department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service cincinnati oh legend s date t state u name dear date date employer id number contact person id number contact telephone number contact fax number uil issues do you qualify for exemption under sec_501 of the code no for the reasons stated below we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records facts you were formed as a corporation on s in the state of t your articles of incorporation state your purpose is to own furnish maintain and manage a building to be known as the u to be used and operated for social library and educational_purposes we suggested that you amend your organizing document to comply with the organizational requirements under sec_501 of the code but we have nothing to confirm that an amendment was filed you were previously exempt under sec_501 of the code but you were revoked via examination more than years ago you are now seeking exemption under sec_501 you said that as nearly as can be determined you lost your exemption because of your bar operations you have been filing form_1120 and operating as a for-profit business for at least years during that time your board decided to remain in the retail bar business over the ensuring years many problems with managing that enterprise were experienced operational losses mounted while the board had trouble recruiting members you re-formed when the board proposed dissolution and liquidation of assets and a committed group of your members assumed management of you you said that your membership hasn’t changed and that your assets still belong to your members you now have leased the bar space to a private party the new bar operation is a completely independent for- profit entity you have no relationship with that entity other than landlord tenant you said you are the same shareholders who were not willing to give up on their grandparents’ dream when they created you you are now committed to pursuing and expanding your founding ethnic heritage purposes and maintaining and upgrading your remarkable historically significant building this property is not currently on any historical register you said that you are part of a historic three-block section of town that have exteriors that may qualify as potentially historically significant but you currently have no such designation your membership is comprised of several hundred individuals each member owns an equal share in you the shares make each member a partial owner of you which includes your facility they have the rights to the revenues generated by the activities you conduct the shares of deceased members may be transferred to an immediate_family member that is a child or grandchild sibling to sibling aunt uncle to niece nephew or vice versa of the deceased you described your past activities which have included language classes cooking class demonstrations hosting forums for international speakers ethnic performance groups etc you describe your current activities as preserving and maintaining your building including the kitchen clubrooms and ballroom you also describe one of your present activities as maintaining good tenant relationships to ensure a viable source of revenue one of your tenants is an organization exempt under sec_501 of the code your planned future activities include ballroom rental to the general_public for activities such as weddings reunions dance parties etc you will also have authors of local history stories speak to book clubs ethnic food demonstrations and classes fundraisers for public needs ethnic tradition seminars demonstrations ethnic music and art events and there will be meeting rooms available to the public for local ethnic clubs you will also have library reference material for travel genealogical study and ethnic history and heritage you oversee the coordination and scheduling of all events to be held in your facility which include the bar operation banquets parties etc you work with the bar owners and other staff to coordinate and ensure the efficient and effective use of your resources for events the majority of your gross revenues are generated from renting your facility building maintenance accounts for approximately half of the hours spent on your operations the remaining hours of your activities are spent on various administrative duties law sec_501 of the code provides for exemption from federal_income_tax of organizations organized and operated exclusively for educational_purposes sec_1_501_c_3_-1 states that to be tax exempt an organization must be both organized and operated exclusively for one or more exempt purposes specified in sec_501 of the code if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization is organized exclusively for one or more exempt purposes only it its articles of organization limit its purposes to one or more exempt purposes and do not expressly empower it to engage otherwise than as an insubstantial part of its activities in activities which themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 holds that that an organization's assets must be dedicated to an exempt_purpose either by an express provision in its governing instrument or by operation of law letter rev catalog number 47630w sec_1_501_c_3_-1 asserts an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities are not in furtherance of exempt purposes sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for exempt purposes under sec_501 of the code unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_76_366 1976_2_cb_144 held that an association of investment clubs formed to enable members and prospective investors to make sound investments by the mutual exchange of investment information does not qualify for exemption from federal_income_tax the association carried on not only educational activities but other activities directed to the support and promotion of the economic interests of its members moreover by furnishing information to prospective investors to enable them to make sound investments the association is serving private interests in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy an exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 75_tc_337 the court found that an organization operating an art gallery and art market was exempt under sec_501 of the code its purpose was primarily to foster community awareness encourage appreciation of contemporary artists and provide a constant flow of art for students to study art and painting techniques the organization conducted many charitable and educational activities apart from operating the art gallery and art market including the operation of an art center which sponsored art classes quarterly at a community college offered art courses to children sponsored various art demonstrations and film series gave a series of art lectures and workshops owned a permanent art collection which it displayed and offered tours of artwork displayed at the gallery market was selected by jury procedures none of the art was by anyone on the board or officer of the petitioner and only two of over artists whose art was displayed were members of the petitioner no other art museum gallery or similar facility was available in the county or any adjacent county the organization contended that the sale of artwork in its galleries was an incidental activity but one that helped to further its exempt purposes application of law you are not described under sec_501 of the code or sec_1_501_c_3_-1 because you do not meet the organizational or operational tests if an organization fails either the organizational or operational_test it cannot qualify for exemption under sec_501 you fail the organizational_test because your formation document does not limit your purposes to one or more exempt purposes as required in sec_1_501_c_3_-1 your organizational document also letter rev catalog number 47630w does not dedicate your assets to an exempt_purpose as required by sec_1 c -l b for these reasons you fail the organizational_test you are also not described in sec_501 of the code because you are not operated exclusively