internal_revenue_service number release date index number ---------------------- ------------------------ ------------------------------------- attn -------------------- --------------------- ------------------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no --------------- telephone number ------------------- refer reply to cc ita b02 plr-130412-17 date date ty date legend taxpayer date date date date date a b c d dear ----------------- ---------------------------- -------------------------- -------------------------- --------------------- ------------------ ------------------ ---- ------------- -------------------- --------------------------------------------- this is in response to your letter dated date requesting permission to file a copy of the request to use the alternative_cost_method with the a director for the region of your principal_place_of_business for your taxable_year ending date the copy of the request to use the alternative_cost_method was not timely filed with the a director for the region of your principal_place_of_business although it was required in order for taxpayer to use the alternative_cost_method of accounting in conformity with the requirements of revproc_92_29 1992_1_cb_748 the request is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayer represents the following plr-130412-17 taxpayer is a b real_estate builder and developer taxpayer files a consolidated federal_income_tax return taxpayer sold the initial home in one or more communities under development in the taxable_year beginning date and ending date taxpayer used the alternative_cost_method described in sec_4 of revproc_92_29 to compute the gain_or_loss on the homes sold in those communities during the year on its federal_income_tax return for the taxable_year ending date taxpayer filed its original federal_income_tax return for the taxable_year ending date on date taxpayer intended to determine the estimated cost of common improvements with regard to the ten-taxable year horizon as defined in section dollar_figure of revproc_92_29 taxpayer attached the following to its return for the taxable_year ending date i a request to use the alternative_cost_method on a project-by-project basis and ii a form_921 consent to extend the time to assess income_tax extending the period of limitation on the assessment of tax with respect to the use of the alternative_cost_method on a project-by-project basis taxpayer failed to file a duplicate of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business on or before the due_date of the return including extensions for the taxable_year ending date taxpayer’s c completed the duplicate request but failed to timely mail it taxpayer was in the process of d at the time the request was due and inadvertently misplaced the request taxpayer’s c discovered this oversight on date taxpayer represents that other than timely filing a duplicate copy of the request with the a director it qualifies to use the alternative_cost_method law revproc_92_29 1992_1_cb_748 provides rules for the treatment of common improvement costs and an automatic procedure for developers to follow to use the alternative_cost_method generally consent to use that method is conditioned on the following the developer must be contractually obligated or required_by_law to provide the common improvements and the cost of the common improvements must not be properly recoverable through depreciation by the developer the developer must file a request to use the alternative_cost_method on a project- by-project basis in accordance with the procedures set forth in section of revproc_92_29 these procedures include a requirement to file the request with the district_director for the internal_revenue_district in which is located the principal_place_of_business of the person required to make the return on or before the due_date of the developer’s original federal_income_tax return determined with regard to extensions of time for the taxable_year in which the first benefitted property in the project is sold plr-130412-17 the developer must sign a consent extending the period of limitation on the assessment of income_tax with respect to the use of the alternative_cost_method on a project-by-project basis as described in section of revproc_92_29 the developer must file an annual_statement for each project for which the developer has received permission to use the alternative_cost_method in accordance with section of revproc_92_29 the developer must file a supplemental request for each project if required pursuant to section of rev_proc taxpayer requests permission with this ruling_request to file a copy of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business 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 certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits described in the regulations 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 sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the internal_revenue_service irs ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the irs or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election plr-130412-17 sec_301_9100-3 provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the irs will not ordinarily grant relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief under this section sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or in any other setting and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year ruling based upon our analysis of the facts and representations provided taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file the copy of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business for its taxable_year ending date plr-130412-17 caveats 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 no opinion is expressed as to the federal tax treatment of the transaction under any other provisions of the internal_revenue_code and the treasury regulations that may be applicable or under any other general principles of federal income_taxation this letter_ruling is only applicable to matters under our jurisdiction see revproc_2018_1 2018_1_irb_1 sec_3 no opinion is expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling in particular no opinion is expressed as to whether taxpayer qualifies to use the alternative_cost_method this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination enclosed is a copy of this letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 we are sending a copy of this letter to the appropriate operating division director sincerely ______________________________ bridget e tombul branch chief branch office of the associate chief_counsel income_tax accounting enc copy for sec_6110 purposes


