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 tege eoeg eo3 plr-117788-16 date date association study community hospital state state university university hospital communities x y -------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------ ---------------------------------------------- ------------------------------- --------------------------------------------- ------------------------------------------- ------------------------------------------------------------------ ----- ---- dear ---------------- this letter responds to a letter from association’s authorized representatives dated date and subsequent correspondence on behalf of association requesting rulings that i leasing community hospital’s premises in the manner described below is in furtherance of association’s charitable purpose under sec_501 of the internal revenue code1 and ii the lessee’s use of the leased property is substantially related to the exercise or performance by association of its charitable purpose for purposes of determining whether income under the lease is derived from debt-financed_property under sec_514 the internal_revenue_code_of_1986 as amended to which all subsequent section references are made unless otherwise indicated plr-117788-16 facts the internal_revenue_service irs has recognized association as an organization described in sec_501 that is not a private_foundation under sec_509 association was organized under state law as a nonprofit corporation and was formed to establish operate and maintain a hospital for the care and treatment of persons who are ill injured or in need of hospital care at its current location community hospital and to lease or otherwise acquire hold mortgage sell or otherwise dispose_of any real or personal_property and to do all other acts necessary or expedient for the administration of its affairs and as are incidental to the obtainment of any of its purposes association’s board_of directors is composed of a number of prominent individuals who live in community hospital’s service area communities community hospital has an open medical staff and its emergency department treats all persons regardless of their ability to pay association owns the community hospital building and various other related healthcare facilities the premises community hospital is subject_to tax-exempt_bonds used to fund its expansion and modernization association has operated community hospital a small acute care hospital continuously for more than x years to provide the best possible health care services to the people in communities however in recent years association has experienced difficulty covering the costs of operating community hospital because of lack of economies of scale lack of access to capital and declining reimbursements some years ago state undertook an independent review of state’s health care capacity and resources to that end it commissioned a study the study which examined the supply of general hospital and nursing home facilities in state and recommended changes that would result in a more coherent streamlined health care system referring to community hospital and certain other independent community hospitals in the same geographic region the study recommended that access to emergency and acute inpatient care be maintained at each location due to the unique geography and population distribution of the region and the distance between the region’s hospitals the study recognized however that competition for patients in what it characterized as a thinly populated area would cause the continued decline of those hospitals consequently it recommended that the hospitals develop an affiliation with university hospital in order to strengthen the hospitals and to create a healthcare system that better serves the needs of the region university hospital is an academic medical center and the region’s only tertiary care center and level trauma center university hospital is a division of state university plr-117788-16 state university was created by statute as a corporation within the department of state that is concerned with public education more recently association hired a consulting firm to prepare a demographic and market assessment of community hospital’s service area and to provide a strategic assessment of community hospital’s options given its financial difficulties the consulting firm considered many factors including community hospital’s ability to spread costs managed care contracts access to capital access to talent and organizational fit and concluded that remaining independent was not a viable option for community hospital after careful study and analysis of current and projected future conditions in its service area and in the field of health care in general association concluded that its public purpose could best be achieved by integrating its community hospital operations into university hospital under an integration and affiliation agreement the iaa with state university acting through university hospital and by entering into other related and ancillary transactions and arrangements including a lease agreement the lease under the terms of the lease association will lease the premises and all property plant and fixed equipment located on the premises to state university acting through university hospital for a term of y years which term is automatically extended for an additional year on each anniversary of the lease commencement_date unless terminated sooner due to one of several enumerated events including termination by the landlord following a major tenant breach not timely cured a major tenant breach includes tenant’s failure to observe or perform any material covenant condition or agreement on its part to be observed or performed under certain sections of the iaa among the covenants and agreements that state university is required to observe or perform to avoid a major tenant breach are the following maintain at community hospital various listed core medical and surgical services at current levels of access and sophistication maintain accreditation of community hospital by the joint commission without significant deficiencies offer opportunities for teaching and research at community hospital while state university is not recognized as an organization described in sec_501 association represents that state university is an integral part of state such that state university’s income is generally not subject_to federal_income_tax the signatories to the iaa and the lease are state university and association however university hospital which is a division of state university will operate community hospital on the premises which will still be owned by association plr-117788-16 use commercially reasonable efforts to strengthen the clinical and academic programs offered at community hospital use commercially reasonable efforts to maintain and strengthen association’s current residency program at community hospital ensure that community hospital is operated in a manner consistent with the mission vision values and tax-exempt status of state university4 in particular the provision of an emergency room meeting state department of health requirements may not be discontinued or unreasonably limited and ensure that state university maintains its exemption from u s federal income_taxation substantially_all of the premises subject_to the lease will be used in furtherance of association’s exempt purposes of promoting healthcare the rent to be paid under the lease is limited to association’s payment obligations under the tax-exempt_bonds and certain other liabilities utilities taxes insurance and administrative expenses upon payment of all the obligations under the bonds the rent will decrease accordingly as an integral part of state state university is governed by a board_of trustees the majority of the members of which are appointed by state’s governor the remaining members of the board_of trustees are state university leaders who serve ex-officio while the persons who control state university are not the same as the persons who control association the iaa provides for a joint advisory committee made up of association and state university designees the majority of whom are appointed by association the joint advisory committee the joint advisory committee will meet at least quarterly to advise university hospital on matters of operational and strategic importance involving community hospital it will serve a consultative role and will be subject and subordinate to state university’s ultimate responsibility and decision- making authority but will discuss and may advise university hospital on any matter that its participants deem important relating to community hospital including recruitment selection or termination of the senior executive having operational responsibility for community hospital decisions to expand reduce close or transfer any core service creation of any new program facility or major expansion at community hospital review of clinical quality safety patient satisfaction and overall operational performance and clinical policies and procedures review of an internal see fn see fn plr-117788-16 community services plan proposed annual capital and operating budgets of community hospital and development and review of long-term strategic plans for community hospital upon completion of the