t c memo united_states tax_court robert j merlo petitioner v commissioner of internal revenue respondent docket no filed date brian g isaacson and don paul badgley for petitioner sandra veliz for respondent memorandum opinion haines judge this case is before the court on the parties’ cross-motions for partial summary_judgment pursuant to rule the issues for decision are whether petitioner’s rights to shares of stock of exodus communications unless otherwise indicated rule references are to the tax_court rules_of_practice and procedure and section references are to the internal_revenue_code as amended inc exodus he acquired during as a result of exercising an incentive_stock_option iso were subject_to a substantial_risk_of_forfeiture and whether petitioner is entitled to an alternative_tax net_operating_loss atnol deduction under sec_56 background at the time he filed his petition petitioner resided in dallas texas on date petitioner commenced work for service metrics inc smi as vice president of marketing on date smi granted petitioner a stock_option to purchase big_number shares of smi common_stock on date petitioner entered into an employment agreement with exodus on date exodus acquired smi pursuant to the reorganization agreement petitioner’s smi stock_option was assumed by exodus and was converted into an option to purchase shares of exodus common_stock according to the exodus prospectus entitled stock_options granted under the service metrics inc stock_option plan assumed by exodus communications inc the service metrics plan generally does not impose any restrictions on the resale of shares of common_stock purchased under the service metrics plan in accordance with federal_law and exodus’ policy prohibiting insider trading you petitioner are always prohibited from trading in exodus securities when you petitioner have inside information the exodus procedures and guidelines governing securities trades by company personnel exodus procedures states in pertinent part it is illegal for any director officer_or_employee of exodus communications inc the company to trade in the securities of the company while in the possession of material nonpublic information about the company violation of this policy or federal or state insider trading or tipping laws by any director officer_or_employee may subject a director to dismissal proceedings and an officer_or_employee to disciplinary action by exodus up to and including termination for cause the exodus procedures contain no requirement that petitioner return the stock to exodus if he attempted to sell his stock in violation of its insider trading policy on date petitioner and exodus entered into a settlement agreement and general release effective as of date under which petitioner ceased to hold the position of vice president marketing of exodus on date petitioner exercised his iso to purchase big_number shares of exodus common_stock petitioner’s employment with exodus terminated on date exodus filed bankruptcy on date in a press release dated date exodus announced that the company’s common_stock had no value on his form_1040 u s individual_income_tax_return petitioner included in his alternative taxable_income for alternative_minimum_tax amt purposes dollar_figure the excess of the price for exodus common_stock reported on nasdaq on date over the price he paid for the stock petitioner did not use the stock’s fair_market_value on the date iso exercise date instead petitioner filed form 8275-r regulation disclosure statement disclosing that he relied on proposed_legislation h_r 107th cong 1st sess then pending in congress to use the stock’s fair_market_value on date the proposed_legislation would have allowed taxpayers to use the difference between the amount_paid for shares purchased pursuant to the exercise of an iso during and the fair_market_value of such shares on date for purposes of computing their amt h_r 107th cong 1st sess was never enacted on date respondent mailed petitioner a notice_of_deficiency in which respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax and a deficiency of dollar_figure in petitioner’s federal_income_tax in the notice_of_deficiency respondent stated the fair_market_value of exodus communications inc common_stock at the date that certain stock_options were exercised date was dollar_figure per share instead of the amount used to compute the adjustments preferences on f orm of the income_tax return therefore the amount of the adjustment preference is dollar_figure instead of the dollar_figure reported on the return on date prior to filing a petition for redetermination of the notice_of_deficiency petitioner filed a form 1040x amended u s individual_income_tax_return for reducing his alternative taxable_income for amt purposes by dollar_figure the excess of the price for exodus common_stock reported on nasdaq on date over the price he paid for the stock thereby eliminating the dollar_figure of amt reported on his federal_income_tax return and claiming a tax_refund of dollar_figure under part ii explanation of changes to income deductions and credits of the amended federal_income_tax return petitioner stated return adjusted to reflect shares subject_to substantial_risk_of_forfeiture and non-transferable petitioner filed a petition for redetermination of the notice_of_deficiency for the year with the court on date on date respondent filed a motion for partial summary_judgment on the issue of whether petitioner’s rights to shares of stock of exodus he acquired during as a result of exercising an iso were subject_to a substantial_risk_of_forfeiture on date petitioner filed with the court a cross-motion for partial summary_judgment in petitioner’s favor that petitioner’s rights to shares of stock acquired during as a result of exercising an iso were subject_to a substantial_risk_of_forfeiture and petitioner is entitled to an atnol deduction under sec_56 discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 the court may grant partial summary_judgment when there are no genuine issues of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 we conclude that there is no genuine issue of material fact as to whether petitioner’s right to shares of exodus stock was subject_to a substantial_risk_of_forfeiture and that a decision may be rendered as a matter of law we also conclude there is a material issue of fact as to whether petitioner is entitled to an atnol deduction under sec_56 petitioner admits that petitioner’s stock_option meets the requirements of sec_422 and qualifies as an iso under sec_421 a taxpayer is allowed to defer regular_tax on income resulting from a stock_option meeting the requirements of sec_422 or sec_423 until the taxpayer sells the shares of stock were our inquiry to end here petitioner would not have been required to recognize any gain until he disposed of the shares of stock he acquired by exercising his iso our inquiry cannot end here because of the application of the amt under sec_56 sec_421 shall not apply to the transfer of stock acquired pursuant to the exercise of an incentive_stock_option as defined in sec_422 therefore for amt purposes shares of stock acquired by exercising a stock_option that qualifies as an iso under sec_422 are treated as shares of stock acquired by means of exercising a nonqualified_stock_option under sec_83 see sec_56 sec_1 a income_tax regs see also speltz v commissioner t c slip op pincite under sec_83 a taxpayer generally must recognize income when he exercises a compensatory stock_option to the extent that the fair_market_value of the shares of stock transferred to him exceeds the price he pays at the time he exercises the option if the taxpayer’s rights in the shares are transferable or not subject_to a substantial_risk_of_forfeiture sec_83 tanner sec_83 provides sec_83 general_rule --if in_connection_with_the_performance_of_services property is transferred to continued v commissioner 117_tc_237 affd 65_fedappx_508 5th cir sec_1_83-7 income_tax regs caselaw establishes that a restriction on the transferability of property does not affect the timing of income inclusion or the amount of income required to be included under sec_83 if the property is not subject_to a substantial_risk_of_forfeiture see 71_tc_618 affd 641_f2d_287 5th cir 67_tc_986 affd 574_f2d_694 2d cir koss v commissioner tcmemo_1989_330 affd 908_f2d_962 3d cir under sec_83 if a taxpayer selling his shares of stock could be subject_to a suit under section b of the continued any person other than the person for whom such services are performed the excess of-- the fair_market_value of such property determined without regard to any restriction other than a restriction which by its terms will never lapse at the first time the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever occurs earlier over the amount if any paid for such property shall be included in the gross_income of the person who performed