular subsidiary will operate its business in currency and subsidiary will operate its business in currency the gross_income of each of the subsidiaries is expected to consist principally of interest from the foreign loans and rents from the foreign assets each of the subsidiaries will conduct its activities including acquiring and owning foreign assets and incurring foreign obligations and maintaining its books_and_records in its designated currency law in general sec_985 provides that all determinations for federal_income_tax purposes shall be made in the taxpayer’s functional_currency sec_985 sec_1_985-1 provides that except as otherwise provided by ruling or administrative_pronouncement the u s dollar shall be the functional_currency of a qbu that has the united_states as its residence as defined in sec_988 sec_1_989_a_-1 provides that a corporation is a qbu sec_988 provides that the united_states shall be the residence of a corporation which is a united_states_person sec_7701 provides in part that the term united_states_person means a domestic_corporation sec_7701 provides that the term domestic as applied to a corporation means created or organized in the united_states or under the law of the united_states or any state see also sec_1_988-4 sec_1_985-1 provides that if a qbu is not required to use the dollar as its functional_currency then its functional_currency shall be the currency of the economic environment in which a significant part of the qbu's activities is conducted if the qbu keeps or is presumed to keep its books_and_records in such currency sec_1_985-1 provides that the economic environment in which a significant part of the plr-138831-07 qbu's activities is conducted shall be determined by taking into account all the facts and circumstances sec_1_985-1 sets forth some facts and circumstances that are considered when determining the economic environment in which a significant part of the qbu's activities is conducted the general explanation of the tax_reform_act_of_1986 states that i n appropriate circumstances a domestic qbu such as a regulated_investment_company organized to invest in securities denominated in a specific currency may have a foreign_currency as the functional_currency staff of the joint_committee on taxation 100th cong 1st sess general explanation of the tax_reform_act_of_1986 pincite comm print analysis absent a ruling to the contrary each subsidiary’s functional_currency would be the u s dollar because each subsidiary is a u s_corporation consequently each subsidiary would recognize foreign_currency_gain_or_loss on every sec_988 transaction because such transactions would be denominated in a currency that would be non-functional currency to the subsidiary see sec_988 and sec_1_988-1 moreover any qbus of the subsidiaries with a currency other than the dollar as their functional_currency would be subject_to sec_987 in revrul_2007_33 the service ruled that foreign_currency gains recognized by a reit under sec_988 are treated as qualifying_income under sec_856 and to the extent the underlying income so qualifies however revrul_2007_33 does not address foreign_currency gains recognized under sec_988 on a reit’s foreign obligations since foreign_currency gains attributable to a reit’s foreign obligations are not expressly listed as qualifying_income for purposes of sec_856 and a subsidiary risks losing its reit status if it is not permitted to adopt a non-u s functional_currency by applying the principles of sec_1_985-1 if the ruling requested herein is issued the functional_currency of each subsidiary would be determined by applying the principles of sec_1_985-1 under these principles each subsidiary would be eligible to adopt as its functional_currency the currency of the economic environment in which a significant part of the subsidiary’s activities is conducted this conclusion is consistent with the language contained in the general explanation of the tax_reform_act_of_1986 as set forth above based solely on the facts and representations submitted the principles of sec_1_985-1 may be applied to determine the functional_currency of each subsidiary if a subsidiary properly adopts as its functional_currency the currency of the economic environment in which a significant part of its activities is conducted the subsidiary will compute its taxable_income or loss in that currency and translate its taxable_income into dollars using the average exchange rate for the taxable_year plr-138831-07 no opinion is expressed regarding the proper functional_currency of either of the subsidiaries under the principles of sec_1_985-1 no opinion is expressed whether parent or either of its subsidiaries qualifies as a reit under sec_856 no opinion is expressed regarding the character of dividends or other reit income distributed by parent or either of its subsidiaries to u s investors or the character of income or loss realized on the sale by investors of their ownership_interest in any of the reits no opinion is expressed regarding the treatment of foreign_currency received as dividends in the hands of the shareholders this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax return of the taxpayers involved for the taxable_year in which the determination covered by this letter is made in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the representatives sincerely margaret k harris assistant to the branch chief branch international


internal_revenue_service appeals_office royal palm one suite south pine island road plantation fl date feb number release date org certified mail dear department of the treasury employer_identification_number person to contact employee id number tel fax 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 date the revocation of your exempt status was made for the following reason s organizations exempt from federal_income_tax under section sec_501 of the internal_revenue_code are required to operate exclusively for charitable education or other exempt purposes organizations are not operated exclusively for exempt purposes if the net_earnings of the organization inure in whole or in part to the benefit of private shareholders or individuals of the organization see sec_1 c -1 c we have determined that your net_earnings inured to the benefit of private individuals due to the distribution of your organization's primary asset to the trustees in as such you have not operated exclusively for exempt purposes and have operated for the benefit of private interests of individuals in contravention of the requirements of sec_1 c -1 d ii contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on form sec_1 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 we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you in a separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice you have agreed to waive your right to contest this determination under the declaratory_judgment provisions of section of the code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours timothy d jarvis appeals t earn manager enclosure publication fa department of the treasury dfl internal_revenue_service irs tax_exempt_and_government_entities_division date november taxpayer_identification_number uil dollar_figure org fonn tax_year s ended person to contact number contact numbers phone number fax number manager's name number manager's contact number phone number response due_date certified mail- return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_50l c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the letter rev catalog number 34809f irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication 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 exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't 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 for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter ifyou write please provide a telephone number and the most convenient time to call ifwe need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f fomi886a l name oftaxpayer org department of the treasury - intcmal revenue service explanation of items schedule no or exhibit year period ended t2 3t 20xx legend org - organization name state - state xx - date address - address city - city county - county trustee-1 to - trustee-1 to did the transfer of the personal_residence t6 the org o yned by the trustees of the org benefit private persons resulting in inurement and or private benefit and result in the potential revocation of the c foundation exempt status did the org transfer of dollar_figure acres of land located in city state on or about december 20xx to trustee-1 and trustee-6 both disqualified persoris via general warranty deed filed with the office of recorder of county county state result in inurement and or private benefit and in the potential revocation of the c foundation exempt status facts for issue transfer of the personal_residence to the foundation the org filed a_trust agreement in city state on march 20xx the purpose of the trust agreement was to create the foundation exclusively for charitable religious scientific literary and educational_purposes including for such purposes the making of distributions to organizations that qualify as exempt_organizations under sec_501 of the internal_revenue_code trustees of the org at the date of inception were trustee-1 and trustee-2 husband and wife on or about june 20xx the org received letter from the