affiliation transaction association will amend its governing document to provide that association will be organized and operated to establish operate and maintain or lease a hospital and related facilities and to promote the health of the people in communities pursuant to a series of agreements providing for the operation of community hospital rulings requested association has requested the following rulings the leasing of the premises to state university pursuant to the lease the use of the premises by university hospital and the performance of association’s obligations under the iaa further association’s exempt_purpose under sec_501 and the leasing of the premises to state university pursuant to the lease the use of the premises by university hospital and the performance of association’s obligations under the iaa are substantially related to the exercise or performance of association’s exempt purposes such that the premises will not be considered debt-financed_property within the meaning of sec_514 law sec_501 provides generally that an organization described in sec_501 is exempt from federal income taxes sec_501 describes entities that are organized and operated exclusively for charitable educational scientific and certain other purposes sec_1_501_c_3_-1 of the income_tax regulations the regulations provides that 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 sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest plr-117788-16 revrul_69_545 1969_2_cb_117 states that the promotion of health is a charitable purpose and that a nonprofit organization whose purpose and activity are providing hospital care is promoting health and may therefore qualify as organized and operated in furtherance of charitable purposes if it meets the other requirements of sec_501 the ruling explains that the promotion of health is one of the purposes in the general law of charity that is deemed beneficial to the community as a whole even though the class of beneficiaries eligible to receive a direct benefit from its activities does not include all members of the community such as indigent members of the community provided that the class is not so small that its relief is not of benefit to the community for example a hospital that operates an emergency room open to all persons and that provides hospital care for all those persons in the community able to pay the cost of such care either directly or through third party reimbursement is promoting the health of a class of persons that is broad enough to benefit the community additional indications that a hospital is operated for the benefit of the public include the facts that control of the hospital rests with a board_of trustees composed of independent civic leaders that the hospital maintains an open medical staff with privileges available to all qualified physicians and that members of its active medical staff have the privilege of leasing available space in its medical building revrul_73_313 1973_2_cb_174 addresses the question of whether the activity of providing a medical building and facilities at reasonable rent but less than what would be necessary to provide a normal return on the investment in the building and other facilities to attract a medical doctor to a community furthered the charitable purposes of an organization that was formed to promote the health of the community through the development and improvement of medical facilities and services the community represented by the organization was in an isolated rural_area where there were no medical practitioners to induce a doctor to locate to the community the organization erected a building for use as a doctor’s office with funds raised by contributions using the availability of the building at a reasonable rental basis as an inducement the organization entered into an arrangement with a doctor to locate in the community with the understanding that the doctor would make his services available to the entire community in holding that the organization’s activity is charitable within the meaning of sec_501 the ruling states that providing a physical facility in the manner described bears a clear relationship to lessening the health hazards that result from the absence of a local practitioner and that the terms of the arrangement which were negotiated at arm’s length and in good_faith bear a reasonable relationship to the promotion and protection of the health of the community any personal benefit derived by the doctor from the use of the building to conduct his private practice does not lessen plr-117788-16 the public benefit flowing from the organization’s activities or constitute the type of private interest prohibited by the regulations revrul_80_309 1980_2_cb_183 addresses the question of whether a nonprofit organization that was created to construct maintain and operate or lease a public hospital is operated exclusively for charitable purposes the organization’s articles of incorporation state that the organization’s purpose is to provide a public hospital and related facilities for city v and its surrounding communities the articles also provide that all of the organization’s assets will be transferred without consideration to city v when all indebtedness has been paid city v has agreed to accept title at such time after construction of the hospital and related facilities the organization’s only activity has been to lease them to an association exempt under sec_501 the lessee operates the hospital and facilities and pays as consideration an amount sufficient only to retire the organization’s indebtedness incurred to finance them and cover the organization’s administrative expenses trustees of the lessee association make up the lessor organization’s entire board_of directors citing restatement second trusts sec_368 sec_372 and iv scott on trusts 3d ed sec_368 sec_372 for the proposition that the promotion of health is considered a charitable purpose under the general law of charity the ruling concludes that the organization by building a public hospital and related facilities and leasing them to an exempt charitable association that operates the facilities for an amount sufficient only to retire indebtedness and cover necessary operating_expenses is furthering the charitable purpose of promoting the health of the community in 70_tc_352 an organization formed for the purpose of providing consulting services to tax-exempt organizations and not-for-profit_organizations some of which might not be tax-exempt in the area of rural-related policy and program development sought a declaratory_judgment from the tax_court after the irs determined that the organization did not qualify as an organization described in sec_501 holding that the irs had not erred in its determination the tax_court said that it is the purpose toward which an organization’s activities are directed and not the nature of the activities themselves that is ultimately dispositive of the organization’s right to be classified as a sec_501 organization with respect to this petitioner the court said that the critical enquiry was whether petitioner’s primary purpose for engaging in its sole activity providing consulting services was an exempt_purpose or whether its primary purpose was the nonexempt one of operating a commercial business producing net profits finding that petitioner’s sole activity constituted a consulting business of the sort that is ordinarily carried on by commercial ventures organized for profit and observing that competition with commercial firms is strong plr-117788-16 evidence of the predominance of a nonexempt commercial purpose the tax_court concluded that petitioner’s conduct of a business with an apparently commercial character weighed heavily against exemption furthermore after noting that it did not appear that petitioner ever planned to charge a fee less than cost the court said the fact that petitioner’s fees may be lower than those charged by other firms is not enough to prove that petitioner’s purposes are primarily exempt sec_511 imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions that are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 excludes from the term unrelated_business_taxable_income all rents_from_real_property and all rents from personal_property leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received and accrued under the lease determined at the time the personal_property is placed_in_service sec_512 provides that notwithstanding paragraph above in the case of debt-financed_property as defined in sec_514 there generally shall be included as an item_of_gross_income derived from an unrelated_trade_or_business the amount ascertained under sec_514 and there shall be allowed as a deduction the amount ascertained under sec_514 sec_513 defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_1_513-1 of the regulations provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities that generate the particular income in question - the activities plr-117788-16 that is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization’s exempt purposes sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved in computing under sec_512 the unrelated_business_taxable_income for any taxable_year sec_514 generally includes as an item_of_gross_income derived from an unrelated_trade_or_business certain amounts with respect