internal_revenue_service number release date index number ----------------------- ---------------------- -------------------------------- re private_letter_ruling request - 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 b09 plr-165370-04 date date this is in response to your authorized representative’s letter dated december ----------------------- ---------------------------- ------- -------------------------------------------------------- -------------------------- -------------------------------------------- --------- legend legend taxpayer year irrevocable_trust date partnership dollar_figurea dear --------------- requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make allocations of taxpayer’s generation-skipping_transfer gst tax exemption to the year transfer to irrevocable_trust taxpayer created irrevocable_trust a_trust with gst potential the same day taxpayer funded irrevocable_trust with an interest in partnership purportedly valued at dollar_figurea taxpayer’s accountant mistakenly advised taxpayer that because the value of the property transferred to irrevocable_trust on date fell below the annual exclusion amount available for year it was not necessary to file a form_709 united_states gift and generation-skipping_transfer_tax return for year accordingly no form_709 was filed and no portion of taxpayer’s gst_exemption was allocated to the year transfer to irrevocable_trust sec_301_9100-3 to make an allocation of taxpayer’s gst_exemption with respect to the year transfer to irrevocable_trust the facts and representations submitted are summarized as follows on date taxpayer now requests that an extension of time be granted under sec_2642 and plr-165370-04 skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2601 imposes a tax on every generation-skipping_transfer a generation- sec_2602 provides that the amount of the tax is the taxable_amount multiplied under sec_2632 any portion of an individual's gst_exemption not allocated sec_2631 in effect at the time of the transfer provides that for purposes of sec_2632 provides that any allocation by an individual of his or her gst by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed within the time prescribed in sec_2632 is allocated automatically sec_2632 provides that if an individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 united_states gift and generation-skipping_transfer_tax return sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion_ratio shall be its value for purposes of chapter within the meaning of sec_2001 and such allocation shall be effective on and after the date of such transfer prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to sec_2642 provides generally that the secretary shall by regulation sec_26_2632-1 of the generation-skipping_transfer_tax regulations plr-165370-04 transfers made before the date of the enactment of sec_2642 which was enacted into law on date secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute sec_2642 provides that in determining whether to grant relief the notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election transfer made by taxpayer to irrevocable_trust in year we conclude that the requirements of sec_301_9100-3 have been satisfied therefore we grant an extension of time of days from the date of this letter for taxpayer to make an allocation of his based on the facts submitted and the representations made with respect to the sec_301_9100-3 provides that a taxpayer is deemed to have acted requests for relief under sec_301_9100-3 will be granted when the taxpayer plr-165370-04 gst_exemption to the year transfer to irrevocable_trust the allocation will be effective as of the date of transfer and the gift_tax value of the transfer will be used in determining the amount of gst_exemption to be allocated the allocation of taxpayer’s gst_exemption to the year transfer should be made on a form_709 and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the form_709 a copy is enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition we express or imply no opinion regarding the value of the property transferred to irrevocable_trust this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy associate chief_counsel passthroughs special industries copy of letter copy for purposes enclosures cc


t c summary opinion united_states tax_court gary t payne and carline t drain petitioners v commissioner of internal revenue respondent docket no 5405-10s filed date gary t payne and carline t drain pro sese rachael j zepeda for respondent gerber judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue case respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax after concessions the sole issue for consideration is whether petitioners may exclude from income social_security disability benefits ssd benefits background2 petitioners resided in arizona when they timely filed their petition in ms drain received dollar_figure in ssd benefits discussion petitioners have adamantly contended that ssd benefits are not taxable in part their argument is based on their belief that the benefits have already been taxed and to tax them again would be double_taxation their belief is based on the fact that the government collects their payments into the social_security system along with and in the same manner as the income_tax and or that they made the payments with after-tax_dollars we understand how petitioners feel unfortunately however their argument is unavailing as explained in roberts v commissioner tcmemo_1998_172 affd without published opinion 182_f3d_927 9th cir petitioners’ second argument is that ssd benefits are excludable under sec_104 it is well established that ssd benefits are includable in income under sec_86 and are not 2the stipulation of facts and the attached exhibits are incorporated herein by this reference excludable as workmen’s compensation benefits under sec_104 green v commissioner tcmemo_2006_39 affd 262_fedappx_790 9th cir or accident health insurance benefits under sec_104 seaver v commissioner tcmemo_2009_270 to reflect the foregoing decision will be entered for respondent