such services in the first taxable_year in which the rights of the person having the beneficial_interest in such property are transferable or are not subject_to a substantial_risk_of_forfeiture whichever is applicable securities exchange act of ch 48_stat_896 such person’s rights in such property are a subject_to a substantial_risk_of_forfeiture sec_83 does not apply beyond the initial 6-month period provided in section b of the securities exchange act of tanner v commissioner supra pincite petitioner does not claim that he would have been subject_to liability under section b of the securities exchange act of a taxpayer’s right to his shares of stock may be subject_to a substantial_risk_of_forfeiture if his rights to full enjoyment of the shares of stock is conditioned upon the future performance of substantial services sec_83 the record is devoid of any facts that show petitioner’s right to full enjoyment of his shares of exodus stock was conditioned upon the future performance of substantial services petitioner alleges his shares of exodus stock were subject_to a substantial_risk_of_forfeiture and not freely transferable because they were blacked out from trading by reason of exodus’s insider trading policy in his brief petitioner relies on 805_f2d_38 1st cir revg 82_tc_444 the court_of_appeals for the first circuit in robinson v commissioner supra pincite held that a taxpayer’s shares of stock were subject_to a substantial_risk_of_forfeiture until a 1-year sellback provision lapsed the employer in robinson could have compelled its employee to sell the shares of stock back to it at the price the employee paid at the time he exercised his stock_option if the employee attempted to sell the shares of stock within a year of exercising his stock_option robinson is distinguishable from the instant case on its facts petitioner has not shown that exodus could have ever compelled him to return his shares of stock the remedy chosen expressly by exodus to enforce its insider trading policy was not a forfeiture of the shares but disciplinary proceedings against the offending employee up to and including involuntary termination of employment the court_of_appeals for the ninth circuit citing sec_1_83-3 income_tax regs has noted that the risk of forfeiture analysis requires a court to determine the chances the employee will lose his rights in property transferred by his employer 85_f3d_440 ndollar_figure 9th cir revg on another issue tcmemo_1994_45 the evidence in the instant case shows that petitioner had no substantial risk of losing the rights to his shares of exodus stock there is no evidence that exodus could have ever compelled petitioner to return his shares after he exercised his iso no sellback provision is present nor is there any evidence that exodus could have compelled petitioner to forfeit his shares of stock in consequence of the foregoing we hold that petitioner’s rights to his shares of exodus stock were not subject_to a substantial_risk_of_forfeiture we therefore shall grant respondent’s motion for partial summary_judgment petitioner also alleges that he is entitled to an atnol deduction under sec_56 an atnol deduction is the net_operating_loss_deduction allowable for the taxable_year under sec_172 and is computed by taking into consideration all the adjustments to taxable_income under sec_56 and sec_58 and all the preference items under sec_57 but only to the extent that the items increased the net_operating_loss for the year for regular_tax purposes sec_56 sec_172 defines the net_operating_loss as the excess of the deductions allowed by this chapter over the gross_income sec_172 in the case of a noncorporate taxpayer the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets sec_172 in addition where deductions are not attributable to the taxpayer’s trade_or_business the deductions generally will be allowed only to the extent of the amount of the gross_income not derived from the taxpayer’s trade_or_business sec_172 determination of whether petitioner is entitled to such deduction is based upon facts and circumstances which are not before the court granting of the motion for summary_judgment with respect to this issue would be premature because material issues of fact exist not the least of which is whether petitioner was engaged in his activity as an investor or trader we therefore shall deny petitioner’s motion for summary_judgment as to whether he is entitled to an atnol deduction under sec_56 in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued


internal_revenue_service number release date index numbers ------------------------------------------------ ------------------------------------------------------------ - ------------------------------ ---------------- -------------------------- --------------------------- ------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b3 plr-103121-18 date date x --------------------------------------------------------------------------------------------------- ----------------------- legend country ----------------------- date ------------------------ dear ----------------- this letter responds to a letter dated date submitted on behalf of x by its authorized representatives requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts the information submitted discloses that x was organized on date under the laws of country x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law and analysis plr-103121-18 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301 b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-103121-18 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief these returns may include but are not limited to the following forms i form_5471 information_return of u s persons with respect to foreign_corporations ii form_8865 return of u s persons with respect to foreign_partnerships and iii form_8858 return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election in addition we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns we are directing the ruling only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives plr-103121-18 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _______________________ caroline e hay assistant to the branch chief 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 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 b01 plr-127209-15 date date legend x ------------- --------------------------- ------------------------------------------- country ----- -------- date1 ----------------------- date2 -------------------------- dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an entity classification election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x was formed under the laws of country on date1 x represents that it is a foreign_entity eligible to elect to be treated as a partnership for u s federal tax purposes as of date2 however x failed to timely file form_8832 entity classification election electing to be treated as a partnership effective date2 plr-127209-15 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 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 conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership for federal tax purposes effective date2 a copy of this letter should be attached to the form_8832 plr-127209-15 this ruling is contingent on the parties filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief to the extent appropriate these returns must include but are not limited to forms information_return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter 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 internal_revenue_code and the regulations thereunder 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 associate chief_counsel passthroughs special industries by laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date gum no third party contacts sin dollar_figure employer_identification_number dear sir or madam this is in response to your letter of date in which you request a private_letter_ruling regarding the effect of two new programs on your continued exemption under sec_501 of the internal_revenue_code in addition you request a ruling that the proposed additional activities will not result in unrelated_business_income_tax under sec_511 through of the code since your inception you have actively engaged in projects exclusively for the benefit of m the business school at n you have supported the publishing of materials related to m provided scholarships and fellowships to support study at m and provided funds directly to m for its ongoing educational activities most recently you ran an executive education program a series of educational seminars run in conjunction with m to provide ongoing business training to corporate executives and students from other universities around the world you have been recognized as exempt under sec_501 of the code and are a supporting_organization described in sec_509 