to debt-financed_property sec_514 defines the term debt-financed_property as any property that is held to produce income and with respect to which there is an acquisition_indebtedness as defined in sec_514 at any time during the taxable_year except that such term does not include- a i any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 or ii any property to which clause i does not apply to the extent that its use is so substantially related sec_1_514_b_-1 of the regulations defines the term debt-financed_property as any property that is held to produce income eg rental real_estate and with respect to which there is acquisition_indebtedness at any time during the taxable_year sec_1_514_b_-1 of the regulations provides that to the extent that the use of any property is substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of its charitable educational or other purpose or function constituting its plr-117788-16 basis for exemption under sec_501 such property shall not be treated as debt- financed property sec_1_514_b_-1 of the regulations provides that if substantially_all of any property is used in a manner described in sec_1_514_b_-1 such property shall not be treated as debt-financed_property in general the preceding sentence shall apply if percent or more of the use of such property is devoted to the organization’s exempt_purpose the extent to which property is used for a particular purpose shall be determined on the basis of all the facts and circumstances sec_514 defines the term acquisition_indebtedness with respect to any debt- financed property to include the unpaid amount of the indebtedness incurred by the organization in acquiring or improving such property analysis whether leasing the premises to state university furthers association’s exempt purposes the leasing of real_property is a trade_or_business commonly carried on for profit by commercial ventures in b s w group inc v comm’r the tax_court held that the conduct_of_a_trade_or_business of a commercial character generally does not further charitable purposes even if the trade_or_business provides goods or services at cost and solely to sec_501 organizations nevertheless the court said that it is the purpose toward which the activities are directed and not the nature of the activities themselves that determines whether the activities further exempt purposes revrul_80_309 provides an example of an instance in which an unusual set of facts supported a conclusion that in rare circumstances the activity of leasing a hospital facility to an association that is exempt under sec_501 is directed to the furtherance of charitable purposes that revenue_ruling held that a nonprofit organization was operating exclusively for charitable purposes when it leased a hospital facility to a sec_501 association where i the lessee association paid as consideration an amount sufficient only to retire the indebtedness incurred to finance the hospital facility and meet necessary operating_expenses ii lessor and lessee were under common_control and iii title to the facility would be transferred to the municipality once all indebtedness had been paid association was organized for the purpose of maintaining an acute care hospital so as to ensure the highest quality of healthcare services for communities having operated community hospital a small acute care hospital continuously for more than x years plr-117788-16 and acting on the recommendation of the state-commissioned study that association develop an affiliation with university hospital to strengthen community hospital and to create a healthcare system that better serves the needs of the region association now proposes to lease the premises to state university which is an integral part of state that is organized and operated for educational_purposes the leasing of the premises to state university acting through university hospital will not cause community hospital to be operated other than in a manner that will continue to benefit the public and serve the public interest in entering into the lease state university covenants to maintain the core services already rendered by community hospital including emergency room services open to the entire community in addition state university covenants to maintain community hospital’s accreditation by the joint commission to operate community hospital in a manner consistent with state university’s mission vision values and tax-exempt status and to maintain state university’s exemption from u s federal income_taxation if state university breaches its covenants association can terminate the lease the rent under the lease will be in an amount sufficient only to satisfy association’s obligations under instruments pertaining to tax-exempt_bonds the proceeds of which were used to expand and modernize community hospital and to pay other liabilities and expenses_incurred or to be incurred by association on behalf of community hospital once the obligations under the bonds are satisfied the rental amount will decrease accordingly finally although the persons who control state university are not the same persons who control association association controls the joint advisory committee that will advise university hospital on the operation of and strategic planning for community hospital consequently as in revrul_80_309 in which an unusual set of facts resulted in a conclusion that the leasing of a hospital facility to a sec_501 organization was in furtherance of charitable purposes the particular facts of this case - specifically the study’s recommendation that community hospital affiliate with university hospital in order to gain access to tertiary care services and the other_benefits inherent in a relationship with an academic medical center association’s determination that affiliation with state university would be the best way to maintain and enhance health care and hospital services for the residents of communities state university’s status as an integral part of state organized and operated for educational_purposes state university’s commitments under the iaa and association’s control of the joint advisory committee - lead to a conclusion that the leasing of the premises to state university acting through university hospital will further association’s charitable purpose of see fn plr-117788-16 promoting health by maintaining a hospital at its current location thus under the particular facts of this case the proposed lease structure will be used to accomplish the same purposes previously carried out directly by association revrul_73_313 provides another example of an instance in which an unusual factual situation - the absence of medical providers in an isolated rural community - resulted in the conclusion that the activity of leasing property - in this case the leasing of a medical office under terms that would induce a private physician to set up a practice in the community and make his services available to the entire community - was directed to the furtherance of a charitable purpose namely the purpose of promoting the health of the residents of the community by lessening the health hazards resulting from the absence of a local medical practitioner similarly the study noted that community hospital serves a thinly populated area in which access to emergency and acute inpatient care must be maintained the iaa and accompanying lease will enable community hospital to share resources with university hospital a tertiary academic medical center which will give members of communities access to a broader and more efficient network of emergency services healthcare providers medical specialists specialty medical_care and clinical trials the affiliation also will guarantee the long-term financial stability of community hospital therefore by leasing the premises to state university association will be furthering a charitable purpose namely the purpose of promoting the health of the residents of an isolated thinly populated area by lessening the health hazards that would result should in the absence of the affiliation community hospital be forced to discontinue core services or to close entirely in revrul_73_313 furthermore the leasing of property to a medical provider for reasonable rent under terms that were negotiated at arm’s length and in good_faith did not cause an arrangement that otherwise served a public interest to be construed as serving an impermissible private interest similarly the leasing of the premises to state university will not cause the affiliation between association and state university - which as discussed above otherwise serves a public interest - to serve impermissible private interests as previously noted the lessee state university is an integral part of state with the mission of providing educational_services to the people of state as such it owes a singular duty to and is charged with unique responsibilities toward the residents of state therefore the leasing of the premises to state university as provided under the iaa and the lease will not redound to the benefit of private interests but will continue to accrue to the benefit of the people of state and the residents of communities and the surrounding region plr-117788-16 whether the use of the premises by university hospital under the lease is substantially related to the exercise or performance by association