internal_revenue_service number release date index number 468a ----------------------- --------------------------- ------------------------------------- ----------------------------- -------------------------- - department of the treasury washington dc person to contact ----------------------------------------------- telephone number --------------------- refer reply to cc psi b06 - plr-114188-04 date date ---------------------------------------------------- ---------------------------------------------- re legend taxpayer --------------------------------------- -------------------------------- --------------------------------------------------- ------------------------------------ ---------------------------------- --------------------------------------------------------- --------------------------------------------- ------------------------------------------- -------- -------------------------------------------- ------------------------------------------- parent t d company ------------------------------------------------------------- plant location method commission fund state law dear ------------ this letter responds to your request on behalf of taxpayer dated -------------------- -------------------------------------------------------------------------------------------------------------------- for a revised schedule of ruling amounts pursuant to sec_1_468a-3 of the income_tax regulations schedules of ruling amounts were previously issued with regard to the plant on ----------------------- and ----------------------- ownership of plant was transferred to taxpayer in the context of a tax-free reorganization under sec_351 of the internal_revenue_code the service ruled on the tax consequences of that transfer on taxpayer parent and the fund by letter dated ------------------ the service also concluded that pursuant to sec_1_468a-6 taxpayer must request a revised plr-114188-04 schedule of ruling amounts for any_tax year subsequent to the tax_year in which the plant is transferred thus taxpayer seeks a revised schedule of ruling amounts information was submitted pursuant to ' 468a-3 h taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is included in the consolidated_income_tax_return of parent along with inter alia t d company taxpayer is engaged in the generation of electricity in state and is under the regulatory jurisdiction of commission parent owns more than ----------- --------------------------------------------------------------------------------------------------------------------- -----------------------------------taxpayer has a direct ownership_interest in the plant of -------- percent as a tenant in common the plant is situated at location plant’s operating license expires in ------- the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method in -------------- the state enacted law requiring utility companies in state ----------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- in addition beginning on ------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------certain costs incurred or to be incurred by utility companies owning generation assets prior to the effective date of law including the costs of --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------retail electric customers in state remit their payments for electricity to t d company ---------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------ inclusion of these amounts in the taxpayer’s rate base for purposes of sec_468a in ------------------- effective ---------------------- commission authorized the annual collection of nuclear decommissioning costs related to taxpayer’s interest in plant in the amount of dollar_figure------------for taxable years ------- through ------- based on a site-specific decommissioning study commission estimated the base cost of decommissioning taxpayer’s interest in plant is owned by a partnership which is owned by limited-liability companies llcs that are wholly-owned by taxpayer taxpayer represents that the partnership and the llcs are disregarded for federal tax purposes and that taxpayer is therefore treated as owning the percentage of plant owned by these disregarded entities plr-114188-04 taxpayer’s interest in plant using method as dollar_figure------------------in ------- dollars using an escalation rate of -------percent commission estimated the total future costs of decommissioning taxpayer’s interest in plant as dollar_figure-----------------in future dollars commission estimated that the assets in the fund would earn an average rate of -------- percent from --------through ------- --------percent from ------- through -------- and ------------- ---------------------------------------------------------------------------------------------------------from ----- ------- through -------- the estimated year in which plant will no longer be included in the rate base ------------------------------------------------------------------------------------------------------- ---------------------------------is ------- the estimated year in which substantial decommissioning costs will first be incurred is ------- the funding_period for the plant extends from ------- through ------- and the level_funding limitation period for the plant extends from ------- through ------- the estimated period for which the fund will be in effect is --- years ------- through ------- the estimated_useful_life of the plant is --- years ------- through ------- thus the taxpayer has calculated its qualifying percentage to be ----- percent payments made to a qualified decommissioning fund however ' 468a b limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that a taxpayer may elect to deduct the amount of sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer plr-114188-04 as defined under ' 468a-1 b of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-1 provides that the term qualifying interest means a leasehold interest in any portion of a nuclear power plant if a the holder of the leasehold interest is subject_to the jurisdiction of a public_utility commission with respect to such portion of the nuclear power plant b the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the nuclear power plant and c no other person establishes a nuclear decommissioning fund with respect to such portion of the nuclear power plant sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under ' 468a-3 a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under ' 468a-3 b the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total plr-114188-04 estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under ' 468a-3 d the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base plr-114188-04 sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3 h the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in ' 468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under ' 468a-1 b of the regulations commission has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by ' 468a-3 g of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under ' 468a-3 d of the regulations taxpayer has determined that pursuant to ' 468a-3 d of the regulations the qualifying percentage is ----- percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of 468a-3 a and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and plr-114188-04 determinations used by commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling applicable to the fund as set forth under ' 468a- b of the regulations taxpayer has calculated its share of the total decommissioning costs as required by ' 468a- f of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of ' 468a of the code approved schedule of ruling amounts for taxable years ------- through ------- year ruling_amount ------------------------------------- --------------------- - approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in ' 468a-3 i iii occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of ' 468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of plr-114188-04 the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to ' 468a-7 a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ----------------------------- ---------------------------------- ------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no -------------- telephone number ---------------------- refer reply to cc psi plr-112163-14 date date legend x trust --------------------------------------------------------------------------------------------- ------------------------------ --------------------------------------------------------------------------------------------- ----------------------- shareholder --------------------------------------------------------------------------------------------- ----------------------- state -------------- d1 d2 d3 d4 d5 -------------------------- -------------------- ----------------- ----------------- -------------------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code code plr-112163-14 facts x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d1 on d2 shareholder transferred all of his shares of x stock to trust but was treated as the owner of the x stock under the code shareholder died on d3 and on d4 trust was no longer a permitted shareholder therefore x’s s_corporation_election terminated on d4 trust transferred all of its shares of x stock to permitted shareholders on d5 x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x further represents that x and its shareholders have filed consistently with the treatment of x as an s_corporation since d1 x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a_trust all of which is treated under subpart e part i subchapter_j chapter of the internal_revenue_code as owned by an individual whether or not the grantor who is a citizen or resident_of_the_united_states a qualified_subpart_e_trust is a permitted shareholder sec_1361 provides that a_trust that is a qualified_subpart_e_trust immediately before the death of the deemed owner that continues in existence after such death is a permitted shareholder but only for the two-year period beginning on the day of the deemed owner’s death plr-112163-14 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken a so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation will be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides in relevant part that for purposes of sec_1_1362-4 the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation or was not part of a plan to terminate the election or the fact that the terminating event or circumstance took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event or circumstance tends to establish that the termination was inadvertent sec_1_1362-4 provides in part that the commissioner may require any adjustments that are appropriate in general the adjustments should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on d4 we also conclude that the circumstances resulting in the termination were inadvertent within the meaning of sec_1362 accordingly under sec_1362 x will be treated as an s_corporation from d4 and thereafter provided x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 plr-112163-14 except as specifically ruled above we express no opinion concerning the federal tax consequences of the facts described above under any other provisions of the code specifically we express no opinion regarding x’s eligibility to be an s_corporation this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative sincerely richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar ce doh uniform issue list set ep rats w s legend taxpayer a city e state f amount d ira x dear this is in response to your letter dated date as supplemented by correspondence received by the internal_revenue_service on date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a maintains ira x which is a qualified_individual retirement arrangement ira taxpayer a who is represented to be an individual who has never been the owner of a home including but not limited to a detached unit and a condominium unit withdrew amount d fromira xon taxpayer a had entered into a regional sales contract to purchase real_estate located _ to purchase a home prior to - in city e state f been a first-time_homebuyer if the contract had been consummated taxpayer a would have the purchase failed when the seller eventually rejected taxpayer a's offer taxpayer a redeposited amount d into ira x on days after the date of his withdrawal from ira x which date was approximately in date the internal_revenue_service service notified taxpayer a that he owed additional taxes due to the ira withdrawal based on the facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount d because the failure to waive such requirement would be contrary to the internal_revenue_code based on the facts in this case code sec_408 sets down in general the rules governing iras sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - the entire amount received including money and any other_property is paid into i an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includibie in gross_income because of the application of sec_408 code sec_408 provides that paragraph d shall not apply to any amount to the extent such amount is required to be distributed under subsection a sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service wili consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred sec_72 of the code provides in short for the imposition of an additional percent income_tax on the taxable_portion of a distribution received from a qualified_retirement_plan including an ira prior to the date the employee ira holder attains age a sec_72 of the code provides that certain distributions from iras for first home purchases may not be subject_to the percent additional income_tax under sec_72 on early distributions if the distribution from an individual_retirement_plan is a qualified_first-time_homebuyer_distribution as that term is defined sec_72 sec_72 provides in general that a qualified_first-time_homebuyer_distribution means any distribution received by an individual to the extent such payment or distribution is used by such individual before the close of the day after the day on which such payment or distribution is received to pay qualified_acquisition_costs with respect to a principal_residence of among others a first-time_homebuyer who is such individual sec_72 of the code provides a special rule where a failure to meet the requirements of subparagraph a of sec_72 is due solely to a delay in acquisition or cancellation of the purchase or construction of the residence n such case the amount of a distribution from an individual_retirement_account may be contributed to an individual_retirement_plan as provided in sec_408 by substituting day for day in such section the information presented by you indicates that you withdrew the funds from ira x in order to purchase a home if the purchase had been consummated you would have been a first-time homeowner after the collapse of the real_estate negotiations your contract was cancelled and you then re-deposited amount d into ira x approximately days after the initial distribution from ira x as noted above code sec_72 provides that the general 60-day rollover period applicable to distributions received from iras is extended to days with respect to a distribution received from an ira for the purpose of purchasing a home if the purchase is not consummated and if the purchaser qualifies as a first time homeowner in this case taxpayer a has asserted that he has never been a homeowner and that he withdrew funds from his ira to become a first-time homeowner his