for an exempt_purpose or purposes as required by sec_1_501_c_3_-1 although you conduct some cultural and educational activities your primary activity is the rental and maintenance of your facility which is owned by your members your activities serve a private rather than a public interest as described in sec_1_501_c_3_-1 ii you are like the organization described in revrul_76_366 your activities are directed to the support and promotion of the economic interests of your members who have an ownership_interest in your facility you are different from the organization in goldsboro art league inc unlike the organization in this ruling your primary activity consists of renting your facility for non-exempt purposes even with planned additional educational activities your educational and charitable activities do not constitute exclusive activity required for sec_501 of the code akin to better business bureau of washington d c inc you devote more than an insubstantial amount of time and activities in supporting a non-exempt purpose and for this reason you fail to qualify for exemption under sec_501 of the code conclusion based on the information submitted you are neither organized nor operated exclusively for one or more exempt purposes described in sec_501 of the code you serve the private interests of your members and are not operated exclusively for exempt purposes any educational and charitable activities you conduct are incidental to your non-exempt purposes accordingly you are not described in sec_501 if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization letter rev catalog number 47630w under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely stephen a martin director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel nov number info release date index number dear cc tege eoeg et1 conex-156826-01 this is in reply to your letter to president bush dated date that was forwarded to this office for response in your letter you express concern about the social_security_taxes levied on ministers for purposes of social_security_taxes you request that action be taken to have ministers treated under the federal_insurance_contributions_act fica sec_3101 - of the internal_revenue_code code rather than under the self-employment contributions act seca sec_1401 - you request this action to place some of the tax burden upon parishes and or dioceses we are providing general information on fica seca and the deductions allowed to self-employed persons that we think is relevant to your inquiry social_security and medicare taxes are collected under two systems under fica the employee and the employer each pay half of the taxes under seca the self- employed person pays all the taxes for the tax_year seca taxes equal percent of net_earnings_from_self-employment ie a total of percent for social_security and percent for medicare which is the same rate that employees and employers combined pay in fica_taxes in order for a fica tax obligation to arise three requirements must be met under sec_3121 of the code first there must be an employer-employee relationship second there must be a payment of wages third the payment of wages must be with respect to employment if one of these three requirements is not met liability for fica_taxes does not arise a minister is not generally covered by fica because the minister’s services are generally excepted from the statutory definition of employment sec_3121 of the code excepts from the definition of employment services that are performed by a duly ordained commissioned or licensed minister in the exercise of his ministry in contrast under seca a duly ordained commissioned or licensed minister is liable for self-employment_tax on income derived from his ministry under sec_1402 of the code the performance of services by a duly ordained licensed or commissioned minister in the exercise of his ministry are covered by social_security and medicare under seca unless the minister has qualified for the exemption from self-employment_tax sec_1402 provides for a limited exemption if a minister is conscientiously opposed to public insurance when certain other related qualifications are met thus even though ordained commissioned or licensed ministers may be common-law employees for income_tax purposes they are generally treated as self-employed for social_security purposes in explaining the reason for treating a minister as self-employed for social_security purposes with respect to services performed in the exercise of his ministry the tax_court in silvey v commissioner t c memo observed that congress chose not to place the onus of participation in the old-age and survivors insurance program upon the churches to partly offset the tax burden that falls on self-employed persons sec_164 and sec_1402 of the code provide separate deductions available to all individuals who are subject_to self-employment taxes in explaining these deductions congress stated that their purpose was to achieve parity between employees and self-employed h_r rep no 98th cong 1st sess 1983_2_cb_336 a self-employed_person is entitled to an income_tax deduction under sec_164 of the code for a portion of seca taxes the deduction under sec_164 is taken above_the_line and is available for income_tax purposes only persons who are self- employed for social_security purposes can deduct half of their actual self-employment taxes from gross_income line of the form_1040 u s individual_income_tax_return sec_1402 of the code also provides for a deduction in computing net_earnings_from_self-employment self-employment_tax is computed on schedule se form_1040 self-employment_tax and the deduction is built into the current schedule se the deduction provided by sec_1402 is taken by the taxpayer when the taxpayer performs the computational step of multiplying by trade_or_business income line of the short schedule se or line sec_4a and sec_5b of the long schedule se in summary as a self-employed_person a minister pays self-employment_tax at a rate of percent with respect to services performed in the exercise of his ministry to partly offset this tax burden deductions under sec_164 and sec_1402 are available i hope this general information is helpful to you if you have any questions please contact margaret owens badge no at we appreciate the time and trouble you have taken to provide your comments and suggestions for a change in the present treatment of ministers for social_security purposes the office of the assistant secretary_of_the_treasury for tax policy has been assigned responsibility for formulating the tax policies of the department of the treasury we are therefore sending your letter to that office for its information sincerely michael a swim chief employment_tax branch office of the division counsel associate chief_counsel tax exempt government entities cc assistant secretary_of_the_treasury for tax policy


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 b03 plr-106723-11 date date legend company --------------------------------------------------- ----------------- shareholder ----------------------------------------------------- ------------------------------ state date ------------- ----------------------- dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company by company’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code code facts company was incorporated in state on date company's sole shareholder intended for company to be an s_corporation effective date however company's form_2553 election by a small_business_corporation was not timely filed company requests a ruling that it will be recognized as an s_corporation effective date plr-106723-11 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year at any time during the preceding_taxable_year or at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a small_business_corporation makes an election under sec_1362 for any taxable_year and the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election is treated as made for the following taxable_year sec_1362 provides that if an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no 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 the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and the representations made we conclude that company has established reasonable_cause for failing to make an s_corporation_election in a timely manner thus we conclude that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation effective date by filing a completed form_2553 with the appropriate service_center within days from the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center this ruling is contingent on company and stockholder filing income_tax returns reporting income consistent with company’s intended status as an s_corporation for all prior taxable years beginning in the taxable_year of date 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 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 plr-106723-11 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely richard t probst senior technician reviewer branch passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


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 b02 plr-111737-12 date date legend x -------------------------------------------------- --------------------------------------- ----------------------------------------------------------------------------------------- trust ------------------------------------------------------------------------------------------------------------ -------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------- state d1 d2 d3 ------------- ---------------------- ---------------------- ---------------------- dear --------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting inadvertent termination relief pursuant to sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state on d1 x represents that it timely filed an s_corporation_election with an effective date of d2 plr-111737-12 on d3 trust became a shareholder of x x represents that trust was a qualified_subchapter_s_trust qsst eligible to make an election under sec_1361 effective d3 however no such election was filed on behalf of trust therefore the trust was not a permissible shareholder and x’s s_corporation terminated on d3 x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x further represents that from d3 x and its shareholders have filed all returns consistent with x's status as an s_corporation x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x's s_corporation on d3 was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as an s_corporation from d3 and thereafter provided that trust files a qsst election effective d3 pursuant to the procedures set forth in sec_1_1361-1 with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the qsst election except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding x's eligibility to be an s_corporation or trust’s eligibility to be a qsst this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-111737-12 pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------------------- ----------------------------------------------- ---------------------------------- ---------------------------------------- -------------------------------- department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number refer reply to cc psi b05 plr-150704-06 - date march legend taxpayer ----------------------------------------------------- ----------------------------------------------- ---------------------------------- ----------------------------------------- ------------------------- - ------------------------------------------------------------- --------------------------------------- ----------------------------------------- - -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- --------- - - - chief bin numbers - dear ---- --------- this letter responds to a letter dated date and subsequent correspondence from taxpayer’s authorized representative requesting an extension of time to elect under sec_42 of the internal_revenue_code to identify specific buildings as part of a single multiple-building project pursuant to ' of the procedure and administration regulations plr-150704-06 based upon taxpayer’s facts and representations as submitted taxpayer did not make a proper election under sec_42 to identify specific buildings as part of a single multiple-building project the specific buildings taxpayer intended to treat as part of a single multiple-building project have the following building identification numbers bin numbers sec_42 defines the term qualified_low-income_housing_project as any project for residential_rental_property if the project meets the requirements of sec_42 or b whichever is elected by the taxpayer the project meets the requirements of sec_42 if percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income i sec_50 percent or less of area_median_gross_income the project meets the requirements of sec_42 if percent or more of the residential units in such project are both rent- restricted and occupied by individuals whose income is percent or less of area_median_gross_income sec_42 provides that for purposes of sec_42 a project will be treated as consisting of only building unless before the close of the first calendar_year in the project_period as defined in sec_42 each building which is or will be part of such project is identified in such form and manner as the secretary may provide sec_301_9100-7t of the temporary procedure and administration regulations provides that for elections under the tax_reform_act_of_1986 the election under sec_42 must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to be filed pursuant to sec_42 sec_301_9100-7t provides that the election under sec_42 is irrevocable sec_42 provides in part that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes the election made under sec_42 with respect to the qualified low- income housing project of which such building is a part 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_9100-1 defines the term regulatory election as including 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 plr-150704-06 under ' c the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and for a taxpayer to make a regulatory or statutory 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 ' requests for relief under ' a 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 in the instant case based solely on the facts submitted and the representations made by the taxpayer we conclude that the requirements of and have been met accordingly taxpayer is granted an extension of time to identify each of the buildings having the bin numbers as a single multiple-building project under sec_42 by filing within days from the date of this letter for all open taxable years through amended forms that include the intended elections note amended forms are not required to be filed for taxable years after attached to the amended forms must be the statement required by the instructions for line 8b of form_8609 for multiple-building projects the amended forms for taxable years prior to are to be filed with the service_center where taxpayer files its return the amended forms for taxable_year are to be filed at the following address in addition a copy of this letter along with copies of the amended forms internal_revenue_service p o box attn lihc unit dp south philadelphia pa including the attached statement should be sent to chief a copy of this letter is enclosed for this purpose no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether taxpayer’s low-income_housing project otherwise qualifies for the low-income_housing_credit under ' this ruling is directed only at the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-150704-06 in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer s authorized representative sincerely enclosures copy of this letter copy for ' purposes william p o’shea associate chief_counsel passthroughs and special industries


t c memo united_states tax_court leonard o scales petitioner v commissioner of internal revenue respondent docket no filed date leonard o scales pro_se thomas l fenner for respondent memorandum opinion dean special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioner's and federal income taxes in the amounts of dollar_figure and dollar_figure respectively after a concession2 the sole issue for decision is whether petitioner is entitled to deduct expenses from engaging in ranching activities during the taxable years and some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference at the time the petition in this case was filed petitioner resided in houston texas background petitioner has been employed by the u s postal service for the past years during the years at issue petitioner worked on average hours per week with normal work hours being a m until p m petitioner's annual salary was approximately dollar_figure petitioner has a bachelor's degree in political science and has done work towards a master's degree in city planning at all relevant times petitioner has been engaged in the activity of raising and tending approximately head of cattle at a ranch he and his two sisters inherited from their father in located in washington county texas approximately miles from petitioner's residence in houston the ranch consist sec_2respondent concedes that petitioner is entitled to a dependency-exemption deduction for his mother for the tax years and of acres of which are used to grow hay and of which are used to run and rotate the cattle petitioner was born and raised on a ranch performing tasks which included plowing fields raising and breeding cattle administering medication via syringe and hay harvesting petitioner received some formal education in agriculture while in high school taking classes in cattle breeding and raising fertilization of land and equipment repair petitioner customarily travels to the ranch several times per week in order to perform chores and to tend to the cattle petitioner also spends most weekends at the ranch since inheriting an interest in the ranch petitioner has spent more than dollar_figure on farm equipment petitioner bought this equipment with the intention of increasing productivity and decreasing the man hours necessary for work on the ranch although the record is not clear on the matter it appears that petitioner began reporting income deductions gains and losses with respect to his activities at the ranch on his federal_income_tax return for the taxable years and the years at issue petitioner reported schedule f gross_income from raising cattle and general livestock in the respective amounts of dollar_figure and dollar_figure for those same years petitioner claimed schedule f deductions for the following expenses item car and truck dollar_figure dollar_figure depreciation feed purchases insurance conservation interest labor repairs maintenance supplies purchased veterinary fees taxes legal accounting big_number big_number big_number big_number -- -- big_number -- big_number big_number -- big_number big_number big_number big_number -- -- total big_number big_number petitioner claimed net farm_losses in the amounts of dollar_figure and dollar_figure for the taxable years and respectively to date petitioner has not reported a net profit in any year from his ranching activities at trial petitioner explained that some of the losses in prior years were due to the theft or death of some of his herd petitioner produced no records however nor could he recollect the exact number of such thefts or deaths or the year in which they took place petitioner concedes that he does not use a written budget to control costs furthermore petitioner concedes that he has never consulted an expert regarding available means by which he could make his efforts profitable petitioner has however spoken about his cattle with a veterinarian friend a lending 3although the taxable_year is not at issue the parties stipulated that petitioner reported a net_loss from his ranching activities that year in the amount of dollar_figure furthermore as demonstrated by copies of petitioner's and federal_income_tax returns admitted at trial petitioner reported net losses from his ranching activities those years in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively officer at washington state bank his cousin and other farmers although petitioner does not maintain a separate checking account for his ranching activities he maintains monthly and yearly ledger sheets which indicate items of ranch expense and amounts paid when asked at trial about the future profitability of his activities petitioner offered confused and often contradictory testimony nevertheless we understand petitioner to have argued that once he has paid off the debt on the farm equipment he has purchased he will be able to turn a profit from the sale of calves born to his herd the size of which he hopes will grow to about head respondent states that petitioner's ranching activities lack a profit_motive and that he is not entitled to the schedule f deductions claimed for the years at issue petitioner of course disagrees and argues that he is entitled to the deductions claimed as he engaged in the activities at the ranch for the primary purpose of turning a profit discussion in general sec_183 provides that if an activity is not engaged in for profit no deduction attributable to such activity shall be allowed except as provided in sec_183 for purposes of sec_183 the term activity_not_engaged_in_for_profit means any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 sec_183 sec_1_183-2 income_tax regs provides a non-exhaustive list of factors to consider in the determination of whether an activity is engaged in for profit these factors are the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and whether elements of personal pleasure or recreation are involved resolution of a taxpayer's profit_motive is to be based on all the facts and circumstances surrounding a case 72_tc_659 however in order for the taxpayer to prevail the facts and circumstances must indicate that the taxpayer entered into or continued the activity with an actual and honest objective of making a profit 78_tc_642 affd without opinion 702_f2d_1205 d c cir although several of the factors listed in sec_1_183-2 favor petitioner particularly the amount of time invested in his activities and his moderate income level we nevertheless find that based on all the facts and circumstances of this case petitioner lacked an actual and honest objective of making a profit petitioner presented no credible_evidence that he had any real plan for reversing the continuous stream of net farming losses he has reported over the past decade petitioner has never consulted an expert on the means by which he could turn a profit nor has he changed his operating methods in an effort to correct what was obviously not working this is not surprising considering that petitioner failed to keep any meaningful records that would allow him to gauge the present or future profitability of his activities although petitioner maintained ledger sheets recording his expenditures there is no evidence that he used this information in any constructive way the following exchange at trial is particularly illuminating in this regard q all right when do you think that you will buy all of the equipment that you will have to buy have it all paid off so that you will begin to make money at the ranch a i also expected -- i probably -- about '95 or '96 i owe on two more pieces of equipment one note on each q all right but after you pay off the equipment though won't -- certain of your expenses they won't necessarily fall decrease -- like for example the feed expense won't fall or the supplies expense or the truck expense after you pay off your equipment won't those expenses -- they shouldn't necessarily fall is that right a i can't answer that but the expenses could fall to a certain point depends on -- you know it depends on what breaks down or -- the court or they could go up the witness or it could go up way up i can't make a statement saying they will fall or that they will go up i can't say that in determining a taxpayer's profit_motive it is not crucial that the expectation of profit be a