department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx tax_exempt_and_government_entities_division number release date date dec person to contact identification_number contact telephone number in reply refer to ein uil last date for filing a petition with the tax_court certified mail - return receipt requested dear our adverse determination was made for the following reasons this is a final adverse determination_letter as to your exempt status under sec_501 of the internal_revenue_code irc your exemption from federal_income_tax under sec_501 is hereby revoked effective april 20xx you have made your services use of recreational and social facilities available to the public you have exceeded the non-member income test for tax_year ending march 20xx you have not established that you are operated substantially for pleasure and recreation of its members or other non-profitable purposes and no part of the earnings inures to the benefit of private shareholder within the meaning of sec_501 you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending march 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratoly judgment be filed under sec_7428 you failed to comply with the record keeping requirements of revproc_71_17 if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the 91st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratoly judgment the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do evelything possible to help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours maria hooke director exempt_organizations examinations enclosures publication department of the treasury fi internal_revenue_service irs tax exempt and government entities exempt_organizations examinations gust fication pai taxpayer_identification_number number form filing period s ended person to contact 1d number employee id contact numbers telephone fax manager’s name id number manager’s contact number certified mail - return receipt requested response due_date dear why you are receiving this letter we've enclosed a copy of our audit report form 886-a explanation of items explaining that we propose to revoke your tax-exempt status as an organization described in sec_501 of the internal_revenue_code if you agree please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter unless you’ve already provided us a signed form we'll issue a final adverse letter determining that you aren't an organization described in sec_501 if you disagree request a meeting or telephone conference with the manager shown at the top of this letter send any information you want us to consider file a protest with the irs appeals_office and or send additional information as stated in protest with irs appeals_office after the meeting or after we consider the information if you request a meeting with the manager and above you'll still be able to file a the appeals_office is independent of the exempt_organizations division and resolves most disputes informally consent to extend the period of limitations for assessing tax_appeals office enough time to consider your case for your protest to be valid it must if you file a protest the auditing agent may ask you to sign a this is to allow the in lieu of letter contain certain specific information including a statement of the facts applicable law for specific information needed for a valid and arguments in support of your position protest refer to publication how to appeal an irs decision on tax-exempt status fast track medication ftm referred to in publication generally doesn’t apply now that we’ve issued this letter request technical_advice from office of associate chief_counsel tege if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of this letter if you disagree with the technical_advice decision you will be able to appeal to the appeals_office as explained above a decision rendered in a technical_advice_memorandum as to your exempt status however generally is final and binding on appeals if we don’t hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right you may also be eligible for help from the taxpayer_advocate_service tas tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free we'll do everything possible to help you visit www taxpayeradvocate irs gov or call you can find all forms and publications mentioned in this letter at our website at www irs gov formspubs if you have any questions you can contact the person shown at the top of this letter enclosures form 886-a audit report form_6018 exhibits publications and sincerely lemon schoen acting group manager for maria hooke director exempt_organizations examinations in lieu of letter schedule number department of the treasury - internal_revenue_service or exhibit form 886-a date name of taxpayer tax identification_number last digits year period ended 20xx explanations of items issue whether the c of the internal_revenue_code irc is still qualified to be exempt under section issue whether the revocation of the applied retroactively to tax_year beginning april 20xx tax-exempt status should be facts was created for the common purpose for pleasure and recreation to operate a golf course described in sec_501 the course is 9-holes with several pine trees the club obtained its exempt in september 19xx the club the club did not provide records per rev_proc to indicate nonmember income from the gaming restaurant club rental and tournaments at the facility the calendar for club rental was not available due to computer malfunction forms for the years ending march 20xx 20xx and 20xx showed the following for green fees and membership fees gross_receipts year of audit 20xx o o o o 20xx 20xx green fees membership fees green fees membership fees total green fees membership fees total total form 886-a rev catalog number 20810w www irs gov o o o o page form 886-a date name of taxpayer department of the treasury - internal_revenue_service se number tax identification_number last digits year period ended 20xx explanations of items bylaws the bylaws were revised november 19xx to be a member the person must be a legally competent person of good reputation who pays the required membership green fees paid before paying for membership will not be credited toward the membership each member shall be entitled to one vote upon each matter at a meeting of members family memberships are limited to two votes it states there is no fee for social members facilities the club has a building with a bar and restaurant along with the 9-hole golf course entry observed the registration process and the video camera upon entering the are plaques of contributions labeled and found toys for children calendar snacks restrooms and one office there are no signs or notifications of members only or visit three times notifications to encourage membership no key card system at dollar_figure to dollar_figure all the way up to there up to dollar_figure lost bar eating and kitchen areas has a chair u-shaped bar bar area serves pizza and other snacks two the toaster ovens for pizza storage area near bar is for bottled water and pop there is another storage fully stocked with a variety of beers the bar stores liquors that take up four shelves from has 0-person capacity there are several menus shown in on the ceiling to wall the website which describes a full kitchen in the eating area there is an atm machine juke box and pull tab machine the kitchen contains 1-fridge full of beer full professional kitchen more refrigerators ovens grill freezers patios the club has two patios one screened in one is not they each have approximately heated lamps and several tables in each one has a grill for the grill your own steak or burger days these are the days when there is no staff these are the men’s and ladies nights on wednesday and thursdays exhibits a b e club operations the club charges a membership fee of dollar_figure for social members in contradiction to its bylaws people within golf course and club called the the states the golfers may register and rent carts at any time and 0-mile radius use the the website shows the golf course and the in the winter the and in the winter to close the kitchen is open to hours it is open to the club uses the honor system for self-registration the website instructs golfers to use the registration process located at the and amount be put on the registration form and dropped in the registration box there is a video door the instructions ask for the name date fee catalog number 20810w page www irs gov form 886-a rev schedule number department of the treasury - internal_revenue_service or exhibit explanations of items tax identification_number last digits year period ended form 886-a date name of taxpayer 20xx camera located at entrance to monitor the registration area the carts are located to the west of the club with gas and keys instructions to check the carts for flat tires before use anyone can use carts on the course the website advertises to golfers members and the public to have all their special events at the the website is