of its exempt_purpose the premises are the subject of tax-exempt_bond financing the proceeds of which were used to expand and modernize the premises therefore the premises would be considered debt-financed_property under sec_514 and a percentage of any payments derived under the lease that would otherwise be excluded as rents under sec_512 would be includible in association’s unrelated_debt-financed_income unless university hospital’s use of the premises under the lease is substantially related to the exercise or performance by association of its charitable purpose association’s charitable purpose is to establish and maintain a hospital at its current location under the terms of the iaa and the accompanying lease state university acting through university hospital is required to use the premises to maintain community hospital and to continue providing healthcare services to the public served by association substantially_all of the premises will be used for this purpose consequently the use of the premises by state university acting through university hospital is substantially related to the exercise or performance by association of its charitable purpose and the premises are not considered debt-financed_property within the meaning of sec_514 for purposes of determining whether any part of the income derived under the lease is excludible from association’s unrelated_business_taxable_income under sec_512 rulings based solely on the facts and representations submitted by association we rule as follows the leasing of the premises to state university as provided in the lease will further association’s charitable purpose under sec_501 and the use of the premises by state university acting through university hospital will be substantially related to the exercise or performance by association of its charitable purpose therefore the premises will not be considered debt-financed_property within the meaning of sec_514 for purposes of determining whether any part of the income derived under the lease will be excludible from association’s unrelated_business_taxable_income under sec_512 plr-117788-16 the rulings contained in this letter are based upon information and representations submitted by or on behalf of association accompanied by a penalty of perjury statement executed by an individual with authority to bind association and upon the understanding that there will be no material changes in the facts this office has not verified any of the material submitted in support of the request for rulings and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts if the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions if the controlling facts change during the course of the transaction see revproc_2016_1 sec_11 no ruling is granted as to whether association qualifies as an organization described in sec_501 and or sec_509 or and except as expressly provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspects of any transaction or item_of_income described in this letter_ruling in addition no ruling is granted regarding whether association satisfies or is required to satisfy the requirements of sec_501 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely mike repass senior technician reviewer exempt_organizations branch tax exempt government entities cc


internal_revenue_service department of the treasury washington dc number release date index number x person to contact telephone number refer reply to cc p si - plr-111822-00 date date a b d1 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a and b are the shareholders of x a the president of x represents that it was intended for x to be an s_corporation beginning in year its first taxable_year a also represents that b prepared a form_2553 election by a small_business_corporation for x however the service has no record of receiving a form_2553 timely filed for x for year for year and all subsequent years x filed form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable ms malinda smith year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines acting branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service government entities division release number release date date date uil code certified mail - return receipt requested d ear employer_identification_number person to contact identmcauon number contact telephone number in hepiy refer to last day for filing a petition with tax_court september 20xx this is a final adverse determination that you do not qualify for exemption from income_tax under sec_501 of the internal_revenue_code r c as an organization described in il r c section c internal_revenue_service recognition of your status as an organization described in r c sec_501 is revoked effective april xx our adverse determination is made for the following reason s you have failed to establish that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 as you have failed to provide evidence of your charitable activities per your application you were created to provide debt management assistance and to educate the public with regard to financial responsibility however you have not engaged in these endeavors or other activity that would satisfy c statutes contributions made to you are no longer deductible as charitable_contributions by donors for purposes of computing taxable_income for federal_income_tax purposes see revproc_82_39 1982_2_cb_759 for the rules concerning the deduction of contributions made to you between date and the date a public announcement such as publication in the internal_revenue_bulletin is made stating that contributions to you are no longer deductible you are required to file income_tax returns on form_1120 for all years beginning after april xx returns for the years ending november 20xx november 20xx and november 20xx must be filed with this office within days trom the date of this lener unless a request for an extension of time is granted send such returns to the following address internal_revenue_service tax retums for subsequent years are to be filed with the appropriate campus identified in the instructions for those returns if you decide to contest this determination under the declaratory provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory_judgment you may write to the united_states tax_court at the following address united_states tax_court second street nw washington d c the processing of income_tax returns and assessment of any taxes due will not be delayed because a petition for declaratory_judgment has been filed under l r c sec_7428 if you have questions about this letter please write to the person whose name and address are shown on this letter if you write please attach a copy of this letter to help identify your account keep a copy for your records also please include your telephone number and the most convenient time for us to call so we can contact you if we need additional information 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 you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate office located nearest you by calling service taxpayer advocates office or writing to internal revenue _ faxing 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 normat channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 this is a final revocation letter sincerely sunita lough director fo examinations internal_revenue_service department of the treasury date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states 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 call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at 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 thank you for your cooperation sincerely vicki l hansen acting director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f form 886-a tax years ending november 20xx and 20xx exhibit i issues presented whether is operated exclusively for exempt purposes described within internal_revenue_code sec_501 a whether is engaged primarily in activities that accomplish an exempt_purpose b whether more than an insubstantial part of activities are in furtherance of a non-exempt purpose background facts was incorporated under the laws of the state of nonprofit corporation act on april 20xx ina pursuant to the determination_letter dated july 20xx determined to be exempt from federal_income_tax as an organization described in sec_501 is located at was in its articles of incorporation stated its purpose is to provide information and or counseling to the general_public and or debt distressed individuals and families on the subject of budgeting and the wise use of consumer credit to promote debt management receiving money from debtors for the purpose of distributing the same to creditors to receive and maintain a fund or funds of real or personal_property or both and subject_to the limitations and restrictions herinafter set forth to use and apply the whole or any part of the income thereof and principal thereof exclusively for charitable and educational_purposes either directly or by contributions to organizations that qualify as exempt under sec_501 of the internal_revenue_code_of_1986 as amended and its regulations as they now exist or as they may hereafter be amended to engage in the transaction of any and all lawful activities for which nonprofit_corporations may be organized under the no part of the net_earnings of the corporation shall