department of the treasury internal_revenue_service p o box irs cincinnati oh number release date date date employer id number contact person id number contact telephone number form you must file tax years vil dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we'll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s date januarv employer id number contact person id number contact telephone number contact fax number uil department of the treasury internal_revenue_service irs p o box cincinnati oh legend b name of individual c name of individual d name of individual f name of individual l state m date n date p date q date s name of entity t address w address z year dear we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code code based on the information provided we determined that you don't qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issue do you meet the operational_test for recognition of tax exemption under sec_501 no for the reasons stated below facts you were formed as a nonprofit corporation in the state of lon m your purpose as stated in your articles of incorporation is the operational and educational support of mentally disabled homeless and people in transition looking for long term residential care your articles of incorporation also provide that the assets of the corporation will be distributed upon dissolution to other like-minded organizations within the general metropolitan area your bylaws state that your specific objectives and purposes are to provide representation to the community at large fostering charitable and educational opportunities empowering the masses your commitment is to training empowering encouraging and restoring article sec_3 of your bylaws state that upon the dissolution of this foundation its assets remaining after payment or provision for payment of all debts and liabilities of this foundation shall be distributed for one or more exempt purposes within the meaning of sec_501 of the internal_revenue_code however article sec_1 of your bylaws provides in the event of dissolution assets will be divided equally among executive board members and trustees these if assets will then be dispersed to like minded organizations of the executive board or trustee's choosing members of the board prefer to subdivide assets it will be at their discretion the president or chief_executive_officer may chose to have his portion of the assets deposited into a_trust account for his children and or the grand children of b for the furthering of their educational requirements and associated cost related to the completion of their or their children’s studies once the type of trust is designated paperwork attesting to this process will be submitted article sec_2 of your bylaws goes on to say if building or land is involved in the dissolution whatever building or land assets that were purchased or acquired as an organization will be divided equally among those members who were directly involved with the purchase of the asset the president or chief_executive_officer may chose to have his portion of the assets deposited into a_trust account for his children and or the grand children of b for the furthering of their educational requirements and associated cost related to the completion of their or their children’s studies once the type of trust is designated paperwork attesting to this process will be submitted additionally article sec_3 of your bylaws state capital equipment that is not auctioned off shall be donated to any worthwhile charity or organization that has a useful need for the items donated any excess will be divided among board and executive staff members the president or chief_executive_officer may chose to have his portion of the assets deposited into a_trust account for his children and or the grand children of b for the furthering of their educational requirements and associated cost related to the completion of their or their children’s studies once the type of trust is designated paperwork attesting to this process will be submitted upon our questioning of the bylaw provisions allowing distribution of your assets to b's children and grandchildren you indicated on your response faxed on p that the dissolution clause has been changed to indicate that assets from the organization being dissolved will be divided among like-mined c organizations however you have not submitted to us a copy of your amended bylaws your board is made up of your founder b who also serves as your president and chief_executive_officer his wife c treasurer and two unrelated individuals who hold the positions of vice president and secretary b is described in the attachment to your form_1023 as the original organizer of the business you went on to state on the attachment to your form_1023 that c originally inherited the business and then married b because of b's background in building operations management he was ideally suited to run the day to day operations of the business d your vice president owns a similar_business for more than years and has served as a mentor for b and c no description was provided for the secretary f other than that she is not related to the others we asked you about the business c inherited and the relationship or connection this business has to you in your response faxed on q you stated that the information previously provided about any family or business relationships your board members have to each other was a misunderstanding you indicated that c's inherited business is s a for-profit entity engaged in operating a transitional housing program but that you are a separate organization seeking nonprofit status your response letter faxed on q and subsequent correspondence also indicated that c either in her own name or through s owns the facility located at t you stated that your facility is not yet built or acquired you had given the t address as your own address on your form_1023 in your articles of incorporation and in your that you are looking to purchase a correspondences with us you further indicated on your response faxed on q building located at w and as soon as you obtain recognition of tax exemption under sec_501 you would be able to show your address as w you did not include a description of your activities with your application we therefore asked you to describe the activities you will engage in to accomplish each of your stated purposes with regard to fostering charitable and educational opportunities you responded in your letter dated n that our organization will work closely with not for profit community based organizations who will in turn offer programs that foster charitable and educational opportunities that can empower the current mass of underprivileged individuals within the community to get out of poverty with regard to training empowering encouraging and restoring the community you responded in your letter dated n that our organization plans to partner with training schools to provide internship training programs for example through other non-profit organization’s training programs whereby individuals looking to become certified nursing assistants or medical assistants can complete their externship training at our facility this would really be an asset to those individuals living in the community without transportation by empowering them to find a job right in the community our staff will participate in training programs to help encourage these individuals to working capacity thereby restoring a part of the community if we can help one individual on the road back from poverty our work will be a success with regard to how you will support the mentally disabled homeless and people in transition looking for long- term residential care you responded in your letter dated n that we are an approved facility by the state of l to provide support for mentally disabled homeless and people in transition looking for long term residential care please see certification by the state a copy of the state certification of your facility was not included with your application or any of your subsequent correspondences you went on in the same response letter to provide that our first step is to complete application to the irs for not for profit status then consult with professionals on the direction the organization should go presently we are in the planning stages to include decision of where a final building will be the building or renovation of such a building then hiring staff etc once we complete the irs portion then our board will meet to plan the next phase of our development you further indicated with regard to your activities in your response faxed on q that through an in describing the past present and planned activities you are presently in a ‘waiting’ period examination of the grant making requirements of most funding organizations who would fund us as a not for therefore we profit nothing can be done until an organization receives their 501c3 designation from the irs have postponed making any future plans past or present until this designation is received in the planning stages of our specific activities we have not beyond the mission statement we are still developed representative copies of newsletters brochures or purchased a building or published similar documents at this time however once our application_for designation is approved we will gladly