very informative with pages labeled home golf course tournaments events membership and gallery you can take a virtual tour of the course and the you can call the club manager or email your request the club’s website never states it is a private club on their website website that this is a private club you can sign up for a tournament or rent out the com exhibits a-f there is no indication on the _ in addition to the golf and bar the club sells pull-tabs including its own bar the total gross_income from the gaming sales is dollar_figure it sells pincite different sites in the area memberships the club has six classes of membership family golfing membership this includes all children through the summer following high school graduation dollar_figure adult single golfing membership dollar_figure social membership for non-golfing supporters of the club dollar_figure student membership for any high school or college students parents are not members dollar_figure long drive family membership for those living outside of a 0-mile radius from the club dollar_figure long drive single membership for those living outside of a 0-mile radius from the club dollar_figure the membership list for the 20xx tax period totaled members for all types of members the highest membership cost is for family of dollar_figure the lowest cost for a social member is dollar_figure demographics this is a highly rural_area below shows the population of and distance to the surrounding towns the closest public golf course is in the total population for the 0-mile radius below is population of it is o-holes located within miles of has a population of per the 20xx census the chart catalog number 20810w page www irs gov form 886-a rev form 886-a date name of taxpayer seneca number department of the treasury - internal_revenue_service explanations of items tax identification_number last digits year period ended 20xx form_990 tax period ending march 20xx the correct gross_income of dollar_figure was computed the program expenses of dollar_figure was reported the form_990 part lll line 4a states to provide a place to socialize and ineract while at the golf course revenue and expenses related to this program help to maintain the condition of the golf club and golf course club house provided to the public part lil line 4b states hole golf course that allows the public to play and learn the game of golf the revenue and expenses associated with this program help to maintain the condition of the golf course part ill line 4c states the gaming program is available to the public in the name of the tax exempt_organization to help with the upkeep of the club house and course expenses are to help with the gaming cost incurred events does not have a community center in the city anyone can rent the for an event when the space is rented it is for the bar and the restaurant area there are no partitions the form_990 states the club is providing social interaction for the community the website lists all the golfing events held at the club and the opportunity for the public to rent the club the website several non-profit organizations com lists several social clubs or events the city has to name a few some of the clubs are also available for rental from the public there is a community garden and a there is the provides live plays and performances for the community the city has a diverse amount of activities for the public exhibit e minutes per the minutes of the board meetings the club has been struggling to keep the cash_flow above its expenses it has increased the members’ dues in the past years because surrounding areas have golf courses it is in competition for the rural members in the area there was a three-page analysis regarding the pricing of the food in the restaurant to lower the to achieve a higher profit there was also discussion of the kitchen manager receiving a percentage tied to the gross net profit of the restaurant catalog number 20810w page www irs gov form 886-a rev form 886-a date name of taxpayer department of the treasury - internal_revenue_service sen tn number tax identification_number last digits year period ended 20xx explanations of items law sec_501 - clubs organized for pleasure recreation and other nonprofitable purposes substantially_all the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder regs sec_1_501_c_7_-1 social clubs a the exemption provided by sec_501 for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities b a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes and is not exempt under sec_501 solicitation by advertisement or otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure recreation or social purposes however an incidental sale of property will not deprive a club of its exemption reg sec_1_501_c_7_-1 revproc_71_17 1971_1_cb_683 describes the record-keeping requirements for social clubs exempt under sec_501 with respect to nonmember use of their facilities it sets forth guidelines for determining the effect of gross_receipts derived from public use of the club’s facilities on exemption and liability for unrelated_business_income_tax gross_receipts_test public law sec_501 was amended in by public law to provide that sec_501 organizations could receive some outside income without losing their exempt status senate report no 2d session 1976_2_cb_597 explains that a social_club is permitted to receive up to percent of its gross_receipts including investment_income from sources outside of its membership without losing its tax-exempt status it is also intended that within thi sec_35 percent amount not more than percent of the gross_receipts should be derived from the use of a social club's facilities or services by the general_public nonmembers in effect the latter modification increases from percent rev_proc c b to percent the proportion of gross_receipts a club may receive from making its club facilities available to the general_public without losing its tax- exempt status the senate report also states that it is not intended that these organizations should be permitted to receive within the percent or percent allowances income from the active_conduct of catalog number 20810w page www irs gov form 886-a rev form 886-a explanations of items department of the treasury - internal_revenue_service senet number tax identification_number last digits year period ended date name of taxpayer 20xx businesses not traditionally carried on by these organizations in cases where an organization's nontraditional income would cause the organization to exceed the or percent allowances consideration should be given as to whether the organization continues to be substantially operated for sec_501 purposes according to the committee reports where a club receives income from other sources non- traditional or unusual including income from the sale of its clubhouse or similar facility that income is not to be included in the formula that is such income is not to be included in either the numerator or the denominator for purposes of computing the or percent allowances the committee reports provide that gross_receipts include charges admissions membership fees dues assessments investment_income such as dividends rents and similar receipts and normal recurring capital_gains on investments but excluding initiation fees and capital contributions where college fraternities or sororities charge membership initiation fees but not normal dues such fees will be included in their gross_receipts notwithstanding that initiation fees are ordinarily excluded senate report 2d session 1976_2_cb_599 taxpayer’s position the organization had a conference with the group manager __ correspondence was received from poa after that conference the organization indicated it wants more time to show that it receives most its income from members government’s position the organization is no longer qualified to be exempt under sec_501 because more than of its gross_income is from non-members and it receives more than of its income for use of the facilities from non-members as provided in public law an organization exempt from tax under sec_501 can’t receive more than of the income for use of the facilities from non-members and not more than of its income can come from non-member sources gross reciepts test the test pertains to the use of the golf course and the building the chart below shows the income reported on the forms from tax periods ending 3-31-20xx to 20xx for use of the golf course the green fees are the amounts charged non-members to use the course all years are greater than the set by public law the trend is and from 20xx to 20xx respectively catalog number 20810w page www irs gov form 886-a rev schedule number form 886-a date name of taxpayer tax identification_number last digits year period ended explanations of items - internal_revenue_service department of the or exhibit ae 20xx treasury t gross green fees receipts year of audit 20xx green fees membership fees total o o o o 20xx o o o o o green fees membership fees green