purchase contract was cancelled and approximately days after he received his ira distribution he contributed the amount of his ira distribution into an ira pursuant to code sec_72 taxpayer a's ira contribution was timely therefore the service concludes that the relief requested under sec_408 of the code and revproc_2003_16 2003_4_irb_359 date is not necessary because the facts in this case indicate that your contribution to ira x on date was before the expiration of the day period permitted under sec_408 as extended by sec_72 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at lease address all correspondence to se t ep ra t3 sincerely yours gun vl frances v sloan managér employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n form tax years contact person telephone number identification_number employer_identification_number number release date se t eo ra t date date uil numbers dollar_figure dear ------------- this letter constitutes a final adverse_ruling with respect to your claim of exemption from federal income_taxation under sec_501 of the internal_revenue_code we make our ruling for the following reason s in sec_501 of the code part of your net_earnings has inured to the benefit of private shareholders or individuals more than an insubstantial part of your activities furthers private purposes rather than purposes described in sec_501 private_foundation because you failed to establish that you meet the requirements under sec_509 b and c of the code the information that we have attached shows that your primary publicly_supported_organization uses the same address as your trustee donors may not deduct contributions to your organization under sec_170 of the code the code and the regulations issued thereunder require that you file federal_income_tax returns based upon the financial information that you furnished you should file returns on the form and for the tax years indicated above within days from the date of this letter unless you request and are granted an extension of time to file the returns you should attach a copy of this letter to the returns you file questions concerning the filing of returns should be directed to the ohio tax exempt and government entities te_ge office pincite-5500 a toll free number if you decide to contest this ruling under the declaratory_judgment provisions of sec_7428 of the code you must initiate a suit in the united_states tax_court the united_states court of you have failed to establish that you are organized and operated exclusively for purposes described we also rule that even if you did qualify under sec_501 of the code you would be a federal claims or the district_court of the united_states for the district of columbia before the 91st day after the date that we mailed this ruling to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment the filing of a declaratory_judgment suit under sec_7428 does not stay the processing of income_tax returns and assessment of any taxes in accordance with sec_6104 of the code we will notify the appropriate state officials of this action this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions concerning the reasons for this ruling please contact the person whose name and telephone number appear in the heading of this letter enclosure notice martha sullivan director exempt_organizations bill brockner sincerely


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n tax years contact person contact number identification_number form required to be filed employer_identification_number number release date date date uil dear ------------- this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in sec_501 on date we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest although you did not file a written protest within that time period we recently gave you an extension of time to file a written protest and right to request a conference by date which was further orally extended to date since we have not received a written protest to date the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file file the returns in accordance with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter lois g lerner director exempt_organizations rulings agreements sincerely informa department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i si o n id number contact person contact number employer_identification_number date date uil legend m n o newspaper a newspaper b newspaper c newspaper d dear ------------- we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below and in response to no you stated see copy of articles of incorporation attached however no such articles were attached only the constitution and by-laws of n your by-laws and the description of your activities indicate that you operate a private school located in o in response to question 9a on schedule b of your exemption application you stated that you were formed or substantially expanded at the time of public school desegregation in o in response to question you stated that you had been determined by a state or federal administrative agency or judicial body to be racially discriminatory in you were recognized as tax- exempt under sec_501 of the code effective date your tax-exempt status was revoked because you failed to show that you operate in a racially nondiscriminatory manner and you failed to meet the requirements of revproc_75_50 1975_2_cb_587 in your exemption application item no you stated that you were incorporated in on date you revised your bylaws to include a statement of your facially nondiscriminatory policy a statement of your nondiscriminatory policy appears in your student handbook in one of your brochures and in a brochure for your counseling services that you submitted with your application you have enclosed copies of notices of your nondiscriminatory policy and advertisements that include statements of such policy that have been published in the date issue of a the date and date issues of b and the march and issues of c you have also submitted copies of other notices and advertisements appearing in various newspapers over a period of years including a notice published in the date issue of d during more than years of operation you have not enrolled any african-american students nor have you employed any african-american faculty or administrators in a letter dated date you stated that during the school year an african-american student expressed interest in attending your school but chose not to attend in your may letter you stated that you have not established a scholarship program for students but the idea has been and will be considered you described your outreach efforts including a community appreciation reception in date and a trip to the past reception in date most recently you held the m retired teachers luncheon on date all community members were invited to these events in your may letter you described students’ involvement in two well-known charitable organizations these programs involve students from other schools and other communities tax of organizations organized and operated exclusively for educational_purposes sec_1_501_c_3_-1 of the income_tax regulations provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt have a racially_nondiscriminatory_policy_as_to_students does not qualify for exemption from federal_income_tax under sec_501 of the code it defines a racially nondiscriminatory policy as meaning that the school admits the students of any race to all the rights privileges programs and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administration of its educational policies admissions policies scholarship and loan programs and athletic and other school- administered programs requirements for determining whether private_schools that are applying for recognition of exemption from federal_income_tax under sec_501 of