enter into the planning stages of specific programs and services we then asked you for more specific information about your transitional housing program to our questions you repeatedly responded that you are waiting on the determination of your tax exempt status before making any plans you made the following statements in your response faxed to us on q our immediate plan is to provide transitional housing however at the time of filing no plans were made beyond getting 501c3 approval once approval is made we will be able to move forward with our and vie for clients to include in our program no plans have been made at this time as to the number of residents we will house until a determination is made i can provide the number of rooms available for the pending location once a determination has been made no decisions regarding fees to residents will be made until an irs determination is made therefore any copies of fee schedules or funding to pay expenses for the housing program have not been proposed or decided once a determination is made these fees can be provided i believe this question is being posed because of the mistake in thinking that the facility at t is that of our organization and it is not once a decision is made and a facility is purchased our organization will come up with a policy to deal with residents who become unable to pay the fees we charge but at this time we do not have a policy to deal with residents who become unable to pay these fees once the decision is made and we are able to move forward on the pending location we will draw up the policies and procedures regarding this matter again this is a question that is aimed at the owner of the t address indicating that our organization owns the building at t address when in fact we are waiting for a designation by the irs once this designation is made and we can purchase the pending location we will explain our process for selecting residents again this is building at the t address when in fact we are waiting for a designation by the irs n a a question that is aimed at the owner of t address indicating that our organization owns the per our indication we are not an approved long term care facility we are seeking to become a long term care facility however first we must become a not for profit entity until we get that designation we have only formed organizational material to become a not for profit organization our facility has yet to be built or acquired therefore no description is needed our organization does not have a facility to own therefore this question is n a it is believed that this indication is based on the belief that the t address is in fact the new_building of the organization when in fact it isn’t and our organization is not presently in operation as a long term care facility per year in operational expense we have zero profit and zero because of this fact we do not have a dollar_figure revenue therefore we respectfully do not have gross revenues in excess of per year we will respectfully pay the dollars due smaller organizations and wait on our application to be accepted you have not submitted any financial information with your form_1023 application you responded to our request for budget information by stating in your letter dated n that we have no budgeted expenses for the years form_1023 application you indicated that you have been operational since the year z on the other hand in several of the sample solicitation letters included with your or law sec_501 of the code describes in part an organization organized and operated exclusively for charitable or educational purpose no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to qualify under sec_501 of the code 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 or operational_test it is not exempt sec_1_501_c_3_-1 states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more such exempt purposes specified in sec_501 of the code 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 provides that an organization is not operated exclusively for one or more exempt purposes if its net earning inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_72_16 1972_1_cb_144 describes an organization that provides a residence facility and therapeutic program for rehabilitating individuals recently released from a mental institution to aid in reducing the rate of readmissions to a mental institution the residence facility serves as both a temporary residence for those who are discharged and a permanent home for those unable to make the transition to a fully independent existence in society the organization qualifies for tax-exemption under sec_501 of the code revrul_75_472 1975_2_cb_208 describes an organization that operates a halfway house to provide room board therapy and counseling for persons discharged from alcoholic treatment centers after receiving short- term intensive care for alcoholism the organization’s activities serve to promote the health of the individual and improve his capabilities and thus further charitable and educational_purposes the organization qualifies for exemption under sec_501 of the code revrul_79_19 1979_1_cb_195 describes an organization that provides specially designed housing to physically handicapped persons at the lowest feasible cost and maintains in residence those tenants who subsequently become unable to pay its monthly fees because the organization tailors its program to relieve the major forms of distress to which the physically handicapped are susceptible the organization qualifies for exemption under sec_501 of the code as an organization operated exclusively for charitable purposes revproc_2017_5 section dollar_figure provides that exempt status may be recognized in advance of the organization's operations if the proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the code under which exemption is claimed i a mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement ii the organization must fully describe all of the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures iii where the organization cannot demonstrate to the satisfaction of the service that it qualifies for exemption pursuant to the section of the code under which exemption is claimed the service will generally issue a proposed adverse determination_letter in 505_f2d_1068 the court provided that exemption is an exception to the norm of taxation an organization which seeks to obtain tax exempt status therefore bears a heavy burden to prove that it satisfies all the requirements of the exemption statute the supreme court repeatedly has said that exemptions from taxation are not granted by implication the tax_court has stated consistently that a statute creating an exemption must be strictly construed and any doubt must be resolved in favor of the taxing power in 74_tc_531 the tax_court considered an adverse_ruling by the irs on an application_for exempt status the applicant had declined to furnish some information and the answers to other inquiries were vague and uninformative on the basis of the record the court held that the applicant had not shown that no part of its net_earnings inured to the benefit of its founders or that the organization was not operated for private benefit of the founders in 511_fsupp_166 aff'd 670_f2d_1210 the court upheld the service's denial of exempt status in a declaratory_judgment action the court held that in factual situations where there is evident potential for abuse of the exemption provision the organization must openly disclose all facts bearing on its operation and finances the organization in the case did not proffer sufficiently detailed evidence of its charitable disbursements or the extent of the maintenance and support of the members each time the service requested additional information the organization responded that it had already provided the data or that it was unable to furnish anything further the court found that the organization did not meet its burden to positively demonstrate that it qualified for exemption the court_of_appeals for the district of columbia circuit in affirming that the organization had not met its burden of establishing that no part of its net_earnings inured to any private individual observed that t axpayer confuses a criminal prosecution in which the government carries the burden of establishing the defendant's guilt with a suit seeking a declaratory_judgment that plaintiff is entitled to tax-exempt status it qualifies for exemption in which the taxpayer bears the burden of establishing that in pius xii academy inc v commissioner t c memo aff'd 711_f2d_1058 6th cir the court found that throughout its application and supporting documents the organization recited only vague generalizations of the type of operations it had planned so vague in fact that the organization had no real plan but merely a concept or idea that at some point in the future it would if economically feasible operate a school additionally it had not planned a curriculum had no idea how many students would be in attendance or how many faculty would be needed it could not predict how much money would be needed to start the school or to operate it once it had begun it did not know where the school would be located or what grades taught all in all the inability of the organization to even predict the answers to these