internal_revenue_service granting the foundation exemption from federai income_tax under sec_509 as a charitable_organization as described in sec_501 c of the code effective date of the exemption was april10 20xx on april 20xx the org held an annual trustee meeting those present at the meeting were trustee-1 ph d trustee trustee-2 trustee trustee-3 trustee-4 trustee-s at this meeting a discussion was conducted centering on the donation of the residence to the foundation additional discussions were conducted concerning the purchase of land and or a building for the foundation's future school it was c tecided that by the end of 20xx the org would purchase property in city state on or about december 20xx trustee-1 and trustee-2 transferred their personal_residence located at address city state to the org an appraisal was conducted this date by appraiser of appraiser appraisal for the purpose of determining the fair_market_value of the property located at address city state zipcode the fair_market_value as determined by the appraiser as dollar_figure the form_990-pf filed for the period ended december 20xx reported real_property on the asset schedule at dollar_figure and liabilities at dollar_figure these amounts were corrected on the form_990-pf filed for the period ended december 20xx the residence cost_basis was correct to dollar_figure and two bank loans were reported for the residence bank loan dated loan dated 20xx loan amount loan amount dollar_figure dollar_figure form 886-a acv department of the treasury- latemal revenue service page form886a i name oftaxpayer org department of the t rc aswy - internal ret-enue service explanation of items schedule no or exhibit year period boded 20xx on or about march 20xx the org sold the residence at address city state to a third party and reported a loss on the sale on the form_990-pf filed for the period ended december 20xx on or about august 20xx trustee-2 died sometime in 20xx trustee-1 remarried and his current wife trustee-6 was added as a trustee of the org on or about may 20xx in reference to united_states tax_court in the matter of trustee-1 v commissioner of internal_revenue_service document no a judgment was entered into by all parties in agreement that it was determined that under the law the home was not actually contributed to the org and the donation of the home to the foundation did not meet the requirements of the law facts for issue transfer of city land from the foundation to the disqualified persons on or about april2 20xx t org purchased dollar_figure acres of land located on address city state at a contract_price of dollar_figure the form_990-pf filed for the period ended december 20xx reported the property purchase on its balance_sheet as real_property acquisition at dollar_figure with liabilities of dollar_figure these amounts were corrected on the form_990-pf filed for the period ended december 20xx with the assets value being corrected to dollar_figure and liabilities being added for bank loan dated 03120xx loan amountdollar_figure on or about december 20xx the org transferred dollar_figure acres of land located in city state to trustee-1 and trusteehi via general warranty deed filed with the office of recorder of county county state on or about january 20xx the dollar_figure acres of land was listed with local city state realtors for sale at an asking price of dollar_figure on or about february 20xx trustee-1 and trusteehi sold the dollar_figure acres to third party the org filed form_990-pf with the internal_revenue_service for the periods ended december 20xx 20xx 20xx 20xx 20xx 20xx and 20xx sec_501 states corporations and any community chest fund or foundation 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 ctlvities 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 emphasis added sec_501 of the code forbids inurement of any part of the net_earnings of a qualifying_organization to the benefit of any private_shareholder_or_individual any part literally means any part the smallest amount of inurement will result in the organization's fail re to meet the requirements for exempt status fom1 a re us department of the treuuty -internal revenue semc e page fom886a i name oftaxpayer org department of the treaswy - internal re enue set -ice explanation of items schedule no or exhibit year period ended 20xx sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefd of private interests such as designated individuals the creator or his family shareho c l81'8 of the organization or pef8ons controlled directly or indirectly by such private interests sec_1_501_a_-1 defines a private_shareholder_or_individual for sec_501 purposes as those persons having a personal and private interest in the activities of the organization treasury regulation section big_number c -1 a provides that in order to be exempt as an organization described in sec_501 n 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_501_c_3_-1 states that an organization will be regarded as operated exclusively- for one or more exempt purposes only if it engages primarily in activities wh h accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 states in part that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals internal_revenue_code section sec_4941 d i a provides that any sale_or_exchange of property between a disqualifted person and a private_foundation is self-dealing as with most of the defined categories of self dealing sales or exchanges of property are flatly prohibited rather than being judged by an arm's-length standard or eligible for a de-minirnus exception reg sec_4941 d -2 a provides that the transfer of property by a disqualified_person to a private_foundation is treated as a sale_or_exchange if the private_foundation assumes a mortgage or takes subject_to a mortgage that was placed on the property within the 10-year period ending on the date of the transfer of the property to the private_foundation argument and rationale for issue transfer of the personal_residence to the foundation the trustees for the foundation formed the foundation and transferred their personal_residence to the foundation the personal_residence had a mortgage associated with it as described above as addressed in internal_revenue_code section sec_4941 above this is an act of self-dealing and is prohibited under sec_501 and would cause the revocation of the exempt status of the foundation as stated above on or about may 20xx in reference to united_states tax_court in the matter of trustee-1 v commissioner of internal_revenue_service document no a judgment was entered into by all parties in agreement that it was determined that under the law the home was not actually contributed to the org and the donation of the home to the foundation did not meet the requirements of the law there was no charitable purpose for the contribution of this residence to the foundation form 886-a r ev department of the treasury - iatemal revenue service page ------------------------------------------------------------------ fomi886a i name oftaxpayer org department of the treasury -internal revenue service explanation of items schedule no or exhibit year period boded 20xx argument and rationale for issue tbansfer of city land from the foundation to the disqualified persons on or about december 20xx the org transferred dollar_figure acres of land located in city state to trustee-1 and trustee-s via general warranty deed filed with the office of recorder of county county state this was an act prohibited by c and internal_revenue_code section sec_4941 and reg sec_4941 d -2 a taxpayers position first issue transfer of the personal_residence to the foundation in response to your question as to the personal benefit received by the transfer of the personal_residence owned by the trustees to the foundation in the calendar_year 20xx a this issue was settled in the u s tax_court case as setforth above and the related tax_assessment was personally paid_by the trustees as an integral part of that settlement b this property was sold and disposed of prior to january 20xx and should not be an issue in this examination as the statute of limitation has now expired on this transaction c the exempt status of the foundation was not disallowed as a part of this settlement with the u s tax_court and therefore your claim for personal benefits to the trustees does not in fact exist as there was no benefit to the related parties following the action of the u s tax_court d the settlement of this issue effective for the calendar years 20xx 20xx and 20xx resulted in the elimination of any possible inurement and or private benefif' to the trustees of the foundation in fact the reality of the circumstances and following settlement by the u s tax_court resulted in a definite significant economic loss to e trustees e one of the trustee involved in your proposed_adjustment passed away on august 20xx which as several months prior to the beginning of the fiscal_year you liave under examination there is no way she benefitted from this transaction during the calendar_year 20xx as you have asserted f trustee-s now trustee-s did not become involved in the foundation operation until her marriage to trustee-1 on may 20xx which was almost months past the fiscal yearend of december 20xx therefore there is also no way she benefitted from your proposed claim during the calendar_year '20xx second issue transfer of city land from the foundation