the code or are presently recognized as exempt from tax have racially nondiscriminatory policies as to students section dollar_figure provides that a school must show affirmatively both that it has adopted a racially_nondiscriminatory_policy_as_to_students that is made known to the general_public and that since the adoption of that policy the school has operated in accordance therewith sec_4 0329c provides in part that whether a particular school follows a racially nondiscriminatory policy will revrul_71_447 1971_2_cb_230 provides that a private school which does not sec_501 of the code provides in part for the exemption from federal income revproc_75_50 supra sets for the guidelines and recordkeeping be determined on the basis of the facts and circumstances of each case in 330_fsupp_1150 d d c aff’d sub nom 404_us_997 and in the revised injunction orders issued on may and date the internal_revenue_service is prohibited from according and from continuing the tax-exempt status now enjoyed by all mississippi private_schools or the organizations that operate them which have in the past been determined in adversary or administrative proceedings to be racially discriminatory or were established or expanded at or about the time the public school districts in which they are located or which they serve were desegregating and which cannot demonstrate that they do not racially discriminate in admissions employment scholarships loan programs athletics and extra-curricular programs the existence of conditions set forth in paragraph herein raises an inference of present discrimination against blacks such inference may be overcome by evidence which clearly and convincingly reveals objective acts and declarations establishing that such is not proximately caused by such school’s policies and practices such evidence might include but is not limited to proof of active and vigorous recruitment programs to secure black students or teachers including students’ grants in aid or proof of continued meaningful public advertisements stressing the school’s open admissions policy or proof of meaningful communication between the school and black groups and black leaders within the community concerning the school’s nondiscrimination policies and any other similar evidence calculated to show that the doors of the private school and all facilities and programs therein are indeed open to students or teachers of both the black and white races upon the same standard of admission or employment in 478_fsupp_107 d d c aff’d d c cir date cert_denied 450_us_944 the court held that private_schools administering racially discriminatory admissions policies are excluded from tax-exempt status under sec_501 of the code the court further held that the foundation had failed to meet is burden of establishing its entitlement to exemption under sec_501 because the foundation’s record was completely devoid of evidence that it was administering a nondiscriminatory admissions policy the court also stated that the inference that the plaintiff administered a racially discriminatory policy may be drawn from the circumstances surrounding the school’s establishment similar inferences as to the existence of a racially discriminatory policy based on facts surrounding a school’s establishment and lack of minority enrollment have been drawn by other courts see eg 382_fsupp_921 n d miss on remand from the supreme court 413_us_455 and 425_fsupp_528 e d la schools were racially discriminatory the courts held that a prima facie case of racial discrimination arises from proof 9a that the schools’ existence began close upon the heels of in norwood v harrison and in brumfield v dodd the courts analyzed whether private in 94_tc_284 the tax_court held that a in 461_us_574 the supreme court found the massive desegregation of public schools within its locale and b that no blacks are or have been in attendance as students and none is or has ever been employed as a teacher or administrator at the private school the actual enrollment of one african-american student was deemed not determinative in the case of west end academy which was addressed by the court in brumfield v dodd supra the enrollment of one african-american students is not enough to rebut the inference of discrimination that petitioner a nonprofit private school that prescribes and enforces racially discriminatory admissions standards on the basis of religious doctrine did not qualify as a tax-exempt_organization under sec_501 of the code the court held that racially discriminatory private_schools violate a fundamental public policy and cannot be viewed as conferring a public benefit within the meaning of common_law standards of charity and congressional intent underlying sec_501 private school failed to show that it operated in good_faith in accordance with a nondiscriminatory policy toward black students the school was formed at the time of desegregation of the public schools and never enrolled a black student or employed a black teacher the school and its students participate in some educational and vocational programs and other school-sponsored activities that directly involved blacks the court noted community activities is unavoidable by all but the most reclusive or isolated groups petitioner’s burden is not met by showing that it interacts with outsiders the relevant criteria deal with restrictions on those who may become insiders ie students at the school the court concluded that the school did not qualify for exemption under sec_501 of the code all facts and circumstances must be considered in determining whether a private school has shown that it has overcome an inference of racial discrimination relevant factors include the following actual enrollment of african-american students active and vigorous recruitment of african-american students and teachers financial assistance for african-american students adoption of a policy of racial nondiscrimination effective communication of such policy to members of the african-american community including publication of the policy meaningful contact with members of the african-american community and public disavowal or repudiation of previous statements that are inconsistent with a policy of nondiscrimination the public school district in which you are located and operated for a lengthy period of time without enrolling any african-american students or employing any african-american faculty or administrators furthermore you operated for a substantial period of time without the adoption or publication of a facially nondiscriminatory policy the foregoing information raises an inference of present discrimination against blacks as set forth in the above cited court decisions the information submitted indicates that you were formed at the time of desegregation of in today’s world interaction with persons of another race in interscholastic and in order to be exempt from federal_income_tax a private school subject_to an inference of discrimination must provide clean and convincing evidence that it now operates in a good_faith racially nondiscriminatory manner furthermore such a school must provide persuasive evidence that the absence of black enrollment is not attributable to the continuation of the school’s past policies mere adoption of a nondiscriminatory policy and publication of such a policy is insufficient for such a school to demonstrate that it is operating in a bona_fide nondiscriminatory manner in accordance with revproc_75_50 supra as noted above on date you revised your bylaws to include a statement of your racially nondiscriminatory policy a statement of your nondiscriminatory policy appears in your student handbook and brochure and your brochure for counseling services you have also submitted copies of notices of your nondiscriminatory policy and statements