questions indicated that it had no plan to operate a school in the foreseeable future the organization failed to establish that it will conduct all of its activities in a manner which will accomplish its stated exempt purposes and did not qualify for exemption under sec_501 of the code in 82_tc_215 an organization was organized to provide education and charity but failed to provide sufficient details regarding its proposed operations the court provided that an organization must supply sufficient information about its proposed activities to warrant a conclusion that it will operate in furtherance of exempt purposes the organization in this case provided broad vague generalities as to how it intended to carry out its objectives the organization did not furnished the number or amount of the grants to be awarded defined the criteria for selecting recipients or developed procedures for supervising grants the court held that the organization failed to prove that it would operate exclusively for exempt purposes under sec_501 of the code in american science foundation v commissioner t c memo the court determined that an organization was not eligible for recognition of tax exemption because it failed to provide sufficient information to permit the conclusion that its activities will be exclusively in furtherance of exempt purposes the court stated that an organization may seek tax exempt status before beginning operation it must provide sufficient detail to permit the conclusion that its operations will meet the necessary requirements of the exemption the organization must carry the burden of establishing that its operations will be exclusively in furtherance of exempt purposes the denial of exemption may be based solely upon the failure by the organization to provide information describing in adequate detail how the operational_test would be met in peoples prize v commissioner t c memo the court upheld the service's determination that an organization failed to establish exemption when the organization failed to provide the requested information the court stated applicant has for the most part provided only generalizations in response to repeated requests by the service for more detail on prospective activities such generalizations do not satisfy us that applicant qualifies for the exemption 70_fedclaims_782 was an action for declaratory_judgment that the organization brought to challenge the denial of its application_for exempt status the court in finding that the actual purposes displayed in the administrative record supported the service's denial stated it is well-accepted that in initial qualification cases such as this gaps in the administrative record are resolved against the applicant as noted by the seventh circuit ‘courts can draw inferences adverse to a taxpayer seeking exempt status where the taxpayer fails to provide evidence concerning its operations or where the evidence is vague or inconclusive application of law we hold that you not satisfy the operational requirements to be recognized as exempt under sec_501 of the code to satisfy the operational_test you must be operated exclusively for one or more exempt purposes as provided in sec_1_501_c_3_-1 and sec_1_501_c_3_-1 you have not provided a description of your activities demonstrating that you are operated exclusively for exempt purposes under sec_501 of the code you responded to our repeated requests for information that you are unable to provide us information about your specific programs or activities you will carryout to accomplish your stated purpose because you are not yet operational to our request for a description of your activities you responded that you are presently in a waiting_period and nothing can be done until you receive your recognition of exemption under sec_501 of the code you have postponed making any plans until you have received this recognition furthermore you stated that you will gladly enter into the planning stages of your specific programs and services once you received recognition of tax-exempt status under sec_501 of the code you have not established that you are operated exclusively for one or more exempt purposes under sec_501 of the code section dollar_figure of revproc_2017_5 states that an organization must fully describe all of the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures a mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement it further states where an organization cannot demonstrate to the satisfaction of the service that it qualifies for exemption pursuant to the section of the code under which exemption is claimed the service will generally issue a proposed adverse determination_letter although exempt status may be recognized in advance of an organization’s operations you have not described your proposed activities in sufficient detail to permit a conclusion that you will clearly meet the particular requirements of sec_501 of the code as required by section dollar_figure of revproc_2017_5 as indicated in harding hospital inc supra exemption is an exception to the norm of taxation an organization which seeks to obtain tax-exempt status therefore bears a heavy burden to prove that it satisfies all the requirements of the exemption statute you have not proved that you satisfied all the requirements of exemption under sec_501 of the code you are similar to the organization described in pius xii academy inc supra where the organization recited only vague generalizations of the type of operations it had planned so vague in fact that the organization had no real plan but merely a concept or idea that at some point in the future it would if economically feasible operate a school your stated purpose is to provide transitional housing however you indicated that you have not made any plans regarding your transitional housing program because you are waiting on the determination you have failed to establish that you will operate exclusively in an exempt manner of your tax exempt status and do not qualify for exemption under sec_501 of the code although a transitional housing program may be operated in such a manner as to further charitable purposes you have not shown that your program will either help alleviate poverty or provide relief for the distressed you are unlike the organization described in revrul_79_19 which provided specially designed housing to physically handicapped persons at the lowest feasible cost and maintained residence those tenants who subsequently become unable to pay you do not know what admissions policy you will follow or factors you will take into account to select from among potential residents in the event you cannot accommodate everyone you have not determined how long a resident can stay at your facility you have no projections of how many residents you will house in your facility or what fees you will charge them nor have you considered what provisions you might make for your residents if they should become unable to pay your fees you are unlike the organizations described in revrul_72_16 which provided residence facility and therapeutic program for rehabilitating individuals recently released from a mental institution or in revrul_75_472 which operated a halfway house to provide room board therapy and counseling for persons discharged from alcoholic treatment centers you have not provided any information that your transitional housing program would provide services such as therapy counseling life skills or job training to help needy individuals recovering from illness or addiction transition back into society you have not submitted sufficient information to meet your burden of establishing that your operations will be exclusively in furtherance of exempt purposes information that is vague unresponsive incomplete uninformative or in the form of broad generalities is not sufficient to show that you meet the requirements of tax exemption la verdad and peoples prize supra denial of exemption may be based solely upon failure to provide information describing in adequate detail how the operational_test will be met american science foundation supra despite indicating that you were looking to purchase the facility located at w you have not provided specific details regarding the facility that you will use for your transitional housing program additionally you have not provided any budget information showing the nature and amounts of your expected revenues and the nature and amounts of your expected expenses moreover sec_1_501_c_3_-1 states that to meet the requirement of exemption under sec_501 of the code it is necessary for the organization to establish that it is not 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 you have not established that you are not operated to serve the private benefit of s more than incidentally you stated on your exemption application s is a for-profit business providing transitional housing that c inherited although you share a facility and a common officer with s you have not provided information to explain your relationship with c’s for-profit business s on the one hand you stated in one response letter that you are an approved facility by the state of l only to indicate elsewhere in the letter and in subsequent correspondence that you are not operational while you later assert that you are a separate organization from s you have