fees membership fees 20xx total total catalog number 20810w page the forms for the tax periods ending march 20xx to 20xx were used to determine the percentage of green fees paid_by nonmembers and the membership dues the total of these is divided by the green fees to determine what percentage of the income is from non-members the income statement for the tax period ending march 20xx was provided and used to verify the form_990 figures the organization has income from membership dues green fees for golfing cart shed rent cart rent gaming rental of the treasurer’s income records with the calculated percentage for 20xx the records confirm an exceeded amount of the test to be and tournament below is the test done with the www irs gov form 886-a rev sche number form 886-a date name of taxpayer department of the treasury - internal_revenue_service explanations of items tax identification_number last digits year period ended 20xx power_of_attorney poa sent correspondence of check payments made by the members in the facility the calculation of computed by the poa exceeds the calculation made by the examiner exhibit h calculation of nonmember gaming income chart deleted the following chart shows the total gross_income from all sources public law provides that no more than of the gross_income should come from non-member sources as shown on this is from non-members because this is more than the allowed by the law the organization does not qualify to be exempt under rc sec_501 chart deleted the club does not meet the test based on the facts of the examination the club does not qualify for exemption because the operations were more than substantial for nonmembers from april 20xx to march 20xx the club has received more than of its income from non-members and of that more than was for use of the facilities the public law and senate report no amended sec_501 as of october 19xx provide that to be exempt under sec_501 a club is limited to receiving of its income for use of club facilities from nonmembers this organization substantially exceeded the limitation from nonmember income for three consecutive years for 20xx the organization had total expenses of dollar_figure to operate the club were paying for expenses each member would pay about dollar_figure in a year dues at dollar_figure it would need members the population in in a 0-mile radius is there is a public course within miles the chances of the club being able to increase membership dues or the number of members is very limited the non-member income it already has these factors show that the club would not be able to survive without the large amount of non-member income that it receives its minutes already indicate it was struggling to operating with if it wanted to keep the if only the members catalog number 20810w page www irs gov form 886-a rev schedule number department of the treasury - internal_revenue_service or exhibit form 886-a date name of taxpayer tax identification_number last digits year period ended explanations of items 20xx the idea of exempt status by social and recreational_clubs is that the members will pool their money to operate the club revproc_71_17 requires for social clubs exempt under sec_501 to keep track of amounts paid_by members for their guests’ use of the club the organization did not have any of the required records so it is assumed that the non-members paid their own fees and were not guests of the members this requirement is for use of the club facilities the club did not comply with sec_1_501_c_7_-1 because it made the club available to the general_public by solicitation of advertisement for public patronage of its facilities before the proposal of revocation facts and circumstances was performed facts and circumstances was conducted by using a three-year trend to consider an inadequate record notice the additional nonmember income from outside the facility exceeded sec_501 requirements the club has outside gaming income at several vendor locations the gaming license is for social recreation at the club for its members and guests the club received more than of its income from non-member sources it does not meet the gross_receipts_test for the tax period ending march 20xx the total income was dollar_figure of that dollar_figure is from gaming income the gaming income is of the club’s income of the club’s income gaming income is from non-members the club is under the misconception they are a social_club for the public versus a private club even if the organization could establish that its members paid for of the use of the facilities it still would not qualify to be exempt because over of its income is from non-members the sale of pull-tabs to the public would always have them over non-member income but the organization cannot maintain its facilities without the pull-tab income so it will always be over the from non- members this confirmed the inadequate records notice was not the appropriate recommendation normally there should never be an inadequate records notice for an organization exempt under sec_501 because revproc_71_17 is required the analyzed gross_receipts computation concluded the public is supporting the club because the income from use of facilities is over the allowance is maintaining the golf course and the upkeep of the club as stated by the form_990 this is inurement to the members some of the memberships are for family at dollar_figure all o members regardless of the type of membership should be paying approximately dollar_figure to support the facility income of dollar_figure or members for 20xx logical and financial analysis would not see this price for a membership or spending per member in the facility to be realistic issue whether the c of the internal_revenue_code irc is still qualified to be exempt under catalog number 20810w page www irs gov form 886-a rev schedule number department of the treasury - internal_revenue_service or exhibit form 886-a date name of taxpayer tax identification_number last digits year period ended explanations of items 20xx the club does not qualify to be exempt under sec_501 because it receives more than of its total income from nonmembers and it receives more than of the income for use of the facility is from nonmembers the club does not meet the requirements to be exempt under sec_501 of the code public law sec_1_501_c_7_-1 and rev_proc issue whether the revocation of the be applied retroactively to tax_year beginning april 20xx tax-exempt status should the form_990 statements filed for 20xx to 20xx show the club has consistently exceeded the limitations for income from nonmembers since the first year under examination is the year ending march 20xx it is the government's position that the exempt status should be revoked back to april 20xx conclusion the club as an organization described under sec_501 should be revoked effective april 20xx because it did not operate within the provisions for exempt purposes the club exceeded the amount of allowable nonmember income for three consecutive years therefore no longer qualifies to be exempt per sec_277 of the internal_revenue_code code a non-exempt organization that is a membership_organization is allowed a deduction for expenses that relate to the operation of the organization for its members sec_277 states that in the case of a social_club or other membership_organization which is operated primarily to furnish services or goods to members and which is not exempt from taxation deductions for the taxable_year attributable to furnishing services insurance goods or other items of value to members shall be allowed only to the extent of income derived during such year from members or transactions with members including income derived during such year from institutes and trade shows which are primarily for the education of members ’ when completing the form_1120 the organization must divide the income and expenses between the member and nonmember activities if there is a loss from the membership activity it cannot be used to offset the income from the nonmember activities a loss on the member activity can be carried forward to a later year to be taken against member income form_1120 u s_corporation income_tax returns are due no later than the 15th day of the 4th month following the close of their tax_year the club will file the annual form_1120 beginning in the tax_year april 20xx through march 20xx and in ail future tax years the exempt_organization will submit forms for tax years ending march 20xx march 20xx to the revenue_agent catalog number 20810w page www irs gov form 886-a rev