inure to the benefit of any director officer of the corporation or any private individual except that reasonable_compensation may be paid for services rendered to the corporation to employees other than it directors and officers no director officer of the corporation or private individual shall be entitled to share in the distribution of any of the corporate assets on dissolution of the corporation the corporation shall carry on no propaganda or attempt to influence legislation or form 886-a participate or intervene in any political campaign on behalf of or in opposition to any candidate for public_office under no circumstances will the corporation make loans to employees officers and or directors exhibit i according to the form_1023 application_for recognition of exemption was formed to provide of the organization’s time doing debt management assistance free of charge to those who need financial assistance but could not otherwise afford it debt management assistance will include but not be limited to establishing revised repayment schedules with creditors and securing reduced and or eliminate interest late fee over the limit fees with creditors delinquent accounts may be brought current through the use of extension fees recycling re-aging agreements etc the amount of assistance and the amount of intervention required will be determined by debtor client budget analysis in conjunction with creditor needs debt management assistance to be provided will be done so in an effort to prevent bankruptcy on the part of the debtor client as an alternative to resolving financial difficulties in as much as the service will be provided free of charge our tax exemption will enable us to solicit contributions to cover inherent costs from both the creditor community as well as from the debtor clients once they have achieved the desired benefits and results of the program the activity will commence upon receipt of theirs approval the activity will be conducted at by unpaid volunteers with considerable skill experience in the area of debt management of the time will be devoted to educating and providing knowledge to the general_public with regard to financial responsibility in many cases debtors who have become over-extended can be taught how to resolve their problems on their own by themselves people can be taught how to communicate with their creditors people can be taught the options available to them for resolving different types of financial problems people can be taught how much interest is too much people can be taught how to live within their means and how to prepare of unexpected expenses education and knowledge can oftentime enable people to resolve existing financial problems imparted through seminars one-on-one counseling distributed literature news releases financial columns in various newspapers etc and hopefully through curriculum additions in schools tax exemption will enable us to solicit contributions to cover the cases of printed matter travel to and from the locale and possibly enable donation of or access to a forum a place for the seminar one-on-one counseling would take place at our offices and or over the phone seminars will take place wherever a forum and audience can be achieved we anticipate going to churches civic group large employers school boards etc all of form 886-a exhibit i these activities will be conducted by unpaid volunteers with much skill experience and expertise in debt management activity description during hereinafter the primary activity of the the year ending november 20xx is enrolling clients in debt management plans herinafter dmp’s potential clients are individuals with unsecured debt a dmp is a plan where a client makes monthly payments to a certain period of time the debts handled in the dmp’s were credit card debts but other unsecured debts were also included the monthly payment made by the client included the payment to the creditors and a service fee the client agreement stated that the client shall make payments to the company as follows the first initial payment made will be the amount agreed upon by the creditors and it also states that may charge a one time retainer fee this fee will be assessed based upon the customer's -_ also stated they may charge a monthly service ability to pay up to amaximum of fee the fee will also be assessed based on the client’s ability to pay up to a maximum of _to satisfy their unsecured debt over - had one counselor doing the budget analysis with the clients and trying to help set them up on a dmp plan the counselor did not have on going credit counseling education even though the materials provided by __ states that they also helped clients in other ways besides the dmp’s they have no proof of the other programs that was provided the only income received by the organization was from dmp’s there were no phone calls recorded to review during the audit there were no activities so the agent could not monitor any calls during the examination it was discovered that the profit organization with the same name organizations have the same founder during the examination it was discovered that a portion of the funds were commingled with the for profit organization the funds were deposited in the account of the for- profit and transferred to the non- profit account even though there were separate_accounts it was not clear as to which client was non profit and which was for-profit is working along side another for- both stated that a good portion of both businesses was derived from current and former satisfied customers as well as from referrals from such nationally prominent creditors as of a state requiring non-profit status for administering debt management plans would call the for- profit for information they would be turned over to the non-profit for their assistance etc he stated if a resident form 886-a education exhibit i activities they claim to have engaged in educational outreach in addition to its presentations to local churches however - provided no documents to verify that any educational activities were conducted there is no evidence that __ or its employees were engaged in any activity other than the telephone solicitation of potential clients for dmp s does not presently solicit new clients at this time they claim the only form of education at this time is in the form of mail outs there is no evidence that any employees of were engaged in any activity other than the telephone solicitation of dmps to individuals in debt which was done during the year of examination claims they solicited clients from outreach activities but there is no evidence that any outreach activities were conducted however any amount of time devoted to these primary outreach activities would have been minimal or non-existent compared to activity of selling dmps cannot provide any information such as where the outreach activities were held who conducted the outreach activities number of people that were helped because of the outreach activities claims that they went to different churches and inserted pamphlets in the church bulletins however the pamphlets were not provided law sec_501 of the internal_revenue_code provides that an organization described in sec_501 is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual the term charitable includes relief of the poor and distressed sec_1 c -1 d income_tax regulations the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 in other words the two components of education are public education and individual training sec_1_501_c_3_-1 of the regulations provides that 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 form 886-a exhibit i sec_1_501_c_3_-1 of the regulations provides that 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 sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test 326_us_279 educational_purposes include instruction or training of the individual for the purpose of improving or developing his capabilities and instruction of the public on in better business useful and beneficial subjects bureau of washington d c inc v united_states 326_us_279 the supreme court held that the presence of a single non-exempt purposes if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university sec_1_501_c_3_-1 in 302_f2d_934 ct_cl the court considered the status of an organization that provided analyses of securities and industries and of the economic climate in general the organization sold subscriptions to various periodicals and services providing advice for purchases of individual securities although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt an organization must establish that it serves a public rather than a private interest and 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_501_c_3_-1 prohibited private interests include those of unrelated third parties as well as insiders 70_tc_1037 92_tc_1053 private benefits include an advantage profit fruit privilege gain or interest 78_tc_280 an organization formed to educate people in hawaii in the theory and practice of est was determined by the tax_court to a part of a franchise system which is operated for private benefit and therefore should not be recognized as exempt under sec_501 of the code 71_tc_1067 although the organization was not formaily controlled by the same individuals who controlled the for-profit entity that owned the license to the est body of knowledge publications and methods the for-profit entity exerted considerable control_over the applicant’s activities by setting pricing the number and frequency of different kinds of _ form 886-a seminars and training and providing the trainers and management personnel who are responsible to it in addition to setting price for the training the court stated that the fact that the organization’s rights were dependent upon its tax-exempt status showed the likelihood that the for-profit entities were trading on that status the question for the court was not whether the payments made to the for-profit were excessive but whether the for-profit entity benefited substantially from the operation of the organization the court determined that there was a substantial private benefit because the organization was simply the instrument to subsidize the for-profit corporations and not vice versa and had no life independent of those corporations exhibit i the service has issued two rulings holding credit counseling organizations to be tax exempt revrul_65_299 1965_2_cb_165 granted exemption to a c organization whose purpose was to assist families and individuals with financial problems and to help reduce the incidence of personal bankruptcy its primary activity appears to have been meeting with people in financial difficulties to analyze the specific problems involved and counsel on the payment of their debts the organization also advised applicants on proration and payment of debts negotiated with creditors and set up debt repayment plans it did not restrict its services to the needy it made no charge for the counseling services indicating they were separate from the debt repayment arrangements it made a nominal charge for monthly prorating services to cover postage and supplies for financial support it relied upon voluntary contributions from local businesses lending agencies and labor unions revrul_69_441 1969_2_cb_115 granted c status to an organization with two functions it educated the public on personal money management using films speakers and publications and provided individual counseling to low-income individuals and families as part of its counseling it established budget plans ie debt management plans for some of its clients the debt management services were provided without charge the organization was supported by contributions primarily from creditors by virtue of aiding low income people without charge as well as providing education to the public the organization qualified for sec_501 status the court found that the counseling programs in the case of consumer credit counseling service of alabama inc v u s a f t r 2d d d c the district_court for the district of columbia held that a credit_counseling_organization qualified as charitable and educational under sec_501 it fulfilled charitable purposes by educating the public on subjects useful to the individual and beneficial to the community sec_1 c - d i b for this it charged no fee were also educational and charitable the debt management and creditor intercession activities were an integral part of the agencies’ counseling function and thus were charitable and educational even if this were not the case the court viewed the debt management and creditor intercession activities as incidental to the agencies’ principal functions as only approximately percent of the counselors’ time was applied to debt management programs and the charge for the service was nominal considered the facts that the agency was publicly supported and that it had a board dominated by members of the general_public as factors indicating a charitable the court also _ form 886-a exhibit i operation see also credit counseling centers of oklahoma inc v united_states u s t c d d c in which the facts and legal analysis were virtually identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above the organizations included in the above decision waived the monthly fees when the payments would work a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such as information dissemination and counseling assistance rather than those connected with the debt management programs the primary sources of revenue for these organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and united way outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public internal_revenue_code sec_501 specifies that an exempt_organization described therein is one in which no part of the net of earnings inures to the benefit of any private_shareholder_or_individual the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_a_-1 the inurement prohibition provision is designed to prevent the siphoning of charitable receipts to insiders of the charity 165_f3d_1173 cir reasonable_compensation does not constitute inurement 276_f2d_476 cir where an organization provided a source of credit to companies of which a private shareholder was either an employee or an owner the court found that a portion of the organization’s net_earnings inured to the benefit of that private shareholder easter house v united_states cl_ct showed that the companies controlled by the private shareholder had a source of loan credit in the organization that such loans were made the credit repair organizations act croa u s c et seq effective date imposes restrictions on credit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed u s c 1679b significantly sec_501 organizations are excluded from regulation under the croa form 886-a exhibit i the croa defines a credit repair organization as a any person who uses any instrumentality of interstate commerce or the mails to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied purpose of- i improving any consumer’s credit record credit history or credit rating or ii providing advice or assistance to any consumer with regard to any activity or service described in clause i u s c 1679a the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission’s policy is that if an entity communicates with consumers in any way about the consumers’ credit situation it is providing a service covered by the croa 21_fsupp2d_424 n d n j businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission c f_r b iii b c f_r sec_64 c sec_501 organizations are not subject_to this rule against cold-calling because c organizations are exempt from regulation under the croa and the cold- calling restrictions organizations that are involved in credit repair have added incentives to be recognized as sec_501 organizations even if they do not intend to operate primarily for exempt purposes exempt organization’s position the exempt_organization will have a chance to respond when the report is sent to them government position during the examination it was discovered that the it is not profit organization with the same name clear as to how the client distinguish between the non profit and the for- profit when they call both organizations have the same founder examination it was discovered that a portion of the funds were commingled with the for profit organization the funds were deposited in the account of the for- profit and is working along side another for during the form 886-a exhibit i transferred to the non-profit account even though there were separate_accounts it was not clear as to which client was non profit and which was for profit according to the articles of incorporation the corporation is organized exclusively for charitable educational religious or scientific purposes within the meaning of sec_501 of the internal_revenue_code it is the service’s position that _ failed to provide proof of adequate amount of education such as workshops seminars one on one counseling sessions to the public - going out to churches civic groups large employers school boards etc as was stated in the initial application the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 in other words the two components of education are public education and individual training conclusion in conclusion was not operated exclusively for exempt purposes in fact did not verify that substantially_all of its activities was for the exempt_purpose of the organization accordingly it is determined that sec_501 and is not exempt from income_tax under sec_501 effective april 20xx is not an organization described in form_1120 returns should be filed for the tax periods ending on or after december 20xx and any subsequent years


internal_revenue_service number release date index number 45d ---------------------- ------------------------------ --------------------------------------------------------------- ---------------- --------------------------------------------- ---------------------------------- 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 b05 plr-128349-09 date date legend taxpayer ---------------------------------------------------- ---------------------------------------------------------------------- parent ---------------------------------------------------- ------------------- fund ------------------------------------------------- allocatee sub-cde round a b c e f g h ---------------------------------------------------------------- ------------------------------------------------ ------------------------- --------------- --------------- ----------------- -------- ------ ----------------- ----------------- plr-128349-09 i j k l ------------------------------ ------------------------- ------------------ ------------------- dear ---------------- this letter responds to your letter dated date submitted on behalf of taxpayer requesting a letter_ruling involving the new_markets_tax_credit nmtc under sec_45d of the internal_revenue_code the ruling concerns the application of the month cure period under sec_1_45d-1 of the income_tax regulations to the transaction described below facts taxpayer is a wholly-owned subsidiary of parent taxpayer is engaged in community development activities that include providing investment capital to new market tax_credit transactions fund is wholly-owned by taxpayer and is treated as a disregarded_entity for federal_income_tax purposes fund was formed for the purpose of holding taxpayer’s membership interest in sub-cde allocatee and sub-cde were formed for purpose of serving or providing investment capital for low-income communities or low-income persons allocatee received an allocation of nmtc authority during round in the amount of dollar_figurea and sub-allocated dollar_figureb of that authority to sub-cde on c taxpayer made a dollar_figureb capital_contribution to fund fund in turn made a dollar_figureb capital_contribution in cash to sub- cde in exchange for a e membership interest the remaining f membership interest in sub-cde is held by allocatee sub-cde designated the dollar_figureb capital_contribution as a qualified_equity_investment qei and filed form 8874-a notice of qualified_equity_investment for new_markets_credit with the internal_revenue_service on or about g from g to the present taxpayer represents that the investors worked diligently to satisfy the substantially-all requirement found under sec_45d by the 12-month deadline of h required by sec_1_45d-1 to invest the cash in one or more qualified_low-income_community investments qlicis fifteen projects were considered with the greatest amount of time being spent on potential projects including the renovation and development of a big_number square foot mixed-use building in i the development of a building to house a supermarket pharmacy and bank in i the renovation of the j in i and the construction of a new liquid storage_facility plr-128349-09 taxpayer represents that the two most viable projects were the third and fourth projects described above however on k taxpayer received notice from both projects that the deals would not be completed by the h deadline taxpayer is confident that both projects can be closed by the end of l however taxpayer will not proceed with the investment unless taxpayer is confident that the cure period under sec_1_45d-1 is available to correct sub-cde’s failure to invest substantially_all of the proceeds of fund’s qei in a qlici within the 12-month_period ruling requested the 6-month cure period described in sec_1_45d-1 is available to correct sub- cde’s failure to invest substantially_all of the proceeds of fund’s qei in qlicis within the 12-month_period specified in sec_1_45d-1 law and analysis sec_45d provides that for purposes of sec_38 in the case of a taxpayer who holds a qei on a credit_allowance_date of such investment which occurs during the taxable_year the nmtc for such taxable_year is an amount equal to the applicable_percentage of the amount_paid to the qualified_community_development_entity cde for such investment at its original issue sec_45d provides that the term qei means any equity_investment in cde if a such investment is acquired by the taxpayer at its original issue solely in exchange for cash b substantially_all of such cash is used by the cde to make qlicis and c such investment is designated for purposes of sec_1_45d-1 by the cde sec_45d provides that the term qlicis mean a any capital or equity_investment in or loan to any qualified_active_low-income_community_business b the purchase from another cde of any loan made by such entity which is a qlici c financial counseling and other services to businesses located in and residents of low- income communities and d any equity_investment in or loan to any cde sec_1_45d-1 provides that the term substantially_all means at least percent the substantially_all requirement must be satisfied for each annual period in the 7-year credit_period using either the direct-tracing calculation or the safe-harbor calculation for the first annual period the substantially-all requirement is treated as satisfied if either the direct-tracing calculation or the safe-harbor calculation is performed on a single testing_date and the result of the calculation is at least percent sec_1_45d-1 provides that the taxpayer’s cash investment received by the cde is treated as invested in a qlici only to the extent that the cash is so invested within the 12-month_period beginning on the date the cash is paid_by the taxpayer to the cde plr-128349-09 sec_1_45d-1 provides that if a qei fails the substantially-all requirement the failure is not a recapture_event if the cde corrects the failure within months after the date the cde becomes aware or reasonably should have become aware of the failure only one correction is permitted for each qei during the 7-year credit_period conclusion based on the information submitted and representations made we conclude that the 6-month cure period found under sec_1_45d-1 is available to correct sub-cde’s failure to invest substantially_all of fund’s qei proceeds in qlicis within the 12-month_period required by sec_1_45d-1 however the 6-month cure period is not automatically tacked on to the 12-month_period as the rule states the 6-month cure period begins on the date the cde becomes aware or reasonably should have become aware of the failure to invest substantially_all of the qei proceeds in a qlici within the month period here if the facts are as represented sub-cde in both projects became aware on k that it would fail to invest substantially_all of fund’s qei proceeds in qlicis by h the cure period under these facts would begin on k and continue for months no opinion is expressed or implied regarding the application of any other provisions of the code or regulations this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representatives sincerely paul f handleman paul f handleman chief branch office of the associate chief_counsel passthroughs special industries 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 ita plr-100127-12 date date re request for extension of time to make the election not to deduct the additional first year depreciation legend taxpayer date a dear ------------- ------------------------------------------------------------------------------------------ -------------------------- ------------------------------------------------------------------------------------------ ---------------------- ----------------------- this letter responds to a letter dated date submitted by taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election not to deduct the 50-percent and 100-percent additional first year depreciation under sec_168 of the internal_revenue_code for all classes of qualified_property placed_in_service by taxpayer during the taxable_year ending date taxpayer represents that the facts are as follows facts taxpayer is a domestic_partnership engaged in the energy industry taxpayer files form_1065 u s return of partnership income on a calendar-year basis taxpayer’s overall_method_of_accounting is the accrual_method plr-100127-12 taxpayer owns a a single-member limited_liability_company that is disregarded for federal_income_tax purposes during the taxable_year ending date a placed_in_service qualified_property as defined in sec_168 taxpayer timely filed its form_1065 for the taxable_year ending date on the form_1065 taxpayer did not claim additional first year depreciation under sec_168 with respect to any qualified_property placed_in_service during the taxable_year ending date however taxpayer inadvertently failed to attach to the form_1065 as required by sec_1_168_k_-1 of the income_tax regulations the election statement not to claim the additional first year deduction for all classes of qualified_property placed_in_service for the taxable_year ending date subsequent to filing its form_1065 for the taxable_year ending date taxpayer discovered that it had failed to attach the election statement with respect to all classes of qualified_property placed_in_service for that taxable_year ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 to make the election not to deduct the 50-percent and 100-percent additional first year depreciation under sec_168 for all classes of qualified_property placed_in_service in the taxable_year ending on date law and analysis sec_168 as amended by sec_103 of the economic stimulus act of pub_l_no 122_stat_613 date by sec_1201 of the american recovery and reinvestment tax act of div b of pub_l_no 123_stat_115 date and by a of the small_business jobs_act of pub_l_no 124_stat_2504 date allows a 50-percent additional first year depreciation deduction for the taxable_year in which qualified_property acquired by a taxpayer after is placed_in_service by the taxpayer before before in the case of property described in sec_168 or c sec_168 added by sec_401 of the tax relief unemployment insurance reauthorization and job creation act of pub_l_no 124_stat_3296 date allows a 100-percent additional first year depreciation deduction