to the disqualified persons the response to this issue requires it be broken down into two parts one for which we agree and one for which we disagree a we acknowledge and agree that the city property was purchased in 20xx and the purchase was accompanied with the creation of a debt to bank numerous transactions involving the payment of this debt from 20xx thru december 20xx were included in exhibits a thru t submitted on january 20xx the debt was clearly a vital part of the purchase and was not debt added at a later date b we acknowledge and agree that the city property was indeed tentatively transferred into the personal names of trustee-1 and trustee-s the deed was recorded on december 20xx which under state law is the actual date of the transfer as deeds are not recognized as official until they are property recorded form 886-a aev -t-q department of the treuwy -internal revenue semce page fom1886a i name of taxpayer org department of the treaswy - intc mal revenue service explanation of items schedule no or exhibit year period ended 20xx c we disagree that trustee-1 and trustee-s received any benefit from this transaction during the calendar_year 20xx in fact they incurred a liability as a result of the deed due to the fact that they were then required to make a mortgage payment on the property's mortgage they received no benefit of any kind on the payment of the mortgage as they did npt deduct the interest_paid neither did they attempt to deduct the principal paid as a charitable_contribution d our conclusion is that the mere recording of the deed prior to 1-1-20xx did not result in inurement and or private benefit to trustee-1 and trustee-6 for the calendar_year 20xx e we accept the fact that the law prohibits the following no part oftbe net eaminas of which inures to fbe benefit of anv private_shareholder_or_individual the deed to the property was not recorded until december 20xx and there was absolutely no earnings from this date th december 20xx therefore there was literally no amount of earnings or economic benefit received by any individual during 20xx f we accept your statement that the mls listing of said property for sale as being officially listed on january 20xx however we do not accept your position that the listing price is the market_value of the property support of the actual sale was for net_proceeds ofdollar_figure per copy of the hud closing statement dated 2-15-20xx attached hereto it will prove the value of ttie property to dollar_figure this is the sales_price ofdollar_figure less the cost they had to incur to dispose_of the property be only and g it is our position that sec_1 c -1 d ii has been complied with this position was supported with the numerous exhibits attached to our letter of january 20xx the foundation was organized for the purposes permitted by law and was definitely not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests it is our understanding that the u s tax_court agreed with our position h the requirements of sec_501 c were met by the org as supported by the exhibits attached to our letter of january 20xx it was organized for the charitable purposes so stated numerous attempts were made during the calendar years 20xx thru the years 20xx to secure grants with which to fund the foundation for which it was organized these attempts were unsuccessful but the lack of success does not detract from the efforts to comply with the original purpose this lack of funding_ resulted in the necessity to liquidate the corporate debt and this could only be done by disposing of the only asset the foundation owned which was the city property the net_proceeds from the sale in the amount of dollar_figure was temporally held in the personal bank account of trustee-1 and trustee-6 however it was transferred to the foundation from this same personal bank account during the same fiscal_year see exhibits m bb cc form 886-a rev department of the treuwy - intemal revenue service page fonn886a i name oftaxpayer org department of the treasury - internal re -enue service explanation of items schedule no or exhibit year period ended 20xx this action is permitted under sec_4941 b which allows for a disqualified_person to correct any disqualifying act within the same taxable_period without penalty the transfer back to the foundation in the amount of dollar_figure within the same fiscal_year of the sale as reflected in exhibits c do which supports our position that the error was corrected in the same fiscal_year as permitted under the law i sec_1 c -1 c l requires an exempt_organization to operated exclusively for the exempt_purpose for which it was organized we contend that extensive time an effort and personal expenditures were incurred by the trustees in their attempt to accomplish this purpose thru no fault of their own the requested grants to fund the proposed educational_institution did not materialize which forced the liquidation of the only asset owned by the foundation this was done at a loss to the trustees who received no salary or other expense reimbursement for the large amount of time and funds spent for the benefit of the foundation j no individual received any net_earnings from the activity ofthe foundation in whole or in part therefore sec_1_501_c_3_-1 was followed as the foundation's only operation was their attempt to exclusively accomplish this exempt_purpose k in response to your question about sec_4941 all proceeds from the net sale of the property in 20xx were properly held in the bank account of the foundation as of the 12-31-20xx no sale was made to a disqualified_person as our position ylas that the made the sale for the benefit of the foundation even though the sale was erroneously made in their name they received no benefit from the proceeds and they were deposited into the foundation 's bank account as of the end of the fiscal_year i we fail to see the relative aspect of reg d -2 a the mortgage taken out by the foundation to purchase the land is not applicable the mortgage ylas incurred as part of the purchase_price of the city property and this property was purchased at an arms length from a non related third party transfer of the personal_residence to the foundation this transaction was agreed to by the u s tax_court in that they ruled that the property was never in reality transferred to the foundation this was a settled issue and should not be an item of this examination response to taxpayers protest the following constitutes the agenfs rebuttal to the org's protest numbered in same order as protest above first issue transfer of the personal_residence to the foundation a the referred to tax_court case is united_states tax_court v trustee-1 docket number and can be found atlndex of the administrative file the decision of the court was that additional individual federal_income_tax was owed by the foundation founder s for 20xx 20xx and 20xx based on an examination of their individual income_tax form_1040 there was no examination conducted of the org's form_990 and there was no decision entered as to the exempt status of the foundation at that time the tax_court case was the result of a form_1040 jndivlduallncome tax examination conducted by small_business self-employed sbse this division has no authority over the examination of exempt_organizations the conclusion of the tax_court and agreed to by all parties form rev department of the treasury- internal_revenue_service page form 886a i name of taxpayer org department of the treasury- internal r enw seni ce explanation of items schedule no or exhibit year period ended 20xx was that the donation of the home to the foundation did not meet the requirements of the law and as such no contribution is allowable as it pertains to the home b this section of the protest is referring to the personal_residence of the foundations founder s being sold in 20xx and statutes being barred for that sale this examination is not questioning the proper tax treatment of the sale of the property this examination is questioning whether or not the transfer of the personal_residence to the foundation on december 20xx resulted in a prohibitive transaction thus causing the revocation of the exempt status of the foundation the examination conclusion as stated above concludes that the prohibited_transaction does cause the revocation of the foundations exempt status and therefore is retroactive to that december 20xx date when sec_501 exemption is revoked the revocation is retroactive unless sec_7805 relief is warranted such relief will not be warranted if the organization omitted or misstated a material fact in seeking exemption or operated in a manner materially different from that originally represented sec_7805 relief is discussed in revproc_90_4 r b although a retroactively revoked organization is a taxable entity for the entire period for which the revocation is effective the charitable deductions of contributors to the organization are protected until public announcement of the revocation is made however an exception may be made if a contributor knew of the actual or imminent revocation or was responsible for or aware of the activities that resulted in the revocation see rev_proc c b big_number c the protest refers to tax_court case united_states tax_court v trustee-1 docket number and can be found at index of the administrative file and involves the internal_revenue_service examination of individual income_tax deducti ons it does