of such policy appearing in various newspapers over a period of years however the information submitted contains no evidence of actions such as active and vigorous recruitment of african-american students and teachers financial assistance for african-american students or non-going communication with members of the african-american community we acknowledge that you have taken some positive steps in reaching out to the african-american community such as the receptions mentioned previously nevertheless the facts and circumstances do not show that you have made an intensive and comprehensive effort at outreach directed specifically to the african-american community which could possibly result in the enrollment of black students and current employment of black teachers and administrators like the school described in calhoun academy v commissioner supra your interaction with black persons in the community is insufficient to demonstrate that you operate in a bona_fide racially nondiscriminatory manner with respect to the enrollment of students and hiring of faculty and administrators demonstrate that you have taken sufficient steps to overcome the inference of discrimination set forth in the above mentioned court cases thus you have failed to establish that you operate in a bona_fide racially nondiscriminatory manner c of the code and thus you do not qualify for recognition of exemption as an organization described in sec_501 you must file federal_income_tax returns you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements revenue service as a failure to exhaust available administrative remedies sec_7428 all of the pertinent facts and circumstances lead us to conclude that you have failed to if you do not protest this ruling in a timely manner it will be considered by the internal accordingly you are not operated exclusively for exempt purposes under section contributions to you are not deductible under sec_170 of the code when sending additional letters to us with respect to this case you will expedite their of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax-exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 receipt by using the following address number are shown in the heading of this letter enclosure notice lois g lerner director exempt_organizations rulings agreements if you have any questions please contact the person whose name and telephone internal_revenue_service se t eo ra tpu constitution ave n w washington d c sincerely


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division contact person identification_number contact number employer_identification_number form required to be filed tax years release number release date date date uil code dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 c recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this file the returns in accordance with their letter unless you request an extension of time to file instructions and do not send them to this office penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you agree with our deletions you do not need to take any further instructions in notice action if you disagree with our proposed deletions follow the failure_to_file the returns timely may result in a in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements you if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is f you have any questions about your sincerely robert choi director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date dec uil legend b applicant c state d similar-type organization e president f vice-president g address h similar-type organization i similar-type organization contact person identification_number contact number fax number employer_identification_number p state_agency q local court r state employee s state employee t date w dollar amount x dollar amount y dollar amount z dollar amount dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue considering the facts as described herein does an organization primarily involved in the sale of annuity_plans qualify for exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code of facts b was formed as a nonprofit corporation in the state of c on for recognition of exemption under sec_501 of the internal_revenue_code form the narrative description of activities provided in the was filed in application form_1023 explained that b the application e plans to coordinate and conduct through its staff evangelistic campaigns in a number of countries wherein the people are receptive to the gospel of jesus christ in addition the organization may co-sponsor evangelistic campaigns with other organizations that have a track record of proven evangelistic results such as d a religious_organization b may also underwrite the costs of operating orphanages that teach children the gospel the organization may also distribute bibles build churches and install fresh water wells particularly in third world communities where such opportunities are unavailable f e and f are husband and wife that reside at the same ‘the third article of b’s articles of incorporation describes its purposes as follows the corporation shall exist to promote the sponsorship and support of a world-wide missionary effort including without limitation the development and support of youth groups and camps crusades orphanages nursing homes humanitarian services radio and television ministry prison ministry bible translation and distribution programs alternate food supply research_and_development health care programs religious educational training and the management and administration of donor accounts to fund any or all of the foregoing purposes article v of b's bylaws state that the business and affairs of the corporation shall be managed by its board_of directors the initial board_of directors as shown on page two of the application form_1023 are e and f address as shown on page one of the form_4023 at g address the application explains that e president of b will be initiating and supervising the activities of the organization from his home_office the application further explains that e president and director completed several courses at h courses all across the united_states at the time the application was filed e was the executive vice president of development for a nonprofit organization secretary will be serving principally in an administrative role for the organization in the narrative attachment to part viii item 4e of the form_1023 it states that e is familiar with the nature and limitations of donor advised accounts while b has no plans to activate a donor advised account campaign it remains open to the desires of donors who may wish to use such a device in connection with the promotion of the mission of b donors would likely be permitted to provide advice regarding distributions affecting the citizens of a particular country and fresh water wells for with a particular benefit such as bibles for e went to work for a nonprofit organization teaching charitable planned giving f will be performing administrative functions f vice president and in or for a particular organization that may be co- or churches in sponsoring projects with b such as d b also maintained a website to promote their programs the website explained that b assists financial professionals estate_planning attorneys and cpas with tax saving solutions in addition the website states that b has enjoyed the privilege of providing plans which are quite simple to families all across the united_states as they create their financial legacy the various strategies of b continue to help clients nationwide in their estate_planning we offer the client the ability to exchange a variety of assets including annuities real_estate securities bonds and cash for a b tax deductible installment_plan with a guaranteed payout for a guaranteed period of