you propose to acquire and or develop student housing projects on or near n's campus to assist n's students in finding affordable housing in a tight housing market the housing projects will be in the form of student apartments and may be funded through the issuance of tax-exempt_bonds all residential units will be limited to students at n though some apartments may be reserved for certain classifications of students for example students seeking an mba degree within each classification student residents will be selected on a nondiscriminatory basis market rates will be charged for the units in conjunction with the student apartments you plan to provide an educational experience for m's students in real_estate acquisition management and possibly development the clinical program will have both a classroom component and an experiential component each supervised by m's regular faculty in the clinical program business students will gain real world experience by being directly involved in the acquisition and management of the residences in this regard faculty supervised student interns will work with the independent management company you select for day-to-day management services you have asked us to rule as follows the acquisition and or development of student housing projects solely for the benefit of students at n will not adversely affect your tax exempt status under sec_501 c of the code the operation of the clinical program for n's students in conjunction with the acquisition and development of student housing projects will not adversely affect your tax exempt status under sec_501 of the code the acquisition development and management of student housing projects solely for the students at n will not produce unrelated_business_taxable_income under sections of the code sec_501 of the code provides in part that an organization is exempt from federal_income_tax if it is organized and operated for charitable and educational_purposes and if no part of the net_earnings of the organization inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations defines the term charitable as including the advancement of education sec_1_501_c_3_-1 of the regulations defines the term educational as including the instruction or training of the individual for the purpose of improving or developing his capabilities sec_511 of the code imposes a tax on income derived from any trade_or_business the conduct of which is not substantially related to the exercise or performance by an organization of its charitable educational or other exempt purposes sec_513 of the code exempts from the definition of trade_or_business any trade_or_business that is carried on by an exempt_organization primarily for the convenience of its students sec_1_513-1 of the regulations provides that gross_income derived from charges for the performance of exempt functions does not constitute gross_income from the conduct of unrelated_trade_or_business revrul_67_217 1967_2_cb_181 recognized an organization formed to provide housing and food service exclusively for students and faculty of a specific university lacking such facilities as exempt under sec_501 of the code the housing facility was constructed by the organization on land near the university and made available to the students of the university at rates comparable to those offered by the university in its own facilities while the facility was run by a commercial management company any surplus from operations was donated to the university and the university had an option to purchase the facility at any time for an amount equal to the outstanding indebtedness providing the housing under these circumstances served to advance education revrul_76_336 1976_2_cb_143 describes an organization created by community leaders to provide housing for students of a particular college in response to studies by staff members of the college showing that it lacked suitable housing to meet its needs all students attending the college were eligible to apply for residence in concluding that the organization qualified for exemption under sec_501 of the code the service determined that the organization was both helping the college which was unable to provide adequate student housing to fulfill its educational_purposes and aiding the students to attain an education revrul_68_16 1968_1_cb_246 recognized an organization formed to provide clinical experience to business school students as advancing education within the meaning of sec_501 of the code the organization was formed to give the students experience in the management of a portfolio of securities under the supervision of the business school's facuity a fund was created which was invested by the students under the supervision of the faculty no salaries were paid to the directors or students funds in excess of those needed to run the program were paid over to the business school other rulings have found that clinical programs advance education for instance in revrul_78_310 1978_2_cb_173 an organization facilitating placement of law students in legal aid and public interest internships was recognized as exempt under sec_501 of the code tn revrul_75_284 1975_2_cb_202 and revrul_70_584 1970_2_cb_114 organizations providing internship programs for college students were recognized as exempt under sec_501 likewise in revrul_76_37 1976_1_cb_149 an organization that purchased building lots and furnished funds to a public vocational training center for use in its on-the-job home construction training program qualified for exemption under sec_501 of the code the service determined that its activities contributed importantly to the overall program of the vocational center and promoted education within the meaning of sec_1_501_c_3_-1 of the regulations the completed homes were sold to the general_public at fair_market_value and the income from home sales used to finance new projects and obtain vocational training equipment for the public school system in determining that the income from the sale of the homes was not unrelated_business_income the service ruled that the organization was engaging in activities essential to the conduct of the on-the-job training program the completed houses were products of the performance of an exempt_function sold in substantially the same state they were in upon completion of the exempt_function only as many houses were built as were needed by the vocational center for its on-the-job training program thus under sec_1_513-1 of the regulations the construction activity was not unrelated_trade_or_business and the income derived from the sale of completed homes was not unrelated_business_income you plan to acquire and develop student housing facilities solely for students at n a university that lacks sufficient student housing in this regard your operations will be similar to the organizations described in rev ruls and in that you will be helping n fulfill its educational_purposes and aiding n's students to attain an education this activity advances education and is charitable within the meaning of sec_1_501_c_3_-1 of the regulations in addition you plan to operate a clinical program for students studying at m the business school at n by allowing them as part of a supervised program to assist in the acquisition and operation of the facilities in this regard your operations will be similar to the organizations described in rev ruls and this activity will contribute importantly to m's overall program and as such will promote education within the meaning of sec_1_501_c_3_-1 of the regulations developing and operating a student housing facility for the exclusive use of n's students and operating a clinical program for the benefit of the students at m fulfill purposes that are substantially related to your exempt charitable and educational_purposes gross_income from the performance of exempt functions is not unrelated_trade_or_business under sec_1 d of the regulations in this regard you are similar to the organization described in rev rui your activities will contribute importantly to the accomplishment of your educational and charitable purposes and the income derived from them will not be considered unrelated_business_income taxable under sec_511 of the code in conclusion we rule as follows the acquisition and or development of student housing projects solely for the benefit of students at n will not adversely affect your tax exempt status under sec_501 c of the code the operation of the clinical program for n's students in conjunction with the acquisition and development of student housing projects will not adversely affect your tax exempt status under sec_501 of the code the acquisition development and management of student housing projects solely for the students at n will not produce unrelated_business_taxable_income under sections of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely pit ta v bro gerald v sack manager exempt_organizations technical group