not encompass the examination of the org the current examination is questioning whether or not the transfer of the personal_residence to the foundation on december 20xx resulted in a prohibitive transaction thus causing the revocation of the exempt status of the foundation the examinatjon conclusion as stated above concludes that the prohibited_transaction does cause th e revocation of the foundations exempt status and therefore is retroactive to that december 20xx date d the internal_revenue_service disagrees with the protests conclusion that the disallowance of the tax deduction for federal individual income_tax purposes is governing in the determination of inurement or private benefit this examination is questioning whether or not the transfer of the personal_residence to the foundation on december 20xx resulted in a prohibitive transaction thus causing the revocation of the exempt status of the foundation the examination conclusion as stated above concludes that the prohibited_transaction does cause the revocation of the foundations exempt status and therefore is retroactive to that december 20xx date the fact that internal_revenue_service income_tax examiners and the tax_court found that the donation of the home to the foundation did not meet the requirements of the law only supports the conclusion that the t nsaction was prohibitive e this examination has addressed two events that call into question the exempt status of the org the first event-occurred on december 20xx when the foundation trustees transferred a personal_residence to the foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees who the trustees are is not as important as the fact that both transactions involved disqualified persons and both transaction in and of themselves violate the prohibitions of sec_501 and sec_4941 resuhing in the revocation of the exempt status of the org f as stated in response to protest e above this examination has addressed two events that call into question the exempt status of the org the first event occurred on december 20xx when the form 886-a rev- depanment of the treasury - intemal revenue setvic e page form 886a i name of taxpayer org department of the t reuwy - internal rc -enue semce explanation of items schedule no or exhibit year period ended 20xx foundation trustees transferred a personal_residence to the foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees who the trustees are is not as important as the fact that both transactions involved disqualified persons and both transaction in and of themselves violate the prohibitions of internal_revenue_code sec_501 c and resulting in the revocation of the exempt status of the org second issue transfer of city land from the foundation to the disqualified persons a the internal_revenue_service also agrees with this statement b the internal_revenue_service also agrees with this statement c the essence of the inurement proscription is found in the language of internal_revenue_code section c which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application the goal of the inurement prohibition is to prevent siphoning off of an exempt organization's assets by insiders- those in control of the organization in this context control may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any time assets of the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will riot qualify or will cease to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption the irs contends that there were two violations of this inurement prohibition the first violation was on or about december 20xx when the foundations founder s ftrustee s transferred their personal_residence to the foundation and the second violation was ori or about december 20xx when the org transferred dollar_figure acres of land located in city state to the foundations founderftrustee s d the essence of the inurement proscription is found in the language of code sec_501 which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application the goal of the inurement prohibition is to prevent siphoning off of an exempt orgal ization's assets by insiders- those in control of the organization in this context contror may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any tim e assets of the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will not qualify or will cea e to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption form 886-a rev department of the treaeuty- internal_revenue_service page form 886a department of the t rea sury - intem2i revenue service explanation of items name oftaxpayer org schedule no or exhibit year period ended t2 20xx the irs contends that there were two violations of this prohibition the first violation was on or about december 20xx when the foundations founder s transferred their personal_residence to the foundation and the second violation vias on or about december 20xx when the org transferred dollar_figure acres of land located in city state to the foundations founder e the essence of the inurement proscription is found in the language of code sec_501 which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application the' goal of the inurement prohibition is to prevent siphoning off of an exempt organization's assets by insiders- those in control of the organization in this context control may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any time assets of the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will not qualify or will cease to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption the irs contends that there were two violations of this prohibition the first violation was on or about december 20xx when the foundations founder s transferred their personal_residence to the foundation and the second violation was on or about december 20xx when the org transferred dollar_figure acres of land located in city state to the foundations founder f the internal_revenue_service issue herein is whether the two transactions discussed in this examination_report result in in inurement to the org trustee s as disqualified persons and thus the disallowance of the foundations exempt status the determination of the sales_price of the land or its fair_market_value is not material to that conclusion and is therefore not discussed here g the referred to tax_court case is united_states tax_court v trustee-1 docket number and can be found at index of the administrative file the decision of the court was that additional individual federal_income_tax was owed by the foundation founder s for 20xx 20xx and 20xx based on an examination of their individual income_tax form_1040 there was no examination conducted of the org's form_990 and there was no decision entered as to the exempt status of the foundation at that time the tax_court case was the result of a form_1040 individual income_tax examination conducted by small_business self-employed sbse this division has no authority over the examination of exempt_organizations the conclusion of the tax_court and agreed to by all parties was that the donation of the home to the foundation did not meet the requirements of the law and as such no contribution is allowable as it pertains to the home the essence of the inurement proscription is found in the language of code sec_501 which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application h goal of the inurement prohibition is to prevent siphoning off of an exempt organization's assets by m sec_1ders- those in control of the organization in this context control may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any time assets of form 886-a rev deptu1dient of the treuwy- intemal revenue service page ------------------------ - fo 886a i name oftaxpayer org dqnrtment of the treasury- internal revenue sen-ice explanation of items schedule no or exhibit year period ended 20xx the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will not qualify or will cease to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption the irs contends that there were two violations of this prohibition the first violation was on or about december 20xx when the foundations founder s transferred their personal_residence to the foundation and the secand violation was on or about december 20xx when the org transferred dollar_figure acres of land located in city state to the foundations founder h this examination has addressed two events that call into question the exempt status of the org the first event oceurred on december 20xx when the foundation tru tees transferred a personal_residence to the foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees both of these transaction in and of themselves violate the prohibitions of sec_501 and sec_4941 resulting in the revocation of the exempt status of the org this examination has addressed two events that call into question the exempt status of the _ _ org the first event ocel irred on december 20xx when the foundation trustees transferred a - personal_residence to the foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees both of these transaction in and of themselves violate the prohibitions of sec_501 c and resulting in the revocation of the exempt status of the org this examination has addressed two events that call into question the exempt status of the org the first event occurred on december' 20xx when the foundation trustees transferred a personal_residence tothe foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees both of these transaction in and of themselves violate the prohibltioj is of sec_501 and resulting in the revocation of the exempt status of the org reference the response included under below both section and s are responded together the protest is responding to excise_tax tor self-dealing and as assessed upon the foundation's disqualified persons however this examination has addressed two events that can into question the exempt status of the org the first event occurred on december 20xx when the foundation trustees transferred a personal_residence to the foundation and the second event occurred on december 20xx when the foundation transferred city land to the foundation trustees the internal_revenue_service concedes that the second_tier_tax under internal_revenue_code sec_4941 does not apply to the foundation trustees disqualified_person s due to the fact that the error was corrected in the taxable_period the discussion of sec_4941 has been reserved for another report -form 886-a rcv department of the trcaswy- internal_revenue_service page forin 886a i name oftaxpayer org department of the ttttillry - internal re enue scn-ke explanation of items schedule no or exhibit year period ended 20xx sec_4941 taxes on self-dealing a initial taxes on self-dealer there is hereby imposed a tax on each act of self-dealing between a disqualified_person and a private_foundation the rate_of_tax shall be equal to percent of the amount_involved with respect to the act of self-dealing for each year or part thereof in the taxable_period the tax imposed by this paragraph shall be paid_by any disqualified_person other than a foundation_manager acting only as such who participates in the act of self-dealing in the case of a government_official as defined in sec_4946 c sec_4946 a tax shall be imposed by this paragraph only if such disqualified_person participates in the act of self-dealing knowing that it is such an act b additional taxes on self-dealer in any case in which an initial tax is imposed by subsection a on an act of self-dealing by a disqualified_person with a private_foundation and the act is not corrected within the taxable_period there is hereby imposed a tax equal to percent of the amount_involved the tax imposed by this paragraph shall be paid_by any disqualified_person other than a foundation_manager acting only as such who participated in the act of self-dealing i the_irs has determined that based upon the documentation presented by the foundation there has been no charitable activity conducted by the foundation for the five years prior to december 20xx the irs has further determined that the protest argument is an immaterial argument in that the requirements of sec_1 1lation sec_1_501_c_3_-1 which provides that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest since its inception this examination has determined that the org benefited a private interest since its inception due to the transfer of the trustee s private residence to the foundation j the irs disagrees with this statement in that funds may not have been exchanged between the foundation and the founder s ftrustee s the_ essence of the inurement proscription is found in the language of code sec_501 which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application the goal of the inurement prohibition is to prevent siphoning off of an exempt organization's assets by insiders- those in control of the organization in this context control may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any time assets of the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will not qualify or will cease to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption the irs contends that there were two violations of this prohibition the first violation was on or about december 20xx when the foundations founder s transferred their personal_residence to the foundation and the second violation was on or about december 20xx when the org transferred dollar_figure acres of land located in city state to the foundations founder form 886-a rev depattment of the t reaaury- iotemal revenue service page fo 886a name of taxpayer i org deputment of the treuury -internal re -enue sen-ice explanation of items schedule no or exhibit year period ended 20xx k the irs agrees that the proceeds of the sale of the city property were held in the foundations bank account on december 20xx the irs further accepts that this is evidence that this demonstrates that there was a correction_of_an_error as defined in code sec_4941 which allows for a disqualified_person to correct any disqualifying act within the same taxable_period without penalty however this is not an indication that there was not a violation of the prohibition of self-dealing when the personal_residence of the foundations founder was transferred to the foundation on december 20xx internal_revenue_code section sec_4941 d i a provides that any sale_or_exchange of property between a disqualified_person and a private_foundation is self-dealing as with most of the defined categories of self dealing sales or exchanges of property are flatly prohibited rather than being judged by an arm's-length standard or eligible for a de-minimus exception i the relative aspect ofreg d -2 a has to do with the transfer of the personal_residence to the foundation in 20xx thus causing the exempt status to be revoked at that date reg sec_4941 d -2 a provides that the transfer of property by a disqualified_person to a private_foundation is treated as a sale_or_exchange if the private_foundation assumes a mortgage or takes subject_to a mortgage that was placed on the property within the 0-year period ending on the date of the transfer of the property to the private_foundation the org accepted the personal_residence of trustee-1 on december 20xx this property was su bject to a mortgage which was assumed by the foundation thus causing reg sec_4941 d -2 a to be relevant thus violating internal_revenue_code section sec_4941 which provides that any sale_or_exchange of property between a disqualified_person and a private_foundation is self-dealing sec_1_501_c_3_-1 states in part that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals transfer of the personal_residence to the foundation the referred to tax_court case is united_states tax courtv trustee-1 docket number and can be found at index o of the administrative file the decision of the court was that additional individual federal_income_tax was owed by the foundation founder s for 20xx 20xx and 20xx based on an examination of their individual income_tax form_1040 there was no examination conducted of the org's form_990 and there was no decision entered a5 to the exempt status of the foundation at that time the tax_court case was the result of a form_1040 individual income_tax examination cond cted by small_business self-employed sbse this division has no authority overthe examination of exempt_organizations the conclusion of the tax_court and agreed to by all parties was that the donation of the home to the foundation did not meet the requirements of the law and as such no contribution is allowable as it pertains to the home the essence of the inurement proscription is found in the language of code sec_501 which provides that no part of a c organization's net_earnings can inure to the benefit of any private_shareholder_or_individual although this would clearly prohibit the distribution of dividends to those in control of the organization the inurement prohibition is much broader than that in application the goal of the inurement prohibition is to prevent siphoning off of an exempt organization's assets by insiders- those in control of the organization in this context controt may be direct as in the case of formal directors or indirect such as control_over others who are officers or directors any time assets of form 886-a rev department of the treaewy -intemal revenue service page fonn886a i name oftaxpayer org department of the treasury -internal revenue service explanation of items schedule no or exhibit year period ended 20xx the organization flow through to benefit the organization's insiders whether directly or directly inurement is an issue the inurement restriction is absolute an organization that violates this prohibition will not qualify or will cease to qualify for tax exemption regardless of whether it otherwise meets the appropriate statutory requirements for exemption the irs contends that there were two violations of this prohibition the first violation was on or about december 20xx when the foundations founder s transferred their personal_residence to the foundation and the second violation was on or about december 20xx when the orgtransferred dollar_figure acres of land located in city state to the foundations founder the examination conclusion as stated above concludes that the prohibited_transaction does cause the revocation of the foundations exempt status and therefore is retroactive to that december 20xx date the fact that internal_revenue_service income_tax examiners and the tax_court found that the donation of the home to the foundation did not meet the requirements of the law only supports the conclusion that the transaction was prohibitive when sec_501 exemption is revoked the revocation is retroactive unless sec_7805 relief is warranted such relief will not be warranted if the organization omitted or misstated a material fact in seeking exemption or operated in a manner materially different from that originally represented sec_7805 relief is-discussed in rev_proc r b although a retroactively revoked organization is a taxable entity for the entire period for which the revocation is effective the charitable deductions of contributors to the organization are protected until public announcement of the revocation is made however an exception may be made if a contributor knew of the actual or imminent revocation or was responsible for or aware of the activities that resulted in the revocation see revproc_82_39 1982_2_cb_759 conclusion based on the facts and circumstances the org does not qualify for exemption under sec_501 and should be revoked effective april o 20xx because the trustees of the foundation received a prohibited benefit know as inurement this inurement occurred in violation of sec_501 c and sec_1 c -1 d ii further based on the eo agent's analysis of the factors in sec_1_501_c_3_-1 revocation is appropriate please file us corporate_income_tax return form_1120 for the tax periods ending december 20xx december 20xx and all periods subsequent to these dates contributions to the organization are not deductible under sec_170 form 886-_aotev department of the treuury- laternal reveaue scnice page


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 fip b03 plr-112762-14 date date legend taxpayer bank a bank b date date date date date a b c d state partnership ----------------------------------------------------------- -------------------------------------------------- ------------------------ -------------------- ---------------------- ---------------------------- ---------------------- ---------------------- ----------------------------- --------------------------- ---------------- -------------- ---------------- -------------- -------------- --------------------------------------------------------------- plr-112762-14 ---------------------------------------------------------------------- llc llc llc --------------------------- ----------------------------------------------- -------------------------------------- dear -------------- this responds to a letter dated date submitted on behalf of taxpayer taxpayer requests a ruling under sec_856 of the internal_revenue_code code that patronage_dividends included in its gross_income under sec_1385 are excluded from its gross_income for purposes of sec_856 and c facts taxpayer elected to be treated as a real_estate_investment_trust reit for federal_income_tax purposes beginning with its taxable_year ended date taxpayer is a calendar_year taxpayer that uses an overall accrual_method of accounting taxpayer is a publicly traded reit whose primary business is to own manage acquire and dispose_of timberland properties taxpayer conducts substantially_all of its business through partnership a state limited_partnership which is currently disregarded for federal income purposes additionally partnership conducts significant activity through llc a state limited_liability_company which is also disregarded for federal_income_tax purposes almost entirely in connection with the acquisition of certain timberland llc and llc entered into a debt financing_arrangement with bank a bank b and various other lenders on date which included a first mortgage loan and a second mortgage loan bank a was the administrative agent and collateral agent for the first mortgage loan and bank b was the administrative agent and collateral agent for the second mortgage loan on date partnership and llc entered into an amended and restated credit agreement with bank a llc and other lenders bank a and llc served as co-lead lenders and bank a served as administrative agent the proceeds were used to pay off the amounts under the then existing first mortgage loan and second mortgage loan on date partnership and llc entered into a second amended and restated credit agreement with bank a and other lenders with bank a as the administrative agent the proceeds of which were used to pay off the outstanding balance of the plr-112762-14 amended and restated credit agreement and to partially fund the acquisition of additional timberland on date partnership and llc entered into the third amended and restated credit agreement for approximately dollar_figurea with bank a as the administrative agent and certain other lenders this agreement provides for borrowing consisting of a a dollar_figureb revolving credit facility b a dollar_figurec multi-draw term credit facility and c the remaining amount outstanding under the second amended and restated credit agreement of approximately dollar_figured bank a is a cooperative subject_to taxation under and is subject_to regulation by the farm credit administration taxpayer represents that it does not receive patronage_dividends under the third amended and restated credit agreement taxpayer intends to amend the third amended and restated credit agreement so that it may receive patronage_dividends from bank a patronage_dividends are generally paid either in cash or in both cash and equity taxpayer represents that with respect to the patronage_dividends it expects to receive each will be a patronage_dividend within the meaning of the term provided in sec_1388 taxpayer is required for federal_income_tax purposes under sec_1385 to include in gross_income all patronage_dividends it receives however for financial reporting purposes taxpayer represents that it will reduce its interest_expense by the amount of patronage_dividends received law analysis sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property and gain from the sale_or_other_disposition of stock securities and real_property other than property in which the corporation is a dealer sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by real_property gain from the sale_or_other_disposition of real_property other than property in which the corporation is a dealer dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income plr-112762-14 sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which - i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c sec_301 provides that in general except as otherwise provided in this chapter chapter of subtitle a of the code which chapter and subtitle include among other sections sec_301 sec_316 sec_317 sec_856 and sec_1388 a distribution_of_property as defined in sec_317 made by a corporation to a shareholder with respect to its stock shall be treated in the manner provided in sec_301 sec_301 provides in part that in the case of a distribution to which sec_301 applies that portion of the distribution which is a dividend as defined in sec_316 shall be included in gross_income sec_316 provides that for purposes of this subtitle subtitle a which subtitle as noted includes among other sections both sec_856 and sec_1388 the term dividend means any distribution_of_property made by a corporation to its shareholders-- out of its earnings_and_profits accumulated after date or out of its earnings_and_profits of the taxable_year computed as of the close of the taxable_year without diminution by reason of any distributions made during the taxable_year without regard to the amount of the earnings_and_profits at the time the distribution was made sec_316 provides in the flush language that except as otherwise provided in this subtitle every distribution is made out of earnings_and_profits to the extent thereof and from the most recently accumulated_earnings_and_profits the flush language provides further that to the extent that any distribution is under any provision of this subchapter subchapter_c of chapter of subtitle a of the code treated as a distribution_of_property to which sec_301 applies such distribution shall be treated as a distribution_of_property for purposes of this subsection sec_1388 provides that for purposes of subchapter_t the term patronage_dividend means an amount_paid to a patron by an organization to which part i of subchapter_t applies-- on the basis of quantity or value of business done with or for such patron plr-112762-14 under an obligation of such organization to pay such amount which obligation existed before the organization received the amount so paid and which is determined by reference to the net_earnings of the organization from business done with or for its patrons the flush language of sec_1388 provides that such term does not include any amount_paid to a patron to the extent that a such amount is out of earnings other than from business done with or for patrons or b such amount is out of earnings from business done with or for other patrons to whom no amounts are paid or to whom smaller amounts are paid with respect to substantially identical transactions the flush language provides further that for purposes of paragraph net_earnings shall not be reduced by amounts paid during the year as dividends on capital stock or other proprietary capital interests of the organization to the extent that the articles of incorporation or bylaws of such organization or other contract with patrons provide that such dividends are in addition to amounts otherwise payable to patrons which are derived from business done with or for patrons during the taxable_year sec_1385 provides in part that except as otherwise provided each person shall include in gross_income the amount of any patronage_dividend which is paid in money a qualified_written_notice_of_allocation or other_property except a nonqualified_written_notice_of_allocation and which is received by him during the taxable_year from an organization described in sec_1381 the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business patronage_dividends paid_by a subchapter_t cooperative are a return of earnings to its cooperative patrons based on the amount of business that the patron transacts with the cooperative the patronage_dividends paid_by a subchapter_t financing cooperative effectively reduce the costs that its patrons incur to borrow funds from the cooperative the amounts paid_by banks a represent earnings that the cooperative is able to refund to taxpayer based on the average amounts that taxpayer borrowed from the banks during the prior year thus while taxpayer must include patronage_dividend income in its gross_income under sec_1385 the patronage_dividends taxpayer receives effectively reduce taxpayer’s interest_expense paid during the prior year under the facts of the instant case exclusion of these patronage_dividends from gross plr-112762-14 income for purposes of sec_856 and c does not interfere with congressional policy objectives in enacting the income tests under those provisions conclusion accordingly pursuant to sec_856 we conclude that the patronage_dividends included in taxpayer's gross_income under sec_1385 are excluded from its gross_income for purposes of sec_856 and c this ruling’s application is limited to the facts representations and code sections cited herein 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 in particular no opinion is expressed with regard to whether taxpayer otherwise qualifies as a reit under subchapter_m of the code 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 copies of this letter are being sent to your authorized representatives 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 julanne allen assistant to the branch chief branch associate chief_counsel financial institutions products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-104955-03 date date legend x a d1 year year year year state dear this letter responds to your letter dated date written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code plr-104955-03 facts according to the information submitted x was incorporated under state law on d1 x's shareholder a intended for x to be an s_corporation x's attorneys prepared a form_2553 election by a small_business_corporation for x with an effective date of d1 however due to a clerical_error the form_2553 was not filed timely 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 generally 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 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 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 an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or 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 the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely s election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 within days following the date of this letter then such election will be treated as timely made this ruling is conditioned upon x filing form_1120s u s income_tax return for an s_corporation for year year year and year with the appropriate service_center within days following the date of this letter a copy of this letter should be attached to the form_2553 filed with the service_center except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes plr-104955-03 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x 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 james a quinn senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c o41 date novy contact person significant index number contact number t -b2 dear applicant this is in reply to your ruling_request of date requesting approval of a set-aside of your income under the suitability test of sec_4942 of the internal_revenue_code and sec_53 a - b of the foundation and similar excise_taxes regulations you f are exempt from federal_income_tax under sec_501 of the code and are a private you propose to set_aside x dollars of your income pursuant to foundation under sec_509 of the code your specific project for the income is to construct a building to be your sec_4942 i of the code updated community center offering educational health and recreational benefits to the public you represent that all of the amounts to be set_aside for this specific project will be paid out for this project within months from the time when your first amount of income is set_aside you indicate that the cost of this project can better be accomplished by the use of a set-aside of your income rather than by immediate payment of your funds because this set-aside will be paid at such time that the construction of the building is accomplished sec_501 of nonprofit_organizations organized and operated exclusively for charitable and or the other exempt purposes stated in that section the exemption from federal_income_tax the code provides for of sec_509 of the code describes organizations exempt from federal_income_tax under sec_501 of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code sec_4942 of the code imposes excise_tax on any private_foundation that does not expend qualifying distributions for exempt purposes at least equal to its distributable_amount for its tax_year sec_4942 of the code provides that in general a qualifying_distribution is any amount including paid to accomplish or to acquire an asset used directly in reasonable and necessary administrative expenses carrying on one or more of the purposes described in sec_170 of the code which includes charitable purposes sec_4942 of the code provides that an amount of income that is set_aside for a specific project within one or more purposes of sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 g b of the code oo sec_4942 of the code provides in pertinent part that an amount set_aside for a specific project may be treated as at the time of the set-aside the private_foundation establishes to the satisfaction of the secretary that the amount set_aside will be paid for the specific project within five years and that the suitability test for a set-aside under sec_4942 b i of the code is met a qualifying_distribution if sec_4942 g b i of the code provides a suitability test in which the private_foundation at the time of the set-aside must establish to the satisfaction of the secretary that the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds sec_53_4942_a_-3 b of the foundation and similar excise_taxes regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 or sec_170 of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the requirements of sec_4942 of the code are met the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 of the regulations sec_53_4942_a_-3 of the regulations provides that its suitability test for a set-aside is met if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made the regulation cites as an example of a suitable project a plan to erect a building to house the direct charitable educational or similar exempt_activities of the foundation such as a museum building even if the exact location and architectural plans have not been finalized sec_53_4942_a_-3 i of the regulations provides that a private_foundation must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside you have timely sought approval of your set-aside of income in advance of the time when the amounts of income are to be set_aside as required by sec_4942 b i of the code and sec_53 a -3 b i of the regulations your set-aside of income for construction of your community center building will be for a specific project within the charitable purposes of sec_170 b of the code as required by sec_4942 g a of the code and sec_53_4942_a_-3 of the regulations you represent that your amounts of income to be set_aside for this specific project will be paid out for this project within months from the time when the first amount is set_aside as required by sec_4942 g b of the code and sec_53_4942_a_-3 b of the regulations your project is better accomplished by this set-aside of income rather than by immediate payment under the suitability test of sec_4942 b i of the code and sec_53_4942_a_-3 of the regulations because this set-aside will provide adequate time to construct the building thus your specific project of building a community center meets the requirements for a set-aside of income under the suitability test of sec_4942 i of the code and section sec_3 a -3 b of the regulations accordingly we rule that your income of x dollars to be set_aside for this building project wiil be a the code and sec_53_4942_a_-3 of the qualifying_distribution under sec_4942 b i of regulations for your tax_year ending on date dollar_figure sec_53_4942_a_-3 b of the regulations provides that any set-aside approved by the internal_revenue_service must be evidenced by the entry of a dollar amount in your books_and_records as a pledge or obligation to be paid at further the amount of the set-aside must be taken into account in determining your minimum_investment_return see sec_53_4942_a_-2 of the regulations and any income attributable to a set-aside must be taken into account in computing your adjusted_net_income see sec_53_4942_a_-2 of the regulations a future date or dates because this ruling letter could help to resolve any questions please keep it in your permanent records this ruling letter is directed only to the organization that requested it provides that it may not be used or cited as precedent sec_6110 of the code sincerely e we ee joseph chasin acting manager exempt_organizations technical group