time b’s primary focus is the asset exchange programs rather than the charitable programs described in its articles and application b’s website promotes the three programs these asset exchange programs allow individuals to exchange real_estate securities and annuities for the b tax deductible installment_plan product the website also affirmed that when a person exchanges an asset for a b tax deductible installment_plan they receive the following a generous income_tax deduction a tax-favored income elimination of a portion of any capital_gains a guaranteed income that grows every year and an estate_tax reduction the website also explains that b supports multiple charitable organizations throughout the word c state law requires all new charitable organizations to file quarterly financial reports with the secretary of state during its first fiscal_year of operation since b was formed in the service requested copies of the four quarterly financial reports filed with the secretary ot state during the organizations first year of operation these reports show the total amount of revenues eamed and expenses_incurred each quarter of the total amount of revenues that b received were in the four quarterly reports for was w dollars classified as contributions the total amount of contributions reported in the itemized list of contributions that was attached to each report shows that these revenues were primarily from the sale of annuity_plans the expenses reported on these reports are classified into the following four categories program services of other charitable purposes fundraising administrative and other expenses included utilities expense automobile expenses administrative and the other expenses for and lease rent phone entertainment meals health care office expenses furniture and wages the total amount for automobile lease expenses in automobiles for e and f who were the only authorized users had sold their separate personal_use automobiles however the cars were used almost exclusively for business purposes’ business purposes included transportation to the business office seminars presentations and meetings with financial planners utility expenses in the first six months were for the original office in e's and f’s home b's officers stated that in june of b’s total expenses from a business office was established in addition to the home_office the officers stated that e and f was xx dollars b leased two were reported to be y dollars operations in the total amount of funds for charitable programs and services were reported to be z dollars however additional information submitted by b clarified that certain amounts were incorrectly reported as contributions to charities when they should have been operating_expenses therefore the total amount of funds for charitable purposes is less than the z dollars reported the z dollars amounts reported for charitable programs in the four quarterly financial reports for is less than one half of one percent of the total revenues or contributions to the tax_year b reported in addition the funds for charitable programs are approximately three percent of the total expenses reported to operate b in _p a state_agency issued a media release stating that the agency’s in may of commissioner filed a petition in q court seeking an order placing b alleges that b is an unauthorized insurance entity marketing a term annuity product to state consumers as well as consumers across the country this media release included a warning to consumers to never purchase insurance products from unlicensed insurance_companies nor should they deal with insurance agents or producers who are not licensed in addition it was reported that other states have all issued cease and desist orders to prohibit b from conducting business in their states in receivership the petition the q court placed b into receivership the consent order reported that r in in june of the capacity as rehabilitator of b has custody of all assets and operations of b and will wind- down the company’s operations and that s has been appointed as special receivership counsel the court determined that authority and control by former management and employees of b has been suspended and are strictly prohibited from communicating with contract holders the commissioner special deputy receiver and special counsel will conduct the wind-down of b's business special receivership counsel s notified the intemal revenue service that on august commissioner r filed a verified petition to convert the b receivership from a rehabilitation proceeding to a liquidation proceeding the receiver has also requested a finding of insolvency of b from the receivership court its generally accepted legal sense and includes the tax law sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes sec_1_501_c_3_-1 of the income_tax regulations provides that the term ‘charitable’ is used in sec_501 of the code in lessening of the burdens of government an organization described in sec_501 of the code must among other requirements be organized and operated exclusively for certain purposes sec_1_501_c_3_-1 of the income_tax regulations states organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section lf an organization fails to meet either the organizational_test or the operational_test it sec_1_501_c_3_-1 of the regulations states an organization will be regarded as ‘operated exclusively’ for one or more exempt purposes only if it engages primarily in activities in order to be exempt as an is not exempt which 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 of the regulations state that an organization is not organized and operated exclusively for one or more of the purposes specified unless it serves a public rather than a private interest thus to meet the requirements it is not organized or operated for the benefit of private interests organization to establish that it such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests is necessary for an an organization may meet the sec_1_501_c_3_-1 of the regulations states requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization's exempt_purpose of purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated_trade_or_business as defined in sec_513 in determining the existence or nonexistence of such primary purpose all the circumstances must be considered including the size and extent of the trade_or_business and the size and extent of the activities which are in furtherance of one or more exempt purposes in rev_rul 1964_1_cb_186 an organization derived its income principally from the rental of space in a large commercial office building the organization's charitable purposes are carried out by making contributions and grants to other charitable organizations in this revenue_ruling the irs concluded that this organization met the primary purpose test of sec_4 c -1 e of the regulations because it carried on a charitable program that was commensurate in scope with its financial resources in revrul_72_369 1972_2_cb_245 an organization was formed to provide managerial and consulting services for sec_501 organizations to improve the administration of their charitable programs the organization enters into agreements with unrelated sec_501 organizations to furnish managerial and consulting services on a cost_basis this revenue_ruling stated that an organization is not exempt merely because its operations are not conducted for the purpose of producing a profit to satisfy the ‘operational test ’ the organization's resources must be devoted to purposes that qualify as exclusively charitable within the meaning of sec_501 of the code and the applicable regulations providing managerial and consulting services on a regular basis for a trade_or_business ordinarily carried on for profit the fact that the a fee is services in