reasonable one it is enough that the taxpayer has a bona_fide expectation of realizing a profit however a record of continued losses over a series of years or the unlikelihood of achieving a profitable operation may be an important factor bearing on the taxpayer's true intentions 45_tc_261 affd 379_f2d_252 2d cir we note that it has been recognized that if losses or even repeated losses were the only criterion by which farming is to be judged a business then a large proportion of the farmers of the country would be outside the pale it is the expectation of gain and not gain itself which is one of the factors which enter into the determination of the question 6_bta_890 nevertheless even in the case of farmers or ranchers it is to be borne in mind that the goal must be to realize a profit on one's entire operation this presupposes not only future net_earnings but also sufficient net_earnings to recoup losses which have been sustained in the intervening years bessenyey v commissioner supra pincite even if we accept that petitioner will achieve his goal of increasing the size of his herd to head and thereby the number of calves born and available for sale petitioner has failed to produce any evidence that this will ever produce income in excess of his expenses in light of the foregoing we find that petitioner has failed to demonstrate that he possessed the requisite profit_motive for his ranching activities accordingly we sustain respondent on this issue sec_183 states that in the case of an activity_not_engaged_in_for_profit to which subsection a applies there shall be allowed -- the deductions which would be allowable under this chapter for the taxable_year without regard to whether or not such activity is engaged in for profit and a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable_year only if such activity were engaged in for profit but only to the extent that the gross_income derived from such activity for the taxable_year exceeds the deductions allowable by reason of paragraph substantiation of the schedule f expenses was not raised as an issue in this matter based on the record the court is satisfied that petitioner incurred expenses equal to the gro sec_4we have considered the possibility that petitioner might be holding the ranch for appreciation and sale in the future for profit see sec_1_183-2 income_tax regs petitioner however stipulated that he plans to build a house on the ranch and retire there income reported from the sale of calves during the years at issue accordingly petitioner is allowed under sec_183 a deduction of expenses each year equal to the gross_income reported to reflect the foregoing decision will be entered under rule 5it is not clear from the record whether petitioner incurred items of expense contemplated by sec_183 in either of the years at issue as there are sufficient expenses which otherwise fall under sec_183 however we are satisfied that petitioner is entitled to a deduction each year in an amount equal to the gross_income reported from his ranching activities


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 ita b07 plr-132858-12 date date re request for private_letter_ruling under sec_170 sec_291 and sec_1250 legend taxpayer state1 city1 a b ---------------------------------------------- ---------------------------- --------------------- ---------------------- --------------------------------- ---------------------------- -------------------- dear ------------------- this letter responds to a letter dated date and supplemental correspondence submitted by taxpayer requesting a letter_ruling that if certain sec_1250 property is contributed to one or more tax-exempt organizations the charitable deduction attributable to the value of that contribution will not be reduced by twenty percent of the accumulated depreciation of this sec_1250 property under sec_291 of the internal_revenue_code taxpayer represents that the facts are as follows facts taxpayer is a state1 corporation with a principal_place_of_business in city1 state1 taxpayer is a wholly-owned subsidiary of a and joins in the consolidated federal_income_tax return filed for the affiliated_group headed by a a files its consolidated federal_income_tax return on a calendar_year basis plr-132858-12 taxpayer owns certain improved real_property located at taxpayer’s b plant in city1 state1 the b property the b property contains certain depreciable real_property that is sec_1250 property most of this sec_1250 property has been fully depreciated hereinafter the fully depreciated b property that is sec_1250 property will be referred to as the property taxpayer intends to contribute some or all of the property to one or more organizations that are exempt from federal_income_tax under sec_501 as a charitable_contribution under sec_170 moreover taxpayer intends to claim a charitable deduction under sec_170 with respect to its contribution of the property to one or more sec_501 tax-exempt organizations taxpayer represents that these sec_501 tax-exempt organizations will have the same basis in the property as taxpayer will have at the time of the transfer pursuant to sec_1015 ruling requested taxpayer requests the following ruling if the property is contributed to one or more sec_501 tax-exempt organizations the charitable deduction attributable to the value of the contribution will not be reduced by twenty percent of the accumulated depreciation of the property pursuant to sec_291 law and analysis sec_170 generally allows a deduction subject_to certain limitations for charitable_contributions made during the taxable_year to or for_the_use_of organizations described in sec_170 including sec_501 organizations sec_170a-1 c of the income_tax regulations provides that if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution reduced as provided in sec_170 and sec_1_170a-4 or sec_170 and sec_1 170a- 4a c sec_170 provides that the amount of any charitable_contribution of property otherwise taken into account under sec_170 shall be reduced by among other_amounts the amount of gain that would not have been long-term_capital_gain determined without regard to sec_1221 if the property contributed had been sold by the taxpayer at its fair_market_value determined at the time of such contribution plr-132858-12 sec_1_170a-4 provides that in the case of a contribution by an individual or by a corporation of ordinary_income_property as defined in sec_1_170a-4 the amount of the charitable_contribution that would be taken into account under sec_170 without regard to sec_170 shall be reduced before applying the percentage limitations under sec_170 by the amount of gain that would have been recognized as gain that is not long-term_capital_gain if the property had been sold by the donor at its fair_market_value at the time of its contribution to the charitable_organization sec_1_170a-4 defines the term ordinary_income_property as meaning property any portion of the gain on which would not have been long-term_capital_gain if the property had been sold by the donor at its fair_market_value at the time of its contribution to the charitable_organization sec_291 provides that in a case where a corporation disposes of sec_1250 property an amount equal to twenty percent of the excess if any of a the amount that would be treated as ordinary_income if such property was sec_1245 property over b the amount treated as ordinary_income under sec_1250 determined without regard to sec_291 shall be treated as gain which is ordinary_income under sec_1250 and shall be recognized notwithstanding any other provision of subtitle a of the code sec_291 further provides that under regulations prescribed by the secretary the provisions of sec_291 will not apply to the disposition of any property to the extent that sec_1250 does not apply to such disposition by reason of sec_1250 if sec_1245 property is disposed of sec_1245 generally provides that the amount by which the lower_of a the recomputed_basis of the property or b the amount_realized in the case of a sale exchange or involuntary_conversion or the fair_market_value of such property in the case of any other_disposition exceeds the adjusted_basis of such property is treated as ordinary_income such gain is recognized notwithstanding any other provision of subtitle a of the code sec_1245 defines the term recomputed_basis with respect to any property as meaning generally its adjusted_basis recomputed by adding thereto all adjustments reflected in such adjusted_basis on account of deductions whether in respect of the same or other_property allowed_or_allowable to the taxpayer or to any other person for depreciation or amortization if sec_1250 property is disposed of after date sec_1250 generally provides that percent of the lower_of i that portion of the additional_depreciation attributable to periods after date in respect of such property or ii the excess of the amount_realized in the case of a sale exchange or involuntary_conversion or the fair_market_value of such property in the case of any other_disposition over the adjusted_basis of such property is treated as gain that is plr-132858-12 ordinary_income such gain is recognized notwithstanding any other provision of subtitle a of the code sec_1250 defines the term additional_depreciation as meaning in the case of any property the depreciation_adjustments in respect of such property except that in the case of property held more than one year it means such adjustments only to the extent that they exceed the amount of the depreciation_adjustments that would have resulted if such adjustments had been determined for each taxable_year under the straight-line method_of_depreciation sec_1250 provides that sec_1250 shall not apply to a disposition by gift sec_1_1250-3 provides that for purposes of sec_1250 the term gift shall have the same meaning as in sec_1_1245-4 sec_1_1245-4 provides that the term gift means generally a transfer of property which in the hands of the transferee has a basis determined under the provisions of sec_1015 or d relating to basis_of_property acquired by gifts if sec_1250 property is disposed of by gift as defined in sec_1 a and a sec_1250 provides that sec_1250 does not apply to such disposition consequently sec_291 would not apply to a gift as defined in sec_1_1250-3 and sec_1_1245-4 of sec_1250 property in this case taxpayer represents that it intends to contribute the property to one or more organizations that are sec_501 tax-exempt organizations that this intended contribution will be a valid charitable_contribution that meets the requirements of sec_170 and that these sec_501 tax-exempt organizations will have a basis in the property equal to taxpayer’s basis in the property at the time of transfer pursuant to sec_1015 these are material representations because the basis of the property in the hands of the sec_501 tax-exempt organizations will be the same as taxpayer’s basis in the property at the time of the transfer pursuant to sec_1015 the contribution of the property by taxpayer to the sec_501 organizations is a gift_for purposes of sec_1250 and sec_1_1250-3 accordingly the provisions of sec_291 will not apply to taxpayer’s disposition of the property to the sec_501 tax-exempt organizations conclusion based solely on taxpayer’s representations and the relevant law and analysis set forth above we conclude that if the property is contributed to one or more sec_501 tax-exempt organizations the charitable deduction attributable to the value of plr-132858-12 the contribution will not be reduced by twenty percent of the accumulated depreciation of the property pursuant to sec_291 except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of the facts described above under any other provisions of the code specifically this letter_ruling is based upon taxpayer’s description of the proposed contribution of property to certain sec_501 organizations this letter_ruling does not address whether the proposed contribution is a valid charitable_contribution that meets the requirements of sec_170 further the amount of the deduction for the proposed contribution is outside the scope of this letter_ruling and no approval of the amount should be inferred from this letter_ruling moreover no opinion is expressed or implied on i whether any of the property located at b is sec_1250 property and ii the propriety of taxpayer’s methods of depreciating the property located at b this letter_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 we are sending a copy of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate operating division director sincerely kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax and accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp plr-130771-02 date date legend parent purchaser purchaser partnership target sellers date a date b plr-130771-02 date c company official tax professionals dear this letter responds to a letter dated date submitted on behalf of parent requesting a second extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent previously received an extension of time in a letter dated date plr-110219-02 publication parent is requesting a second extension to file a sec_338 election under sec_338 with respect to the acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a parent failed to file the election by the extended due_date date b the material information is summarized below parent is the common parent of a consolidated_group purchaser is a wholly owned subsidiary of parent purchaser is an llc wholly owned by purchaser and disregarded as an entity separate from purchaser for federal_income_tax purposes target is a foreign_corporation wholly owned by partnership a domestic_partnership sellers were the only partners of partnership on date a pursuant to a purchase agreement of the same date purchaser and purchaser acquired all of sellers’ partnership interests in partnership in exchange for cash it is represented that the acquisition of target by means of the acquisition of all of the partnership interests in partnership qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return target is a controlled_foreign_corporation within the meaning of sec_957 target is not a passive_foreign_investment_company for which an election under sec_1295 was in effect or foreign_investment_company or foreign_corporation the stock ownership which is described in sec_552 plr-130771-02 parent intended to file the election pursuant to sec_1_338-2t d the election was due on date b however for various reasons a valid election was not filed after date b it was discovered that the election had not been filed subsequently a request was submitted under sec_301_9100-1 for an extension of time to file the election plr- granted an extension until date c to file the election however for various reasons the extended due_date was missed and this second request was submitted the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or any taxable_year that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase 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 2t d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent 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 information affidavits and representations submitted by the parent company official and tax professionals explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301 b v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements plr-130771-02 of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly a second extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 in accordance with sec_1_338-2t d and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the taxpayers' parent’s consolidated group’s and target’s 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 expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable 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’ tax_liability is lower sec_301_9100-3 we express no opinion as to whether the acquisition of target’s stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 to file the election we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent plr-130771-02 pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate


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 ita b04 plr-107389-14 date date legend taxpayer llc year year x dollar_figurea dollar_figureb firm individual dear----------------- ------------------------------------------------------- ------------------------------------------------------------- ------- ------- ---- -------------- --------------- -------------------------------- ------------------------ this letter responds to your letter requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make a regulatory election specifically you have requested an extension of time to make an election under sec_108 of the internal_revenue_code and sec_1_108-5 of the income_tax regulations to exclude income resulting from the discharge of qualified_real_property_business_indebtedness and to reduce the basis of depreciable real_property effective for taxpayer’s year tax_return facts taxpayer reports income on a calendar_year uses the cash_receipts_and_disbursements_method of accounting and owns a x percent interest in llc llc is a limited_liability_company that is treated as a partnership for federal_income_tax purposes reports income on a calendar_year uses the cash_receipts_and_disbursements_method of accounting and is the owner of a commercial building plr-107389-14 taxpayer entered into a final forbearance agreement that resulted in cancellation_of_indebtedness_income cod in year taxpayer received a schedule_k-1 from llc that showed cod in the amount of dollar_figurea the amount attributable to taxpayer based on his ownership_interest in llc is dollar_figureb taxpayer represents that as a partner of llc he was eligible to exclude cod income pursuant to sec_108 which relates to qualified_real_property_business_indebtedness this exclusion required taxpayer to make an election pursuant to sec_108 and sec_1_108-5 on a timely filed year form_1040 taxpayer’s year form_1040 was prepared by firm a qualified_tax professional with many years of experience however due to an oversight firm did not discuss the election with taxpayer nor did firm make the election on taxpayer’s behalf to reduce the basis of depreciable real_property and to exclude income resulting from the discharge of qualified_real_property_business_indebtedness taxpayer’s year form_1040 was timely filed in year individual discovered that taxpayer had been eligible to make the election relating to cod income in year after discovering firm’s oversight in not including the form_982 making the sec_108 election on taxpayer’s year form_1040 taxpayer filed this request for an extension of time to make the election taxpayer and firm have submitted affidavits consistent with the above facts taxpayer represents that granting relief under sec_301_9100-3 will not result in a lower tax_liability in the aggregate for all years to which the election applies than taxpayer and all interested parties would have had if the election had been timely made taking into account the time_value_of_money taxpayer’s adjusted_basis in the depreciable_property is greater than the amount of cod income and taxpayer will not exclude an amount under sec_108 that exceeds the excess of the principal_amount of indebtedness over the fair_market_value of the real_property law and analysis sec_61 of the code provides in part that except as otherwise provided in this subtitle gross_income means all income from whatever source derived the statute then specifically lists income_from_discharge_of_indebtedness as one of the items within the scope of the term income see sec_61 sec_108 provides that gross_income does not include any amount that but for sec_108 would be includible in gross_income by reason of the discharge_of_indebtedness if in the case of a taxpayer other than a c_corporation the indebtedness discharged is qualified_real_property_business_indebtedness plr-107389-14 sec_108 provides that the amount excluded from gross_income under sec_108 shall be applied to reduce the basis of the depreciable real_property of the taxpayer sec_108 provides in general that the amount excluded under sec_108 with respect to any qualified_real_property_business_indebtedness shall not exceed the excess of the outstanding principal_amount of such indebtedness immediately before the discharge over the fair_market_value of the real_property described in sec_108 as of such time sec_108 requires a taxpayer to make an election to exclude cod income under sec_108 sec_108 provides that in the case of a partnership sec_108 and sec_108 are applied at the partner level sec_1_108-5 provides that the election under sec_108 is made on the timely filed including extensions federal_income_tax return for the taxable_year in which the taxpayer has discharge_of_indebtedness income that is excludible from gross_income under sec_108 the election is made on a completed form_982 reduction of tax_attributes due to discharge_of_indebtedness and sec_1082 basis_adjustment sec_301_9100-1 through sec_301_9100-3 provide the standards that the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that requests for extension of time for regulatory elections other than automatic extensions covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election however a taxpayer is not considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or was not aware of all relevant facts in addition sec_301_9100-3 provides that a taxpayer is deemed not 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 plr-107389-14 ii was informed in all respects of the required election and related consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 provides that 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 taking into account the time_value_of_money similarly if the tax consequences of more than one taxpayer are affected by the election the government's interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made sec_301_9100-3 provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable_year 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 under the facts submitted by taxpayer we conclude that taxpayer has acted reasonably and in good_faith under sec_301_9100-3 in addition we conclude that granting relief will not prejudice the interests of the government under sec_301_9100-3 conclusion based solely on the information submitted and the facts as represented in the ruling_request we grant taxpayer an extension of days from the date of this letter to file an amended_return to make the election under sec_108 and sec_1_108-5 the election is to be made on form_982 as required by sec_108 in making this election taxpayer will reduce basis in its depreciable real_property on its year tax_return to the extent that would have been required if the election had been timely made on the original return except as expressly provided in the preceding paragraph we do not express or imply an opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically this letter does not rule on whether the amount of income at issue is properly treated as cancellation_of_indebtedness_income under sec_61 in addition this letter also does not rule on whether the income in fact qualifies for exclusion from income under sec_108 plr-107389-14 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 sincerely j peter baumgarten assistant to the branch chief branch office of associate chief_counsel income_tax accounting


significant index no dollar_figure department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division nov se tp rat a in re taxpayer plan or pension fund union special contributions date dear this is in response to the request dated date for rulings regarding the effect of special contributions on the plan’s qualified status and the deductibility of special contributions to the plan facts the plan is a multiemployer defined benefit pension_plan that is qualified under sec_401 of the code a participant’s accrued_benefit under the plan is based on a schedule of benefits that takes into account an employer's hourly contribution rate on date the taxpayer by resolution authorized certain amendments to the plan the proposed amendments’ to take effect upon certain determinations from the irs the pension_benefit_guaranty_corporation pbgc and the department of labor dol in pertinent part the proposed amendments provide for special contributions to the plan subject_to collective bargaining that shall become assets of the plan in the same manner as any other employer payments and shall thereupon be held by the trustees in the trust fund for the exclusive purposes of providing benefits to participants and beneficiaries of the plan and defraying the reasonable expenses of administering the plan special contributions shall not be segregated earmarked or set_aside for any more limited purpose special contributions would not affect participants’ accrued_benefits but would be accounted for separately on a notional basis for the purpose of adjusting an employer's otherwise determined withdrawal_liability employer’s otherwise determined withdrawal_liability would be decreased by a credit balance in the employer's special contribution account as described below or increased by a debit balance in such account in particular an under the proposed amendments special contribution accounts would be established on a notional basis which would be credited each year with an employer's special contributions and credited with actual earnings or debited with actual losses during the plan_year as reasonably determined by the trustees which may be based on the actual earnings or losses of the plan as a whole employers who did not agree to make special contributions would be designated as non-consenting employers special contribution accounts would also be established for these employers and would be debited each year by proportionate among all non-consenting employers fractions of the total amount of special contributions contributed for the plan_year in accordance with the foregoing you have requested the following rulings that the plan will not lose its tax-qualified status under sec_401 of the code and the trust associated with the plan will not lose its tax-exempt status under sec_501 of the code merely because of the payment of the special contributions or because of the plan amendments authorizing such contributions that assuming the requirements for deductibility under sec_404 of the code are otherwise satisfied employers’ contributions to the pension fund will not fail to be fully deductible under sec_404 at the time such contributions are forwarded to the pension fund merely because such contributions are in the form of special contributions law sec_401 of the internal_revenue_code the code provides that a_trust created or organized in the united_states and forming part of a stock bonus pension or profit-sharing_plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified_trust under that section if it is impossible at any time prior to the satisfaction of all liabilities with respect to beneficiaries under the trust for any part of the corpus or income to be within the taxable_year or thereafter used for or diverted to purposes other than the exclusive benefit of his employees or their beneficiaries sec_404 provides in the flush language that in determining the amount deductible in such year under the foregoing limitations the funding method and the actuarial assumptions used shall be those used for such year under sec_412 and the maximum amount deductible for such year shall be an amount equal to the full funding limitation for such year determined under sec_412 sec_412 of the code provides that any amount received by a multiemployer_plan in payment of all or a part of an employer's withdrawal_liability under part of subtitle e of title iv of erisa shall be considered an amount contributed by the employer to or under the plan sec_1_412_c_1_-1 of the regulations provides that the funding method of a plan includes not only the overall funding method used by the plan but each specific method of computation used in applying the overall method sec_1 i -1 b of the regulations provides that a plan is a single_plan if and only if on an ongoing basis all of the plan assets are available to pay benefits to employees who are covered by the plan and their beneficiaries furthermore that section provides that more than one plan will exist if a portion of the plan assets is not available to pay some of the benefits this will be so even if each plan has the same benefit structure or plan document or if all or part of the assets are invested with separate_accounting with respect to each plan analysis in the instant case the taxpayer proposes to amend the plan to permit the acceptance of contributions to be accounted for separately on a notional basis ie special contributions to be accounted for in special contribution accounts employers who make special contributions will have a smaller amount of potential withdrawal_liability than they would otherwise have employers who do not make such contributions will have a greater amount of potential withdrawal_liability than they would otherwise have however all of the assets arising from special contributions will be available to pay benefits to all of the employees who are covered by the plan and their beneficiaries because the assets of the special contribution accounts are available to pay benefits under the plan the existence of such accounts does not affect the status of the plan as a single_plan thus the existence of the special contribution accounts does not affect the tax-qualified status of the plan or the tax-exempt status of its associated trust sec_412 of the code provides that any amount received by a multiemployer_plan in payment of all or a part of an employer's withdrawal_liability shall be considered an amount contributed by the employer to or under the plan effect on withdrawal_liability payments at some future time such contributions are not payments received by a multiemployer_plan in payment of an employer's withdrawal_liability accordingly under sec_412 special contributions will be treated no differently than other contributions to the plan in the instant case although special contributions may have an a sec_404 of the code provides that in determining the amount deductible in a year the funding method and the actuarial assumptions used shall be those used for such year under sec_412 sec_1_412_c_1_-1 of the regulations provides that the funding method of a plan includes each specific method of computation used in applying the overall method accordingly because under sec_412 special contributions will be treated no differently than other contributions to the plan special contributions will similarly be treated no differently than other contributions to the plan under sec_404 therefore assuming the requirements for deductibility are otherwise met employers’ contributions forwarded to the pension fund in the form of special contributions will not fail to be deductible under sec_404 of the code merely because such contributions are in the form of special contributions conclusions the plan will not lose its tax-qualified status under sec_401 of the code and the trust associated with the plan will not lose its tax-exempt status under sec_501 of the code merely because of the payment of the special contributions or because of the plan amendments authorizing such contributions assuming that the requirements for deductibility under sec_404 of the code are otherwise met employers’ contributions to the pension fund will not fail to be fully deductible under sec_404 at the time such contributions are forwarded to the pension fund merely because such contributions are in the form of special contributions this ruling is directed only to the taxpayer that requested it this ruling does not opine on section of erisa or any other provision of erisa sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited by others as precedent a copy of this letter is being furnished to your authorized representative pursuant to a power_of_attorney form on file if you have any questions on this ruling letter please contact sincerely fr tl lathe zp james e holland jr manager employee_plans technical