number release date id office uilc cca-712131-10 ---------- from -------------------- sent monday date pm to ------------------ cc ---------------------------- subject cdp also as -------------points out the policy generally is not to levy on retirement accounts chances are the service isn't going to get anything for awhile --- ----------------------------------- ------------------- - -------------------------- monday date pm ---------------------- re cdp ______________________________________________ from sent to subject i don't think collection often levies when the taxpayer is not in retirement status or at least close the levy won't produce any immediate funds and there isn't any mechanism or procedure in place to monitor the levy until the taxpayer is eligible for distributions


internal_revenue_service number release date index numbers ----------------------- ------------------------------- ----------------------------- -------------------------------------------- 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-123021-09 date date legend x -------------------------------------------------------- ------------------------ parent -------------------------------------------------- --------------------------- ------------------------- --------------------------------------------------- -------------------- ---------------------------- ---------------- y z date date country dear -------------- this responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted parent is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return parent plr-123021-09 indirectly owned all of the stock of y y formed x on date under the laws of country on date z acquired an ownership_interest in x in exchange for a contribution of cash parent and x intended for x to be treated as a disregarded_entity for federal tax purposes as of date and as a partnership on and after date however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity as of date for federal tax purposes law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-123021-09 conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective date x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form as a condition for this late election relief parent x and all other entities affected by x's disregarded_entity classification election must amend their federal_income_tax returns and or informational returns consistent with x having made a timely entity classification election to be treated as a disregarded_entity effective date except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


release number release date uil internal_revenue_service te_ge technical_advice_memorandum date area manager - taxpayer's name taxpayer's address taxpayer's identification_number years involved conference held legend t x issues whether funds derived by t a state-chartered credit_union described in sec_501 of the internal_revenue_code from the following activities should be treated as unrelated_business_taxable_income under sec_511 of the internal_revenue_code a b sale of accidental death and dismemberment ad d insurance sale of credit life and credit disability insurance facts established in t is a state-chartered credit_union which is recognized as exempt from federal_income_tax under sec_501 a of the internal_revenue_code code as an organization described in sec_501 t's board_of directors supervisory committee and loan committee are comprised entirely of elected members of the credit_union who serve on a voluntary basis without compensation membership in t is limited to employees family members of those employees or retirees of x t’s purposes as stated in its articles of incorporation are to promote thrift and provide low cost credit for its members t’s activities include accepting deposits from and maintaining the accounts and savings of its members these deposit accounts include savings or share accounts on which members earn periodic dividends credited to the accounts and share draft accounts which are transaction accounts similar to bank checking accounts t represents that its day-to-day business operations differ from conventional banking institutions in several ways t states that it conducts its business to reflect its non-profit mutual structure t makes loans to its members and states that many borrowers have low incomes and might not otherwise qualify for credit from conventional for-profit banks t also represents that it regularly issues loans for very small amounts such as loans for auto repairs which are typically not made by for-profit banks t indicates that it serves smaller communities than those served by for-profit banks t also indicates that because of its mutual non-profit operation all members not just those maintaining high minimum balances are able to earn competitive rates on their deposits and pay low banking fees t represents that in order to maintain its financial viability and continue to satisfy its stated purposes of promoting thrift and providing a source of low cost credit it has endeavored to become a full service financial_institution consequently t offers more than just demand deposits and loans currently t makes ad d insurance and credit life and credit disability insurance available to members the different types of insurance are described in more detail below all of these insurance products are underwritten or otherwise provided by third-party insurance_companies or other third-party vendors in each case t makes its members aware of the purpose and availability of these products answers members’ questions about the products or refers the member to the vendor for additional information and with respect to some of the products obtains and submits applications for coverage premium payments and claims during the year at issue t made the following types of loans personal mortgage vehicle and other secured and unsecured loans the majority of the loans were personal mortgage and vehicle in a total of unsecured and automobile loans were made and approximately of these loans were collateralized the default rate on these loans as a percentage of total loans for the year at issue was t filed form 990-t unrelated_business_income_tax return for the year at issue however the amounts derived from the sale of the products discussed herein were not included as income derived from unrelated_trade_or_business a sale of ad d insurance t offers ad d insurance to its members t states that providing this insurance is an activity that is beyond the scope of services directly associated with members’ monetary deposits and loans made to members rather the provision of ad d insurance is a financial security activity that is offered to members under the terms of the ad d policy if the member has an accident that triggers a claim meeting the terms of the policy then the member or the member's beneficiary receive specified insurance payments under the policy in the case of accidental death the member's beneficiary would receive payments in the case of dismemberment the member would receive payments t markets and sells ad d insurance to its members under a policy issued by an independent insurance_company t makes its members aware of the purpose and availability of ad d insurance answers members’ questions about the product refers the member to the independent insurance_company for additional information if it is needed and obtains and submits applications for coverage premium payment and claims t receives an administrative allowance for ad d insurance based on services provided by t the reimbursement i sec_30 of gross premiums collected less the cost of basic insurance which was dollar_figure per dollar_figure of coverage per quarter no information was provided regarding number of policies sold during the year at issue or the percentage of members that elected ad d insurance coverage b sale of credit life and credit disability insurance t offers its member borrowers the opportunity to purchase credit life and credit disability insurance on certain loans t is a party to and beneficiary under standard group credit life and credit disability policies with a third party insurance_company under these policies a member-borrower who obtains a loan mortgages and other loans secured_by real_estate are often excluded may if he or she chooses obtain credit life and credit disability insurance which pays the loan installments during the period of physical disability which impacts the borrower’s employment a loan officer informs each member-borrower of the availability of credit life and credit disability insurance coverage and if the member-borrower elects to obtain the coverage the premium charge is added to the borrower's loan balance obtaining the credit life and credit disability insurance coverage is never a condition of the member's receiving the loan as reflected in the group credit insurance_policy and letter agreements the credit disability coverage is standard coverage that provides that the insurer will repay the balance of a member's loan up to the policy limit the maximum loan duration covered was not provided however only credit_union members are eligible protection home equity loans and real_estate loans t does not offer credit disability insurance in connection with overdraft under the terms of the policy t is also reimbursed for its administrative expenses in connection with its performance of the prescribed duties as the policyholder t’s employees perform the following duties with respect to the credit disability insurance program e e e e during the loan process and as part of the loan transaction itself explain the insurance program to member-borrowers process insurance applications collect and forward the premiums to the insurance_company receive and forward claims claims can be filed directly by the member- borrower to the insurance_company and e answer member-borrowers’ questions t's staff may recommend that the member opt to obtain coverage in situations where coverage appears beneficial based on the level of personal and family resources available for loan repayment in the event of disability the credit disability insurance coverage requires monthly premium payments the charges are calculated by t and added to the member's loan balance t remits the premiums it has collected less its expenses as noted above to the insurance_company t's commission for its role in coverage issuance and policy administration is of the premiums written for credit life and credit disability insurance this percentage is based on an agreement between t and the insurance_company at the time the insurance was purchased t pays bonuses to employees based on an amount per policy sold approximately of borrowers opted for credit insurance during the year at issue law sec_501 of the internal_revenue_code code provides in part that organizations described in sec_501 are exempt from federal_income_tax sec_501 of the code specifically exempts from federal_income_tax credit unions without capital stock organized and operated for mutual purposes and without profit sec_1_501_c_14_-1 of the income_tax regulations regulations provides in part that credit unions other than federal credit unions described in sec_501 of the code without capital stock organized and operated for mutual purposes and without profit are exempt from tax under sec_501 state-chartered credit unions were first acknowledged as exempt from federal_income_tax in a opinion of the attorney_general the attorney_general considered credit unions organized under the laws of the commonwealth of purposes of credit unions existing at that time the attorney general’s opinion described the _ i t is apparent that the purpose of these financial associations is to help people save and to assist those in need of financial help whose credit may not be established at the larger banks in reality they are fundamentally similar and supplemental to the existing agencies for promoting thrift namely the savings banks and cooperative banks except on a much smaller scale the attorney general’s opinion also described some of the operations of credit unions--making loans in appropriate amounts to members on which a low rate of interest is charged and that p rompt payment of obligations is a fundamental requirement the opinion described in detail the procedures by which members’ savings were held by the credit_union and how the members earned interest on their deposits the opinion also pointed to the democratic character of the governance of these early credit unions by their members at the annual meeting of the association each member shareholder and depositor has but one vote after review of the features and operations of these early credit unions the attorney general's opinion held that state-chartered credit unions would be exempt from federal_income_tax see u s op atty gen the legal analysis of the attorney general’s opinion was adopted in treasury regulations issued in and this remained the official basis for the tax exempt status of state-chartered credit unions until the revenue act of granted express statutory tax-exempt status to state-chartered credit unions however the revenue act of removed tax exemption from savings and loan associations cooperative banks and mutual_savings_banks the legislative_history of the act suggests that the reason these entities lost their exemption was because of their increasing similarity to commercial banks and the resulting loss of their original characteristic of mutuality specifically referring to the early days of these institutions the legislative_history states the fact that the members were both the borrowers and the lenders was the essence of the mutuality of these organizations see generally s rep no date reprinted in u s code cong ad svc present-day sec_501 - as enacted in - incorporates the requirements of mutuality and non-profit operation which formed the basis for the attorney general’s recognition of credit unions’ tax-exempt status in accordingly the basic purposes of the credit_union tax exemption remain essentially the same today as they were in based on the attorney general's opinion the basis for exemption is the provision of savings accounts and loans to members who may not be served by banks in a non-profit and mutual manner sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations otherwise exempt from federal_income_tax under sec_501 sec_512 of the code provides that the term unrelated_business_taxable_income means with certain modifications the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less allowable deductions sec_513 of the code defines the term unrelated_trade_or_business in the case of any organization subject_to tax imposed by sec_511 as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for the income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_function sec_1_513-1 of the regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is with certain exceptions includable in the computation of unrelated_business_taxable_income if it is income from trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that the term trade_or_business has the same meaning it has in sec_162 of the code and generally includes any activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the regulations states that in determining whether a trade_or_business is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities are conducted and the manner in which they are pursued hence for example specific business activities will ordinarily be deemed regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of nonexempt organizations sec_1_513-1 of the regulations provides that gross_income is derived from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities that generate the particular income in question - the activities that is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a strong one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those exempt purposes whether activities contribute importantly to an organization’s exempt purposes depends in each case upon the facts and circumstances involved in 693_f2d_525 5th cir a business league described in sec_501 of the code engaged in several activities including the endorsement of insurance to its members the court analyzed whether these activities were substantially related to the business league's exempt_purpose under sec_501 of advancing the credit_union movement in order to determine whether income generated from those activities resulted in unrelated_business_income to the business league in its analysis the court stated that the substantial relationship’ determination is necessarily a fact- based inquiry id pincite the court also noted that the regulations under sec_513 require a case-by-case identification of the exempt_purpose an analysis of how the activity contributes to that purpose and an examination of the scale on which the activity is conducted the league promoted the purchase of insurance policies from a particular carrier providing the carrier with convenient services in the marketing and administration of its programs the court stated that the league's endorsement of group_insurance plans was principally motivated by a desire to raise revenue the court also discussed at length the distinction between group and individual benefit the court said the distinction between inherently group benefits and individual benefits is analogous to the aggregate entity concept familiar in partnership_taxation just as a member of a partnership may enjoy benefits in his separate capacities as partner and non-partner so may a member of the league may enjoy benefits both as a league member and as an individual credit_union only those activities that benefit the credit unions in their capacities as league members can be considered substantially related to the league’s exempt_function this group benefit standard also accords with the requirement that a business league seek to improve the conditions of an entire line_of_business rather than perform discrete services for individuals see sec_1_501_c_6_-1 when the activities of a business league are directed toward the achievement of the common business_interest of its members the benefits that accrue to its members are inherently group benefits id pincite the court continued its analysis by stating that insurance endorsement and administration is not the sort of unique activity that satisfies the substantial relationship_test nor are its benefits group-related id pincite rather than merely advising members of the availability and desirability of insurance coverage to credit unions generally the league promoted the purchase of polices - from a particular carrier the court affirmed the district court’s rationale that the league’s insurance activities did little more than generate revenue because the league’s endorsement was basically a fundraising activity it was by definition unrelated business activity under sec_513 id pincite therefore the court concluded that the league’s insurance activities were not substantially related to its tax-exempt purpose of advancing the credit_union movement rather the connection between the furtherance of the credit_union movement and the selling of insurance was at best tangential in 78_tc_246 aff'd 726_f2d_1097 cir the court held that promotional and administrative fees and an experience rating reserve refund received by a business league described in sec_501 of the code for promoting group_insurance programs for its members constituted unrelated_business_taxable_income under sec_512 in holding that the business league’s activities were not substantially related the court considered whether the league’s insurance activities contributed importantly to the league’s exempt_purpose of _ advancing the common business interests of independent insurance agents the court stated the burden is on the taxpayer to show that the challenged activities contribute directly and importantly to the improvement of conditions in a particular line_of_business the court noted that the petitioner’s insurance activities did little more than generate revenue for the association and provided members with a convenient and economical service in the operation of their agencies as such they stood in sharp contrast to petitioner's educational and legislative activities which served the broader purpose of improving the general business environment in which insurance agents operated thus the court found petitioner’s activity of promoting insurance was not substantially related to its exempt_purpose in la caisse popu563_f2d_505 1st cir the government unsuccessfully challenged the exempt status under sec_501 of the code of an organization chartered as a credit_union by the state of new hampshire the government maintained that the organization was not exempt because it offered a wide variety of services typically offered by nonexempt full service banks and was therefore not organized or operated as a credit_union among these services were checking accounts mortgage loans banking by mail safe deposit boxes and a night depository this case focused solely on the taxpayer’s exemption under sec_501 and did not address the provisions of sec_511 through in 646_fsupp_1199 n d ala a credit_union described in sec_501 of the code offered cancer and group_life_insurance to its individual members the issue was whether commissions the credit_union received from servicing these particular types of insurance policies constituted unrelated_business_income under sec_512 the court did not reach the issue for jurisdictional reasons however it stated in a footnote that the petitioner would have lost on the merits of this issue because the policies benefited the insured without any reference to the member’s loans or accounts with the credit_union that court stated in dicta that cancer and group_life_insurance offered by a credit_union to its members would result in unrelated business table income for the following reasons petitioner earned commissions for servicing cancer and group_life_insurance policies these policies were for the express benefit of the insured without any reference to the member’s loans or accounts with the credit_union petitioner derived no benefit from the policies other than commission on the sale of said policies earned from the insurance_companies which issued the policies the sale of the cancer and group_life_insurance policies referred to had no substantial causal relationship to petitioner's exempt purposes and the sale of the policies bore no relationship to petitioner's function as a credit_union id pincite n revrul_69_282 1969_1_cb_155 provides that an organization must be formed and operated under the state law governing the formation of credit unions to qualify for exemption under sec_501 of the code as a state- chartered credit_union revrul_72_37 1972_1_cb_152 provides that to qualify as a credit_union_exempt from income_tax under sec_501 a of the code an organization must in addition to being formed and operated under a state credit_union law operate without profit and for the mutual benefit of its members the revenue_ruling clarified revrul_69_282 stating that a state charter is a threshold requirement for exemption but not the sole requirement revrul_60_228 1960_1_cb_200 interprets the substantially related requirement of sec_513 an organization exempt from federal_income_tax as an agricultural_organization described in sec_501 of the code promoted wider insurance coverage among its members and other local farmers including life casualty and fire insurance the insurance programs are provided by several insurance_companies but the organization’s administrative and secretarial staff is assigned to the work the organization receives an overall fee from the insurance_company for office and other services rendered them in connection with the insurance programs the revenue_ruling provides that a trade_or_business is substantially related to an organization’s exempt_activities if the principal purpose of the trade_or_business furthers these exempt purposes however in this case such activities are not usually associated with the functions of an agricultural_organization and normally would not be carried on by such an organization in furtherance of its exempt purposes therefore these activities are not substantially related to the organization’s exempt purposes thus the income resulting from these activities is subject_to tax under sec_511 analysis in determining whether an income-producing activity is an unrelated_trade_or_business it is necessary to show that there is a trade_or_business the trade_or_business is regularly carried on and the conduct of the trade_or_business is not substantially related to the organization's exempt_purpose or function see sec_1_513-1 a of the regulations t has agreed that the activities at issue are trades_or_businesses that are regularly carried on therefore the sole issue is whether each activity is substantially related to the organization’s achievement of its exempt purposes gross_income is derived from an unrelated_trade_or_business if the conduct of the trade_or_business is not substantially related other than through production of funds to the purposes for which exemption is granted sec_1_513-1 of the regulations determination of the substantial relationship issue requires an examination of the relationship between the business activities which generate the particular income in question and the accomplishment of the organization’s exempt purposes id the regulations further state that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_1_513-1 of the regulations see also prof'l ins agents of michigan supra insurance activity was not substantially related because activity did little more than generate revenue and provide members with a service and did not further taxpayer's exempt_purpose of improving business conditions and louisiana credit_union league supra league's endorsement of group_insurance plans was principally motivated by a desire to raise revenue and at best was only tangentially related to the furtherance of the league’s exempt_purpose of improving business conditions of one or more lines of business the court found the requisite substantial relationship lacking for t’s activities to escape taxation as unrelated_business_income the activities must contribute directly and importantly to the accomplishment of one or more of t’s exempt purposes-promotion of thrift and providing low cost credit for its members through mutual and nonprofit operation sec_1_513-1 of the regulations see also prof ins agents of michigan supra we address each of the activities below ad d insurance t argues that making ad d insurance available to members is substantially related to the credit union’s exempt_purpose of promoting thrift by providing basic financial protection to members on a mutual basis t also argues that ad d insurance facilitates prompt repayment of loans on a mutual basis by protecting the individual member's financial security the facts do not show how t’s sales of ad d insurance contribute directly and importantly to t’s exempt purposes t has not demonstrated that sales of ad d insurance encourage savings by members who purchase it t has also not provided information showing that the sale of ad d insurance aids a member in obtaining credit or reduces the cost of providing credit to members the facts do not demonstrate that the sale of ad d insurance to individual members advances t’s mutual operation ad d insurance provides a financial protection to an individual the individual's purchase of the ad d insurance does not provide a benefit to the members as a whole the legislative_history of sec_501 of the code indicates that mutuality is tied to the same members being the borrowers and lenders in loan transactions rather than the general principles that t espouses s rep no date t has not stated how the sale of ad d insurance to an individual provides a mutual benefit to t members the facts also do not show how sale of ad d insurance benefits the members of the credit_union as a whole a member may purchase ad d insurance without obtaining credit or a loan from t of t receives accidental dismemberment insurance payments the member may use the insurance payments as he or she wishes rather than saving them or paying off an obligation to t in the case of accidental death the member’s beneficiary may or may not be a member of t and also may use the payments as he or she desires if a member in alabama central credit_union supra the court stated in dicta several in this case t factors cited above relevant to the substantially related inquiry earns commissions for servicing ad d insurance policies sells policies for the express benefit of the insured without any reference to the member's loans or accounts with the credit_union derives no benefit from the policies other than commission on the sale of the policies earned from the insurance_companies which issued the policies the sale of the insurance policies referred to has no substantial causal relationship to t’s exempt purposes and the sale of the policies bears no relationship to t’s function as a credit_union based on all of the facts and circumstances t’s activities with respect to the sale of ad d insurance do not contribute importantly to accomplishing t’s exempt purposes the ad d insurance sold benefits an individual and t receives no benefit other than the production_of_income therefore the sale of ad d insurance is not substantially related to t’s exempt purposes and amounts received therefrom are subject_to unrelated_business_income_tax ubit credit life and credit disability t argues that the sale of credit disability insurance is directly related to the credit union’s specific exempt purposes of fostering thrift among the members including both the extension of credit to members on reasonable terms and encouraging savings among the members and providing services to members on a mutual basis t further maintains that credit insurance which is an integral part of a member loan transaction is a mechanism for assuring the prompt repayment of debts in situations where the financial resources of the borrower and the borrower’s family become strained as a result of disability the facts do not show how sales of credit life and credit disability insurance contribute directly and importantly to accomplishing t’s exempt purposes credit life and credit disability insurance is not required for the approval of a loan in fact credit life and credit disability insurance is not available to members on certain types of loans such as mortgage and other real_estate loans the member decides whether to purchase credit life and credit disability insurance based on his or her own assessment of whether the insurance will provide a benefit to that individual member the individual member benefits in that the member need not worry about paying a loan to t in the event of death or disability while there is also a benefit to the credit_union as the beneficiary the facts do not show how the sale of credit life and credit disability insurance otherwise contributes importantly and directly to accomplishing t’s exempt purposes other than through the production_of_income availability of credit life and credit disability insurance does not encourage savings or assist t in offering low cost credit t does not take into consideration the need for this insurance by members t performs no studies to determine which members may need credit life and credit disability insurance and there is no required corresponding counseling to members who may have more need than others although t’s staff may recommend insurance based on the level of personal and family resources these recommendations are not mandatory in specific cases and coverage is not required in these cases additionally t’s arguments do not address the fact that bonuses are paid to employees based on the number of policies sold providing a profit-motive incentive to t’s employees rather than a membership benefit as a whole in addition t’s commissions are high pincite of premiums_paid for credit life and credit disability because the insurance is voluntary and has no bearing on the approval of a loan the individual benefit-to the selling employee-is the primary benefit of offering the insurance applying the factors of alabama central credit_union supra t earns commissions for providing credit life and credit disability insurance sells policies for the express benefit of the insured albeit with reference to a member's loan with the credit_union derives some benefit from the credit life and credit disability insurance but the primary benefit is production_of_income both through the commission on the sale of the insurance earned and the bonuses paid to t employees the insurance referred to has no substantial causal relationship to t’s exempt purposes and the insurance bears no relationship to t’s function as a credit_union looking at the facts with respect to credit life and credit disability insurance the sale of credit insurance is not substantially related to t’s exempt purposes the available information indicates that the sale of insurance is primarily for the purpose of generating income to t and some of its employees and for the benefit of the insured rather than for the benefit of ts membership based on all of the facts and circumstances t’s activities with respect to the sale of credit life and credit disability insurance do not contribute importantly to accomplishing t’s exempt purposes therefore the sale of credit life and credit disability insurance is not substantially related to t’s exempt purposes and amounts received therefrom are subject_to ubit conclusion for reasons set forth above we conclude that the income received by a sec_501 credit_union from the activities listed below are not substantially related to the furtherance of t’s exempt purposes and therefore are subject_to ubit a b sale of ad d insurance sale of credit life and credit disability insurance a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent - end -


internal_revenue_service number info release date date cc psi 1-genin-157610-01 uilc we are responding to your correspondence requesting late s_corporation relief in order to establish date as the effective date for your election the information submitted explains that your election was filed late because you were unaware of the form_2553 filing requirement although we are unable to respond to your request as submitted please read this letter carefully as it provides useful information about correcting your situation announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a ruling are set out in revproc_2001_1 copy enclosed in addition a proper user_fee must be submitted along with your request the fee for a ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million for the last 12-month taxable_period qualify for a reduced user_fee in the amount of dollar_figure if your business qualifies for the reduced fee your request must include a statement certifying gross_income otherwise you will be billed the higher fee please format your ruling_request as shown in appendix b of revproc_2001_1 if you decide to submit a ruling_request please provide documents supporting your intention to be an s_corporation and include the proper user_fee please refer your package to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi b1 room if you have computer web access you may wish to visit www irs gov smallbiz for specialized tax information products and forms relating to small businesses please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2001_1