this case are provided at cost and solely for exernpt organizations is not sufficient to characterize this activity as charitable within the meaning of sec_501 of the code furnishing the services at cost lacks the donative_intent element necessary to establish this activity as charitable in 70_tc_352 the tax_court held that an organization did not qualify for exemption under sec_501 of the code because it was primarily engaged in an activity that was characteristic of atrade or business and ordinarily carried on by for-profit commercial businesses the tax_court stated we must agree with the commissioner that petitioner's activity constitutes the conduct of a consulting business of the sort which is ordinarily carried on by commercial ventures organized for profit in 283_fsupp2d_58 d d c the district_court found that that the organization was formed principally to organize host conduct and sponsor educational and other charitable functions on its facilities the organization's patrons were not limited to tax-exempt entities but included patrons of a private and corporate nature the organization paid significant advertising and promotional expenses and derived substantial income from weddings and special events held at its conference center the court determined that the organization's activities competed with a number of commercial as well as non- commercial entities which strongly evidenced a commercial nature and purpose the court concluded that although the organization carried out a number of charitable and educational activities these were incidental to its primary activity of operating a for-profit conference center the court stated operates in important respects in an exempt fashion there is a distinctive ‘commercial hue’ to the way airlie carries out its business while plaintiffs organizational purpose is exempt and the foundation application of tax law the fact that your activities consist primarily of performing services for individuals who wish to exchange assets for annuity_plans as an estate_planning tool you are performing commercial services for these individuals because less than one half of one percent of the funds received go to charity this does not render your activities as charitable revrul_72_369 supra in addition since your activities primarily constitute the operation of a commercial activity you are organized and operated for the primary purpose of carrying on ah unrelated_trade_or_business as a result under sec_1 c -1 e of the regulations you do not meet the requirements of sec_501 of the code unlike the organization described in revrul_64_182 supra you do not carry on a charitable program that is commensurate in scope with your financial resources the service's position that the sale of annuity_plans has a distinctive commercial hue’ is supported by the fact that several states consider these annuity_contracts as commercial products subject_to their securities and insurance laws by the state_agency reported that you have been ordered to cease and it also went on to say that over consumers were personally solicited in b's b maintained a website soliciting business nationwide these cease and the desist the sale of your annuity_plans in five other states insurance contracts were sold by b only home state desist orders are based on your violation of certain state laws concerning the sale and marketing of annuities we view the sale of these securities constitute common commercial activities rather than activities that further a charitable purpose see b s w inc vv commissioner supra and airlie foundation v internal_revenue_service supra applicant’s position in response to the service's position s notified the irs that commissioner r is unaware of any facts that would rebut or supplement the questions raised commissioner r would like to receive your the service’s formal determination as to whether b would have received designation as a sec_501 tax-exempt_organization conclusion based on the information submitted and the programs promoted on your website it appears that you are primarily involved in the sale of annuity_plans associated with their asset exchange programs the sale of annuity_plans would constitute a trade_or_business and without a charitable program commensurate in scope with the business of selling these plans you do not qualify for exemption under sec_501 we also determined you do not qualify under any other subsection under sec_501 a to protest you you have the right to file a protest if you believe this determination is incorrect must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination f your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues an attomey certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the intemal revenue service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or-decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if if you do not intend to protest this determination you do not need to take any further action we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to internal_revenue_service eo determinations quality assurance deliver to internal_revenue_service eo determinations quality assurance if you fax you may fax your statement using the fax number shown in the heading of this letter your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations rulings agreements


department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx tax_exempt_and_government_entities_division number release date date jun person to contact identification_number contact telephone number in reply refer to ein last date for filing a petition with the tax_court uil certified mail - return receipt requested dear a final adverse determination_letter as to your exempt status under section this i sec_501 of the internal_revenue_code your exemption from federal_income_tax under sec_501 of the code is hereby revoked effective july 20xx our adverse determination was made for the following reasons you have not established that you are organized and operated exclusively for pleasure recreation and other non-profitable purposes and are not exempt under internal_revenue_code irc sec_501 as described under sec_501 you have received a substantial portion of your income from leasing oil_and_gas rights and receives royalties which does not fulfill a non-profitable purpose for s social_club as described under sec_501 you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending june 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district coutt of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment the taxpayer_advocate_service i'as is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you’ve tried but haven’t been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate its gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours maria hooke director exempt_organizations examinations enclosutes publication department of the treasury internal_revenue_service date date irs tax_exempt_and_government_entities_division taxpayer_identification_number form tax_year s ended person to contact id number contact numbers phone number fax number manager's name d 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_501 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 if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely maria hooke director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f u s treasury department-internal revenue service schedule no or explanation of items exhibit form 886-a name of taxpayer year period ended june 20xx issue whether under sec_501 when its investment_income consistently exceeds the continue to qualify for exemption percent xx limitation of total income facts was formed as a corporation in the state of under sec_501 in march 19xx the articles of incorporation states that formed for the following purposes to organize construct and maintain a club house or lodge to establish and maintain a hunting and fishing park or preserve to establish and maintain a golf course and tennis courts and to provide for such other forms of recreation and amusement as the management may deem proper or necessary and was granted exemption was the form_990 for the tax_year ended june 20xx was selected for examination the form_990 states that providing recreation for its members isa provides a meeting place and facilities for individuals with common interests in during the examination it was noted that membership is based on xx of the membership accepting the applicant membership is also limited to the number of shares available which is currently xx shares there is only one class of membership and all members have voting privileges the bylaws state that the use of the club grounds and cabins are for members their immediate families and bon-a-fide guests only receives its revenue from membership dues assessments cabin rentals and royalties from oil_and_gas rights for the tax_year ended june 20xx xx of the total revenue received was from an oil_and_gas lease a review of additional forms which were not audited shows that for the tax years ended june 20xx and 20xx respectively xx and xx of total revenue received was from royalties royalties total revenue on f990 percentage of royalty income over total revenue department of the treasury - internal_revenue_service 20xx 20xx 20xx form 886-a page xx xxx xxx xxx xx xxx xxx xxx xx xxx xx xxx xxx xx xx u s treasury department-internal revenue service schedule no or explanation of items exhibit form 886-a name of taxpayer year period ended june 20xx law sec_501 of the internal_revenue_code code provides for exemption from federal_income_tax for clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_1_501_c_7_-1 of the regulations states that a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other non-profitable purposes and is not exempt under sec_501 an incidental sale of property will not deprive a club of its exemption revrul_66_149 1966_1_cb_146 provides that a social_club is not exempt from federal_income_tax as an organization described in section c of the code if it regularly derives a substantial part of its income from nonmember sources such as for example dividends and interest on investments in this instance the club’s funds were invested primarily for the purpose of producing income through dividends interest or capital appreciation it is evident that such income is regularly derived from nonmember sources that the income is received in fulfillment of and pursuant to a profit_motive and that the income from investments is substantial in relation to total income revrul_69_220 1969_1_cb_154 held that a social_club that receives a substantial portion of its income from the rental of property and uses such income to defray operating_expenses and to improve and expand its facilities is not exempt under sec_501 of the code 87_f2d_5 held that where a club engages in income producing transactions which are not a part of the club purposes exemption will not be denied because of incidental trivial or nonrecurrent activities such as sales of property no longer adapted to club purpose 75_fsupp_769 stated that a corporation that was organized for the purpose of promoting the game of mah jongg but income from memberships was insufficient to meet expenses and the corporation engaged in the commercial enterprise of selling to the public lists and tiles and the income therefrom enabled the corporation to meet its deficit carry on without an increase of dues or curtailment of operations and to accumulate a surplus which was donated to charity was not operated exclusively for social purposes or charitable purposes therefore the corporation was not exempt from federal_income_tax under sec_501 of the code or sec_501 of the code department of the treasury - internal_revenue_service form 886-a page u s treasury department-internal revenue service schedule no or explanation of items exhibit form 886-a name of taxpayer year period ended june 20xx in united_states of america v fort worth club of fort worth texas 345_f2d_52 cir its receipts in amounts of hundreds of thousands a social_club which derived over half of of dollars from profitable outside business was not exempt from federal income taxes on ground that it was organized and operated exclusively for pleasure recreation and other non-profitable purposes the court declared that for a social_club to qualify for exemption under sec_501 of the code its outside profits must be strictly incidental to club activities not a result of an outside business and either negligible or non-recurring government’s position does not meet the qualifications for exemption under sec_501 of the code was initially formed for pleasure recreation and other non-profitable although purposes substantially_all of the activities are not for such purposes leasing oil_and_gas rights and receives royalties from this activity which does not fulfill a pleasure recreation or other non-profitable purpose is engaged in income from is like the organization in revrul_66_149 that did not qualify for exemption under regularly derives income from nonmember sources is not similar to the organization in santee club v white in addition they are recurring has received a substantial amount of revenue from these the oil_and_gas lease and royalties are not incidental or trivial for the past several years sources per sec_1_501_c_7_-1 of the regulations activities and is not organized and operated exclusively for pleasure recreation and other non- profitable purposes sec_501 of the code specifically an oil_and_gas lease as well as royalties revenue based on the financial data provided for the income is regularly derived from these nonmember sources and the income from these sources is substantial in relation to eo’s total income eo is also similar to the organization in revrul_69_220 because it receives a substantial portion of income from sources other than the members under sec_501 of the code transactions with outsiders should not be a regular source_of_income its revenue is from an oil_and_gas lease and from royalties therefrom these sources exceeds the income from your members many times over the revenue from oil_and_gas lease and from royalties is recurring and more than incidental while may have been organized for pleasure and recreation the eo’s revenue clearly shows that it is not operating for these purposes per united_states of america v fort worth club of fort worth texas income must be incidental to your club activities and either negligible or non-recurring instead is similar to the organization in national mah jongg league v u s department of the treasury - internal_revenue_service the majority of income from form 886-a page is engaging in business royalty u s treasury department-internal revenue service schedule no or form 886-a explanation of items exhibit name of taxpayer year period ended june 20xx the royalty income is both recurring and substantial for the tax years ended june 20xx -june 20xx over xx of recurring basis revenue was received from nonmember sources on a taxpayer position the taxpayer position is unknown at this time conclusion does not meet the requirements for exemption under sec_501 of the code receives the majority of its income from nonmember sources on a recurring basis by leasing oil_and_gas rights and receiving royalties derive a significant profit from the activity as a result pleasure recreation or other non-profitable purposes we are proposing revocation of the sec_501 tax exemption for is engaging in a regular trade_or_business and does not operate substantially for effective july 20xx department of the treasury - internal_revenue_service form 886-a page