t c memo united_states tax_court ronald w nelson jr and jennifer j nelson petitioners v commissioner of internal revenue respondent docket no 5323-o2l filed date ronald w nelson jr and jennifer j nelson pro sese karen nicholson sommers and scott a hovey for respondent memorandum opinion armen special_trial_judge this matter is before the court on respondent’s motion to dismiss for lack of jurisdiction and to strike as supplemented respondent moves that this case insofar as it relates to a decision letter concerning equivalent_hearing be dismissed for lack of jurisdiction on the ground that no notice_of_determination under sec_6320 or sec_6330 was - - sent to petitioners with respect to a proposed levy to collect liabilities arising with respect to tax_year as explained in detail below we shall grant respondent’s motion as supplemented background the record establishes and or the parties do not dispute the following a respondent’s notice_of_intent_to_levy on date respondent mailed to petitioners a final notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy concerning petitioners’ unpaid tax_liability for the taxable_year the notice_of_intent_to_levy was sent to petitioners by certified mail at their last_known_address see sec_6330 c and was received by them on date petitioners did not respond to the notice_of_intent_to_levy by paying their outstanding tax_liability or making alternative arrangements to pay nor did petitioners request within the requisite period of time consideration by respondent’s appeals_office accordingly on or about date respondent served a notice_of_levy on petitioner jennifer j nelson’s employer unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure b respondent’s notice_of_federal_tax_lien on or shortly after date respondent filed a notice_of_federal_tax_lien with the county recorder for san diego county san diego california see sec_6323 thereafter on date respondent mailed to petitioners a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 the notice regquired by sec_6320 concerning their unpaid tax_liability for the taxable_year the notice required by sec_6320 was sent to petitioners at their last_known_address see sec_6320 c and was received by them no later than date c petitioners’ reguest for an administrative hearing on or shortly after date petitioners sent to the internal_revenue_service office of appeals appeals_office form request for a collection_due_process_hearing concerning their unpaid tax_liability for the taxable_year petitioners’ reguest for an administrative hearing petitioners filed their request for an administrative hearing in respect of both the notice_of_intent_to_levy and the notice regquired by sec_6320 both the notice_of_federal_tax_lien and the notice required by sec_6320 listed petitioners’ unpaid tax_liability for as dollar_figure - - d the appeals_office hearing the appeals_office concluded that petitioners’ request for an administrative hearing was timely filed in respect of the notice reguired by sec_6320 but was not timely filed in respect of the notice_of_intent_to_levy accordingly on date the appeals_office conducted both an administrative hearing in respect of the notice required by sec_6320 and a so-called equivalent_hearing in respect of the notice_of_intent_to_levy see sec_301_6330-1 q a-c7 proced admin regs be the notice_of_determination and the decision letter on date the appeals_office issued to petitioners a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination the notice_of_determination was issued in respect of the notice required by sec_6320 and it reflected the conclusion of the appeals_office that the filing of the notice_of_federal_tax_lien was an appropriate collection action by respondent the notice_of_determination also advised petitioners that they had days to file a petition with the tax_court seeking judicial review of respondent’s determination regarding the notice required by sec_6320 also on date the appeals_office issued to petitioners a decision letter concerning equivalent_hearing under sec_6320 and or of the internal_revenue_code the decision letter see sec_301_6330-1 proced admin regs the decision letter was issued in respect of the notice_of_intent_to_levy and it reflected the conclusion of the appeals_office that the notice_of_intent_to_levy was an appropriate collection action by respondent the decision letter also stated in pertinent part your due process hearing request was not filed within the time prescribed under sec_6320 and or however you received a hearing equivalent to a due process hearing except that there is no right to dispute a decision by the appeals_office in court under sec_6320 and or f petitioners’ petition and respondent’s motion on date petitioners filed with the court a petition for lien or levy action under code sec_6320 or d see rule b petitioners filed their petition in respect of both the notice_of_intent_to_levy and the notice required by sec_6320 in response to the petition respondent filed a motion to dismiss for lack of jurisdiction and to strike respondent asserts that the court lacks jurisdiction in respect of the notice_of_intent_to_levy on the ground that the decision letter does not constitute a notice_of_determination sufficient to invoke the court’s jurisdiction pursuant to sec_6330 petitioners filed an objection to respondent’s motion to dismiss asserting in pertinent part as follows -- - the hearing of whatever nature was held and it was during that hearing that the issue of and challenge to the underlying liability was raised and is a fait accompli that no notice_of_determination of whatever nature was or was not made is irrelevant to the issue of jurisdiction pursuant to notice this matter was called for hearing at the court’s motions session in washington d c counsel for respondent appeared at the hearing and argued in support of respondent’s motion to dismiss there was no appearance by or on behalf of petitioners nor did petitioners file a written_statement pursuant to rule c the applicability of which was noted by the court in its order calendaring respondent’s motion for hearing discussion a statutory framework sec_6321 provides that if any person liable to pay any_tax neglects or refuses to pay the same after demand the unpaid tax shall be a lien in favor of the united_states upon all property and rights to property belonging to that person sec_6322 provides that the lien imposed under sec_6321 generally arises at the time of assessment however sec_6323 provides that the lien shall not be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor until the secretary files a notice of lien with the appropriate public officials - sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay the same within days after notice_and_demand for payment the secretary is authorized to collect the tax by levy upon the person’s property sec_6331 provides that at least days before enforcing collection by way of a levy on the person’s property the secretary is obliged to provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person in the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 congress enacted new sec_6320 pertaining to liens and pertaining to levies to provide protections for taxpayers in tax collection matters sec_6320 and sec_6330 generally provide that the commissioner cannot proceed with collection until the taxpayer has been given notice of and the opportunity for an administrative review of the matter in the form of an appeals_office hearing and if dissatisfied the taxpayer may seek judicial review of the administrative determination see 115_tc_35 114_tc_176 sec_6320 and sec_6330 provide in pertinent part that the secretary shall notify a person in writing of his or her right to an appeals_office hearing regarding the secretary’s - - filing of a notice of lien under sec_6323 or the secretary’s intent to levy respectively by mailing the notice required by sec_6320 or sec_6330 as the case may be by certified or registered mail to such person at his or her last_known_address sec_6320 provides that the prescribed notice shall be provided not more than business days after the day on which the notice of lien under sec_6323 is filed further sec_6320 b provides that the prescribed notice shall explain that the person has the right to request an appeals_office hearing during the 30-day period beginning on the day after the 5-day period described in paragraph sec_6330 provides that the prescribed notice shall be provided not less than days before the day of the first levy with respect to the amount of the unpaid tax for the taxable_period further sec_6330 b provides that the prescribed notice shall explain that the person has the right to request an appeals_office hearing during the 30-day period under paragraph although the term last_known_address is not defined in the internal_revenue_code we have held that a taxpayer’s last_known_address