not shown that your operations are clearly distinguished from that of s and that you are not operated for the private benefit of s more than incidentally it is well-accepted that in initial qualification cases gaps in the administrative record are solved against the applicant courts can draw inferences adverse to a taxpayer seeking exempt status where the taxpayer fails to provide evidence concerning its operations or where the evidence is vague or inconclusive new dynamics foundation supra furthermore in factual situations where there is evident potential for abuse of the exemption provision the organization must openly disclose all facts bearing on its operation and finances like the organization in basic unit ministry of alma karl schurip supra you have not openly disclosed all facts bearing on your operations including your relationship with the related for-profit entity s you have not established that you are not operated to serve the private benefit of s more than incidentally in addition you have not established that your income will not inure to the benefit of you founder president and chief_executive_officer b and his family inurement is strictly prohibited under sec_501 of the code additionally sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net earning inure in whole or in part to the benefit of private shareholders or individuals article of your bylaws provide that in the event of dissolution your president and chief_executive_officer may choose to have his portion of your assets deposited into a_trust account for his children and or the grand children for the furthering of their educational requirements and associated cost related to the completion of their or their children’s studies although you state that you have amended the dissolution provisions of your bylaws you have not provided us with a copy of your executed amended bylaws based on provisions of your bylaws you have not established that your income will not inure to the benefit of your founder president and chief_executive_officer and his family you have failed to provide details of your proposed operations in response to our repeated requests for information you are similar to the organizations described in bubbling well church of universal love inc supra in that you have not shown that no part of your net_earnings inure to be benefit of your founders or board members your position your stated purpose is to operate a transitional housing program as you are not yet operational you have stated that you can only provide specific details of your programs and activities once you receive recognition of tax exemption our response to your position although exempt status may be recognized in advance of an organization’s operations you have not described your proposed activities in sufficient detail to permit a conclusion that you will clearly meet the particular requirements of sec_501 of the code conclusion an organization that fails to meet the operational_test is not exempt under sec_501 of the code you do not meet the operational_test because you have not provided sufficient information to demonstrate that you will be operated exclusively for exempt purposes within the meaning of sec_501 and that no part of your net_earnings will inure to the benefit of your founders or other private individuals you have also not shown that you do not serve private interests more than incidentally accordingly you do not qualify for exemption under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely director exempt_organizations rulings agreements enclosure publication


internal_revenue_service number release date index numbers ----------------------------- ------------------------------------- ----------------------------------------- ---------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number -------------------- refer reply to cc psi b03 plr-123126-12 date november legend company --------------------------------------------------------------------------------------------------------------------- holdings ------------------------------------------------------------------------------------------------------------------- state date date date --------- ------------------------ ---------------------- ------------------------- purchasers --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------- m ----- dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company by company’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts plr-123126-12 holdings a state corporation that elected to be an s_corporation effective date wholly-owned company a state corporation as of date holdings elected to treat company as a qualified_subchapter_s_subsidiary qsub effective date on date holdings and purchasers executed a stock purchase agreement in which purchasers agreed to purchase m shares of stock in company from holdings purchasers transferred funds to holdings to purchase company stock however before holdings transferred any stock to purchasers it was discovered that company was a qsub consequently holdings never transferred any of company’s stock to purchasers the parties terminated the stock purchase agreement and purchasers’ funds were refunded company represents that if its qsub election terminated when holdings executed the stock purchase agreement with purchasers the termination was inadvertent and was not motivated by tax_avoidance or retroactive tax planning it is represented that since date holdings has treated company as a qsub company and holdings have agreed to make any adjustments consistent with the treatment of company as a qsub as may be required by the secretary law and analysis sec_1362 provides in part that if an election under sec_1362 or sec_1361 by any corporation was terminated under sec_1362 or or sec_1361 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation or a qsub as the case may be and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of such corporation as an s_corporation or a qsub as the case may be as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation or a qsub as the case may be during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that if company’s qsub election terminated on date when holdings executed the stock plr-123126-12 purchase agreement with purchasers the termination was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 company will be treated as continuing to be a qsub from date and thereafter provided company’s qsub election was valid and was not otherwise terminated under sec_1361 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether company is otherwise eligible to be treated as a qsub or whether holdings is eligible to be treated as an s_corporation 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 a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


o f f i c e o f c h i e f c o u n s e l number release date department of the treasury internal_revenue_service washington d c date cc pa apjp2 gl-101192-01 uiln memorandum for manhattan area_counsel - area small_business self employed from curtis g wilson assistant chief_counsel administrative provisions and judicial practice subject significant service_center advice request claims for refund of trust fund recovery penalty this responds to a request for a significant service_center advice dated date in connection with a question posed by the andover service_center this document is not to be cited as precedent issue the taxpayer was found to be a responsible_person and assessed a_trust fund recovery penalty tfrp under sec_6672 of the code the taxpayer made several payments in partial satisfaction of the assessed liability subsequently within two years of the last payment the taxpayer filed a timely claim_for_refund asserting that she was not a responsible_person within the meaning of sec_6672 upon consideration the service agreed that the taxpayer was not a responsible_person and thus that she was not liable for the assessed tfrp may the service refund to the taxpayer the full amount_paid by the taxpayer toward the tfrp or is the amount of the refund limited by sec_6511 of the code conclusion the refund may not exceed the amount_paid by the taxpayer during the two years immediately proceeding the filing of the taxpayer’s refund claim sec_6511 background the andover service_center brought the following case to your attention the case is allegedly representative of other similar cases the service proposed a_trust fund recovery penalty against the taxpayer and another gl-101192-01 individual as responsible persons within the meaning of sec_6672 the taxpayer did not dispute the service’s determination and the service assessed the proposed tfrp the amount of the original assessment made in was dollar_figure the taxpayer made several payments towards the assessed liability totaling approximately dollar_figure within two years of making the last payment of dollar_figure the taxpayer filed a claim_for_refund asserting that she was not a responsible_person within the meaning of sec_6672 the service’s technical support and compliance tsc function investigated the taxpayer’s claim and determined that in fact she was not a responsible_person accordingly the tsc function instructed the service_center to abate and refund to the taxpayer the dollar_figure the taxpayers paid within the look-back period of sec_6511 the andover service_center took the position that since the taxpayer was not a responsible_person the assessment against the taxpayer was erroneous the service_center abated the tfrp assessment in full and refunded to the taxpayer the full amount that the taxpayer paid towards the tfrp plus interest the statute_of_limitations on collection of the tfrp has now expired law and analysis sec_6511 of the code sets forth time and amount limitations on a taxpayer’s claim_for_refund sec_6511 provides that a refund claim must be submitted within years from the time the return was filed or years from the time the tax was paid whichever of such periods expires the later even if a refund claim is timely under sec_6511 however sec_6511 limits the amount the taxpayer may recover sec_6511 provides that where a claim_for_refund was filed within years of the filing of the return the amount of the refund is limited to the portion of the tax paid within the period immediately preceding the filing of the claim equal to years plus the period of any extension of time for filing the return sec_6511 sec_6511 provides that where no claim was filed within the 3-year period prescribed by subsection a the amount of the credit or refund shall not exceed the portion of the tax paid during the two years immediately preceding the filing of the claim sec_6511 emphasis added in a case of a claim_for_refund of paid trust fund recovery penalty the claim must be filed within two years from the time the tax was paid see 17_f3d_1029 7th cir if the claim is timely the amount of the refund is limited to amounts paid within the two-year look-back period set forth in sec_6511 b neither the service nor the courts have the authority to issue a refund in excess of the amounts paid within the applicable look-back period see an exception to the two-year limitation may exist if the taxpayer shows that he was financially disabled during the applicable two-year period see sec_6511 gl-101192-01 516_us_235 tax_court is forbidden to award a refund of any overpaid federal taxes that were not paid within the sec_6511 look-back period also 494_us_596 there is no distinction between a refund action and suits for funds wrongfully retained by the service the word overpayment in sec_6511 encompasses erroneously illegally and wrongfully collected taxes 519_us_347 sec_6511 limitations are not subject_to tolling for nonstatutory equitable reasons in pham v united_states the court of federal claims had an opportunity to address a fact pattern very similar to the one at hand see pham v united_states 41_fedclaims_886 in pham the plaintiff was assessed tfrp for the last two quarters of and the first two quarters of between date and date plaintiff made several payments towards the assessed liability subsequently plaintiff filed a claim_for_refund asserting that he was not a responsible_person within the meaning of sec_6672 the government denied plaintiff’s claim and plaintiff instituted a suit in the court of federal claims in determining whether the plaintiff’s suit could go forward the court looked to sec_6511 the court determined that plaintiff’s suit was timely because it was filed within two years from the time the tax penalty was paid id pincite the court then turned to the amount limitation set forth in sec_6511 the court held that even if the plaintiff were to prove that he was not a responsible_person and thus not liable for the assessed penalty he could recover only the payments made within the two years immediately preceding his claim_for_refund plaintiff could not recover any amounts paid outside of the two-year look-back period similarly in mann v commissioner the tax_court upheld the service’s denial of a refund even though the service conceded that the taxpayer owed no taxes for the period at issue mann v commissioner t c memo in that case the taxpayer failed to file his income_tax return for however on or about date the taxpayer filed with the service a form_4868 extension of time to file us individual tax_return and enclosed a dollar_figure payment in the service issued to the taxpayer a notice_of_deficiency for the taxpayer timely petitioned the tax_court the government conceded that the taxpayer owed no tax for and the taxpayer requested a refund of the dollar_figure payment the government argued that the taxpayer was barred from recovering the overpayment the tax_court agreed the court noted that sec_6511 and sec_6511 limit the refund to amounts paid within two years prior to the date of the mailing of the statutory_notice_of_deficiency since the taxpayer’s payment was made outside of this look-back period the taxpayer was barred from recovering the dollar_figure payment gl-101192-01 pham and mann are consistent with the overall statutory scheme and the long established case law governing refunds sec_6511 limits the amount of the refund the taxpayer may recover to payments made within two years immediately preceding the taxpayer’s refund claim while at first glance this result may seem inequitable the code contains numerous provisions mitigating this result first before the service assesses a tfrp the alleged responsible_person is provided with an opportunity to dispute the service’s determination sec_6672 although the service should never assert or assess a tfrp against an individual who is not a responsible_person within the meaning of sec_6672 the service is often forced to make its determination based on limited facts the taxpayer is always in a better position to ascertain the degree of his or her responsibility and or willfulness however it is up to the taxpayer to take advantage of this opportunity and to present evidence rebutting the service’s determination moreover the pre-assessment forum is not the only way for a responsible_person to dispute the service’s determination see eg sec_6672 recently congress enacted sec_6330 providing all taxpayers with an opportunity if they did not have such an opportunity earlier to have their tax_liability reviewed before the service takes its first administrative collection action finally because the tfrp is a divisible_tax and thus not subject_to the full payment rule2 the responsible_person may always pay a divisible portion of the assessed tax and file a timely refund claim see 280_f2d_89 8th cir in the instant case the taxpayer did not present evidence disputing the service’s assertion of the tfrp until over two years after the liability was assessed by the service during that time the taxpayer made several payments towards the assessed liability although the service correctly determined that the taxpayer was not a responsible_person and thus not liable for the assessed penalty the service incorrectly refunded to the taxpayer the full amount_paid by the taxpayer instead the service should have refunded only the amount_paid by the taxpayer during the two years immediately preceding the taxpayer’s refund claim or dollar_figure plus interest sec_6511 see also revrul_81_87 1981_1_cb_580 payments made outside of the two-year look-back period should have been moved to excess collection or some other account appropriated for this type of payment furthermore to the extent that the refund exceeded the amount limitation set forth in sec_6511 it was erroneous the service may recover this amount by filing an erroneous refund_suit pursuant to sec_7504 within the period of limitations set forth in sec_6532 see 485_f2d_331 in this case the service has two years from the time the taxpayer received the erroneous refund to institute the erroneous refund_suit 519_us_79 see 362_us_145 gl-101192-01 if you have questions or need additional assistance in this matter please contact branch of the office of assistant chief_counsel administrative provisions and judicial practice pincite-4940 if you have questions regarding erroneous refund procedures please contact branch of the office of assistant chief_counsel collection bankruptcy and summonses cc division counsel sbse


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa cbs br1 gl-165588-02 uil date date to memorandum for associate area_counsel seattle from alan c levine chief branch collection bankruptcy summonses subject application of sec_6334 to collection from abusive trusts this provides our response to your request for advice dated date this document may not be cited as precedent sec_6110 issue whether the internal_revenue_service service must obtain judicial approval pursuant to sec_6334 prior to seizure of residential property titled in the name of a_trust created pursuant to an abusive trust scheme where the service has made assessments against both the trust and the individual using the property as a principal_residence conclusion while a technical argument may be made that sec_6334 is inapplicable we recommend that the service obtain judicial approval prior to seizure of such property where a lien foreclosure suit would not otherwise be applicable in the abusive trust context it is the service’s position that the trust is a sham consistent with this position the individual should be deemed to be the true taxpayer regardless of the additional_assessment against the trust furthermore seeking suit for lien foreclosure upon the subject property would be preferable to a sec_6334 proceeding in most of these cases as questions regarding the title may create an unfavorable market for administrative sale facts the facts which you have provided are as follows an individual taxpayer created several trusts as part of an abusive scheme to utilize trusts to evade the assessment and payment of tax the tax_liabilities of the individual taxpayer and the abusive trusts gl-165588-02 were examined as part of the abusive trust project the standard examination procedure is to assess tax against the individual on his or her individual_income_tax_return form_1040 and to make an alternative assessment of tax against the trust on its income_tax return form_1041 this is a whipsaw collection approach to protect the service where the actual amount of liability is only collected once from the assets of both the individual and the trust the individual taxpayer transferred title of his principal_residence to the trust the revenue_officer is collecting the tax_assessment against the trust the revenue_officer intends to seize the residential property from the trust the revenue_officer has requested advice as to whether the judicial approval requirements of sec_6334 are applicable in this scenario discussion sec_6334 provides that e xcept to the extent provided in subsection e the principal_residence of the taxpayer within the meaning of sec_121 is exempt from levy sec_6334 modifies this exemption as follows e levy allowed on principal residences and certain business_assets in certain circumstances --- principal residences -- a approval required -a principal_residence shall not be exempt from levy if a judge or magistrate of a district_court of the united_states approves in writing the levy of such residence b jurisdiction -the district courts of the united_states shall have exclusive jurisdiction to approve a levy under subparagraph a sec_6334 accordingly judicial approval is required prior to seizure of a taxpayer’s principal_residence sec_6334 refers to sec_121 for the definition of principal_residence of the taxpayer sec_121 does not provide a specific definition the regulations enacted under sec_121 also do not provide a precise definition of this term it is inherent in the regulations however that the term was meant to indicate the principal_residence of an individual taxpayer for example there are references to the taxpayer as he or she as having family members and as having employment see eg temp sec_1_121-3t this is consistent with a plain meaning understanding of the term residence and is further supported by the legislative_history underlying sec_6334 sec_6334 was revised by the internal_revenue_service restructuring and reform act of p l rra the conference_report for rra discussing rra due process in irs collection actions provides in part gl-165588-02 no seizure of a dwelling that is the principal_residence of the taxpayer or the taxpayer’s spouse former spouse or minor child would be allowed without prior judicial approval notice of the judicial hearing must be provided to the taxpayer and family members residing in the property emphasis added internal_revenue_service restructuring and reform act of conference_report to accompany h_r h_r conf_rep no 105th cong 2d sess pincite consistent with this legislative_history and the plain meaning of the term residence it is our position that sec_6334 requires judicial approval prior to seizure of the principal_residence of only individual taxpayers or individual taxpayer’s spouses former spouses or minor children sec_6334 is inapplicable to other taxpayer entities such as corporations partnerships or trusts as these inanimate entities do not have residences the pertinent question therefore is whether principal_residence property of an individual titled in the name of a_trust for tax_avoidance purposes is the principal_residence of an individual taxpayer where we have assessments against both the individual and the trust if the individual is the taxpayer judicial approval would be required prior to seizing the property if the trust is the taxpayer judicial approval would not be required we recognize that under a technical application of sec_6334 the argument can be made that judicial approval is not required we have an assessment against the trust the property is titled in the name of the trust on the books this is a seizure of trust property in satisfaction of trust tax_liability even though we have additionally made an assessment against the individual taxpayer we further recognize that this result is a direct consequence of the individual’s own choice to place the property in the name of a fraudulent trust we also agree that such an interpretation would be consistent with a policy of aggressive pursuit of collection from abusive trusts the problem with this argument however is the underlying premise of an abusive trust scheme if the service’s position is that a_trust is a sham created for tax_avoidance purposes it is inherent in this position that the service deems the trust to be a nominee of the individual the service’s position in any abusive trust scenario therefore would be that the individual is the true taxpayer and the individual’s principal_residence would be the true taxpayer’s principal_residence this is the case regardless of the actual mechanism used for collection of the liability such as the whipsaw assessment procedure as you note the approval of the area director is required prior to the seizure of the principal_residence of any individual regardless of whether or not judicial approval is required irm gl-165588-02 we therefore conclude that the service should seek judicial approval pursuant to sec_6334 prior to seizing principal_residence property of an individual titled in the name of an abusive trust we further note however that seizure of such property even after obtaining judicial approval would not be the optimal course of action in most of these cases once a district_court has approved seizure of a taxpayer’s principal_residence that property must be sold pursuant to the administrative sale procedures in sec_6335 the property will be sold by public auction or public sale under sealed bids and the service makes no warranties as to valid title but merely conveys by deed all the right title and interest as provided in sec_6339 if the property is held in the name of a sham trust this raises concerns as to the validity of title a lien foreclosure action under sec_7403 is generally recommended instead of a sec_6334 action whenever there are clouds on the title such as a nominee situation which create an unfavorable market for administrative sale see irm and while there may be cases in which we determine that a sec_6334 action could be pursued we generally recommend that you request an action for lien foreclosure on the principal_residence property if you have any further questions please contact if the subject property is held in the name of a_trust or other inanimate entity which the service does not believe to be abusive or a sham and the property will be seized in satisfaction of the legitimate tax_liability of such entity judicial approval will not be required prior to seizure in addition there are some jurisdictions in which the service may dispute the validity of a_trust to which a residence was transferred where the grantor s continued to live in the residence but courts have upheld the validity of such trusts in those jurisdictions a lien foreclosure action would probably be advisable as further discussed below


internal_revenue_service number release date index number -------------------------------- --------------------------- ------------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ---------------- telephone number -------------------- refer reply to cc psi plr-104483-15 date date legend decedent --------------------------------------------------- ------------------- spouse date date ---------------------- ---------------------- ------------------------ dear ------------- this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make plr-104483-15 the portability election the estate discovered its failure to elect portability after the due_date for making the election spouse as executor of decedent’s estate represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and that during her lifetime decedent made no taxable_gifts as executor spouse requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election plr-104483-15 once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request 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 that granting relief will not prejudice the interests of the government sec_30 b iii provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election plr-104483-15 the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date as executor spouse represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-104483-15 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely karlene m lesho senior technician reviewer office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court augusto and maria negret petitioners v commissioner of internal revenue respondent docket no 17497-06s filed date augusto and maria negret pro sese brian a pfeifer for respondent chabot judge this case was heard pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as a precedent for any other case sec_7463 unless indicated otherwise all section references are to sections of the internal_revenue_code_of_1986 as in effect for the year in issue except as to sec_7463 which is as in effect for proceedings commenced on the date the petition in the instant case was filed respondent determined a deficiency of dollar_figure in federal individual income_tax against petitioners for after concessions by petitioners the issues for decision3 are whether petitioners are entitled to any depreciation_deductions claimed on schedule c profit or loss from business and if so then in what amount and whether petitioners are entitled to any vehicle insurance deduction in excess of their claimed and allowed standard mileage rates in connection with the schedule c activity and if so then in what amount background the stipulation and the stipulated exhibits are incorporated herein by this reference petitioners concede that their schedule c gross_income was dollar_figure as determined in the notice_of_deficiency and not dollar_figure as stated on their tax_return and they are entitled to an itemized_deduction of dollar_figure for home mortgage interest and points as determined in the notice_of_deficiency and not dollar_figure as stated on their tax_return the other adjustments relating to the 2-percent floor on certain itemized_deductions and a claimed credit for certain retirement savings contributions are computational only their resolutions depend on our determinations as to the issues for decision when the petition in the instant case was filed petitioners augusto negret and maria negret hereinafter sometimes referred to as maria resided in florida during maria operated a schedule c business as an avon representative this business will hereinafter sometimes be referred to as maria’s avon business table sets forth pertinent information from the schedule c relating to maria’s avon business that petitioners attached to their form_1040 u s individual_income_tax_return together with respondent’s adjustments in the notice_of_deficiency table amount respondent schedule c line item claimed determined adjustment gross_receipts or sales dollar_figure dollar_figure 1dollar_figure advertising big_number big_number -0- tools -0- big_number big_number car and truck expenses big_number big_number -0- depreciation big_number -0- big_number insurance big_number -0- big_number office expense -0- supplie sec_250 -0- 24a travel -0- 24d meals and entertainment -0- other expenses -0- total expenses big_number big_number big_number net_profit_or_loss big_number big_number big_number petitioners concede this adjustment these amounts are not specifically set forth in the notice_of_deficiency but are the computational results of the amounts that are set forth the schedule c shows that maria’s vehicle was used as follows in big_number miles for business big_number miles for commuting and big_number miles for other petitioners’ claimed dollar_figure car and truck expenses were computed by multiplying big_number miles of business use by the standard mileage rate of cents the claimed dollar_figure insurance expense supra table is for the same vehicle as the claimed dollar_figure car and truck expenses table shows the information on a depreciation schedule attached to petitioners’ tax_return table item information description of property leasehold imp date acquired cost or other basis dollar_figure depreciable basis dollar_figure accumulated depreciation no entry method used macrs life or rate depreciation for dollar_figure ads depreciation for dollar_figure on the form_4562 depreciation and amortization attached to their tax_return petitioners claimed a dollar_figure special depreciation allowance and an macrs depreciation deduction of dollar_figure for a total of dollar_figure sec_168 provides for an additional_depreciation deduction of percent of the adjusted_basis of qualified_property but requires the adjusted_basis to then be reduced by this additional deduction before computing the amount otherwise allowable as a depreciation deduction the dollar_figure claimed special depreciation allowance i sec_30 percent of the claimed dollar_figure cost or other basis see supra table the dollar_figure basis minus the dollar_figure special depreciation leaves the dollar_figure depreciable basis see supra table used to calculate the remaining depreciation maria used a computer in connection with her avon business she bought the computer in or for dollar_figure before maria began to use the computer in connection with her avon business petitioners used it for personal purposes during in addition to business use maria used the computer for personal e- mail and to browse the internet for purposes not related to her avon business maria used a printer original cost--dollar_figure a scanner original cost--dollar_figure and facsimile equipment original cost-- dollar_figure in connection with the computer she used in connection with her avon business maria used two desks in connection with her avon business the desks were bought in for about dollar_figure to dollar_figure apiece before maria began to use the desks in connection with her avon business petitioners used them for personal purposes discussion in general a taxpayer is entitled to deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 during maria operated a schedule c business as an avon representative however sec_274 disallows deductions otherwise available in many cases unless certain substantiation requirements have been met in general the commissioner’s determinations as to matters of fact in the notice_of_deficiency are presumed to be correct and the taxpayers have the burden of proving otherwise see rule a 290_us_111 petitioners have not contended that sec_7491 applies so as to shift the burden_of_proof on the record in the instant case if such a contention had been made then we would have concluded that the requirements of sec_7491 had not been met and so the burden_of_proof would not have been shifted for convenience we consider first the vehicle insurance issue and then the depreciation issue a vehicle insurance sec_274 provides that no deduction shall be allowed with respect to listed_property as defined in sec_280f unless certain substantiation requirements are met as best we can tell from the meager record the vehicle maria used in her avon business was a passenger_automobile within the meaning of paragraphs a i and of sec_280f sec_1_274-5 income_tax regs authorizes the commissioner to establish a method under which a taxpayer may use mileage rates to determine the amount of the ordinary and necessary expenses of using a vehicle for local transportation unless indicated otherwise all rule references are to the tax_court rules_of_practice and procedure in lieu of substantiating the actual costs revproc_2002_61 sec_11 2002_2_cb_616 provides that for a taxpayer may deduct cents per mile of business use in lieu of all operating and fixed costs which are defined as including insurance id sec_5 c b pincite petitioners claimed the 36-cent rate for the claimed big_number miles of business use of maria’s vehicle for a deduction of dollar_figure respondent allowed this mileage claim in full see supra table this 36-cent mileage rate includes insurance and is in lieu of a deduction for substantiated actual costs having used--and been allowed--the standard rate for petitioners are not entitled to deduct in addition any of the listed operating and fixed costs including insurance we hold for respondent on this issue b depreciation on their tax_return petitioners claimed that they acquired dollar_figure of leasehold improvements on date they claimed that all of this property was eligible for percent special depreciation of dollar_figure plus regular depreciation of dollar_figure for a total depreciation deduction of dollar_figure petitioners’ tax_return was professionally prepared petitioners proceeded pro_se at the trial but their tax_return_preparer was allowed to sit with them at the counsel table and to assist them we noted that the tax_return showed the dollar_figure but did not show what items were covered by that amount nor did it indicate the costs acquisition dates and specific business uses of any of these items when maria took the witness stand we urged her to testify about the most expensive items first after maria testified about a computer two desks a printer a scanner a fax machine and a telephone including testimony about these items’ original costs aggregating about dollar_figure the following colloquy occurred the court how are you going to get to dollar_figure some odd dollars if you’re already getting to shall we say small potatoes items like dollar_figure items the witness i don’t have anything to go to dollar_figure the court are there any other big items that you want to tell us about the witness no sir petitioners did not call their tax_return_preparer to the witness stand to explain any components of the dollar_figure item on the tax_return that she had prepared for petitioners to file from the foregoing we conclude that there was no foundation for the depreciation claims on petitioners’ tax_return nevertheless respondent has conceded that maria had a real schedule c business and agrees that petitioners are entitled to deduct the net losses from that business against their other income see supra table petitioners impressed us as being truthful even if somewhat vague in their sworn trial testimony notwithstanding our conclusion about the depreciation element on their sworn tax_return and we are satisfied that maria used depreciable_property in her avon business we conclude that petitioners have failed to show that they are entitled to any of their claimed 30-percent special depreciation see sec_168 we conclude that petitioners have failed to show that they have satisfied the strict substantiation requirements of sec_274 as to the property subject_to that section doing the best we can on the basis of the record herein we make as close an approximation as we can and bearing heavily upon petitioners whose inexactitude is of their own making we conclude that petitioners are entitled to deduct dollar_figure depreciation in connection with maria’s avon business for see 39_f2d_540 2d cir to take account of the foregoing decision will be entered under rule respondent did not determine an accuracy-related_penalty under sec_6662 in the notice_of_deficiency and did not assert a claim for such a penalty at or before any hearing in this case and so we do not deal with that potential issue see sec_6214 petitioners and their tax_return_preparer should understand that they dodged a bullet with regard to the depreciation claims on this tax_return


internal_revenue_service number release date index number ------------------------------ ------------------------------------------ ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-132522-08 date date legend ------------------------------- x ------------------------------------- -------------------- a --------------------------------------- d1 ----------------------- state --------- dear ---------- this letter responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholder a intended for x to be an s_corporation effective d1 however x’s form_2553 election by a small_business_corporation was not filed timely x requests a ruling that it will be recognized as an s_corporation effective d1 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation plr-132522-08 sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to make the election then the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d1 within days following the date of this letter the election shall be treated as timely made except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-132522-08 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 sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-121974-98 date date legend x state year y this responds to the letter dated date and prior correspondence submitted on behalf of x requesting a ruling under sec_7704 of the internal_revenue_code facts x is a limited_partnership organized under state law in year x owns and operates timberland properties and timber processing operations in the united_states x’s business consists primarily of the growing of timber for sale in domestic and export markets and the processing of timber into lumber and chips x owns y of the interests in several operating limited_partnerships olps through which all of these activities are conducted through the olps x also owns and operates a wood products purchase and resale business this business acquires wood products and poles among other items from lumber mills including lumber mills owned indirectly by x through its interests in the olps cc dom p si plr-121974-98 x intends principally through acquisitions by the olps to expand into the business of selling glued wood products gwps x will produce gwps using its own timber and timber acquired from others in addition x will purchase gwps from other producers gwps are panel products and lumber products panel products are sheets of varying thicknesses produced by gluing small pieces of wood together panel products include plywood medium density fiberboard mdf oriented strand board osb particle board and pressed hardboard plywood is made by gluing together veneer sheets of wood and bonding the sheets in a hot press it is then graded and sometimes sanded mdf is made by bonding wood chips sawdust and planer shavings most of which are byproducts of a lumber mill or plywood operation these materials are combined softened mixed with resins dried and then pressed together like plywood mdf panels are graded and sometimes sanded mdf is also subjected to an ammonia process to remove any formaldehyde osb which is similar to both plywood and mdf is produced by blending wood wafers together with resins and forming the materials into panels similarly particle board is composed of fine wood chips that are bound together and formed in a process very similar to mdf and osb pressed hardboard consists of pressed wood fiber and resin typically pressed products are shaped in the form of panels but also may be shaped in the form of boards lumber products are wood or wood products that have been subjected to a different secondary milling operation some wood pieces or wood and panel products are glued together to create larger and wider wood pieces thin pieces of wood or veneers are glued together in layers to make stronger larger or more attractive wood pieces and other wood products as set forth in the ruling_request low grade wood may be further processed to remove defects such as knots in these gluing processes wood or wood products are joined by applying glue and pressure x will sell the gwps to a variety of purchasers including resellers such as distribution yards home improvement chains and local lumber yards wood product manufacturers such as furniture companies cabinet makers and prefabricated homebuilders and residential and commercial construction companies ruling requested x requests a ruling that the income and gains recognized by x that relate to the sale of gwps is qualifying_income under sec_7704 cc dom p si plr-121974-98 law and analysis sec_7704 generally treats a publicly_traded_partnership as a corporation for federal tax purposes sec_7704 defines the term publicly_traded_partnership as any partnership whose interests are traded on an established_securities_market or are readily tradeable on a secondary market or the substantial equivalent thereof sec_7704 exempts certain partnerships from treatment as a corporation for a taxable_year if the partnership meets the gross_income requirements of sec_7704 for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence under sec_7704 a partnership meets the gross_income requirements for any taxable_year if or more of the partnership’s gross_income for the taxable_year consists of qualifying_income sec_7704 provides that qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber conclusion based solely on the facts submitted and representations made we conclude that x’s income and gains from the sale of gwps will be treated as qualifying_income for purposes of sec_7704 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent cc dom p si plr-121974-98 pursuant to the power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely signed daniel j coburn daniel j coburn assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-164349-02 date date company properties state a b c d e f g h i j plr-164349-02 dear this letter responds to your letter dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from the properties is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts company was organized as a business_trust under the laws of state on a and anticipates electing under sec_1362 to be an s_corporation effective b company has accumulated_earnings_and_profits company owns leases and manages commercial real_estate the properties from an on-site office through its c officers and d staff members and with the assistance of property managers and independent contractors company provides various services in its real_estate leasing and management business these services include daily property visits maintenance and repair of common areas building exteriors and roofing hvac and electrical systems and sidewalks maintenance of fire and life safety systems janitorial services for all interior common spaces such as lobbies elevators and hallways exterior window washing rubbish removal snow removal extermination services key and lock services utilities lobby security consultation on and supervision of tenant improvements and a 24-hour on-call service in addition to the services provided to tenants company handles the usual leasing and administrative functions involved in managing rental real_estate company received or accrued approximately e in rents and paid_or_incurred approximately f in relevant expenses for g on the properties the rental income and expense figures for h are i and j respectively law and analysis except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income plr-164349-02 except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the rents company receives from the properties are not passive_investment_income under sec_1362 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding company's eligibility to elect to be treated as an s_corporation further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 under a power_of_attorney on file with this office we are sending the original of this letter to you and a copy to company plr-164349-02 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely s mary beth collins senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes