tax_exempt_and_government_entities_division department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date date release number release date legend org - organization name xx - date address - address org address employer_identification_number person to contact id number contact numbers certified mail - return receipt requested dear in a determination_letter dated january 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on september 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code you are required to file form_1120 u s_corporation income_tax return with the ogden service_center you have filed taxable returns on form_1120 u s_corporation income_tax return for the years ended december 20xx and december 20xx with us form_1120 with the appropriate service_center indicated in the instructions for the return in addition for future periods you are required to file you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing director eo examinations department of the treasury internal_revenue_service west creek road stop independence ohlo tin form tax_year ended tax_exempt_and_government_entities_division date org address dear after examining all available information we believe an adjustment of your organization's exempt status may be necessary our proposed_adjustment is found in the enclosed form 4621-a and a detailed explanation is found in the enclosed form 886-a if you accept our findings please sign the enclosed form_6018 consent form and mail it to our office within days from the date of this letter see enclosed publication for details on the examination process and publication sec_5 and for details on appeal rights if you do not accept our findings you have days from the date of this letter to mail us any additional evidence or information you would like us to consider or you may request a discussion of our findings with an examiner who is familiar with your return and submit any additional evidence or information you would like the examiner to consider you may also request a conference to discuss the proposal with the examiner's group manager if you plan to come in for a discussion please phone or write us in advance so that we can arrange a convenient time and place if we do not hear from you within days we will have to process your case on the basis of the adjustment shown in the examination_report the person whose name and telephone number appear above will be glad to answer any questions you may have an addressed envelope is enclosed for your convenience thank you for your cooperation sincerely cheryl a johnson internal revenue_agent enclosures form 4621-a form 886-a agreement form_6018 publications and envelope department of the treasury - internal_revenue_service explanation of items form 886a name of taxpayer org ein year period ended december 20xx legend org - organization name co-1 co-2 companies xx - date city - city state - state issue whether the tax-exempt status of a c organization whose primary activities are fundraising coupon redemption and voucher redemption should be revoked facts purpose subject organization is recognized as a sec_501 tax-exempt_organization according to its form_1024 application_for exempt status the primary purpose of the organization is to facilitate the exchange of knowledge and results of experience among persons in the field of grocery food sales and or management in the city state area and to promote the general welfare of the grocery industry its principal activities are listed as discouraging trade abuses disseminating useful information monitoring and commenting on legislation for the better protection of the local grocery industry attending state and national conventions publishing a weekly newsletter providing education and public awareness programs and member events and conducting public awareness campaigns re health and safety issues associated with the grocery industry the organization's code of regulations as revised 19xx replaced previous active and associate member categories with one regular member class defined as persons active in the grocery industry in the org area who pay annual dues activities the organization's activities include two annual fundraising events wine tasting and golf outing a coupon redemption program unrelated_business_income and a co-1 voucher exchange program for members for the year ended december 20xx the organization's net_income by dollar amount is as follows revenue source gross expenses net fundraisers investment member dues coupon ubi voucher exchange the organization reported a capital_loss of dollar_figure and salary administrative expenses of dollar_figure total decrease in net assets was dollar_figure form acrev department of the treasury - internal_revenue_service page -1- department of the aye internal_revenue_service explanation of items form 886a name of taxpayer org ein year period ended december 20xx fundraisers wine tasting and golf outing the organization states that of the participants in the fundraisers held march and july were members although no sign-in sheets agenda or minutes are available flyers for the fundraisers indicated that a portion of the proceeds would benefit the scholarship fund no scholarships were awarded by the organization in 20xx coupon redemption the organization functions as a local collection agent for coupon redemption for the convenience of its members revenue from the coupon redemption program was correctly reported as unrelated_business_income on form 990-t however the organization could provide no substantiation for the net_operating_loss carryforward claimed against the income coq-1 voucher program the co-1 provided vouchers to lower income families which could only be redeemed at association member stores the organization collected and counted the vouchers obtaining reimbursement from the co-1 and making payment to the participating stores because the stores obtained full reimbursement this program increased sales for members it did not benefit the organization financially but provided a service to members member meetings and dues the organization states that member meetings were held at restaurants on november and december the organization states that useful information was discussed at member meetings with members presenting problems situations or concerns of importance to them board minutes refer to the november meeting as a membership appreciation party financial statements record the december meeting as a christmas party no sign-in sheets agendas or minutes are available for the member meetings member dues account for of gross revenue annual dues during 20xx were paid_by only of companies listed on the membership rolls board meetings monthly board meetings document regular discussions of financial statements status of investments and fundraising event planning board minutes do not document any discussions of topics related to the improvement of the grocery industry time allocation form_990 reports that each of board members spends an average of five hours a week or hours a year participating in activities of the organization the executive director spends an average of twenty hours a week or hours per year participating in the activities of the organization the organization was not able to form avrev department of the treasury - internal_revenue_service page -2- form 886a name of taxpayer explanation of items department of the treasury- internal_revenue_service ein org year period ended december 20xx provide a description of the relationship of the hours spent and their relationship to the exempt_purpose the organization does state that hours was spent on the golf outing hours was spent on the wine tasting and hours was spent on the co-1 voucher program information sharing the organization states that it provides members with e-mails and faxes received from the state and national co-2s at least weekly on topics pertaining to the grocery industry the executive director stated during an interview that it is actually the board members who receive the e-mails and faxes and pass them on to members in their groups many members also belong to the affiliated state and national associations and receive the alerts directly law sec_501 of the internal_revenue_code exempts from federal_income_tax business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 of the treasury requlations provides that in order to be exempt as an organization described in sec_501 of the code a business league must possess the following characteristics it must be an association of persons having some common business_interest and it sec_1 purpose must be to promote this common interest it must not be organized for profit no part of its net_earnings may inure to the benefit of any private_shareholder_or_individual its activities must be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons its primary activity does not consist of performing particular services for individual persons its purpose must not be to engage in a regular business of a kind ordinarily carried on for profit even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining the primary activity for sec_501 organizations must be improving business conditions in one or more lines of business primary activity is considered greater than fifty percent based on time and income exemption may be revoked if the nonexempt activities constitute more than fifty percent exemption will not be affected by particular services for members so long as the primary activity is in accordance with the code form acrev department of the treasury - internal_revenue_service page -3- department of the ‘treasury - internal_revenue_service explanation of items form_886 a name of taxpayer org ein year period ended december 20xx 383_us_569 and sec_53_4942_b_-1 ii describe the meaning of primary as of first importance or principally in revrul_70_244 an organization of business and professional persons of a community which provided luncheon and bar facilities for members but had no specific program directed to the improvement of business conditions was held to not be exempt under c in revrul_61_170 exemption was denied to a nurse's registry controlled and financed by participating nurses where its activities consisted of assigning nurses to jobs in revrul_57_453 an organization which promoted the publication of its members writings does not qualify for exemption under c in revrul_71_175 an organization that operated a telephone answering service for member doctors does not qualify for exemption under c in revrul_76_409 an organization that publishes and distributes to its members customers and potential customers a directory containing members names and addresses does not qualify for exemption under c in america automobile association v commissioner 19_tc_1146 aaa was found not to be exempt as a business league under c because its principal activities were determined to consist of securing benefits and performing particular services for members taxpayer’s position the organization believes that it is entitled to exemption under sec_501 because the fundraising events and member dinners provide a forum for members to exchange the knowledge and the results of experience in their common area_of_interest they believe the alerts that are shared with members serve the purpose of educating members and the public government’s position based on the facts of the examination the organization does not qualify for exemption because its primary activities as measured by revenue received and time spent are not related to it sec_501 exempt_purpose of improving the retail grocery industry the organization's primary sources of gross revenue are the voucher exchange program fundraisers investments and coupon redemption the voucher exchange program provides a service to members by increasing sales and providing a means to redeem form acrev department of the treasury - internal_revenue_service page -4- form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service ein org year period ended december 20xxk vouchers at full value from the provider the fundraisers provide revenue but are open to the public and their exempt_purpose activity cannot be substantiated the coupon redemption program is unrelated_business_income that is a convenience to members the organization was not able to provide documentation to show time spent on activities related to its exempt_purpose it did not maintain records of the two member dinner meetings to document exempt_purpose even if two member meetings and transmission of alerts are counted as exempt_purpose activities they do not rise anywhere near the fifty percent level needed to be considered primary the organization does not demonstrate a meaningful extent of membership support as measured by membership dues or involvement in the organization's activities conclusion because the organization's primary activities are not related to its exempt_purpose of improving business conditions in the grocery industry the organization does not qualify for exemption under sec_501 and its tax exempt status should be revoked effective january 20xx this organization is required to file forms for all tax periods beginning after december 20xx alternative issue in the alternative if the organization qualifies for exemption under sec_501 should the unrelated_business_income be reduced by the unsubstantiated net_operating_loss carryforward as reported on form 990-t facts the organization reported dollar_figure of net unrelated_business_taxable_income on form 990-t for coupon redemption service in 20xx which it reduced by dollar_figure of net_operating_loss carried forward from prior years when asked to substantiate the net_operating_loss_deduction the organization was initially unable to do so per the response received september 20xx they were unable to provide the amount or year or business activity involved in the original loss or a schedule of the net_loss carryforward claimed on subsequent returns the organization claimed net_operating_loss carryforward to offset all unrelated_business_income in all years available for research online tax_year unrelated_business_income deductions claimed nol deduction ub taxable claimed without substantiation income form acrev department of the treasury - internal_revenue_service page -5- department of the treasury - internal_revenue_service explanation of items form 886a name of taxpayer org ein year period ended december 20xx 20xx 20xx 20xx 20xx 20xx on october 20xx additional information was provided by the eo in the form of a spreadsheet and copies of forms 990-t for 19xx-19xx and 20xx-20xx note forms 990-t for 20xx-20xx were not included on the spreadsheet and copies were not provided eo was unable to provide any details about the method used to allocate expenses to unrelated_business_income the following inconsistencies were noted based on a simple examination of percentages when comparing the 990-t to the for the three earliest years - which generated net operating losses - and the three most recent years which generated positive_income the chart below highlights some of the significant expenses the complete listing with actual dollar values can be seen on the attached spreadsheet ubi revenue or 19xx 20xx 20xx 20xx 19xx 19xx expense total income compensation salaries occupancy auto office supplies accounting maintenance insurance in addition the following expenses were deducted on the 990-t in the years 19xx- 19xx but not shown as expenses on the form_990 e taxes and licenses excess read cost stationary and postage dues bank charges since the method of allocation used is unknown it cannot be shown to be reasonable because books_and_records relating to the years generating the net_operating_loss are not available revenue_agent cannot determine whether the net_operating_loss is valid or form acrev department of the treasury - internal_revenue_service page -6- form 886a name of taxpayer explanation of items department of the treasury- internal_revenue_service ein org year period ended december 20xx assign a reasonable method of allocating expenses deduction for an unsubstantiated net_operating_loss will not be allowed law internal_revenue_code sec_6001 requires that every person liable for any_tax imposed by this title or for the collection thereof shall keep such records render such statements make such returns and comply with such rules and regulations as the secretary may from time to time prescribe whenever in the judgment of the secretary it is necessary he may require any person by notice served upon such person or by regulations to make such returns render such statements or keep such records as the secretary deems sufficient to show whether or not such person is liable for tax under this title sec_1_6001-1 states in part that any person required to file a return of information with respect to income shall keep such permanent books of account or records including inventories as are sufficient to establish the amount of gross_income deductions credits or other matters required to be shown by such person in any return of such tax or information internal_revenue_code sec_7602 states in part that for the purpose of ascertaining the correctness of any return the secretary is authorized to examine any books papers records or other data which may be relevant or material to such inquiry this would include net operating losses carried forward under sec_172 b taxpayer’s position the taxpayer's written explanation is as follows 'when the 20xx 990-t was filed there had been a change in accounting firms along with the executive director for the co-2 the only backup documentation available at that time was the 20xx 990-t there was no schedule attached to that return with a breakdown of the prior years’ losses therefore it was determined since an nol can be carried forward for years and the year of incorporation was 19xx the nol would be carried forward until the year ended 20xx at which time the entire amount would no longer be used furthermore we were aware there was a prior audit conducted sometime between 19xx and 20xx we are unsure of the time as current officers were not involved and documentation has not been located as a result we feel there would not have been a nol carryforward in the tax_year 20xx had it been found to be incorrect as a result of that prior audit ’ note an irs audit history check reveals examination of the form_990 resulted in an agreed tax change to the 990-t of dollar_figure before 20xx the last irs examination conducted was in 19xx form acrev department of the treasury - internal_revenue_service page -7- form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service ein org year period ended december 20xx government’s position taxpayers are aware that they must substantiate claims for net operating losses carried forward publication states you must attach a statement that shows all the important facts about the nol your statement should include a computation showing how you figured the nol deduction instructions for preparation of the form 990-t line state attach a schedule showing the computation of the nol deduction internal_revenue_manual hereafter the irm dollar_figure states the taxpayer is required to maintain such records as will allow the examiner to verify the accuracy of the deduction if the taxpayer declines to produce the records or the records are unavailable the examiner may disallow the entire net_operating_loss_deduction for lack of substantiation copies of tax returns are not proof nor are accountant's workpapers conclusion if the tax exempt status of the organization is not revoked the unsubstantiated net_operating_loss carryforward amounts claimed on forms 990-t for the open years ended 20xx and 20xx are disallowed the organization failed to substantiate that it ever had a net_operating_loss and if it did have a net_operating_loss the organization could not show that the loss had not been previously absorbed no evidence was provide to support this deduction and it is therefore disallowed form avrev department of the treasury - internal_revenue_service page -8-


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date date date contact person identification_number telephone number uil employer_identification_number legend project dear this is in reply to your ruling_request regarding the implementation of a new program on your exempt status under sec_501 of the internal_revenue_code facts you are an organization described in sec_501 of the code and classified as a medical_research_organization described in sec_509 and sec_170 of the code are governed by a self-electing five member board_of directors you your purpose is to engage in genomic research to aid in the treatment of genetic based diseases you operate as a collaborative undertaking involving participation by academics tax- exempt hospitals and medical centers representatives or government and quasi-governmental agencies health oriented charities and foundations and representatives of the pharmaceutical information_technology and genetic measurement industries using this consortium model you seek to conduct fundamental biomedical research with input and advice from scientists and physicians from the non-profit academic and commercial sectors you will develop standardized protocols and procedures for collecting processing and testing specimens and for reporting test results foster better communication energize shared insights facilitate collateral studies and accelerate understanding of the underlying causes of human disease you intend to develop new ways to diagnose diseases to discern insights that better predict the course of the disease and to uncover key biochemical steps whose manipulation would improve patient outcome you also will encourage the development of related sciences by standardizing these key elements of the research process you will for each specific research project you intend to create a separate formal membership structure you will enter into membership agreements with interested participants willing to provide funding primarily pharmaceutical companies funding members for each project you will also establish various advisory committees which will be comprised of experts and specialists from your membership base who are particularly involved or interested in the objectives of the research and who will be almost exclusively from the non-profit and academic sectors the purpose of these project-specific advisory committees is to enhance your ability to utilize the accumulated knowledge and experience of others and to ensure that the research project is conducted in a way that will be most useful and accessible to others working in the same field the project your initial focus has been on the project which involves the creation of an extensive publicly- accessible database that contains clinical presentations and outcomes along with the patterns of gene expressions of tissue samples of a particular disease in different individuals this database will be freely available to the public on the internet you have entered into specimen collection agreements with various medical centers for acquisition of patient tissue and peripheral blood samples under standard patient consent procedures the project also involves the development and implementation of common standards for data generation and handling in gene expression analysis that will allow for consistent representation of data among educational scientific and commercial entities funding members for the project appoint a member to the executive steering committee there is no restriction on the number of funding members the executive steering committee is an advisory committee set up primarily to provide advice regarding the structure and implementation of the database including methods of formatting the data and analysis for easiest access the executive steering committee also advises on the disease types that should be analyzed and budget uses the executive steering committee’s role is solely advisory and its recommendations are not binding specimen redistribution program under this program you will make you now intend to utilize the residual tissue accumulated in the course of the project by redistributing it to other persons for follow-on studies that you do not have the resources or expertise to conduct specimen redistribution program residual tissue and blood samples and related clinical information residual specimens available to both tax-exempt and for-profit organizations and will utilize an application procedure to ensure that the specimens are allocated to projects that have the greatest chance of producing useful results the majority of the residual specimens will be reserved for academics and researchers at tax-exempt medical institutions though some of the specimens will be available to for-profit applicants such as pharmaceutical companies you intend to make the specimens available to for-profit organizations because you have determined that they have the expertise and funding necessary to conduct extensive clinical studies utilizing the residual specimens and that such studies can produce significant additional information that will be added to your database in particular these studies will allow the identification of effective targets for therapeutic intervention as well as indicators of unfavorable responses to the tested treatments outside organizations utilizing your residual specimens are required to sign a research agreement which limits the use of the specimens and requires recipients to report to you the results of all research done using the specimens you then make the results of that research public by incorporating it into the project’s database which is freely available to the public on the internet however the researcher does retain the rights to any intellectual_property discoveries made through the use of the specimens the researcher may delay transmitting the results to you if needed in order to secure intellectual_property rights to any discoveries but the results must be shared after a reasonable_time you have a limited amount of residual specimens available for redistribution therefore you will utilize an application process to determine who receives the specimens these applications will be evaluated by a specimen allocation subcommittee consisting of three members the members of this subcommittee will be appointed by the executive director of the project who is one of your officers the executive director will solicit nominations from the executive steering committee and other sources but no person affiliated with any pharmaceutical company is eligible for appointment to the specimen allocation subcommittee in determining which for-profit organizations applying for residual specimens will be allocated specimens the specimen allocation subcommittee will examine various factors including the description of the proposed research the applicant's commitment to devote adequate resources for the completion of the project the competency of the researchers their familiarity with the operation of the project and the database’s architecture and operating protocols and the ability to design follow-up studies to provide additional data you intend to provide tissue only to the for-profit applicants that are likely to produce the greatest amount of useful data because there is a limited amount of tissue available for redistribution the funding members are likely to have an advantage in this application process because of their close involvement with the set up and operation of the project through their participation in the executive steering committee ruling requested the implementation of the specimen redistribution program will not jeopardize your status as an organization described in sec_501 of the code or your classification as a medical_research_organization under sec_170 law sec_170 of the internal_revenue_code describes organizations the principal purpose or function of which are the providing of medical or hospital care or medical education or medical_research sec_501 of the code describes organizations organized and operated exclusively for charitable educational scientific and other purposes and requires that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual sec_1 b ii b of the income_tax regulations regulations defines a medical_research_organization as one whose principal purpose or function is to engage in medical_research medical_research may be defined as the conduct of investigations experiments and studies to discover develop or verify knowledge relating to the causes diagnosis treatment prevention or control of physical or mental diseases and impairments of man sec_1_501_c_3_-1 of the regulations provides that in order to qualify as an organization described in 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_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 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 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that since an organization may meet the requirements of sec_501 of the code only if it serves a public rather than a private interest a scientific_organization must be organized and operated in the public interest therefore the term scientific includes the carrying on of scientific research in the public interest purpose for research to be scientific it must be carried on in furtherance of a scientific sec_1_501_c_3_-1 of the regulations provides that scientific research does not include activities of a type ordinarily carried on as an incident to commercial or industrial operations such as ordinary testing sec_1_501_c_3_-1 of the regulations states that scientific research will be regarded as carried on in the public interest if such research is directed toward benefiting the public if the research is carried on for the purpose of obtaining scientific information which is published in a treatise thesis trade publication or in any other form that is available to the interested public such research will be considered as directed toward benefiting the public and therefore will be regarded as research carried on in the public interest scientific research will be regarded as carried on in the pubic interest even though such research is performed pursuant to a contract or agreement under which the sponsor or sponsors of the research have the right to obtain ownership or control of any patents copyrights processes or formulae resulting from such research revrul_74_146 1974_1_cb_129 considered an organization whose activities included the preparation of accreditation standards the identification of schools and colleges meeting those standards and the dissemination to the public of the names of accredited institutions the accreditation program was designed to foster excellence in education and to develop criteria and guidelines for assessing educational effectiveness the organization was controlled by its dues-paying members and only accredited institutions were eligible for membership because some of the organization’s members were for profit these schools derived benefits from accreditation and as members of the organization were in a position to exercise some influence over its activities the ruling concludes that the benefits provided to the for-profit members were incidental to the overall public benefit of improved quality of education derived from the organization’s activities consequently the organization qualified as an organization described in sec_501 of the code revrul_76_296 1976_2_cb_141 provides in part that otherwise qualifying scientific research will not constitute an unrelated_trade_or_business by reason of its being undertaken pursuant to contracts with private industry and where the commercial sponsor retains the ownership rights to the research and any rights in patents resulting from the research the ruling also provides that if patent rights are involved publication of the research results may be delayed pending reasonable opportunity to establish those rights in iit research institute v united_states cl_ct cl_ct a u s claims_court reviewed the activities of an organization described in sec_501 of the code the organization contracted with a variety of industry members to perform research for them the court defined the term scientific to include the process by which knowledge is systematized or classified through the use of observation experimentation or reasoning the court found that the organization was not involved in the commercialization of the products or process developed as a result if its research iit research institute only developed a project to the point where the research principles were established at this point the sponsors would make the principles available to different customers usually in the form of newly developed products or equipment the court found significance in the fact that iit research institute did not engage in any consumer or market research or ordinary testing of the type which is carried on incident to commercial operations the court therefore found that the organization’s activities were research and not ordinary testing carried on as an incident to commercial or industrial operations in 554_fsupp_1379 w d mo affid 744_f2d_635 8th cir the court held that the midwest research institute did not jeopardize its tax-exempt status by performing projects for private sponsors the court stated that a project is scientific research if professional skill is involved in the design and supervision of a project intended to solve a problem through a search for a demonstrable truth the court stated that projects are ordinary testing if the work is generally repetitive and done by scientifically unsophisticated employees to determine if the item tested meets certain specifications as distinguished from testing done to validate a scientific hypothesis in 92_tc_1053 the court held that an organization operating a school to train individuals for careers as political campaign professionals did not exclusively serve purposes described in sec_501 of the code because it did not operate on a nonpartisan basis and it served private interests more than incidentally the court found that the organization was created and funded by persons affiliated with one political_party and that most of the organization's graduates worked in campaigns for the party's candidates the court concluded that the organization conducted its activities to benefit the party's candidates and entities although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest within the meaning of sec_1_501_c_3_-1 of the regulations analysis for an organization to be operated for scientific purposes within the meaning of sec_501 its activities must be scientific and must constitute research which must be carried on in the public interest the term scientific has been broadly defined to include a process by which knowledge is systematized or classified through the use of observation experimentation or reasoning iit research institute v united_states supra see also midwest research institute v united_states supra the specimen redistribution program will involve compiling experimentation data gathered from the residual tissue and assembling it into a useful central resource of effective targets for therapeutic intervention and indicators of unfavorable outcomes thus because the specimen redistribution program involves systematizing and classifying knowledge it is scientific within the meaning of sec_1_501_c_3_-1 of the regulations in addition the specimen redistribution program will not result in the creation of any commercial products and will not consist of any product testing or similar activities as prohibited by sec_1_501_c_3_-1 of the regulations rather it will consist of fundamental data gathering and analysis while these activities may provide the basis for commercial products or indicate further avenues of research they will not constitute marketable products on their own therefore the specimen redistribution program constitutes scientific research within the meaning of sec_1_501_c_3_-1 of the regulations furthermore conducting scientific research alone is not sufficient to qualify as an organization described in sec_501 of the code the scientific research must be in the public interest rather than serving a private interest sec_1_501_c_3_-1 of the regulations while the recipients of the residual specimens will be able to retain the rights to any intellectual_property produced the results of that research will be transmitted to you and incorporated into the project's database within a reasonable_time the project's database will be freely available to the public on the internet therefore the results of experiments conducted using the residual specimens are considered as directed toward benefiting the public and therefore is regarded as research carried on in the public interest within the meaning of sec_1 c d of the regulations while your activities constitute scientific research in the public interest you must also comply with sec_1_501_c_3_-1 of the regulations which requires organizations to serve a public rather than a private interest your membership structure is similar to that of the organization described in revrul_74_146 your funding members receive benefits by becoming members of the executive steering committee and having an advantage in the application process for the residual specimens however the advantage in the application process is because the funding members are in the best position to efficiently and effectively utilize the residual specimens to generate additional information due to their familiarity with the project’s public database and research procedures efficient and effective utilization of the residual tissue is particularly important because there are limited amounts of the tissue available therefore while funding members will have an advantage over other for-profit applicants this advantage is directly related to furthering your exempt_purpose namely increasing the amount of public data on the disease in addition the funding members are not a closed group any organization with sufficient funds could become a funding member the benefits conferred are similar to those conferred on members of the organization described in revrul_74_146 this benefit is directly related to producing the highest quantity and quality of data for the project and is incidental in relation to the benefit to the public therefore you will be serving a public interest similarly all recipients of the residual specimens will receive a benefit in the form of rights to potential intellectual_property arising from the research however as long as the requirements in sec_1_501_c_3_-1 of the regulations and revrul_76_296 are satisfied this benefit is incidental and does not result in a conclusion that the research is not in the public interest as explained previously you meet these requirements with respect to the specimen redistribution program consequently the benefits to the recipients are incidental in relation to the benefit to public through fostering scientific research unlike the benefit conferred on the political_party in american campaign academy supra therefore the specimen redistribution program will not be considered to be operated for the benefit of private individuals within the meaning of sec_1_501_c_3_-1 of the regulations a medical_research_organization under sec_170 of the code is defined as an organization whose principal purpose or function is to engage in medical_research sec_1 b ii b of the regulations such research includes the conduct of investigations experiments and studies to discover develop or verify knowledge relating to the causes diagnosis treatment prevention or control of physical or mental diseases and impairments of man id the specimen redistribution program is designed to produce more information on the treatment of a particular disease you will then study and incorporate the information into your publicly available database this will develop knowledge related to the treatment and control of the disease and therefore will further medical_research within the meaning of sec_1 b ii b ruling the implementation of the specimen redistribution program will not jeopardize your status as an organization described in sec_501 of the code or your classification as a medical_research_organization under sec_170 this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely steven grodnitzky manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number - ---------------------------------------------------- ------------------------------------------------- ------------------------ ------------------------------------- department of the treasury washington dc person to contact ---------------------- --------- ------------- telephone number refer reply to cc psi - plr-123934-05 date date ---------- -------------------------- ---------------------------- --------------------------------------------------- this letter responds to a letter dated date and subsequent legend x --------------------------------------------------- a ----------------------------------------------------- state date dear -------------------- correspondence submitted on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to elect under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation for federal tax purposes formed on date x is wholly owned by a x intended to be classified as an association_taxable_as_a_corporation for federal tax purposes effective date however no form_8832 entity classification election was timely filed on behalf of x federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code corporation under sec_301 b or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can sec_301_7701-3 provides that a business_entity that is not classified as a sec_301_7701-2 provides that a business_entity is any entity recognized for the information submitted states that x a state limited_liability_company was sec_301_7701-3 provides that an eligible_entity may elect to be sec_301_7701-3 provides that an election made under sec_301 plr-123934-05 elect to be classified as an association and thus taxable as a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner classified other than as provided under sec_301_7701-3 by filing form_8832 with the service_center designated on the form c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on the form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government that x has satisfied the requirements of sec_301_9100-3 as a result x is granted an extension of time of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center electing to be treated as an association_taxable_as_a_corporation effective date based solely on the facts submitted and the representations made we conclude sec_301_9100-1 defines the term regulatory election as an election sec_301_9100-1 through provide the standards the except as specifically set forth above no opinion is expressed or implied a copy of this letter should be attached to the election a copy is enclosed for this ruling is directed only to the taxpayer who requested it sec_6110 plr-123934-05 that purpose concerning the federal tax consequences of the facts described above under any other provision of the code of the internal_revenue_code provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries sincerely


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-132654-18 date date legend x ---------------------------------------------- -------------------------------- trust ---- ------------------------------------------------------------------------------------------ - ----------------------------------------------------- state date1 date2 date3 dollar_figuren year --------- -------------------- ----------------- -------------------- ---------------- ------- dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the code plr-132654-18 facts the information submitted states that x was incorporated under the laws of state on date and elected to be treated as an s_corporation effective date on date trust owned shares of x stock x represents that trust qualifies as an electing_small_business_trust esbt within the meaning of sec_1361 however the trustee of trust failed to make an election under sec_1361 to treat trust as an esbt as a result x's s_corporation_election was ineffective on date x represents that the failure_to_file an esbt election and resulting ineffective s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning further x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that for purposes of sec_1361 an esbt may be an s_corporation shareholder sec_1361 provides that an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary plr-132654-18 sec_1_1361-1 of the income_tax regulations provides in relevant part that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 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 sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents the secretary determines that the circumstances resulting in such ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness steps were taken so that the corporation for which the election was made is a small_business_corporation and the corporation for which the election was made and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x's s_corporation_election was not effective on date when the trustee of trust failed to file an esbt election under sec_1361 we further conclude that the ineffectiveness of x's s_corporation_election was inadvertent within the meaning of sec_1362 therefore under sec_1362 x will be treated as an s_corporation on and after date provided x's s_corporation_election was otherwise valid and not otherwise terminated under sec_1362 this ruling is contingent on the following the trustee of trust filing within days of the date of this letter an esbt election effective date with the appropriate service_center and trust filing within days of the date of this letter any amended returns and making adjustments to properly reflect the treatment of trust as an esbt for year taxable_year furthermore as an adjustment under sec_1362 a payment of dollar_figuren and a copy of this letter must be sent to the following address internal_revenue_service kansas city service_center w pershing road kansas city mo stop plr-132654-18 manual deposit this payment and a copy of this letter must be sent no later than date if the above conditions are not met then this ruling is null and void in addition if these conditions are not met x must send notification that its s_corporation_election has terminated to the service_center with which x's s_corporation_election was filed except as specifically ruled upon 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 x's eligibility to be an s_corporation or trust's eligibility to be an esbt this ruling is directed only to the taxpayer who requested it according to sec_6110 of the code this ruling may not be used or cited as precedent 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 pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------ ------------------------------------------------------------ ---------------------- ------------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number --------------------- refer reply to cc fip b03 plr-135170-10 date date legend fund ---------------------------------------------------------------------------------------- --------------------------------------------- fund ---------------------------------------------------------------------------------------- --------------------------------------------- fund --------------------------------------------------------------------------------------- --- -------------------------- fund ----------------------------------------------------------------------- -------------------------------------------- fund -------------------------------------------------------------------------- -------------------------------------------- fund --------------------------------------------------------------------------------------- --------------------------------------------------------- fund -------------------------------------------------------------------------------------- -------------------------------------------- year a ------- year b ------- plr-135170-10 year c ------- year d ------- year e ------- dear ---- --------- this ruling responds to a letter dated date submitted on behalf of fund to fund collectively the funds the funds request consent to revoke for tax_year a and subsequent calendar years previous elections made by the funds under sec_4982 of the internal_revenue_code additionally the funds request that the calculation of their required distributions under sec_4982 and sec_4982 for the calendar_year ending december year a be determined on the basis of capital_gains_and_losses and foreign_currency gains and losses if any realized and recognized during the ten-month period from january year a through october year a facts the funds are registered as investment companies under the investment_company act of as amended and each fund has elected to be treated as a regulated_investment_company a ric for federal_income_tax purposes under part i of subchapter_m of the code each fund is an open-end fund each fund’s taxable_year ends on december between year b and year c pursuant to sec_4982 the funds elected to use their tax_year ending on december in lieu of the 1-year period ending on october for purposes of calculating the required_distribution under sec_4982 sec_4982 and sec_4982 at the time the funds originally made their elections they believed that the elections under sec_4982 would relieve the administrative burdens associated with dual calculations of capital_gains_and_losses under the excise_tax and subchapter_m provisions of the code however the funds’ experience has been that the sec_4982 elections have created additional administrative complexities primarily due to time constraints in declaring required excise_tax distributions accordingly each fund seeks consent to revoke its election to use the taxable_year for purposes of sec_4982 and sec_4982 the funds make the following representations the desire to revoke the funds’ sec_4982 elections is due to plr-135170-10 administrative and non-tax related financial burdens caused by the elections the funds are not seeking to revoke their elections for the purpose of preserving or securing a tax_benefit the funds will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke their elections the funds will not make any subsequent elections under sec_4982 for five calendar years following the year of the grant of revocation law and analysis sec_4982 which was enacted as part of the tax_reform_act_of_1986 and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution over the distributed_amount for the calendar_year sec_4982 defines the term required_distribution to mean with respect to any calendar_year the sum of percent of the ric’s ordinary_income for such calendar_year plus percent of its capital_gain_net_income for the year period ending on october of such calendar_year sec_4982 provides that if the tax_year of a ric ends with the month of november or december the ric may elect to have its capital_gain_net_income for its tax_year applied in lieu of the 1-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that any foreign_currency_gain_or_loss attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar_year after october shall not be taken into account in determining the ordinary_income of the ric for the calendar_year but shall be taken into account in determining the ric’s ordinary_income in the following calendar_year however if a ric has made an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october sec_4982 provides that for purposes of determining a ric’s ordinary_income as defined in sec_4982 sec_1296 shall be applied as if the ric’s taxable_year ended on october and any ordinary gain_or_loss from an actual disposition of stock in a passive_foreign_investment_company plr-135170-10 during the portion of the calendar_year after october shall be taken into account in determining the ric’s ordinary_income for the following calendar_year however if a ric has made an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october based upon the information submitted and the representations made we conclude that the funds’ desire to revoke their elections under sec_4982 of the code is because of administrative burdens and not because of any federal tax-related financial burden caused by the election the funds do not seek to revoke their elections for the purpose of preserving or securing a federal tax_benefit additionally the funds will neither benefit through hindsight nor prejudice the interest of the government as a result of being permitted to revoke their elections conclusion accordingly based upon the representations made and pursuant to sec_4982 the secretary consents to the revocation of the elections made by the funds under sec_4982 effective for calendar_year a and subsequent years in addition in calculating the required_distribution for calendar_year a for purposes of sec_4982 and e the capital_gain_net_income foreign_currency gains and losses and gains and losses of the funds recognized under sec_1296 will be determined on the basis of the capital_gains_and_losses foreign_currency gains and losses and gains and losses recognized under sec_1296 if any realized and recognized during the month period from january year a through october year a as a condition to the secretary’s consent to the revocation pursuant to sec_4982 the funds may not make subsequent elections under sec_4982 for a period of five calendar years following the year to which the grant of revocation applies ie year d through year e except as specifically ruled upon above no opinion is expressed or implied as to any other federal excise or income_tax consequences plr-135170-10 this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal income and excise_tax returns filed by the funds for the year to which this ruling applies sincerely yours __________________________ alice m bennett chief branch office of associate chief_counsel financial institutions and products enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ----------------------------------------------------- ---------------------------------- ------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number -------------------- refer reply to cc psi b02 plr-148408-12 date september legend x ---------------------------------- ------------------------------- y ----------------------------------- ------------------------------- m -------------------------------------- ------------------------------- n ---------------------- ------------------------------- a --- b --- c --- state1 -------- state2 ------------- date1 ------------------- date2 ------------------- date3 -------------------------- date4 ------------------- year1 ------- plr-148408-12 dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to make an election under sec_754 of the internal_revenue_code the information submitted states that x was formed as a limited_partnership under the laws of state on date1 and is treated as a partnership for federal_income_tax purposes y is a limited_liability_company organized under the laws of state2 on date1 from the date of its formation until date2 all of the outstanding member interests of y were owned by m and until date2 y was disregarded as an entity separate from its owner for federal_income_tax purposes on date2 n purchased an a percent interest in y resulting in y being classified as a partnership for federal_income_tax purposes pursuant to revrul_99_5 1991_1_cb_434 n is deemed to purchase a percent of y’s assets and m and n are then deemed to contribute their respective interests in the assets of y to a new partnership in exchange for ownership interests in the new partnership y’s only asset on date2 was a b percent limited_partner interest in x n is deemed to have purchased a c a x b percent limited_partner interest in x on date2 n’s deemed purchase of a c percent interest in x is a transaction for which x could have made a sec_754 election but for which it failed to timely do so x had engaged a tax advisor to prepare x’s form_1065 for the year1 taxable_year x represents that the tax advisor was unaware of the deemed purchase of interests in x moreover the tax advisor was unaware of x’s ability to make a sec_754 election with respect to the deemed purchase therefore the tax advisor did not advise x to make the election nor did the tax advisor make the election when preparing x’s return for the year1 taxable_year x discovered the failure to make the sec_754 election after it sold and recognized gain on partnership property on date3 and date4 in revrul_99_5 situation b who is not related to a purchase sec_50 of a's ownership_interest in an llc for dollar_figure a does not contribute any portion of the dollar_figure to the llc a and b continue to operate the business of the llc as co-owners of the llc revrul_99_5 holds that in this situation the llc which for federal tax purposes is disregarded as an entity separate from its owner is converted to a partnership when the new member b purchases an interest in the disregarded_entity from the owner a b's purchase of of a's ownership_interest in the llc is treated as the purchase of a interest in each of the llc's assets which are treated as held directly by a for federal tax purposes immediately thereafter a and b are treated as contributing their respective interests in those assets to a partnership in exchange for plr-148408-12 ownership interests in the partnership sec_743 provides in pertinent part that in the case of a transfer of an interest in a partnership by sale_or_exchange or upon the death of a partner a partnership with respect to which an election provided in sec_754 is in effect will increase the adjusted_basis of the partnership property by the excess of the basis to the transferee partner of his interest in the partnership over his proportionate share of the adjusted_basis of the partnership property or decrease the adjusted_basis of the partnership property by the excess of the transferee partner’s proportionate share of the adjusted_basis of the partnership property over the basis of his interest in the partnership sec_743 further provides that such increase or decrease shall constitute an adjustment to the basis of partnership property with respect to the transferee partner only sec_743 provides that the allocation_of_basis among partnership properties where sec_743 is applicable shall be made in accordance with the rules provided in sec_755 sec_754 provides that if a partnership files an election in accordance with regulations prescribed by the secretary the basis of partnership property shall be adjusted in the case of a distribution_of_property in the manner provided in sec_734 and in the case of a transfer of a partnership_interest in the manner provided un sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which such election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for such taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time plr-148408-12 for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for x’s year1 taxable_year the election should be made in a written_statement filed with the appropriate service_center for association with x’s tax_return for the year1 taxable_year a copy of this letter should be attached to the election if the statutory period of limitation on assessment or filing a claim_for_refund has expired for any year subject_to this grant of late relief and as a condition of this late relief x must adjust the basis_of_property to reflect any additional_depreciation that would have been allowable under sec_743 if the sec_754 election had been timely made any depreciation deduction allowable for an open_year is to be computed based upon the remaining useful_life and using property basis as adjusted by the greater of any depreciation deduction allowed_or_allowable in any prior year had the sec_754 election been timely made except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 plr-148408-12 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by _____________________________ melissa c liquerman branch chief branch 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 will m mceuen iii and tracy l mceuen petitioners v commissioner of internal revenue respondent docket no 8668-02s filed date will m mceuen iii and tracy l mceuen pro sese timothy a lohrstorfer for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year at issue the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioners' federal_income_tax of dollar_figure the parties agree that respondent correctly determined that petitioners have unreported income of dollar_figure from the refund of state_income_tax for the prior year the issue remaining for decision is whether petitioners are entitled to deduct on schedule a itemized_deductions educational expenses of dollar_figure respondent did not challenge petitioners' entitlement to additional itemized_deductions of dollar_figure because the amount of unchallenged itemized_deductions is less than the standard_deduction respondent allowed the standard_deduction in the deficiency determination some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received in evidence are incorporated herein by reference at the time the petition was filed petitioners resided in york south carolina background tracy l mceuen petitioner earned a b a degree with distinction in mathematics and economics from indiana university in and began working at merrill lynch m-l the same year petitioner was employed as a financial analyst at m-l financial analysts could remain at m-l for a maximum of years as did petitioner to become an associate at m-l a candidate was required to have an m b a degree petitioner left m-l in petitioner went to work for raymond james financial inc james in june of petitioner was hired as a financial analyst with the corporate finance department of james at the time of her employment the department described itself as consisting of investment bankers and eight financial analysts the financial analyst program at james was a to year program in order to be an associate at james an m b a degree was required in the investment banking industry during the years and an m b a degree was required to obtain a position as an associate with an investment banking firm analysts at james are evaluated according to fairly subjective criteria such as a mastery of analytics b attention to detail c teamwork and positive attitude and d communication and leadership skills associates at james are evaluated according to performance criteria grouped under five categories general performance expectations recruiting and team building management and supervision of banking analysts execution of business and business generation under the heading management and supervision of banking analysts james performance criteria state that associates are responsible for supervising and training analysts the criteria include a statement that the associate is responsible for the quality of the work produced by analysts under their supervision financial analysts and associates were not however always assigned to all of the same securities transactions sometimes the work of the team was distributed so that an analyst would work only with a vice president or managing director on a transaction without the involvement of an associate at james both analysts and associates received health insurance benefits and sec_401 benefits while petitioner was working at james she was accepted at the kellogg school of management at northwestern university kellogg petitioner concluded that it was impractical for her to pursue an m b a while she was employed because of the long hours an analyst is required to work petitioner resigned her position at james in june of to attend kellogg while at kellogg petitioner an exceptional student majored in marketing organizational behavior and finance she received her master of management degree in june of during the period of through the master of management degree at kellogg was the equivalent of the master of business administration degree at other institutions after her graduation from kellogg petitioner did not return to an investment banking firm as an analyst or associate petitioner was hired by spring industries in september of spring industries is a manufacturer of home furnishings petitioner was hired into the general management program program candidates for the spring industries program were required to have an m b a or equivalent as described by spring industries the program is a proving ground for future top executives and prepares associates for careers in marketing finance or operations management when petitioner completed the program with spring industries she became an associate brand manager on their joint form_1040 u s individual_income_tax_return for petitioners deducted on schedule a dollar_figure for required education having reduced dollar_figure by dollar_figure percent of reported adjusted_gross_income discussion the court decides this case on the preponderance_of_the_evidence regardless of the allocation of the burden_of_proof section is therefore inoperative petitioner argues that she was employed as an investment banker with the m-l and james companies having the job title financial analyst she did not abandon her trade_or_business as an investment banker by attending kellogg for years she sec_7491 is effective with respect to court proceedings arising in connection with examinations by the commissioner commencing after date the date of its enactment by sec a of the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_726 alleges and her master's degree expenses were incurred to maintain and improve her skills in the alternative she asserts that the expenditures were required as a condition to the retention of an existing employment relationship status or rate of compensation sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business although sec_162 does not explicitly mention expenditures_for education sec_1_162-5 income_tax regs provides objective tests for determining whether such expenditures are deductible 70_tc_1067 affd without published opinion 607_f2d_995 2d cir 60_tc_814 the general_rule of the regulation allows the deduction of educational expenses if the education maintains or improves the skills required by the individual in his or her employment or other trade_or_business or meets the express requirements of the employer or applicable law sec_1_162-5 income_tax regs sec_1_162-5 and income_tax regs provides however that if a taxpayer is pursuing a course of study that meets the minimum educational requirements for qualification in that employment or will qualify her for a new trade_or_business the expenditures are not deductible since the satisfaction of either of the two disallowance tests will prohibit the deduction whether or not either of the two allowance tests is met the analysis of the court will begin with the disallowance tests of sec_1_162-5 and income_tax regs petitioner in advancing her argument focuses on the similarities between her duties as a financial analyst and those of the associates at the investment banking firms of m-l and james she characterizes both positions as investment banking positions the fact that an individual is already performing service in an employment status however does not establish that she has met the minimum educational requirement for qualification in that employment sec_1_162-5 income_tax regs the minimum education necessary to qualify for a position must be determined from a consideration of such factors as the requirements of the employer the applicable law and regulations and the standards of the profession trade_or_business involved davidson v commissioner tcmemo_1982_119 although the duties of the analyst and the associate overlapped the financial analyst position was at both m-l and james a subordinate temporary position lasting for a maximum of years the associate position at both companies was a permanent career position that could lead to higher level positions in the investment banking firm the court notes also that in corporate literature james describes its corporate finance department as consisting of investment bankers and eight financial analysts the court concludes that associates are among the investment bankers and that james did not consider the financial analysts as having yet achieved the status of investment banker even though in a broader sense they were in the investment banking business at m-l james and in the investment banking industry in general during the years to an m b a degree was required to obtain a position as an associate an investment banker with an investment banking firm because the expenses at issue were incurred and paid_by petitioner in order to obtain a degree meeting the minimum educational requirements for qualification as set by her employers and the industry in which she was working they are nondeductible personal expenditures see mccartin v commissioner tcmemo_1987_159 antuna v commissioner tcmemo_1977_435 sec_1_162-5 income_tax regs even if petitioner's m b a was not the minimum education requirement to be an investment banker if the degree would lead to qualifying her in a new trade_or_business her expenses are not deductible sec_1_162-5 income_tax regs this rule applies even though the studies are required by the employer or applicable law even though the taxpayer does not intend to enter the new field of endeavor and even though the taxpayer's duties are not significantly different after the education from what they had been before the education kersey v commissioner tcmemo_1993_641 affd without published opinion 50_f3d_15 9th cir sec_1_162-5 income_tax regs if the education qualifies the taxpayer to perform significantly different tasks and activities than could be performed before the education the education qualifies the taxpayer for a new trade_or_business 62_tc_270 52_tc_1106 affd per curiam 443_f2d_29 9th cir therefore if petitioner's master's degree qualified her to perform significantly different tasks and activities than she performed before the education the education qualified petitioner for a new trade_or_business after petitioner obtained her master's degree in management she did not obtain a position with an investment banking firm petitioner was hired by spring industries a manufacturer of home furnishings into its general management program a prerequisite to being hired under the program was an m b a or equivalent the purpose of the general management program was to train future executives and prepare them for careers in marketing finance or operations management petitioner argues that being hired into the general management program did necessarily mean an assignment to upper management would follow although petitioner's education would not by itself qualify her for a new profession the regulation requires only that the program of study being pursued will lead to qualifying petitioner in a new trade_or_business sec_1_162-5 income_tax regs payments for education that must be combined with an examination or experience to qualify a taxpayer for a new trade_or_business are not deductible see cristea v commissioner tcmemo_1985_533 and cases cited therein from the record in this case the court concludes that petitioner's degree led to qualifying her to perform significantly different tasks and activities than she performed before the education the education therefore qualified petitioner for a new trade_or_business because petitioner's satisfaction of both disallowance tests of sec_1_162-5 and income_tax regs will prohibit the deduction of her educational expenses the court will not address respondent's argument that petitioner was not engaged in a trade_or_business in to the extent the court has not addressed other arguments and contentions petitioner raised the court concludes they are without merit respondent's determination that petitioners are not entitled to deduct the educational expenses at issue here is sustained reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c of f i c e of c h i ef c ou n sel number info release date genin-119912-09 date ------------------ ---------------------------- ----------------------------------- uil dear --------------- thank you for your letter received date to commissioner shulman regarding the tax consequences to victims of the investment fraud mr bernard l madoff perpetrated on date we issued guidance revrul_2009_9 and revproc_2009_20 on the tax treatment of losses from so-called ponzi schemes similar to that mr madoff operated i am enclosing copies for your information revrul_2009_9 explains the income_tax law that applies to an investor who loses money in a fraudulent investment arrangement it provides that an investor who was the victim of a fraudulent investment arrangement is entitled to a theft_loss deduction that is not limited by the rules that apply to capital losses investment theft losses are not subject_to limitations that apply to personal casualty and theft losses the theft_loss is deductible in the year the fraud is discovered except to the extent the investor has a reasonable_prospect_of_recovery the amount of the theft_loss includes not only the investor's unrecovered investment but also amounts reported as income from the investment in prior years and reinvested in the fraudulent investment arrangement a theft_loss deduction that creates a net_operating_loss for the investor can be carried back and forward according to the timeframes prescribed by law to generate a refund of taxes paid in other taxable years genin-119912-09 to claim a theft_loss deduction in any taxable_year an investor must prove that the loss was due to theft and that no reasonable prospect exists of recovering the investment investors often cannot make highly factual determinations with certainty in the year the loss is discovered for this reason we published revproc_2009_20 to provide a simplified_method for investors to compute and report their losses from fraudulent investment schemes this revenue_procedure generally allows an investor who was a victim of mr madoff’s fraud to claim a theft_loss in the amount the investor may deduct is up to percent of the loss less the amount of reimbursement he or she expects to receive as an advance for customer claims from the securities investor protection corporation sipc or from private insurance or other contractual arrangements that guarantee the investor against loss i hope this information is helpful please call me at --------------------- if i can further assist you sincerely john p moriarty chief branch office of associate chief_counsel income_tax and accounting enclosures