t c summary opinion united_states tax_court charles o onyeulo petitioner v commissioner of internal revenue respondent docket no 17352-06s filed date charles o onyeulo pro_se marc l caine for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time 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 case unless otherwise indicated subsequent section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure this collection case is before the court on respondent’s motion for summary_judgment filed pursuant to rule and petitioner’s objection thereto background petitioner lived in new york when he filed the petition the following facts are uncontested or established by the record petitioner and his former spouse hereafter mrs onyeulo timely filed joint federal_income_tax returns for and respondent examined those returns and determined deficiencies related to disallowed deductions for a business petitioner owned and operated during the examination petitioner and respondent’s examiner exchanged correspondence and held meetings petitioner signed forms 4549-cg income_tax examination changes for and for there is nothing in the record indicating that mrs onyeulo signed either form 4549-cg the following language appears directly above petitioner’s signature on each of the forms 4549-cg consent to assessment and collection - i do not wish to exercise my appeal rights with the internal_revenue_service or to contest in united_states tax_court the findings in this report therefore i give my consent to the immediate_assessment and collection of any increase in tax and penalties during the examination respondent learned that petitioner and mrs onyeulo had two separate residences one in new york the other in ohio respondent mailed a statutory_notice_of_deficiency to petitioner and mrs onyeulo at both the new york and ohio addresses the notice_of_deficiency determined deficiencies and accuracy-related_penalties for and identical to the deficiencies and penalties listed in the forms 4549-cg neither petitioner nor mrs onyeulo filed a petition in response to the notice_of_deficiency petitioner denied receiving the notice_of_deficiency respondent filed a notice_of_federal_tax_lien reflecting tax_liabilities of dollar_figure and dollar_figure for and respectively respondent mailed petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 petitioner responded with a timely form request for a collection_due_process_hearing petitioner challenged the petitioner and mrs onyeulo executed form_872 consent to extend the time to assess tax which extended the assessment_period to date respondent mailed the notice_of_deficiency on date it is not clear from this record why respondent issued a notice_of_deficiency to petitioner respondent’s counsel could not explain why a notice was issued given that petitioner signed forms 4549-cg income_tax examination changes the notice_of_deficiency and form 4549-cg for reflect a deficiency of dollar_figure and a sec_6662 penalty of dollar_figure the notice_of_deficiency and form 4549-cg for reflect a deficiency of dollar_figure and a sec_6662 penalty of dollar_figure at a time not apparent from the record but after the issuance of the notice_of_deficiency respondent granted mrs onyeulo relief under sec_6015 for the joint federal_income_tax liabilities for and she is not a party to this proceeding underlying tax_liabilities asserting that his business was not profitable he further asserted that respondent’s agents mishandled petitioner’s documentation petitioner raised only challenges to the underlying tax_liabilities during a telephone conference the settlement officer so informed petitioner that he could not challenge the underlying tax_liabilities with the appeals_office during the collection hearing because he had previously had an opportunity to dispute those liabilities the so advised petitioner that he could seek an audit_reconsideration to request review of the determination and assessment respondent issued a notice_of_determination concerning collection action which stated that the so verified that the legal and procedural requirements had been met addressed the relevant issues petitioner raised and considered whether the proposed collection action balanced the need for efficient collection with the concern that collection be no more intrusive than necessary respondent sustained the filing of the federal_tax_lien in his timely petition for review of the collection action petitioner disputed the accuracy and fairness of the deficiency determinations and asked the court to vacate his tax_liabilities for and respondent filed a motion for summary_judgment and petitioner and respondent’s counsel appeared and were heard at a hearing on the motion discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule a and b the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are viewed in the light most favorable to the nonmoving party 119_tc_252 85_tc_812 79_tc_340 the party opposing summary_judgment must set forth specific facts which show a genuine question of material fact exists and may not rely merely on allegations or denials in the pleadings 91_tc_322 87_tc_214 in reviewing the commissioner’s decision to sustain collection actions where the validity of the underlying tax_liability is properly at issue the court reviews the commissioner’s determination of the underlying tax_liability de novo 114_tc_604 114_tc_176 the court reviews any other administrative determination regarding proposed collection actions for an abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite if the court finds that a taxpayer is liable for deficiencies additions to tax and or penalties then the commissioner’s administrative determination sustaining the collection action will be reviewed for an abuse_of_discretion see 118_tc_22 godwin v commissioner tcmemo_2003_289 affd 132_fedappx_785 11th cir a lien automatically attaches to the real and personal_property and rights therein of a person liable to pay any_tax who neglects or refuses to pay such tax after demand sec_6321 sec_6320 requires that the secretary give the taxpayer written notice of the filing of a tax_lien sec_6320 and b provides that the notice shall inform such person of the right to request a hearing in the commissioner’s appeals_office a collection hearing reviewing the filing of a federal_tax_lien follows the procedures set forth in sec_6330 d and e sec_6320 collection hearings are to be conducted by the commissioner’s office of appeals and the appeals officer conducting the hearing must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 c at the hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the collection action sec_6330 the taxpayer may also raise challenges to the existence or amount of the underlying tax_liability if the taxpayer did not receive any statutory_notice_of_deficiency with respect thereto or did not otherwise have an opportunity to dispute the liability sec_6330 at the conclusion of the hearing the appeals officer must determine whether and how to proceed with collection and shall consider the verification that the procedural and statutory requirements have been followed the relevant issues raised by the taxpayer where permitted the taxpayer’s challenges to the underlying tax_liability and whether the collection action properly balances collection efficiency and intrusiveness sec_6330 respondent contends that he is entitled to summary_judgment because the only issue petitioner raised during the collection hearing was his challenge to the underlying tax_liabilities respondent argues that petitioner’s receipt of the notice_of_deficiency and or his other opportunity to dispute the underlying tax_liabilities precluded him from raising such a challenge citing sec_6330 as noted petitioner alleges that he did not receive the notice_of_deficiency for and because this is a summary_judgment proceeding we view factual inferences in the light most favorable to the nonmoving party see craig v commissioner supra pincite the disputed receipt of the notice_of_deficiency may raise a genuine issue of material fact however there is an additional basis for denying petitioner the opportunity to challenge the underlying tax_liabilities sec_6330 is stated in the disjunctive a taxpayer may challenge the existence or amount of the underlying tax_liability if he did not a receive a notice_of_deficiency or b otherwise have an opportunity to dispute the tax_liability the record shows that petitioner executed forms 4549-cg for and by signing forms 4549-cg a taxpayer acknowledges that he had an opportunity to dispute the subject tax_liabilities and waives that right to challenge those liabilities before payment 124_tc_223 horn v commissioner tcmemo_2002_207 see 117_tc_324 therefore even though petitioner disputes receiving the notice_of_deficiency his execution of the forms 4549-cg satisfied the alternate prong of sec_6330 and precluded him from challenging the underlying tax_liabilities in the collection proceeding finally as stated in the notice_of_determination the so verified that the procedural and administrative requirements had been met and considered whether the proposed collection action balanced intrusiveness and collection efficiency see sec_6330 the only issue petitioner raised at the collection hearing in his petition and at the hearing on the motion for summary_judgment was his challenge to the underlying tax_liabilities as discussed petitioner was precluded from challenging the underlying tax_liabilities before the so it follows that it was not an abuse_of_discretion for the so to refuse to entertain such a challenge we conclude that no genuine issue of material fact remains and hold that respondent is entitled to judgment as a matter of law we shall grant respondent’s motion for summary_judgment respondent’s determination sustaining the federal_tax_lien is sustained to reflect the foregoing an appropriate order and decision will be entered