ee department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list xxxii xxxxkxkxkxkxkxkkxkkkk legend taxpayer a xxxkxkkxkkkiookk kkk ira x xxxxxkxkxxkxkkxkxkkkk xxxii account y yooxkkxkkkkkkk kkk kk amount c xxkxkkxkxkkkkkkkkkk bank z date date date xxxxxkxkxkxkkkkikkkk xxxxxkkkxkxkxkkkkkkk ooooooo0oooook kkk xoooookoxxookk ook kkk dear xxxxxxxxxxxxxkx this is in response to your letter dated date and supplemented by letters dated date date and date as submitted by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the intemal revenue code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that he received a distribution from ira x totaling amount c taxpayer a asserts that his failure to accomplish a rollover within the xxxxxxkkxkkxkkkk page 60-day period prescribed by sec_408 of the code was due to his physical and mental conditions which affected his ability to handle his financial affairs on date taxpayer a received a distribution of amount c from ira x taxpayer a represents that during the period preceding the distribution and through the end of the 60-day rollover period he was suffering from a variety of medical issues including gall bladder disease and cancer as a result of which he underwent multiple medical treatments including various tests an operation radiation treatment and chemotherapy he was also hospitalized during part of that time taxpayer a represents that in addition to his physical conditions which affected his mental capacity he was also suffering from increasing memory loss and was diagnosed with alzheimer’s shortly after the end of the 60-day rollover period taxpayer a has provided documentation showing that he was treated for these physical and mental health conditions during the period taxpayer a represents that as a result of his mental impairment on date he deposited amount c into account y a non-ira account at bank z instead of into a rollover ira amount c has remained in account y and has not been used for any other purpose taxpayer a did not become aware that a timely rollover had not been made of amount c until date while consulting with his tax accountant taxpayer a asserts that his physical and mental health conditions impaired his ability to handle his financial affairs and to complete the rollover transaction within the 60-day rollover period prescribed by sec_408 d of the code based on the facts and representations a ruling is requested that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount c 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 account is maintained if the entire amount received including money and any other_property i is paid into an ira for the benefit of such individual not later than the day after the day on which he receives the payment or distribution or the entire amount received including money and other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is cool page 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 one-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 includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 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 of the code the service will 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 the information and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover within the 60-day period prescribed by sec_408 of the code was due to his physical and mental health conditions which affected his ability to handle his financial affairs and complete the rollover within the required 60-day rollover period therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount c from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to redeposit amount c into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount c will be considered a rollover_contribution within the meaning of sec_408 of the code occt oes page this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code 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 ruling is directed solely to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file with this office if you wish to inquire about this ruling please contact xxxxxxxxxxx se t ep ra t4 d no xxxxxxxxxx pincite000000000xkx sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


department of the treasury nwasnincron o-c tax_exempt_and_government_entities_division date may -6 sin contact person identification_number telephone number teu b3 employer_identification_number - legend c i s x d i n i o i q i a t o w w b o w w o w o w a o h o o we have considered your ruling_request dated date relating to the tax consequences of a proposed transaction involving w x y and z w is an organization exempt from federal_income_tax under sec_501 of the internal_revenue_code hereinafter the code and is classified as a private_operating_foundation under sec_4942 of the code w's purposes are the following to own and operate a housing facility for the elderly own and operate an assisted living center for the physically disabled and to carry out all other purposes permitted under state charity law and sec_501 of the code y is an accredited university that offers degrees in a wide range of educational programs and subjects one educational program y operates is z the school of u z offers educational and clinical activities in u hereinafter u-program’ y represents that z is experiencing a significant decline in state funding needed to support the u program consequently y and z have asked w for assistance and w has agreed to operate z’s u program under the proposed transaction as described in the proposed agreement submitted on oroposed lease agreement and proposed bill of sale w will acquire and operate z by creating x a single member limited_liability_company for such purpose w is the sole member of x and treats x as a disregarded_entity for federal_income_tax purposes x will purchase from y all fixtures and equipment used for the u program for one dollar x cannot acquire the existing land and buildings where the u program is currently located due to stipulations on transfer of the real_estate imposed by the state and because physically moving the school and the program is not a feasible alternative therefore x will lease from y the land and buildings excluding grant-related research space for twenty years x will pay rent in the amount of dollar_figurea per year increased to reflect inflation after the first ten years which the parties represent as fair_market_value the name of the school will be changed from z to v one year after the date the lease is signed simultaneously x and y will enter into a 20-year management agreement cancelable by either party with or without cause after years and earlier under specified conditions for y to manage the school and its u program in accordance with y’s sec_501 educational mission under the proposed management agreement y as an agent for x collects and remits to x certain revenues such as tuition fees and other charges derived from the u program and pays all expenses_incurred by the veterinary school of medicine the revenues x does not receive include research grants governmental or private endowment income endowment gifts rent from buildings income generated by y's biotechnology program and any revenues not generated by the u program x will reimburse y for all expenses up to the amount of the unrestricted revenues received x can review comment upon and discuss with senior officials of y any and all individual non-salary expenses paid to any supplier vendor or other entity in connection with the u program if such expenses are greater than dollar_figure or in the aggregate exceed dollar_figure in any single year if the u program incurs a financial operating deficit in a particular year x pays up to dollar_figureb to eliminate the deficit increase to reflect inflation after the first ten years the annual deficit funding obligation carries over for up to two future years to the extent the entire dollar_figureb is not used in any one year moreover x may increase the deficit funding to a maximum of dollar_figurec per year for any two of the first four years of the term of the management agreement provided that the aggregate deficit funding for the first years does not exceed dollar_figured y is responsible for any operating deficits in excess of the deficit funding if the management agreement is terminated for any reason or expires under its terms the lease also terminates and y must purchase from x for an agreed-upon amount of dollar_figure the bill of sale related to the school and for the u program all of the tangible_personal_property as described in the u program is supervised by a board_of overseers whose duties include reviewing the activities of the school and u program under the proposed agreement w will appoint a majority of the members of the board_of overseers during the term of the management agreement the appointed members will not be employees of y y remains the accredited institution that grants degrees in u and operates the financial aid programs y continues to make all determinations regarding recruiting admission and enrollment of students tuition fees and other institutional charges the awarding and administration of student financial assistance selection and employment of faculty and the academic program including without limitation course content instructional methods and awarding of academic credits x reviews and comments upon ail academic program and related activities conducted by y the u program will continue to meet the non-discrimination requirements of revproc_75_50 1975_2_cb_587 law sec_4942 of the code defines operating_foundation to mean any organization - a which makes qualifying distributions within the meaning of paragraph or of subsection g directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated equal to substantially_all of the lesser_of i its adjusted_net_income as defined in subsection f or ii its minimum_investment_return and b i substantially more than half of the assets of which are devoted directly to such activities or to functionally related businesses or to both or are stock of a corporation which is controlled by the foundation and substantially_all of the assets of which are so devoted ii which formally makes qualifying distributions directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated in an amount not less than two-thirds of its minimum_investment_return or iii substantially_all of the support other than gross_investment_income as defined in sec_509 of which is normally received from the general_public and from or more exempt_organizations which are not described in sec_4946 with respect to each other or the recipient foundation not more than percent of the support other than gross_investment_income of which is normally received from any one such exempt_organization and not more than half of the support of which is normally received from gross_investment_income notwithstanding the provisions of subparagraph a if the qualifying distributions within the meaning of paragraph or of subsection g of an organization for the taxable_year exceed the minimum_investment_return for the taxable_year clause ii of subparagraph a shall not apply unless substantially_all of such qualifying distributions are made directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated sec_4942 of the code generally defines a qualifying_distribution as any amount_paid to accomplish purposes described in sec_170 including charitable purposes except for a distribution made to i an organization controlied directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation except as provided in sec_4942 or ii a private_foundation which is not an operating_foundation as defined in sec_4942 except as provided in sec_4942 or b any amount_paid to acquire an assets used or held for use directly in carrying out one or more purposes described in sec_170 sec_170 purposes include religious educational and charitable purposes sec_53_4942_a_-3 a i of the foundation and similar excise_taxes regulations regulations provides in relevant part that any amount including program-related investments as defined in sec_4944 and reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 or b sec_53_4942_b_-1 b of the regulations provides in relevant part that qualifying distributions are not made by a foundation directly for the active_conduct of activities constituting its charitable educational or other similar exempt_purpose unless such qualifying distributions are used by the foundation itself rather than or through one or more grantee organizations which receive such qualifying distributions directly or indirectly from such foundation thus grants made to other organizations to assist them in conducting activities which help to accomplish their charitable educational or other similar exempt_purpose are considered an indirect rather than direct means of carrying out activities constituting the charitable educational or other similar exempt_purpose of the grantor foundation regardless of the fact that the exempt_activities of the grantee organization may assist the grantor foundation in carrying out its own exempt_activities however amounts paid to acquire or maintain assets which are used directly in the foundation’s exempt_activities such as the operating_assets of a museum public park or historic site are considered direct expenditures_for the active_conduct of the foundation’s exempt_activities likewise administrative expenses such as staff salaries and traveling expenses and other operating costs necessary to conduct the foundation’s exempt_activities regardless of whether they are directly for the active_conduct of such exempt_activities shall be treated as qualifying distributions expended directly for the active_conduct of such exempt_activities if such expenses and costs are reasonable in amount sec_53_4942_b_-2 of the regulations provides in relevant part that a foundation will satisfy the endowment_test under the provisions of this paragraph if it normally makes qualifying distributions directly for the active_conduct of activities constituting its charitable educational or other similar exempt purposes in an amount not less than two-thirds of the foundation’s minimum_investment_return is not less than an amount equal to two-thirds of the foundation’s minimum_investment_return the foundation is not required to trace the source of such expenditures to determine whether they were derived from investment_income or from contributions in determining whether the amount of such qualifying distributions sec_53_4942_b_-2 of the regulations provides in relevant part that a foundation will satisfy the support_test under the provisions of this paragraph if i ii substantially_all of its support other than gross_investment_income as defined in sec_509 is normally received from the genera and from five or more exempt_organizations which are not described in sec_4946 a h with respect to each other or the recipient foundation not more than percent of its support other than gross_investment_income is normally received from any one such exempt_organization and not more than half of its support is normally received from gross_investment_income iii sec_511 of the code imposes a tax on the unrelated_business_taxable_income defined in sec_512 of organizations exempt from tax under sec_501 sec_512 of the code defines the term unrelated_business_taxable_income to mean the gross_income derived by any organization from any unrelated_trade_or_business defined in sec_513 regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b sec_513 of the code provides that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption sec_1_513-1 of the income_tax regulations regulations provides that a trade_or_business is related to exempt purposes 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 further it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one for this relationship to exist the production or the performance of the service from which the gross_income is derived must contribute importantly to the accomplishment of exempt purposes whether the activities productive of gross_income contribute importantly to such purposes depends in each case upon the facts and circumstances involved analysis ruling_request w’s proposes to expand its charitable activities to include the operation of y’s u program through its wholly owned and controlled_entity x we note that the u program has a scheduled curriculum a faculty and an enrolled body of students the u program meets the non- discrimination requirements of revproc_75_50 1975_2_cb_587 w’s proposed activity is clearly an educational activity and therefore is described in sec_501 of the code see sec_1_501_c_3_-1 of the regulations hence w’s operation of z’s u program schoo is to be renamed v through x will not adversely affect its status as an organization described in sec_501 of the code the question of whether the proposed transaction will adversely affect w’s status as a private_operating_foundation under sec_4942 is discussed under ruling_request below ruling_request the issues are the following whether the disbursements that w makes through its wholly owned and controlled_entity x to operate the u program are treated as qualifying distributions within the meaning of sec_4942 and and sec_4942 of the code whether y’s management of the u program as an agent of x meets the direct conduct of activities requirement described in sec_4942 and sec_53 b - b of the regulations ie the income test for purposes of w’s private_operating_foundation status whether w’s use of its assets to operate the u program qualifies as assets which are devoted directly to the active_conduct of the activities constituting the purpose or function for which w was organized and operated within the meaning of sec_4942 ii and sec_53_4942_b_-2 of the regulations ie the endowment test’ and whether the revenue derived from operation of the u program constitutes support from the general_public for purposes of sec_4942 iii and sec_53_4942_b_-2 of the regulations ie the support_test concerning the first issue sec_53 a -3 a i of the regulations provides in relevant part that the term qualifying_distribution means any amount including program related investments as defined in sec_4944 and reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 or b of the code such purposes include religious charitable scientific literary or educational operating a school of u c b of the code we conclude that the disbursements w will make through x to support the operation of u program are qualifying distributions within the meaning of sec_4942 and and sec_4942 of the code is clearly an educational activity and falls within the meaning of section concerning the second issue sec_4942 a of the code and sec_53 b - b of the regulations provide that a private_operating_foundation must use the qualifying distributions directly for the active_conduct of the activities constituting its purpose or function for which it is organized and operated the question is whether y’s activities on behalf of x under the proposed management agreement will be treated as activities of w payments made through x to y are treated as qualifying distributions made directly for w’s active_conduct of its exempt_activities then such qualifying distributions would be included in determining its status as a private_operating_foundation under the income test of sec_4942 and the regulations issued thereunder that is if w's based on the terms of the proposed management agreement and the particular representations provided by w we conclude that the qualifying distributions that w makes through x to y for the operation of the u program constitute qualifying distributions directly for the active_conduct of activities constituting w's exempt_purpose therefore such distributions may be used to satisfy the income test of sec_4942 of the code and sec_53_4942_b_-1 of the regulations our conclusion is based on the fact that y will be managing the school under the authority and directions of w we note that w via x has the authority to review all expenditures made for the operation of the u program to review and comment upon the academic program and related activities of the program we also note that the school’s name will be changed to reflect w's operation of the program see also revrul_78_315 1978_2_cb_271 which provides that a private operating foundation’s may form a corporation to act in a fiduciary capacity to conduct its exempt program activity and would not jeopardize its status as a private_operating_foundation furthermore and significantly through w's appointment of a majority of the school’s board_of overseers w will ensure that its assets and the activities z conducts are used to further w’s exempt purposes on w’s own terms separate from y concerning the third issue based on the terms of the proposed management agreement proposed lease agreement proposed bill of sale and proposed agreement we conclude that w’s use of its assets to operate the u program through x may be used to satisfy the endowment_test of sec_4942 of the code and sec_53_4942_b_-2 of the regulations until the time the management agreement is terminated our conclusion is based on the rationale discussed previously concerning the fourth issue we conclude that the revenue tuition fees and other related revenue derived from operation of u program may be treated as support from the general_public for purposes of the support_test of sec_4942 of the code and sec_53_4942_b_-2 of the regulations ruling_request we conclude in ruling sec_1 and that w’s proposed operation of the u program through x is an activity that contributes importantly to the accomplishment of w's exempt purposes and thus is substantially related and within the meaning of sec_513 of the code hence the revenue w received from the u program would not constitute unrelated_business_taxable_income rulings the proposed expansion of w’s charitable activities to include the funding owning assets leasing educational property and involvement in the u program do not adversely affect w’s tax exempt status under sec_501 of the code w continues to qualify as a private_operating_foundation under sec_4942 assuming it continues to satisfy the requirements of this code section the disbursements made by x on behalf of w for the operation of the u program may be treated by w as qualifying distributions within the meaning of sec_4942 and of the code the disbursements may be treated as qualifying distributions for purposes of sec_4942 of the code the disbursements may also be used for purposes of determining w’s private_operating_foundation status under sec_4942 and ili of the code the revenue w’s receives from the medicine veterinary program does not result in unrelated_business_taxable_income within the meaning of sec_512 of the code except as we have ruled above we express no opinion as to the tax consequences of the transaction under any provisions of the code this ruling is provided only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper jr robert c harper jr manager exempt_organizations technical group


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-147539-04 date november h w trust child child child year date date date accountant attorney x legend dear -------------- -------------------------------------------------- ----------------------------------------------- -------------------------- ----------------------- ------------------------------- ---------------------------------------- ------- ------------------------- -------------------------- ----------------------- --------------- ------------------------ ----------------------------------------------------------- this is in response to a letter by your authorized representative submitted on your behalf dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 to make an election out of the automatic allocation of generation-skipping_transfer gst tax under sec_2632 the facts and representations submitted are summarized as follows on date h and w established trust an irrevocable_trust for the benefit of their children child child and child primary beneficiaries the trustees of trust are h and w article three paragraph a provides that until a primary beneficiary reaches pursuant to article three of trust each primary beneficiary shall have the right plr-147539-04 to make a written demand for distribution with respect to each gift by each donor of the lesser_of the maximum federal gift_tax present_interest annual exclusion for that calendar_year reduced by previous transfers qualifying under that section in the same calendar_year the cumulative amount of all gifts made by a donor during the calendar_year divided by the lesser_of the number of primary beneficiaries or the number of primary beneficiaries specified by the donor as being able to withdraw or the amount specified by the donor as withdrawable by the primary beneficiary plus the primary beneficiary’s carryover amount from the immediately preceding calendar_year the age of thirty-five the net_income of each share of the trust estate which is set_aside for the benefit of a primary beneficiary may be paid to or used for her benefit in convenient installments or added to principal in the sole and absolute discretion of the trustee article three paragraph b provides in part that when a primary beneficiary reaches the age of thirty-five the entire net_income of the share then being held for her shall be distributed to her on at least an annual basis the trustee then acting shall have the right to distribute to said beneficiary so much of the principal including the whole thereof as they may deem appropriate in all events the share then being held for each primary beneficiary shall be distributed to her no later than her fiftieth birthday if any of the primary beneficiaries should die before she has received the entire share of the trust estate which has been set_aside for her said share or the remainder thereof as the case may be shall be divided into as many equal shares as she leaves children surviving her and one such share shall be set_aside and held for each such grandchild of h and w if said deceased primary beneficiary leaves no children then living said share or the remainder thereof shall be added to the share then being held for or previously distributed to the other primary beneficiaries on date h and w each made gifts of partial_interests in property located at x to trust h and w reported their respective gift on form sec_709 united_states gift and generation-skipping_transfer_tax return dated date form sec_709 were prepared by accountant and subsequently reviewed by attorney was to make the election out of automatic allocations pursuant to sec_2632 h and w wished to make an election not to treat trust as a gst_trust within the meaning of sec_2632 a written election out of the automatic allocation of the gst_exemption under sec_2632 on h’s and w’s respective form sec_709 was required accordingly the result of the form sec_709 as filed treat trust as a gst_trust as defined within the meaning of sec_2632 however in preparing form sec_709 accountant inadvertently failed to realize that h and w represent that their intention based on the advice from accountant plr-147539-04 attorney also failed to realize that a written election out of the automatic allocation of the gst_exemption under sec_2632 on h’s and w’s respective form sec_709 was required h’s and w’s form sec_709 were also reviewed by attorney prior to filing however h and w respectively request that h and w each be granted an extension of time under sec_301 with respect to transfers to trust in year to make the election out of automatic allocation pursuant to sec_2632 so that trust is not treated as a gst_trust within the meaning of sec_2632 sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines aapplicable rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of certain federal estate_tax or state death_tax and charitable deductions sec_2631 provides that for purposes of determining the inclusion_ratio sec_2632 provides that if any individual makes an indirect_skip during such every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable 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 indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust sec_2632 provides in part that a the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the trust instrument provides that more than percent of the trust corpus must be distributed to or may be withdrawn by one or more sec_2632 provides that for purposes of this subsection the term plr-147539-04 individuals who are non-skip persons i before the date that the individual attains age ii on or before on or more dates specified in the trust instrument that will occur before the date that such individual attains age or iii upon the occurrence of an event that in accordance with regulations prescribed by the secretary may reasonably be expected to occur before the date that such individual attains age subsection not apply to any or all transfers made by such individual to a particular trust sec_2632 provides that an election under sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_2632 provides that an individual may elect to have this sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief under this paragraph the 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 or election shall be treated as if not expressly prescribed by statute 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 gst_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 plr-147539-04 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted 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 a gst_trust is defined in sec_2632 in general as any trust that could have a generation-skipping_transfer a_trust is a gst_trust unless it meets one of the exceptions described in sec_2632 through vi where a sufficient possibility exists based on the statutory criteria that the trust corpus will not be distributed to lower generations based upon the facts submitted and the representations made none of the exceptions in sec_2632 apply to trust and accordingly trust is a gst_trust for purposes of sec_2632 further we conclude that the requirements of sec_301_9100-3 have been satisfied therefore h and w are granted an extension of time of days from the date of this letter to make the election out of the automatic allocation of gst under sec_2632 for the transfers to trust in year accordingly trust will not be treated as a gst_trust within the meaning of sec_2632 the elections should be made on supplemental form sec_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form sec_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 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury plr-147539-04 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 cc cc enclosures copy for sec_6110 purposes copy of this letter ------------------------------------------------ ----------------------------------- -------------------------------- ----------------------- ----------------------------------------------- --------------------------------