number release date id office uilc cca-724164-09 ---------------- from -------------- sent friday date to ------------------------------------------------ cc ---------------------------------------- subject façade easement made in --------- and i just worked on a memorandum in connection with a motion for summary_judgment in a docketed_case relating to a facade easement donated in the second half of litigated facade easement case impacted by the ppa the rules for facade easements subject_to the ppa are significantly different from the rules for facade easements under prior_law and these ppa rules are challenging to navigate particularly because of a number of different effective dates i believe it is the first i suggest some sort of new training for agents working facade easement cases covered by the ppa would be happy to help out i


t c memo united_states tax_court thomas c sandoval jr petitioner v commissioner of internal revenue respondent docket no filed date thomas c sandoval jr pro_se brlizabeth owen for respondent memorandum findings_of_fact and opinion foley judge by notice dated date respondent determined a dollar_figure deficiency and a dollar_figure sec_6662 a penalty relating to petitioner’s federal income taxes 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 after concessions the remaining issues are whether petitioner may deduct certain expenses relating to his residential real_estate has net operating losses to offset a portion of his taxable_income is allowed a depreciation deduction for property purportedly used in his trade_or_business and is liable for a sec_6662 penalty relating to negligence findings_of_fact petitioner resided in san antonio texas at the time he filed his petition during the year in issue petitioner was married to bobbie j sandoval was the sole_proprietor of allied electric and air conditioning co allied electric an electric and air conditioning business and was the owner of real_estate in san antonio located pincite seabrook drive seabrook indiana indiana and a duplex pincite and el monte boulevard el monte seabrook indiana and el monte were purchased in and respectively on petitioner’s federal_income_tax return received by respondent on date he omitted his rental activities incorrectly claimed single filing_status and did not review the - - return for accuracy dan mitchell a certified_public_accountant prepared petitioner’s tax_return respondent used a bank deposit analysis to reconstruct petitioner’s income relating to allied electric disallowed dollar_figure of schedule c profit or loss from business deductions relating to allied electric and determined a deficiency in petitioner’s taxes and a sec_6662 accuracy-related_penalty opinion i petitioner’s real_estate activities we sustain respondent’s determinations relating to petitioner’s residential properties petitioner had the burden_of_proof ’ yet presented unreliable documentary_evidence and contradictory testimony rule a a el monte el monte was not held_for_the_production_of_income armando pineda occupied the property for part of while petitioner’s daughter occupied it for the remainder of the year there is no credible_evidence 1ie rent payments lease agreements canceled checks general ledgers etc establishing that petitioner rented the property to those individuals depreciation and maintenance_expenses relating to a residence ‘ sec_7491 is not applicable to this case q4e- occupied on a rent-free basis are not deductible prince 35_tc_974 b seabrook and indiana in determining the allocation_of_basis between land and improvements for seabrook and indiana respondent relied on city government tax_assessment records petitioner complains that respondent should have used tax_assessment records for the years in which each property was purchased yet presented neither those records nor any other credible_evidence to rebut respondent’s determinations petitioner contends that he is entitled to a 15-year recovery_period for both seabrook and indiana respondent contends and we agree that the appropriate recovery_period for seabrook placed_in_service in is years 1ie the midpoint of the class_life asset depreciation system’s asset_depreciation_range which is years see 108_tc_384 sec_1 a - b income_tax regs revproc_77_10 1977_1_cb_548 the recovery_period for indiana placed_in_service in i sec_27 years sec_168 we also sustain respondent’s determination that petitioner received dollar_figure rental income relating to seabrook - - it allied electric business deductions a net_operating_loss carryforwards petitioner contends but failed to establish that his income is offset by net operating losses see jones v commissioner t cc holding that a taxpayer must prove the amount of the net_operating_loss carryforward deductions claimed and that his gross_income in other years did not offset those losses revd and remanded on other grounds 259_f2d_300 5th cir petitioner’s documentary_evidence consisted of his tax returns and a worksheet with figures differing from those on the returns see 71_tc_633 holding that tax returns alone do not establish a taxpayer’s entitlement to claimed deductions respondent concedes petitioner had eligible net operating losses of dollar_figure dollar_figure dollar_figure and dollar_figure in and respectively these losses were absorbed by income in carryback and carryover years prior to see sec_172 stating that net operating losses must be carried back years and the remaining portion carried forward years accordingly petitioner does not have a net_operating_loss carryforward in b additional business depreciation petitioner failed to establish that the lincoln town car was used for business purposes we conclude however that the -- - freuhauf vans trailer and the canopy were used in petitioner’s business accordingly depreciation_deductions relating to these items are allowed tiil negligence sec_6662 and b impose an accuracy-related_penalty on the portion of an underpayment_of_tax attributable to negligence petitioner contends that no tax_deficiency exists and blames his accountant for errors and omissions on his tax returns we are unpersuaded petitioner overstated his deductions underreported income failed to report his rental activities filed as single instead of married failed to review the return and had no reasonable_cause for any of these errors petitioner did not exercise due care in the filing of his return and thus is liable for the sec_6662 penalty contentions we have not addressed are moot irrelevant or meritless to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c date o f f ic e o f c h ief c o u n sel uil cor-128216-01 number info release date dear this letter is in response to your request dated date for further information regarding the recently published temporary and proposed_regulations concerning electronic payee statements specifically in your letter you pose a series of four questions generally relating to security requirements in the current regulations and those that might be imposed at a later date we will attempt to address your questions below the electronic payee statements regulations are intended to facilitate the electronic furnishing of payee statements to individuals who elect to receive such information electronically from a website rather than receiving a paper copy of the statement the regulations are very specific in that they apply only to the forms w-2 forms 1098-e and forms 1098-t generally the payee must opt into the program and then only after consent has been obtained from the payee and the payee has demonstrated the ability to access the website with the proper software can the payor meet the furnishing requirement of the code by posting the statement to a website in the preamble to the regulations both internal_revenue_service irs and the department of treasury treasury request comments on the whether the final regulations should prescribe standards to ensure confidentiality of taxpayer information posted on a website as the preamble states u ntil final regulations are issued the treasury_department and the irs expect that furnishers will take reasonable precautions to ensure confidentiality of taxpayer information at this time the service is planning on holding a public hearing on the temporary and proposed_regulations on date in addition we have received additional written comments regarding this regulation as the preamble states the service and treasury expect that furnishers will take whatever precautions they feel are necessary to protect cor-128216-01 the confidentiality of taxpayer information as such no specific security requirements have been required by temporary and proposed_regulations no decisions have been made with regard to whether the service and treasury will require specific security requirements in the interests of protecting confidential taxpayer information as of this date we encourage you to submit any written comments you may have to the service by mailing them to the address provided in the notice of proposed rulemaking published on date along with these regulations if you have any questions please feel free to contact either myself or laura c nash at not a toll free number sincerely james c gibbons chief branch administrative provisions judicial practice division