as the term is used in sec_6213 regarding the proper mailing of a notice_of_deficiency is the address shown on the taxpayer’s most recently filed return absent clear and concise notice of a change_of address see eg 91_tc_1019 see also sec_301 proced admin regs - where the appeals_office issues a determination_letter to the taxpayer following an administrative hearing regarding a lien or levy action sec_6320 by way of cross-reference and d provide that the taxpayer will have days following the issuance of the determination_letter to file a petition for review with the tax_court or a federal district_court we have held that the court’s jurisdiction under sec_6320 and sec_6330 depends on the issuance of a valid determination_letter and the filing of a timely petition for review 116_tc_255 moorhous v commissioner 1t c 114_tc_492 as discussed below we conclude that because respondent did not issue to petitioners a notice_of_determination pursuant to sec_6330 in respect of the notice_of_intent_to_levy we therefore lack jurisdiction over the petition insofar as that matter 1s concerned b petitioners’ failure to make a timely request for an administrative hearing in respect of the notice_of_intent_to_levy on date respondent sent to petitioners a notice_of_intent_to_levy petitioners received the notice_of_intent_to_levy on date the notice informed petitioners that they had days from the date of the notice to file a request for an appeals_office hearing - on date respondent issued to petitioners the notice required by sec_6320 on or shortly after date petitioners submitted to the appeals_office a request for an administrative hearing in respect of both the notice_of_intent_to_levy and the notice required by sec_6320 the 30-day period prescribed in sec_6330 and b for the filing of a timely request for an appeals_office hearing in respect of the notice_of_intent_to_levy expired on monday date see sec_301 l c q a-c3 proced admin regs see also sec_7503 because petitioners’ request for an appeals_office hearing was not timely in respect of the notice_of_intent_to_levy the appeals_office was not obliged to provide petitioners with the administrative hearing contemplated by sec_6330 in respect of that notice on the other hand because petitioners’ request for an appeals_office hearing was timely with respect to the notice required by sec_6320 the appeals_office was obliged to provide petitioners with the administrative hearing contemplated by sec_6320 in respect of that notice indeed the record demonstrates that an administrative hearing was in fact conducted on date in respect of the notice required by sec_6320 a c equivalent_hearing in lieu of a hearing under sec_6330 in respect of the notice_of_intent_to_levy the appeals_office granted petitioners a so-called equivalent_hearing we have previously held that the commissioner’s decision to conduct an equivalent_hearing does not result in a waiver by the commissioner of the time restrictions within which a taxpayer is required to request an appeals_office hearing under sec_6330 in respect of a notice_of_intent_to_levy kennedy v commissioner supra pincite moorhous v commissioner supra pincite d decision letter on date following the equivalent_hearing the appeals_office issued to petitioners a decision letter stating that the notice_of_intent_to_levy was an appropriate collection action by respondent in addition the decision letter unambiguously states that the equivalent_hearing was not intended to serve as an appeals_office hearing within the meaning of sec_6330 on the other hand on date the appeals_office issued to petitioners a notice_of_determination advising petitioners that they had days to file a petition with the tax_court contesting the determination in respect of the notice reguired by sec_6320 as previously discussed because petitioners failed to file a timely request for an appeals_office hearing in respect of the notice_of_intent_to_levy the appeals_office was not obliged to conduct such a hearing in this regard the decision letter issued to petitioners was not and did not purport to be a notice_of_determination pursuant to sec_6320 or sec_6330 see moorhous v commissioner supra kennedy v commissioner supra offiler v commissioner supra pincite be conclusion consistent with the foregoing we shall grant respondent’s motion to dismiss for lack of jurisdiction and to strike as supplemented on the ground that the appeals_office did not issue a determination_letter to petitioners pursuant to sec_6330 due to petitioners’ failure_to_file a timely request for an appeals_office hearing pursuant to sec_6330 b and b in addition we shall strike all references in the petition to the decision letter f postscript regarding sec_6673 because our action granting respondent’s motion will serve to dismiss only a portion of this case we take this opportunity to advise petitioners of the provisions of sec_6673 as relevant herein that section authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or - - groundless the court has indicated its willingness to impose such penalty in lien and levy cases 115_tc_576 and has in fact imposed a penalty ina number of such cases see eg davich v commissioner tcmemo_2002_255 imposing a penalty in the amount of dollar_figure the petition in the present case advances some of the same arguments that led to the imposition of a penalty in davich v commissioner supra petitioners might therefore care to review that case and consider whether it is in their interest to persist in advancing such arguments in order to reflect the foregoing an appropriate order granting respondent’s motion to dismiss for lack of jurisdiction and to strike as supplemented will be issued


internal_revenue_service number release date ----------------- ----------------------------- ---------------------------- --------------------------- ------------------------ ------------------------------------ in re ----------------------- ------------------------ ----------------------------- 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 bo5 plr-123299-07 date january -------------------------- -------------------------------------- -------------------------------------- legend taxpayer ------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- holdings lossco ---------------------------------------------------------------------- lp llc ------------------------- ---------------------------------------------------------------------- llc ---------------------------------------------------------------------- llc ---------------------------------------------------------------------- supplier corporation a bank ----------------------------------- --------------------------- ----------------------------------- -------------------------------- ---------------------- --------------------- ------------------------------------------ -------------------------------- ------- ------------- ----------------- ------------------------- ------------------------- plr-123299-07 buyer -------------------------------------------------------------------------- ------------------------------------------------------------------- acquisition g p director state a business a year date date date date date date date date date date a b c d e ------------------------- ------------------------- ----------------------- ---------------------- ------------------ ------------------ ----------------- ---------------- -------------- ---- ---- ---- ---- -- plr-123299-07 f g h i j k l m n o p q r s t u v w x y z aa ---- --- ------------- -------------- -------------- -------------- --------------- ------------- ------------- ------------- -- ------ ------ ---- --------------- --------------- --------------- -------------- -------------- -------------- ---- -------------- ---- -------------- -------------- plr-123299-07 bb cc dd ee ff gg hh dear ------------ this letter responds to your date letter requesting a ruling under sec_382 we received additional information on date and date the information you submitted for our consideration is summarized below unless otherwise indicated references herein to code sections and regulations are to the applicable internal_revenue_code and income_tax regulations -------------- -------------- ------------- -- the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts in year lp a partnership acquired a majority of the stock of lossco lossco was a state a corporation engaged in business a from the time of the acquisition until date lossco was the common parent of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return during this period lp held between a percent and b percent of the equity of lossco through its wholly-owned limited_liability_company llc from date forward llc was a partnership c percent owned by lp for u s federal_income_tax purposes supplier owned approximately d percent of the equity in lossco and the remaining e percent was owned by various parties during this period lp owned f percent of the membership interests in llc a state a limited_liability_company supplier owned the remaining g percent of llc llc was treated as a plr-123299-07 partnership for u s federal_income_tax purposes lp also wholly-owned llc a state a limited_liability_company that was disregarded as an entity separate from lp for u s federal_income_tax purposes on date lossco entered into a credit agreement credit agreement with bank that provided for dollar_figureh dollar_figurei of term loans and no more than dollar_figureh under a revolving credit facility collectively the senior loans bank acted as an administrative agent for a syndicated group of lending banks lenders lossco granted first priority liens on substantially_all of its assets to secure the loans and other extensions of credit made under the credit agreement the credit agreement prohibited lossco or any of its subsidiaries from creating or incurring any debt other than that allowed by the credit agreement the credit agreement stated that any lender could sell one or more participating interests in the loans on date lossco issued notes in the aggregate principal_amount of dollar_figurej the notes pursuant to an indenture note indenture the credit agreement allowed for lossco’s issuance of the notes the notes were unsecured and were subordinated in right of payment to indebtedness under the credit agreement the note indenture allowed lossco to borrow additional sums up to dollar_figurek under the credit agreement but otherwise limited lossco’s ability to issue debt senior to the notes the notes ranked pari passu with lossco’s obligations to its trade creditors lossco struggled financially and was balance-sheet insolvent for the quarter ending date on date lossco and bank entered into an amendment to the credit agreement whereby bank would lend lossco an additional dollar_figurel the date loan if lp or an affiliate would enter into an agreement to purchase a percent undivided participation interest in the date loan date participation_agreement bank would not lend the dollar_figurel to lossco until bank received the cash payment from lp or its affiliate on date llc and bank entered into the date participation_agreement llc purchased the participation interest from bank and bank lent dollar_figurel to lossco at such time llc did not own any stock of lossco llc had almost no rights under the date participation_agreement other than to be paid out of funds or other distributions received by bank after bank had been fully paid with respect to the senior loans llc had no privity with lossco no remedies as a creditor against lossco and no ability to amend the terms of the credit agreement with respect to any loans including the date loan the date loan was made subordinate to the senior loans the date participation_agreement stated that when bank was fully satisfied with respect to the senior loans bank would cause to be distributed to the participant any payment relating to the principal of the date loan on date lossco and bank entered into an another amendment to the credit agreement whereby bank would lend lossco up to an additional dollar_figurem the date loan if lp or an affiliate would enter into a participation_agreement to purchase a percent undivided participation interest in the date loan date participation plr-123299-07 agreement bank would not lend the dollar_figurem to lossco until bank received the cash payment from lp or its affiliate the terms of the date participation_agreement were substantially the same as those in the date participation_agreement on date llc purchased the participation interest from bank and bank lent approximately dollar_figurem to lossco on date lossco and bank entered into another amendment to the credit agreement whereby bank would lend lossco an additional dollar_figuren later increased to dollar_figureo if lp or an affiliate would enter into a participation_agreement to purchase a percent undivided_interest in the date loan date participation_agreement the terms of the date participation_agreement were substantially the same as the date and date participation agreements on date llc purchased the participation interest from bank and bank lent the funds to lossco in connection with the date date and date transactions lossco issued warrants to lp or an affiliate which provided the right to purchase lossco stock at dollar_figurep per share on date lossco filed a voluntary petition for bankruptcy under chapter of title of the u s bankruptcy code at such time q percent of lossco’s stock was held by llc r percent was held by supplier and corporation a and director each owned approximately s percent the amount of the date date and date loans including interest outstanding at the time was dollar_figuret dollar_figureu and dollar_figurev respectively bank submitted claims with respect to all amounts owed by lossco under the credit agreement lossco’s creditors’ and shareholders’ claims were categorized in the bankruptcy the cla sec_2 claimant was bank as the holder of the senior loans the cla sec_3 claimant was also bank as holder of the right to payment under the credit agreement for the date date and date loans the cla sec_3 claim was for approximately dollar_figurew the cla sec_4 claimant held the right to payment of certain other secured claims the cla sec_5 claimants were unsecured creditors including the holders of lossco’s notes the class claimants were certain other unsecured creditors the class claimants were lossco’s shareholders as holder of the cla sec_2 and cla sec_3 claims bank stood to collect in advance of the cla sec_4 and claimants the holders of class claims would not receive payment on their equity interests until all other claims were satisfied in full llc and lossco’s other shareholders stood to recover nothing with respect to their shares and did not have a vote in the bankruptcy reorganization plan certain of lossco’s unsecured creditors unsecured creditors filed a motion with the bankruptcy court asking for permission to bring suit against lp llc llc llc and bank to among other things subordinate the cla sec_3 claims to the claims of the unsecured creditors and recharacterize the cla sec_3 claims as equity the unsecured creditors claimed that the date date and date funding transactions were in substance capital contributions the unsecured creditors stated that if the date plr-123299-07 date and date loans were not recharacterized the unsecured creditors would likely get little or no distribution in the bankruptcy reorganization the unsecured creditors alleged that lossco borrowed the date date and date funds at a time when it was in the zone of insolvency over-leveraged and undercapitalized and that lossco’s board_of directors did not properly consider the impact of the transactions on other creditors the unsecured creditors argued that the parties disguised the equity contributions by papering each contribution as i a loan by bank to lossco under the pre-existing credit agreement and ii a purchase of a participation interest in the loan by lp or an affiliate the unsecured creditors claimed lossco’s shareholders disguised these equity contributions so they could gain priority in payment over lossco’s unsecured creditors the unsecured creditors also argued that lossco’s issuance of warrants giving lp or its affiliate the right to purchase shares of lossco common_stock at dollar_figurep per share further demonstrates that the funding was an investment because the warrants provided lp or its affiliate with equity upside the parties settled the matters raised by the unsecured creditors before the bankruptcy court had to rule on date the effective date of the bankruptcy reorganization effective date all the lossco common_stock including all options warrants etc was cancelled and the holders of such interests received no consideration in exchange therefore the credit agreement was terminated the cla sec_2 claimant received cash in full consideration of the cla sec_2 claims the cla sec_4 and class claimants received payment or other treatment specified in the reorganization plan holdings a state a corporation had been previously formed to hold all of the stock of lossco as a result of the plan_of_reorganization on the effective date a total of x shares of holdings’ common_stock was allocated between the cla sec_3 and cla sec_5 claimants consistent with their economic rights under the plan_of_reorganization the cla sec_3 claimant bank received y shares of holdings common_stock which represented z percent of holding’s common_stock immediately after the effective date the cla sec_5 claimants received aa shares of holdings common_stock which represented bb percent of holding’s common_stock immediately after the effective date bank in keeping with the terms of the participation agreements caused the y shares of holdings common_stock it was entitled to receive with respect to the cla sec_3 claims to plr-123299-07 be allocated and issued directly in the names of the participants cc shares to llc and dd shares to llc as a result of the exchange of claims for equity pursuant to the bankruptcy plan lossco realized cancellation_of_indebtedness_income in the amount of approximately dollar_figureee including accrued but unpaid interest which was excluded from income under sec_108 approximately ff months after the effective date pursuant to an agreement with buyer lossco merged with and into holdings with holdings surviving holdings changed its name to new lossco on date buyer acquired all of the new lossco stock in a taxable transaction the acquisition of new lossco by buyer was accomplished by means of a taxable merger of acquisition g p with and into new lossco with new lossco surviving the shareholders of new lossco received cash in the aggregate amount of dollar_figuregg buyer’s purchase of new lossco resulted in an ownership_change within the meaning of sec_382 representation sec_1 taxpayer represents that on the effective date cc shares of holdings stock were directly issued in the name of llc and dd shares of holdings stock were issued in the name of llc taxpayer represents that lossco’s bankruptcy reorganization did not result in a sec_382 ownership_change of lossco because at the start of the effective date lp’s partners indirectly owned q percent of lossco and on the effective date indirectly reacquired z percent of lossco taxpayer represents that lossco reduced its net_operating_loss carryovers by the full amount of cancellation_of_indebtedness_income taxpayer represents that lossco’s ownership had not changed within the meaning of sec_382 in the three year period ending immediately prior to the date of buyer’s acquisition of new lossco taxpayer represents that the approximate aggregate value of the y shares of holdings common_stock received by llc and llc on the effective date was dollar_figurehh law sec_382 provides that the amount of 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 sec_382 provides that the value of the old_loss_corporation is the value of the stock of such corporation immediately before the ownership_change plr-123299-07 sec_382 provides that any capital_contribution to the old_loss_corporation is not taken into account for purposes of sec_382 if it is part of a plan a principal purpose of which is to avoid or increase any limitation under this section sec_382 provides that any capital_contribution made within the two-year period ending on the change_date shall except as provided in regulations be treated as part of such a plan rulings sec_382 does not apply to treat the conversion of dollar_figurehh of the date date and date loans into equity or the forgiveness of the remainder of the outstanding balance of such loans as a capital_contribution received by lossco as part of a plan a principal purpose of which was to avoid or increase the sec_382 limitation therefore new lossco is not required to disregard the amount of the equity created by such conversion or forgiveness for purposes of determining the sec_382 limitation with respect to the ownership_change resulting from the acquisition of new lossco by buyer caveats no opinion is expressed about the tax treatment of the completed transaction described above under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the completed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding whether the funding from llc and llc to bank and from bank to lossco pursuant to the credit agreement and participation agreements constitutes direct loans or direct capital contributions from the participants to lossco procedural statements this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely plr-123299-07 marlene p oppenheim senior counsel branch associate chief_counsel corporate


internal_revenue_service number release date index number -------------------------- -------------------- ------------------------------- re --------------------------------------- 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 b4 plr-104169-14 date date legend settlor grandchild ---------------------- -------------------------- trust date ------------------------ ------------------------------------------------------------------------- ----------------------- ------------------ dear ---------------- this letter responds to your letter dated date submitted on your behalf by your authorized representative requesting a ruling on application of sec_2041 of the internal_revenue_code facts settlor died on date grandchild is the beneficiary of trust a_trust created under article 9c of settlor’s last will paragraph of article 9c provides that during grandchild’s life the trustees of trust are to make discretionary payments of the net_income and principal to or for the benefit of grandchild and grandchild’s issue paragraph of article 9c provides that upon the death of grandchild the trustees of trust are to pay over the principal as then constituted and any accumulated or undistributed_income to such among settlor’s issue as grandchild shall validly appoint in grandchild’s last will any balance of trust remaining and not effectively appointed by grandchild in grandchild’s last will is disposed of pursuant to paragraph sec_2 and of article 9c of settlor’s last will plr-104169-14 rulings requested grandchild has requested the following rulings that the testamentary_power_of_appointment granted to grandchild in trust does not constitute a general_power_of_appointment within the meaning of sec_2041 and the existence exercise failure to fully exercise or partial or complete release of grandchild’s power to appoint the principal and any accumulated or undistributed_income of trust will not cause the value of the property in trust to be included in grandchild’s gross_estate under sec_2041 law and analysis sec_2041 provides that the value of the gross_estate includes the value of all property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment is considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides with exceptions not relevant here that the term general_power_of_appointment means a power that is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides that the term general_power_of_appointment as defined in sec_2041 means any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of his estate in this case grandchild may appoint by will the principal and accumulated or undistributed_income of trust to the class consisting of settlor’s issue because grandchild’s power_of_appointment is a testamentary power grandchild may not appoint any part of trust to grandchild or to grandchild’s creditors during grandchild’s life in addition based on the terms of trust the reference to such among settlor’s plr-104169-14 issue as a permissible class of appointees of grandchild’s testamentary power is properly viewed as not including grandchild’s estate or the creditors of grandchild’s estate after grandchild’s death accordingly based on the information submitted and the representations made we conclude that grandchild’s testamentary_power_of_appointment over the principal and accumulated or undistributed_income of trust does not constitute a general_power_of_appointment within the meaning of sec_2041 and the existence exercise failure to fully exercise or partial or complete release of grandchild’s power to appoint the principal and accumulated or undistributed_income of trust will not cause the value of the property in trust to be included in grandchild’s gross_estate under sec_2041 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_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 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 melissa c liquerman chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


tax_exempt_and_government_entities_division number release date department of the treasury internal_revenue_service commerce street mc dallas tx date date person to contact identification_number contact telephone number telephone number fax ein uil certified mail - return receipt requested dear this is a final adverse determination regarding your exempt status under sec_501 c of the internal_revenue_code the code our favorable determination_letter to you dated december xx is hereby revoked and you are no longer exempt under sec_501 a of the code effective january xx the revocation of your exempt status was made for the following reason s you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 organizations that are described in sec_501 and sec_501 must be organized and operated exclusively for an exempt_purpose you have not established that you have operated exclusively for an exempt_purpose as such you failed to meet the requirements oflnternal revenue code sec_501 c and sec_1 c -1 d in that you failed to establish that you were operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code effective january xx 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 december 20xx and for all subsequent years processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be ftled under section of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses united_states tax_court second street nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call1-877-777-4778 and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate telephone if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours enclosures publication margaret von lienen director eo examinations internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations ms phx jm n central ave phoenix az department of the treasury date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number manager's contact number response due_date certified mail- return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 c of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies letter rev catalog number 34809f effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely margaret von lienen director eo examinations letter rev catalog number 34809f form 886-a rev date name of taxpayer explanations of item sec_1 ein schedule number or exhibit period ending december 20xx should the exempt status under internal_revenue_code irc section sec c of the be revoked effective january 20xx because the organization does not meet the operational_test operated exclusively for charitable purposes requirements of treasury treas regulation reg sec_1_501_c_3_-1 background information according to the on november 20xx secretary of state's website was incorporated in on december 20xx the internal_revenue_service issued letter notifying exempt status under sec_501 c per the current internal_revenue_service records of its is recognized as tax exempt under sec_501 c and its foundation status is a public charity under sec_170 b a vi on january 20xx the agent spoke with president the current president of and explained was selected for audit for the period ending december 20xx the president did not want to give any information without receive written confirmation of the audit the agent mailed the president letter and information_document_request taxpayer's representative in letters dated january 20xx and february 20xx stated the following the president of our records indicate that the organization has not conducted any business activity since is the application was filed other than filing the required 990-n e-postcard tax returns to keep the organization current with the internal_revenue_service because the organization is currently dormant all items listed on your form lnformation document request are not available because they have not yet been prepared form application_for exempt status provided a description of its activities when applying for exempts status the activities below were provided with form_1 the purpose of now and in the future is to provide funding for educational research and tutoring seminars to help people become independent and self-sufficient we are specifically looking to help those who are capable or have the potential to achieve financial independence and emotional stability again as set forth by the dsm-v many homeless people are capable to work and have job skills right now we will help them improve these skills for work in offices or with any job they wish to pursue form 886-a catalog number 20810w page i publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer explanations of items i ein schedule number or exhibit period ending december 20xx homeless people who also have on the job training in solicitation will be hired to work on the streets getting donations from people who stop at traffic lights the latter practice is commonly known as pan-handling we intend to enable and to empower the homeless to continue this activity for the benefit of themselves and for our programs to prevent diversion of funds we will charge the worker a minimal daily fee for being able to solicit funds with the permission of districts in dollar_figure - per shift and permit the worker to keep anything beyond their solicitations we will charge from at the end of the description of activities is a section called members that receive benefits from you the following is the paragraph from that section tutors and tutoring services will be contracted to provide services to eligible students low income or no income people or homeless people or office staff will be working for us and receiving wages college students who demonstrate academic need for help for a particular subject will receive free or discounted tutoring as well as opportunities to perform research board member relatives will not receive benefits website web address is www provided com a search on the web addre sec_1 the registrant name admin name and tech name are all listed as the registrant organization admin organization and tech organization are all listed as the following is a detailed description of the webpage first line of the web page second line of the web page third line of the webpage forth line of the webpage fifth line of the webpage six line of the webpage seventh line is the start of a bulleted paragraph is to provide the following benefits to its members the goal of the relevant parts of the first full paragraph are a form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer b explanations of items i ein schedule number or exhibit period ending december 20xx archive org a historical archive of internet webpages shows above was in effect during the audit year and year subsequent to the audit year webpage as described internal_revenue_code sec_501 - organizations described in sec_501 are exempt from income_tax these organizations include corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office treasury regulations sec_1_501_c_3_-1 - organizational and operational tests- in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1 c -1 c -an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in the internal_revenue_code sec_1 c -1 d ii -clarifies the meaning of the term exempt_purpose an organization is not organized or operated exclusively for one or more exempt_purpose unless it serves a public rather than a private interest to meet this requirement 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 sec_1 c -1 d - provides that the term ' 'charitable is used in sec_501 c in its generally accepted legal sense such term includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or to lessen neighborhood tensions to eliminate prejudice and discrimination to defend human and civil rights secured_by law or to combat community deterioration and juvenile delinquency form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date name of taxpayer cases explanations of items i ein schedule number or exhibit period ending december 20xx 326_us_279 - the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test government's position it is the government's position the exempt status of the should be revoked effective january 20xx because the organization does not meet the operational_test operated exclusively for charitable purposes application_for exemption from states will assist the homeless with employment and tutoring so they may be independent and self-sufficient on there is nothing related to assisting the homeless how the homeless can get tutoring to become self-sufficient or how they can get jobs the organization was granted exempt status based on their planned assistance tutoring of a charitable_class the homeless however there is no indication this activity is being conducted additionally per the power_of_attorney further stated that nothing has been done with this organization or activity webpage subsequent to the start of the audit webpage was changed removing the name from promoting the president's for-profit tutoring services however the domain www should only be used in the operation of exempt_purpose assets are in use for for-profit activities com is registered in the name of and exempt_purpose even at the time of this writing and is the property of has not provided documents to support their exempt_purpose and has not established they are meeting the requirements of the operational_test all activities of promotion of a for-profit nonexempt purpose are for the organization's position the taxpayer's representative has stated is currently dormant and not operating conclusion sole purpose is to promote the president's for profit business does not meet the requirements of the operational_test and its exempt status should be revoked effective january 20xx form_1120 u s_corporation income_tax return should be filed for 20xx and each year thereafter as long as it remains subject_to federal_income_tax if the proposed revocation becomes final appropriate state officials will be notified of such actions in accordance with sec_61 c form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service