for qualified_property acquired by a taxpayer after date and before date and placed_in_service by the taxpayer before date before date in the case of property described in sec_168 and c section dollar_figure of revproc_2008_54 2008_2_cb_722 provides that for purposes of the stimulus additional first year depreciation deduction the 50-percent additional first year depreciation deduction rules similar to the rules in sec_1 k for qualified_property or for percent additional first year depreciation deduction apply plr-100127-12 however in applying sec_1_168_k_-1 the computation of the allowable stimulus additional first year depreciation deduction is made in accordance with the rules for percent bonus_depreciation property section dollar_figure of revproc_2011_26 2011_1_cb_664 provides that depreciable_property is eligible for the 100-percent additional first year depreciation deduction if the property is qualified_property as defined in sec_168 and also meets the additional requirements in section dollar_figure of revproc_2011_26 further for purposes of determining whether depreciable_property is qualified_property rules similar to the rules in sec_1_168_k_-1 for qualified_property or for 30-percent additional first year depreciation deduction apply sec_168 provides that a taxpayer may elect not to deduct additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 as meaning in general each class of property described in sec_168 for example 5-year_property sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the taxable_year ended date provides that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer's timely filed tax_return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence 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 plr-100127-12 conclusions based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the election not to deduct the 50-percent and 100-percent additional first year depreciation under sec_168 for all classes of property placed_in_service during the taxable_year ending date that qualify for additional first year depreciation this election must be made by taxpayer filing an amended federal partnership tax_return for that taxable_year with a statement indicating that taxpayer is electing not to deduct the additional first year depreciation for all classes of property placed_in_service during that taxable_year except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service during the taxable_year ending date is eligible for the additional first year depreciation deduction this letter_ruling is directed only to taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney we are sending copies of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate industry director lb_i sincerely willie e armstrong jr willie e armstrong jr senior technician reviewer branch office of associate chief_counsel income_tax and accounting enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-146443-01 date date legend x date this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not timely file an election to be treated as an s_corporation under plr-146443-01 sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------------------- -------------------------------------- -------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ----------------- telephone number -------------------- refer reply to cc psi b01 plr-149961-11 date april legend legend x -------------------------------------------------- ------------------------------------------ state d1 d2 ------------ -------------------- -------------------------- a ---------------------------------------------------- -------------------------------------------------------- trust -------------------------------------------------- ----------------------------------- d3 ------------------ trust ----------------------------------------------------------------------------------------------------------------- ---------------------------------- ----------------------------------------------------------------------------------------- ---------------------- trust ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------- b ---------------------------------------------------- ------------------- plr-149961-11 d4 d5 -------------------- ---------------- dear ---- ------ this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code acode for an inadvertent termination of x’s s election facts the information submitted states that x was organized under the laws of state on d1 x elected to be treated as an s_corporation effective d2 a was treated as the owner of trust a permitted shareholder of x under sec_1361 a died on d3 pursuant to the terms of the trust document of trust after a’s death the assets of trust were divided and held by trust and trust respectively b is the sole beneficiary of both trust and trust on d5 shares of x stock were transferred to trust and trust x and its shareholders were unaware that trust and trust were ineligible shareholders of x and did not intend the s election of x to terminate x and its shareholders represent that trust and trust qualify as qualified subchapter_s trusts qssts under sec_1361 but b was not aware of the necessity of qsst elections and therefore did not timely file the elections on behalf of trust and trust effective d4 further after a’s death all income of the trusts were distributed to b and reported on b’s income_tax returns immediately after the discovery of the error x and its shareholders took remedial action in addition x and its shareholders agree to make any adjustments required by the commissioner consistent with the treatment of x as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual plr-149961-11 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder sec_1361 provides that a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death but only for the 2-year period beginning on the day of the deemed owner’s death may be an s_corporation shareholder sec_1361 provides in part that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 thereby an eligible shareholder of an s_corporation and the qsst s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1362 applies under sec_1361 a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply under sec_1361 this section will be effective up to days and months before the date of the election sec_1361 defines the term qualified_subchapter_s_trust as a_trust - a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary s death or the termination of the trust and iv upon the termination of the trust during the life of the current beneficiary the trust shall distribute all its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states plr-149961-11 sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of cessation sec_1362 sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust or his legal_representative must make the qsst election by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1_1361-1 provides that the income_beneficiary who makes the qsst election and is treated for purposes of sec_678 as the owner of that portion of the trust that consists of s_corporation stock is treated as the shareholder for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely upon the facts submitted and the representations made we conclude that x’s s election terminated on d4 we further conclude that the termination of x’s s election constituted an inadvertent termination within the meaning of sec_1362 plr-149961-11 under sec_1362 x will be treated as an s_corporation on d4 and thereafter provided that x’s s election was otherwise valid and has not otherwise terminated under sec_1362 this ruling is contingent upon x and all its shareholders treating x as having been an s_corporation and trust and trust as qssts for the period beginning d4 and thereafter within days from the date of this letter the beneficiary or his legal representatives of trust and trust must elect to treat trust and trust as qssts effective d4 respectively with the appropriate service_center a copy of this letter should be attached to each election if these conditions are not met then this ruling is null and void except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code including whether x was otherwise eligible to be an s_corporation or whether trust and trust were otherwise eligible to be qssts this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling will be sent to each of your authorized representatives sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


id office uilc cca_2009050108443837 -------------- number release date from ------------------- sent friday may am to -------------------------- cc ----------- subject re tefra settlement question - informational only no but it depends on the spouse's status does she hold a community_property interest in the partnership or is she treated as a partner only by virtue of filing a joint_return in the later case we can accept a settlement from only the actual partner if we will only be looking to him for collection once his items convert the items also convert for his jointly filing spouse as well under calloway v commissioner 2nd circuit as adopted by sec_301_6231_a_2_-1 thus the case could be treated as fully agreed since the only non-agreeing partner drops out of the proceeding anyway for community_property interests see sec_301_6231_a_12_-1