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l date number release date cc pa apjp b03 tl-n-3285-98 uilc dollar_figure internal_revenue_service national_office field_service_advice memorandum for john m altman senior trial attorney cc ner podcin from curtis g wilson assistant chief_counsel administrative provisions and judicial practice cc pa apjp subject disguised sale this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice tl-n-3285-98 legend date date a b c d e f issues whether partnership items include the determination that a series of contributions and distributions entered into by related partnerships and their partners constitute a disguised sale conclusions contributions to and distributions from a partnership constitute partnership items and are properly determined in a notice of final_partnership_administrative_adjustment fact sec_1 on date a loaned dollar_figurex to b and also purchased an option to later purchase an interest in b at the time of the loan b’s primary partners were the c group b distributed the loan proceeds to c and c executed term loans in favor of b in the aggregate of dollar_figurex b pledged the term loans as security for the a loan during date b divided into two continuing entities b and d c contributed to d an interest in b in exchange for an interest in d some of the c group made new guarantees of the a loan and a released the term loans as security b in turn transferred the term loans to d d then transferred its interest in b to b e contributed_property to b in exchange for an interest therein in exchange for an interest in e a transferred to e an interest in the a loan and an interest in the 1this is an abbreviated version of only those facts that are necessary to resolve the question presented the complete details of the transaction are not set forth herein tl-n-3285-98 option to purchase b similarly f which owned an interest in the a loan and option transferred its entire_interest in those items to e in exchange for an interest therein through this series of transactions e obtained on interest in the a loan and all of the option e contributed its interest in the a loan and option to b in exchange for an interest therein a contributed its remaining interest in the a loan to b in exchange for an interest in b the loan was retired after this series of transactions d held the term loans as a partnership asset c who owned nearly all of d pays the interest on the loans through a circular escrow arrangement whereby the interest is deposited into an escrow account paid to d from the escrow account and returned to the same escrow account as a cash distribution the irs has determined that the series of transactions occurring during date constituted a disguised sale of a portion of c’s interest in b to a and e it has further been determined that d’s ownership of the term loans lacks economic_substance as demonstrated by the circular escrow arrangement and that the loans should be treated as having been distributed directly from b to c law and analysis in congress enacted the tefra unified_audit and litigation procedures to simplify and streamline the partnership audit litigation and assessment process the underlying principle of tefra is that the tax treatment of items of partnership income loss deductions and credits will be determined at the partnership level in a unified partnership proceeding rather than separate proceedings with the partners conf_rep no pincite 1982_2_cb_600 a ‘partnership item’ means any item required to be taken into account for the partnership’s taxable_year to the extent prescribed by the commissioner’s regulations as an item that ‘is more appropriately determined at the partnership level’ 87_tc_783 quoting sec_6231 the ultimate issue in the present case is whether the adjustments at issue in the examination of b are partnership items despite the complexity of the overall series of transactions each transaction standing alone is either a contribution or distribution to a partnership thus the issue is whether contributions to and distributions from a partnership constitute partnership items 2the incoming request does not question the applicability of the tefra provisions to b therefore the issue will not be addressed herein tl-n-3285-98 generally partnership items are items of income gain loss deduction and credit see sec_301_6231_a_3_-1 the regulations promulgated under sec_6231 however sets forth the full list of what constitutes partnership items among the items expressly listed are items related to contributions distributions and certain transactions in which a partner is not acting as a partner see sec_301_6231_a_3_-1 the determination of whether these items are in fact partnership items turns in part on the extent to which the partnership is required to determine the character and amount of a partner’s interest in the partnership for purposes of partnership books_and_records id the regulation clarifies by providing specific illustrations see generally sec_301_6231_a_3_-1 for purposes of its illustration regarding contributions the regulation states that the partnership needs to determine among other things the character of an amount received from a partner for example whether it is a contribution a loan or a repayment of a loan sec_301_6231_a_3_-1 it is the character of the amount received from the partners that are among the items at issue here and the character of the amounts received clearly fall within the definition of partnership items for purposes of its illustration regarding distributions the regulation states that the partnership needs to determine among other things the character of an amount transferred to a partner for example whether it is a distribution a loan or a repayment of a loan sec_301_6231_a_3_-1 it is the character of amounts transferred to partners that are among the items at issue here and the character of amounts transferred clearly fall within the definition of partnership items it must be noted however that the list set forth in the regulations is broad and inclusive partnership items not only include those items expressly listed such as the information underlying contributions and distributions but also the legal and factual determinations that underlie the determination of the amount timing and characterization of items of income credit gain loss deduction etc sec_301_6231_a_3_-1 for example in doe v commissioner ustc big_number 10th cir the service made certain basis determinations in a partner level deficiency proceeding that were inconsistent with the partnership’s characterization of certain loans on appeal the tenth circuit held that absent a tefra proceeding the service was bound by the treatment of the loans on the partnership’s books_and_records the corollary to this is that the proper method to challenge the characterization of a loan is at the entity level 3we also note that the recent case of rhone-poulenc surfactants specialties l p v commissioner t c no date similarly involved the tl-n-3285-98 having determined that the transactions at issue are partnership items a question remains as to which entity they belong among the adjustments to be made the service seeks to recharacterize the transfer of the term loans from b to d as a distribution from b to c it follows that a corresponding adjustment must be made to d’s characterization of the same transaction as well as its treatment of the term loans as valid indebtedness therefore notices of final_partnership_administrative_adjustment should be issued to both b and d case development hazards and other considerations please call if you have any further questions recharacterization of contributions and distributions in its opinion the tax_court noted without further inquiry that the parties agreed that the recharacterization issue was a partnership_item this is significant because the court’s jurisdiction in the proceeding was limited to partnership items see sec_6226 thus if the court concluded that the disguised sale issue was not a partnership_item it would have been incumbent on the court to dismiss the action sua sponte 424_us_737 though neither party has questioned the jurisdiction of the court_of_appeals to entertain the appeal we are obligated to do so on our own motion if a question thereto exists


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date legend p name of scholarship program y company name z school district x dollar_figure amount dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and you are classified as a private_foundation as defined in sec_509 you indicate that you will operate a grant-making program called p to provide college level educational scholarships to high school seniors in the z to one time scholarships per year in the amount of x tuition textbooks and lab fees that may be used at any accredited university college or trade school the number of individual scholarships available are two for each high school in z plus one for a home schooled individual the number of grants awarded will vary based on the selection criteria and number of applicants the grants would be for you expect to award up the scholarship program is publicized in z’s which is distributed to students and high school counselors the website of y also lists the scholarship application criteria and contact information brochures are also distributed each year at public events that are attended by high school seniors additional information is also faxed to guidance counselors and key club contacts at each high school eligibility criteria are as follows e au citizen or legal permanent resident e a high school senior attending school or home schooled in z e e e e completion of hours of community service within the previou sec_12 months as validated by school counselor agency or organization a minimum grade point average of on a scale a goal of pursuing a degree at an accredited post-secondary institution not achild or grandchild of employees or officers of y or its sister or parent companies applicants must complete and submit an application available from z between march and each year the applicant must also include an official high school transcript a personal statement outlining career goals and aspirations a word essay explaining why community service is important a resume of community service projects number of volunteer hours school activities awards and recognition school community leadership and academic achievement must also be submitted along with a letter of recommendation from a school official and one to three letters of recommendation from an agency or organization where the student has volunteered scholarships will be awarded by the selection committee comprised of volunteers who are active employees of y who are solicited each year to participate in the selection process scholarships are sent directly to the trade school_college_or_university and all unused funds are returned to you each student receives a scholarship enrolment form which states the program requirements each student is required to sign and return this form prior to processing the scholarship check a notification letter is sent with the check to the educational_institution asking that the award be credited to his her account to be used for tuition textbooks or lab fees the letter includes directions to the educational_institution to return the funds back to you if the student withdraws transfers to another institution or has surplus funds from this scholarship scholarship recipients are notified by us postal service first class mail each recipient is required to sign and return a scholarship enrollment form to you with the name and address of the institution the student will attend a copy of the admission letter and an acknowledgement of the policy requiring the return of unused funds to the foundation disqualified persons as defined in sec_4946 of the internal_revenue_code and the related regulations managers and officers of the foundation and y and their spouses ancestors lineal_descendants and spouses of lineal_descendants are prohibited from receiving scholarships scholarship recipients are encouraged to attend y’s youth leadership discovery program held in april may this five day program prepares scholarship recipients for the challenge of life beyond high school by providing them with the opportunity to sharpen their leadership skills and to become active leaders in the community a scholarship reception is held at y’s offices immediate_family members of the recipient are encouraged to attend an award reception is held after graduation from y’s youth leadership program recognizing the accomplishments of the scholars recipients will be featured in various promotional materials d a you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes you will retain all records pertaining to all grants to individuals as described above such records shall contain all information secured to evaluate the qualification of potential recipients identification of grant recipients and specification of the amount and purpose of each grant sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i i1 its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-115002-03 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 in year a as the president of x represents that x was intended to be an s_corporation beginning year its first taxable_year however no form_2553 election by a small_business_corporation was filed with the internal_revenue_service for year x filed a form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a plr-115002-03 copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 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 x’s authorized representative sincerely yours j thomas hines chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c date cc dom fs corp tl-n-710-97 uilc number release date internal_revenue_service national_office field_service_advice memorandum for from steven j hankin chief corporate branch field service division cc dom fs subject loss_deferral under sec_267 this field_service_advice fsa responds to your memorandum dated date supplementing an fsa issued date two additional fsa’s were issued on date and date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend p sec_1 sec_2 sec_3 f1 f2 x y dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg adollar_figureh adollar_figurei adollar_figurej adollar_figurek adollar_figurem dollar_figuren adollar_figureo adollar_figurep adollar_figureq adollar_figurer dollar_figures dollar_figuret dollar_figureu dollar_figurev aa bb date date date date year year country x issues whether the p group correctly applied the basis shifting rules of sec_267 in determining sec_3's loss on the sale of the f2 stock to x whether the service can assert the application of sec_269 to sec_3's acquisition of the f2 stock conclusions the p group correctly applied the basis shifting rules of sec_267 in determining sec_3's loss on the sale of the f2 stock to x the service cannot assert the application of sec_269 because the control requirement is not satisfied facts during the year at issue p was the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return p owned all of the stock of sec_1 which owned all of the stock of sec_2 which owned all of the stock of sec_3 sec_1 sec_2 and sec_3 were all members of the p consolidated_group sec_3 owned all of the stock of f1 which owned all of the stock of f2 f1 and f2 are each country x corporations on date the following steps took place sec_1 contributed dollar_figurec to the capital of sec_2 which contributed this money to the capital of sec_3 which borrowed dollar_figured from sec_1 and used dollar_figuree1 to purchase adollar_figureh sec_3 contributed adollar_figurei of the adollar_figureh it received from sec_2 to the capital of f1 in exchange for aa shares of adollar_figure par_value f1 stock this exchange qualified as tax-free under sec_351 and increased sec_3's basis in f1 by adollar_figurei or dollar_figurea f1 contributed the adollar_figurei plus adollar_figurej of its own funds for a total contribution of adollar_figurek to the capital of f2 in exchange for bb shares of class b adollar_figure convertible redeemable preference shares this exchange qualified as tax-free under sec_351 and increased f1's basis in f2 by adollar_figurek f1 sold f2 to sec_3 for adollar_figurem dollar_figuren and realized a loss of adollar_figureo which was deferred under sec_267 however you believe that this deferred loss became part of sec_3's basis in f2 pursuant to temp sec_1_267_f_-1t c when sec_3 sold f1 to x on date see below we note that this amount of dollar_figuree is less than the total amount of dollar_figuref that sec_3 received or borrowed dollar_figurec dollar_figured the difference of dollar_figureg dollar_figuref - dollar_figuree is not accounted for although it may have represented the cost of purchasing the country x dollars sec_3 contributed adollar_figurep the difference between the adollar_figureh it received from sec_2 and the adollar_figurei it previously contributed to f2 through f1 to the capital of f2 thus sec_3 directly and indirectly contributed the entire adollar_figureh it received from sec_2 to the capital of f2 on date sec_3 sold the stock of f1 to x for dollar_figures p claimed a long term capital_loss of dollar_figureb on its consolidated_return for the year ending date of which dollar_figuret was deducted the remainder dollar_figureu was carried back to the year tax_year and fully utilized in year sec_3 sold f2 to y and again realized a loss of approximately dollar_figurev attributable in part to the basis_adjustment reflecting f1's deferred loss on the sale of f2 which increased sec_3's basis in f1 by such amount under sec_267 this loss was utilized on p's consolidated_return you have asked whether the p group correctly applied sec_267 sec_267 law and analysis law sec_267 provides that no deduction shall be allowed in respect of any loss from the sale_or_exchange of property directly or indirectly between persons specified in any of the paragraphs of sec_267 sec_267 provides that the persons referred to in sec_267 are two corporations which are members of the same controlled_group as defined in sec_267 sec_267 provides that for purposes of this section with exceptions not relevant here the term controlled_group has the meaning given to such term by sec_1563 sec_267 provides that in the case of any loss from the sale_or_exchange of property which is between members of the same controlled_group and to which sec_267 applies sec_267 shall not apply but such loss shall be deferred until the property is transferred outside such controlled_group and there would be a recognition of loss under consolidated_return principles or until such other time as may be prescribed in regulations sec_1_267_f_-1t a provides that sec_1_267_f_-1t applies to a loss on the sale of property between two members of a controlled_group that do not join in filing a consolidated_return for the taxable_year the loss is incurred sec_1_267_f_-1t b provides that the term group means controlled_group the term controlled_group is defined in sec_267 thus excluded members referred to in sec_1563 such as foreign_corporations are not excluded from a group sec_1_267_f_-1t b provides that the term member means a corporation included in a controlled_group sec_1_267_f_-1t c provides that except as otherwise provided in this section the rules for deferred intercompany_transactions in sec_1 apply under sec_267 to the deferral and restoration of loss on the sale of property directly or indirectly between the selling member and the purchasing member as if i the taxable_year in which the sale occurred were a consolidated_return_year as defined in sec_1_1502-1 and ii all references to a group or an affiliated_group were to a controlled_group sec_1_267_f_-1t c provides that if a selling member of property for which loss has been deferred ceases to be a member when the property is still owned by another member then for purposes of this section sec_1_1502-13 shall not apply to restore that deferred loss and that loss shall never be restored to the selling member sec_1_267_f_-1t c i provides that if sec_1_267_f_-1t c precludes a restoration for property then on the date the selling member ceases to be a member the owning member's basis in the property shall be increased by the amount of the selling member's unrestored deferred loss at the time it ceased to be a member sec_1_267_f_-1t c iii provides that the owning member's holding_period for the property shall be increased by the selling member's holding_period analysis f1's loss on the sale of the f2 stock to sec_3 was properly deferred under sec_267 that provision provides an exception to the normal rule_of sec_267 which disallows a loss resulting from a sale of property between related_persons instead under sec_267 such a loss is deferred if the sale occurs between members of a controlled_group and if sec_267 would otherwise apply under temp sec_1 267-1t b a controlled_group includes foreign affiliated corporations thus f1 and f2 are considered members of the p controlled_group for purposes of applying the deferral rules of sec_267 under the normal deferral rules of sec_1_267_f_-1t c the deferred_intercompany_transaction rules of sec_1_1502-13 as in effect prior to date ie the effective date of new sec_1_1502-13 apply to the deferral and restoration of loss on the sale of property between members of a controlled_group under these rules the loss incurred by f1 upon the sale of the f2 stock to sec_3 which was deferred would normally be restored to f1 when it left the group on date when it was sold by sec_3 to x sec_1_1502-13 however temp sec_1_267_f_-1t c provides that this restoration rule shall not apply instead sec_3's basis in the stock of f2 is increased by the amount of the deferred loss that was not restored to fi temp sec_1_267_f_-1t c i therefore such loss would be claimed by the p group when sec_3 sold the f2 stock to y in other words the p group properly applied the deferral and restoration rules of sec_267 sec_269 law and analysis law sec_269 provides that if any person acquires directly or indirectly control of a corporation and the principal purpose for which such acquisition was made is evasion or avoidance of federal_income_tax by securing the benefit of a deduction credit or other allowance which such person or corporation would not otherwise enjoy then the secretary may disallow such deduction credit or other allowance analysis in this case sec_3 directly acquired control of f2 by purchasing all of its stock therefore the first requirement of sec_269 appears to be satisfied we note however prior to the sale sec_3 indirectly owned all of the f2 stock through f1 the legislative_history of the predecessor of sec_269 states as follows with respect to the acquisition test if a controlled or affiliated_group existed on the effective date of the provision transfers thereafter within the group could not amount to the acquisition of such control by the parent or its controlling_interest control once acquired could not again be acquired unless the group were in some way broken a mere shift in the form of control - from direct to indirect from indirect to direct or from one form of indirect to another form of indirect - can not therefore amount to the acquisition of control within the meaning of the provision sen_rep no 78th cong 1st sess pp c b therefore sec_3's purchase of the f2 stock can not meet the definition of control within the meaning of sec_269 since sec_3 indirectly controlled f2 prior to the sale in addition the legislative_history further discusses transfers within a controlled_group as follows if instead of shifting the stock of a subsidiary nearer the parent as in a sec_332 liquidation it is transferred farther down the chain of subsidiaries it is clear that these subsidiaries farther down the chain but not the parent or the subsidiaries up the chain do acquire control of the shifted subsidiary id pincite c b since the shift in this case is up the chain and not down the chain the legislative_history is clear that the sec_269 control requirement cannot be satisfied in this case case development hazards and other considerations step transaction as noted above the dollar_figurea that was dropped through f1 to f2 on date had the effect of increasing sec_3's basis in f1 and f1's basis in f2 this dollar_figurea is recovered by p as part of a dollar_figureb loss on the sale of f1 on date and again recovered by p on the sale of f2 in year because of sec_267 as part of a dollar_figurev loss thus you contend that p recovered twice its dollar_figurea investment in its country x subsidiaries first when it sold f1 to x and second when it sold f2 to y therefore you contend that this double recovery_of a single economic investment is abusive by contrast you believe that if the service were to recast the dollar_figurea contribution as a contribution from sec_3 directly to f2 after f1 sold f2 to sec_3 the abuse is eliminated f1's basis in f2 is reduced by dollar_figurea which reduces f1's loss on the sale of f2 to sec_3 by dollar_figurea thus sec_3's basis in f2 upon the sale of f1 due to sec_267 is not increased by dollar_figureb but instead only by dollar_figurea sec_3's basis in f2 is increased by dollar_figurea due to the recast an dollar_figurea equity subscription by sec_3 in f2 and sec_3 and the p group recovers the dollar_figurea investment in year when they sell f2 outside the group we continue to adhere to the position stated in our previous fsa that there is no basis for applying the step_transaction_doctrine to ignore the capital contributions by sec_3 to f1 and by f1 to f2 the step_transaction_doctrine is a rule_of substance over form that treats a series of formally separate but related steps as a single transaction if the steps are in substance integrated interdependent and focused towards a particular result 88_tc_1415 the step_transaction_doctrine allows the service to argue that certain economically meaningless steps of a transaction can be collapsed or ignored in this case as noted in the previous fsa you have not suggested any steps let alone any economically meaningless ones that can be collapsed or ignored rather you have simply suggested that certain steps the capital_contribution from f1 to f2 of the money f1 received from sec_3 be reordered by treating that contribution as occurring from sec_3 to f2 after f1 transferred the f2 stock to sec_3 see the next paragraph however as noted therein the tax_court rejected a similar approach in the case of 90_tc_171 aff'd 886_f2d_1318 7th cir therefore we do not believe such an approach would be any more successful here normally a capital_contribution by definition has economic_substance because the shareholder is transferring money to its corporation and thus the shareholder no longer directly controls such money generally a payment by a shareholder of a corporation’s obligation which the shareholder guaranteed is treated as a capital_contribution see sec_1_166-9 in this case sec_3 had an obligation under bank regulatory provisions to maintain certain reserve requirements for f2 thus sec_3 made a contribution down the chain to meet those requirements however you believe that this contribution should not be respected because sec_3 was not required under these regulatory provisions to contribute money to f1 rather sec_3 was only required to contribute money to f2 however we believe that sec_3's obligation to f2 was in effect an obligation to transfer money down the corporate chain to f2 this is particularly the case in view of the fact that sec_3's obligation to f2 presumably only arose as a result of its indirect ownership of f2 in which sec_3 owned f1 which owned f2 moreover if there had been no planned sale of f2 sec_3 would not have been able to satisfy its obligation except by contributing money down the chain unless the service were to argue that sec_3 made a nonshareholder capital_contribution to f2 which we do not consider to be a compelling characterization of the contribution therefore we believe that the transfer of money down the chain should be respected sale v distribution of the f2 stock you have brought to out attention two memos from sec_1 to a bank regulatory agency these memos are dated date and date on p of both of those memos sec_1 stated that f2 will be in the case of the first memo and was in the case of the second memo distributed by f1 to sec_3 as opposed to sec_1 stating that f1 sold f2 to sec_3 given the statements in these documents we believe that it is appropriate to if the transfer is indeed a distribution then by definition it would not be a sale in that case sec_267 would not apply moreover sec_3's basis in the stock of f2 would not be increased as described above under that section rather sec_3's basis in the f2 stock would depend upon whether the distribution was taxable or tax-free to sec_3 if the distribution were taxable then under sec_301 sec_3's basis in the f2 stock would be its fair_market_value as of the date of the distribution sec_301 in that case sec_3 would recognize no gain_or_loss upon the subsequent sale of the f2 stock thus sec_3 would only recognize a loss upon the sale of the f1 stock on the other hand if the distribution were tax-free under sec_355 then sec_3's basis in the stock of f1 after taking into account the capital_contribution from sec_3 would be allocated between f1 and f2 according to the relative fair_market_value of each entity sec_1_358-2 in any event after sec_3 had sold the stock of both f1 and f2 it would have the same total loss as described in the previous paragraph


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-136770-06 date october internal_revenue_service number release date index number ------------------------------------ -------------------------- ----------------------------- ----------------------------- legend x -------------------------- ------------------------ state -------- -------------------------- -------------------------- ---------------------- d1 d2 dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d2 however a form_2553 election by a small_business_corporation was not timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the plr-136770-06 election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d2 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d2 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d2 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 corp b04 plr-148508-07 date january --------------------- ------------------------------------ legend parent ------------------------------------------------------------------- ----------------------------------------------------------- foreign subs ---------------------------------------------------------------------- ------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------ ------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ date date company officials ------------------------------ ------------------------------------------------------------------ --------------------------------------------------------- -------------------------- ---------------- plr-148508-07 ----------------------------------------------------------- ------------------------------------------------- --------------------------------------------------------- tax professional ---------------------------------------------- -------------------------------------------------------------- dear ------------------- ------------------ this letter responds to a letter dated date submitted on behalf of parent and a number of its foreign subsidiaries the foreign subs requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election additional information was submitted in letters dated date and date the extension is being requested in order to allow parent and foreign subs to file an election to restore value under sec_1_382-8 of the income_tax regulations the election the election was required to be filed with parent’s consolidated federal_income_tax return for the taxable_year ended date citations in this letter to regulations under sec_382 are to regulations in effect for the taxable_year ended date the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group parent and foreign subs are component members of a controlled_group under sec_1_382-8 parent underwent an ownership_change on date as a result parent's value was reduced under sec_1 c by the value of the stock of foreign subs sec_382 of the internal_revenue_code provides that the amount of the taxable_income of any new_loss_corporation for any post-change_year which may be offset by pre-change losses shall not exceed the sec_382 limitation for such year under sec_382 the sec_382 limitation is determined by multiplying the value of the old_loss_corporation by the applicable long term tax-exempt rate a special rule designed to prevent double counting by controlled groups is set forth in sec_1_382-8 sec_1 c requires the value of the stock of each component_member of the controlled_group be reduced by the value of the stock owned by that component_member in any other component_member for purposes of applying sec_1_382-8 a consolidated_group loss group or loss subgroup is treated as a single corporation under sec_1_382-8 component members of a controlled_group can elect under sec_1_382-8 to restore some or all of the value to the member whose value is reduced under sec_1_382-8 the election to restore value is made following the procedures set forth in sec_1_382-8 plr-148508-07 the election was required to be filed with parent's income_tax return for its tax_year ended date however for various reasons parent and foreign subs failed to make the election in a timely manner under sec_301_9100-1 the commissioner has discretion to 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_382-8 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and foreign subs to file the election provided parent and foreign subs show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the government information affidavits and representations submitted by parent company officials and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent and foreign subs filed the request for relief before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the affidavits submitted and the representations that have been made we conclude that parent and foreign subs have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent and foreign subs to file the election the election is to be filed with the director who has jurisdiction over parent's returns a copy of this letter should be attached to the election the above extension of time is conditioned on the taxpayers’ parent’s and the members of its controlled_group tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is plr-148508-07 expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion with respect to whether an ownership_change occurred whether parent and foreign subs are component members of a controlled_group the amount of value if any that may be restored or as to values or amounts of nols in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company officials and tax professional under penalties of perjury however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply this letter_ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 being sent to your authorized representatives pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely _______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate