internal_revenue_service number release date index number ------------------------------------- --------------------------- ------------- ---------------------------------- attention ------------------------ legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc ita b01 plr-109124-07 date date taxpayer --------------------------------------- taxpayer --------------------------------------- property -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------- state -- ------------- state -- --------------------- authority ------------------------------------------------------------------------------------------------------- -------------------------------------- act -- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ corporation -------------------------------------------------------------------- project_area -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- x ------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------- city ------------------------- date a ------------------- a ------ plr-109124-07 date b ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- date c -------------------------- agreement ----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- dear -------------- this responds to your request of date supplemented by letters dated date date date and date requesting a private_letter_ruling regarding the federal_income_tax treatment of certain payments rulings requested you ask us to rule that certain payments in_lieu_of_taxes pilot to be made by taxpayer will constitute real_property_taxes deductible under sec_164 of the internal_revenue_code and after the property is converted to a condominium form of ownership the unit owners will be entitled to deduct as real_property_taxes under sec_164 of the code that portion of the common charges paid_by them to the condominium board managers as are applied by the board toward pilot obligations facts the facts are represented to be as follows taxpayer is a limited_liability_company created and existing under the laws of state to consummate development of the property state created authority pursuant to the act as a state corporate governmental agency constituting a political_subdivision and public benefit corporation ------------------------------------------------------------ the legislative purpose of the act is stated to be as follows t o promote the safety health morals and welfare of the people of the state and to promote the sound growth and development of our municipalities through the correction of such substandard insanitary sic blighted deteriorated or deteriorating conditions factors and characteristics by the clearance replanning reconstruction redevelopment rehabilitation restoration or conservation of such areas including the provision of plr-109124-07 educational recreational and cultural facilities and the encouragement of participation in these programs by private enterprise the exercise of the powers granted by this act will be in all respects for the benefit of the people of this state and will constitute the performance of an essential_governmental_function and --------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ or any of ----------------------------------------------------------------------------- ----------------------------------------------------------------------------------- ------ ------------------------------ and the corporation its subsidiaries projects property and moneys shall at all times be free from taxation of every kind by the state and by the municipalities and all other political subdivisions of the state the act provides that authority may acquire construct reconstruct rehabilitate improve alter or repair lands buildings improvements real and personal properties including a residential project an industrial project a land use project a civic project or multi-purpose project the act also provides that authority -------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ thus under the authority’s originating legislation authority real_property is exempt from real_property_taxes authority has the right under the act to -------------------------------------------------------- ------------------------------------------------------------------------ pursuant to this right authority formed corporation on date a to implement development of x with respect to corporation property within the project_area that is exempt from real_property_taxes pursuant to the act or otherwise the act requires payment to the corporation of periodic amounts equal to the amount of real_property_taxes that otherwise would be paid or payable if the corporation were not exempt from real_property_taxes after giving effect to any real_property tax abatements and exemptions which would be applicable to the property if corporation did not hold title to the property under the act these payments must be used to improve operate and maintain x as follows from the period commencing on date b until the twentieth anniversary thereof the payments shall be used to improve operate and maintain x unless the corporation city and state through an entity designated by the governor of state agree to set_aside such payments in appropriate and reasonable reserve accounts taking into account all other revenue received or anticipated by the corporation from properties in the project_area for expenses to improve operate and maintain x or transfer such plr-109124-07 payments into the general fund of the city to be used for its general_public purposes thereafter the payments are to be used to improve operate and maintain x set_aside in appropriate and reasonable reserve accounts taking into account all other revenue received or anticipated by corporation from properties in the project_area for expenses to improve operate and maintain x or paid into the general fund of city to be used for its general_public purposes all in accordance with such agreements as may from time to time be entered into among corporation city and state by an entity designated by the governor of state state and city entered into a memorandum of understanding mou dated date a in which state and city agreed in principle to jointly create develop and operate x as a sustainable park providing recreational cultural and educational opportunities for residents and visitors and for developing portions of x with appropriate commercial uses provided that all revenues derived therefrom be used exclusively for maintenance and operation of x the mou also provides that no less than a percent of x will be reserved as open space and will be dedicated as parkland subject_to the protective provisions of state and city law taxpayer and corporation entered into an amended and restated memorandum of understanding amended mou dated date c which extended the acreage of the project_area the amended mou states that taxpayer is owner of the property which is surrounded by x and which taxpayer desires to develop into a mixed-use condominium project consisting of residential apartments commercial space and a parking garage development the amended mou states further that taxpayer and corporation wish to incorporate development into corporation’s general plan and design guidelines for x under the amended mou taxpayer will transfer title of the property to corporation and taxpayer and corporation will enter into a series of agreements including agreement pursuant to which taxpayer will pay to corporation inter alia amounts equal to the real_property_taxes and assessments that city would levy on the property and development if corporation were not exempt from tax these amounts are referred to as payments in_lieu_of_taxes or pilot taxpayer and corporation plan to enter into the agreement which will implement the provisions of the amended mou and the act regarding payments of pilot specifically the agreement will require taxpayer to pay to corporation inter alia an annual sum equal to the real_property_taxes that would otherwise be payable if the property were not corporation property taxpayer corporation and city also will enter into other agreements under which taxpayer will undertake development of the property these agreements also may provide for the operation of x and the collection of pilot by the city or an agency of the city taxpayer intends to submit its interest in the property to a condominium regime pursuant to the laws of state and to assign to the condominium purchasers the plr-109124-07 taxpayer’s interests in the apartment units and proportionate undivided interests in the common elements of the buildings appertaining to the apartment units taxpayer represents that after the property is submitted to condominium ownership the corporation’s exemption under the act will exempt each unit of the property from real_property tax_assessment the terms of the agreement provide that once the property is submitted to the condominium form of ownership pilot shall be paid_by the condominium unit owners pro_rata in accordance with their common interests which amounts shall be included with their proportionate rent for their condominium units and paid directly to the condominium board law and analysis sec_164 of the code allows as a deduction the state local and foreign real_property_taxes paid_or_accrued in the taxable_year sec_1_164-3 of the income_tax regulations defines real_property_taxes as taxes imposed on interests_in_real_property that are levied for the general_public welfare assessments for local benefits are not treated as real_property_taxes see sec_1_164-2 sec_1_164-4 of the regulations whether a particular charge is a tax within the meaning of sec_164 depends on its true nature as determined under federal_law the designation given by local law is not determinative a charge will constitute a tax if it is an enforced contribution exacted pursuant to legislative authority in the exercise of taxing power and imposed and collected for the purpose of raising revenues to be used for public or governmental purposes revrul_71_49 1971_1_cb_103 revrul_61_152 1961_2_cb_42 revrul_71_49 involved tax equivalency payments to the new york city educational construction fund a public benefit corporation by a cooperative_housing_corporation the payments were applied to debt service on obligations funding public school construction the ruling holds that the cooperative_housing_corporation may deduct the payments as real_property_taxes under sec_164 because the payments are measured by and are equal to the amounts imposed by the regular taxing statutes the payments are imposed by a specific state statute even though the vehicle of a lease agreement is used and the proceeds are designated for a public purpose rather than for some privilege service or regulatory function or for some other local benefit tending to increase the value of the property upon which the payments are made accordingly each tenant-stockholder of the cooperative_housing_corporation may deduct the payments in the amount of the stockholder's proportionate share the pilot in this case will satisfy the three-prong test of revrul_71_49 because they are measured by and imposed at the same general rate at which real plr-109124-07 property taxes are imposed are imposed pursuant to the act as implemented by the agreement and may only be used for public purposes accordingly we hold as follows the pilot to be made pursuant to the act and the agreement will constitute real_property_taxes allowable as a deduction to the payor under sec_164 after the property is converted to a condominium form of ownership the unit owners will be entitled to deduct as real_property_taxes under sec_164 that portion of the common charges paid_by the unit owners to the condominium board applied by the condominium board toward the pilot a taxpayer may not rely on a private_letter_ruling that has been issued to another taxpayer and a private_letter_ruling addresses only the tax_liability of the taxpayers who are parties to the ruling_request revproc_2007_1 2007_1_irb_1 sec_12 we have entertained taxpayer's second ruling_request here because taxpayer will be the initial owner of all condominium units from the time its interest in the property is submitted to condominium ownership until the units are sold caveats a copy of this letter must be attached to any income_tax return to which it is relevant except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-109124-07 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely susan j kassell senior counsel branch office of associate chief_counsel income_tax accounting cc industry director heavy manufacturing transportation lm hmt


internal_revenue_service number release date index number ----------------------------- ------------------------------- -------------------------------------------- ----------------------------------------- ----------------------------- - department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-114584-04 date date estate ------------------------------------------------------------------------------------------------- ----------------------- decedent ------------------------------------------------------------------------------------------------- -------------------------- --------------------------------- ------------------------------------------------------------------------------------------------- -------------------------------- ----------------- ----------------------- charity court d1 d2 this letter responds to your letter dated date and subsequent dear ----- correspondence submitted by you as the executors of estate requesting a ruling under the internal_revenue_code retirement accounts the iras and deferred_annuity contracts the contracts with decedent’s estate designated as beneficiary none of the contracts had reached their annuity_starting_date as of d1 estate has not surrendered or cashed any of the iras or the contracts in sec_501 as a residuary beneficiary the executors of estate propose to assign decedent’s will names charity represented as being an organization described the information submitted states that decedent died on d1 owning individual plr-114584-04 the iras and the contracts to charity in satisfaction of charity’s share of the residuary_estate decedent’s will as construed by court in an order dated d2 permits this non- pro_rata distribution assignment of the iras and contracts to charity in satisfaction of its share of the residuary_estate will not cause estate or any beneficiary of estate to have any taxable_income or cause estate to include any amount in its distributable_net_income based solely on the facts and representations submitted we conclude that the except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code 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 sincerely j thomas hines chief branch office of the associate chief_counsel passthroughs special industries copy of this letter copy for sec_6110 purposes enclosures ----------------------------------------------------------------------- ------------------------------------------------------- ----------------------------------------------- -----------------------------------------


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 ---------------------- telephone number -------------------- refer reply to cc tege eoeg eo1 plr-106763-16 date date association study community hospital state state university university hospital village x y z dear ------------------- ---------------------------------------------------- ------------------------------------------------------------------------------- ---------------- ----------------------------- ------------------------------ -------------------------------------------- ------------------------------------------ ---------------------------------------------------- --- --- ----- this letter responds to a letter dated date and subsequent correspondence requesting rulings that i the lease agreement described below is in furtherance of association’s charitable purpose under sec_501 of the internal revenue code1 and ii the lessee’s use of the leased property is substantially related to the exercise or performance by association of its charitable purpose for purposes of determining whether income under the lease is derived from debt-financed_property under sec_514 fact sec_1 the internal_revenue_code_of_1986 as amended to which all subsequent section references are made unless otherwise indicated plr-106763-16 association is recognized by the internal_revenue_service as an organization described in sec_170 and sec_501 and is classified as a public charity under sec_509 association was organized under state law as a nonprofit membership and charitable corporation and was formed to establish and maintain a general hospital at village community hospital and to receive collect and hold either by gift bequest devise or otherwise funds and property either real or personal and to use and disburse the same in furtherance of the objects of the said corporation association’s board_of directors is composed of x individuals whose background and experience reflect a wide diversity of professions and interests within the community community hospital has an open medical staff and its emergency department treats all persons regardless of one’s ability to pay association owns the community hospital building and various other buildings in village the premises community hospital is collateral for tax-exempt_bonds used to fund its expansion and modernization association has operated community hospital continuously for more than z years for much of that time community hospital’s revenues exceeded its expenses in recent decades however changes in the healthcare industry including changes in the standard of payment for hospital services have caused community hospital to sustain steady and occasionally severe losses some years ago state undertook an independent review of state’s health care capacity and resources to that end it commissioned a study the study which examined the supply of general hospital and nursing home facilities in state and recommended changes that would result in a more coherent streamlined health care system referring to community hospital and certain other independent community hospitals in the same geographic region the study recommended that access to emergency and acute inpatient care be maintained at each location due to the unique geography and population distribution of the region and the distance between the region’s hospitals the study recognized however that competition for patients in what it characterized as a thinly populated area would cause the continued decline of those hospitals consequently it recommended that the hospitals develop an affiliation with university hospital in order to strengthen the hospitals and to create a healthcare system that better serves the needs of the region university hospital is an academic medical center and the region’s only tertiary care center and level trauma center university hospital is a division of state university plr-106763-16 state university was created by statute as a corporation within the department of the state that is concerned with public education after careful study and analysis of current and projected future conditions in its service area and in the field of health care in general association concluded that its public purpose could best be achieved by integrating its community hospital operations into university hospital under an integration and affiliation agreement the iaa with state university acting through university hospital and by entering into other related and ancillary transactions and arrangements including a lease agreement the lease under the terms of the lease association will lease the premises and all property plant and fixed equipment located on the premises to state university acting through university hospital for a term of y years which term is automatically extended for an additional year on each anniversary of the lease commencement_date unless terminated sooner due to one of several enumerated events including termination by the landlord following a major tenant breach not timely cured a major tenant breach includes tenant’s failure to observe or perform any material covenant condition or agreement on its part to be observed or performed under certain sections of the iaa among the covenants and agreements that state university is required to observe or perform to avoid a major tenant breach are the following maintain community hospital at service and quality levels commensurate with a first-class community hospital of similar type in state maintain at community hospital the following list of core medical and surgical services at levels of access and sophistication customary for a first-class community hospital of similar type in state o emergency services o maternity ward and ob gyn services o pediatric services o general medicine and surgery beds o operating room suites o dialysis services while state university is not recognized as an organization described in sec_501 you represent that it is an integral part of state such that its income is generally not subject_to federal_income_tax the signatories to the iaa and the lease are state university and association however university hospital which is a division of state university will operate community hospital though the premises will still be owned by association plr-106763-16 o all services that are offered by at least of community hospitals in the state that have at least licensed beds and have similar medical needs in their primary service area and o appropriate supportive services eg anesthesiology radiology and pathology maintain at community hospital accreditation by the joint commission without significant deficiencies as well as the current centers of excellence designations bestowed on community hospital by nationally recognized accreditation bodies ensure that community hospital is operated in a manner consistent with the mission vision values and tax-exempt status of state university4 in particular the provision of an emergency room meeting state department of health requirements may not be discontinued or unreasonably limited and ensure that state university maintains its exemption from u s federal income_taxation the rent to be paid under the lease is limited to association’s payment obligations under the tax-exempt_bonds and certain other liabilities utilities taxes insurance and administrative expenses under the iaa the parties agree to plan for and construct a new facility new community hospital that will be owned by association but operated by state university and located on state university-owned land in village that is leased to association for a nominal rent the terms of the lease provide that prior to the construction of the new community hospital the parties agree to negotiate and execute a lease that will govern state university’s occupancy and use of the new community hospital premises the provisions of which will be substantially_similar to the provisions of the lease as an integral part of state state university is governed by a board_of trustees the majority of the members of which are appointed by state’s governor the remaining members of the board_of trustees are state university leaders who serve ex-officio while the persons who control state university are not the same as the persons who control association the iaa provides for a joint advisory committee made up of association and state university designees the majority of whom are appointed by association the joint advisory committee the joint advisory committee will meet see fn see fn plr-106763-16 at least quarterly to advise university hospital on matters of operational and strategic importance involving community hospital it will serve a consultative role and will be subject and subordinate to state university’s ultimate responsibility and decision- making authority but will discuss and may advise university hospital on any matter that its participants deem important relating to community hospital including the recruitment selection or termination of the senior executive having operational responsibility for community hospital decisions to reduce close or transfer any core service proposed annual capital and operating budgets of community hospital and the development of long-term strategic plans for community hospital rulings requested association has requested the following rulings the lease will be in furtherance of association’s exempt_purpose under sec_501 and the use of the premises by university hospital under the lease is substantially related to the exercise or performance of association’s exempt_purpose or function for purposes of the exception to the term debt-financed_property under sec_514 such that any gross_income realized from the lease will not be unrelated_debt-financed_income as defined in sec_514 law sec_501 provides generally that an organization described in sec_501 is exempt from federal income taxes sec_501 describes entities that are organized and operated exclusively for charitable educational scientific and certain other purposes sec_1_501_c_3_-1 of the income_tax regulations the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest plr-106763-16 revrul_69_545 1969_2_cb_117 states that the promotion of health is a charitable purpose and that a nonprofit organization whose purpose and activity are providing hospital care is promoting health and may therefore qualify as organized and operated in furtherance of charitable purposes if it meets the other requirements of sec_501 the ruling explains that the promotion of health is one of the purposes in the general law of charity that is deemed beneficial to the community as a whole even though the class of beneficiaries eligible to receive a direct benefit from its activities does not include all members of the community such as indigent members of the community provided that the class is not so small that its relief is not of benefit to the community for example a hospital that operates an emergency room open to all persons and that provides hospital care for all those persons in the community able to pay the cost of such care either directly or through third party reimbursement is promoting the health of a class of persons that is broad enough to benefit the community additional indications that a hospital is operated for the benefit of the public include the facts that control of the hospital rests with a board_of trustees composed of independent civic leaders that the hospital maintains an open medical staff with privileges available to all qualified physicians and that members of its active medical staff have the privilege of leasing available space in its medical building revrul_73_313 1973_2_cb_174 addresses the issue of whether the activity of providing a medical building and facilities at reasonable rent but less than what would be necessary to provide a normal return on the investment in the building and other facilities to attract a medical doctor to a community furthers the charitable purposes of an organization that was formed to promote the health of the community through the development and improvement of medical facilities and services the community represented by the organization is in an isolated rural_area where there were no medical practitioners to induce a doctor to locate to the community the organization erected a building for use as a doctor’s office with funds raised by contributions using the availability of the building at a reasonable rental basis as an inducement the organization entered into an arrangement with a doctor to locate in the community with the understanding that the doctor would make his services available to the entire community in holding that the organization’s activity is charitable within the meaning of sec_501 the ruling states that providing a physical facility in the manner described bears a clear relationship to lessening the health hazards that result from the absence of a local practitioner and that the terms of the arrangement which were negotiated at arm’s length and in good_faith bear a reasonable relationship to the promotion and protection of the health of the community any personal benefit derived by the doctor from the use of the building to conduct his private practice does not lessen the public plr-106763-16 benefit flowing from the organization’s activities or constitute the type of private interest prohibited by the regulations revrul_80_309 1980_2_cb_183 addresses the issue of whether a nonprofit organization that was created to construct maintain and operate or lease a public hospital is operated exclusively for charitable purposes the organization’s articles of incorporation state that the organization’s purpose is to provide a public hospital and related facilities for city v and its surrounding communities the articles also provide that all of the organization’s assets will be transferred without consideration to city v when all indebtedness has been paid city v has agreed to accept title at such time after construction of the hospital and related facilities the organization’s only activity has been to lease them to an association exempt under sec_501 the lessee operates the hospital and facilities and pays as consideration an amount sufficient only to retire the organization’s indebtedness incurred to finance them and meet the organization’s administrative expenses trustees of the lessee association make up the lessor organization’s entire board_of directors citing restatement second trusts sec_368 sec_372 and iv scott on trusts 3d ed sec_368 sec_372 for the proposition that the promotion of health is considered a charitable purpose under the general law of charity the ruling concludes that the organization by building a public hospital and related facilities and leasing them to an exempt charitable association which operates the facilities for an amount sufficient only to retire indebtedness and meet necessary operating_expenses is furthering the charitable purpose of promoting the health of the community in 70_tc_352 an organization formed for the purpose of providing consulting services to tax-exempt and not-for-profit_organizations in the area of rural-related policy and program development sought a declaratory_judgment from the tax_court after the irs determined that the organization did not qualify as an organization described in sec_501 holding that the commissioner had not erred in its determination the tax_court said that it is the purpose towards which an organization’s activities are directed and not the nature of the activities themselves that is ultimately dispositive of the organization’s right to be classified as a sec_501 organization with respect to this petitioner the court said that the critical enquiry is whether petitioner’s primary purpose for engaging in its sole activity providing consulting services is an exempt_purpose or whether its primary purpose is the nonexempt one of operating a commercial business producing net profits finding that petitioner’s sole activity constituted a consulting business of the sort which is ordinarily carried on by commercial ventures organized for profit and observing that competition with commercial firms is strong evidence of the predominance of a nonexempt plr-106763-16 commercial purpose the tax_court concluded that petitioner’s conduct of a business with an apparently commercial character weighed heavily against exemption furthermore after noting that it did not appear that petitioner ever planned to charge a fee less than cost the court said the fact that petitioner’s fees may be lower than those charged by other firms is not enough to prove that petitioner’s purposes are primarily exempt sec_511 imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 excludes from the term unrelated_business_taxable_income all rents_from_real_property and all rents from personal_property leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received and accrued under the lease determined at the time the personal_property is placed_in_service sec_512 provides that notwithstanding paragraph above in the case of debt-financed_property as defined in sec_514 there generally shall be included as an item_of_gross_income derived from an unrelated_trade_or_business the amount ascertained under sec_514 and there shall be allowed as a deduction the amount ascertained under sec_514 sec_513 defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_1_513-1 of the regulations provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question - the activities that plr-106763-16 is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization’s exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved in computing under sec_512 the unrelated_business_taxable_income for any taxable_year sec_514 generally includes as an item_of_gross_income derived from an unrelated_trade_or_business certain amounts with respect to debt-financed_property sec_514 defines the term debt-financed_property as any property which is held to produce income and with respect to which there is an acquisition_indebtedness as defined in subsection c at any time during the taxable_year except that such term does not include- a i any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 or ii any property to which clause i does not apply to the extent that its use is so substantially related sec_1_514_b_-1 of the regulations defines the term debt-financed_property as any property which is held to produce income eg rental real_estate and with respect to which there is any acquisition_indebtedness at any time during the taxable_year sec_1_514_b_-1 of the regulations provides that to the extent that the use of any property is substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of its charitable educational or other purpose or function constituting its plr-106763-16 basis for exemption under sec_501 such property shall not be treated as debt-financed_property sec_1_514_b_-1 of the regulations provides that if substantially_all of any property is used in a manner described in sec_1_514_b_-1 such property shall not be treated as debt-financed_property in general the preceding sentence shall apply if percent or more of the use of such property is devoted to the organization’s exempt_purpose the extent to which property is used for a particular purpose shall be determined on the basis of all the facts and circumstances sec_514 defines the term acquisition_indebtedness with respect to any debt- financed property to include the unpaid amount of the indebtedness incurred by the organization in acquiring or improving such property analysis whether leasing the premises to state university furthers association’s exempt purposes the leasing of real_property is a trade_or_business commonly carried on for profit by commercial ventures in b s w group inc v comm’r the tax_court held that the conduct_of_a_trade_or_business of a commercial character generally does not further charitable purposes even if the trade_or_business provides goods or services at cost and solely to sec_501 organizations nevertheless the court said that it is the purpose towards which the activities are directed and not the nature of the activities themselves that determines whether the activities further exempt purposes revrul_80_309 provides an example of an instance in which a unique set of facts supported a conclusion that in rare circumstances the activity of leasing a hospital facility to an association that is exempt under sec_501 is directed to the furtherance of charitable purposes that revenue_ruling held that a nonprofit organization was operating exclusively for charitable purposes when it leased a hospital facility to a sec_501 association under the following facts i the lessee association paid as consideration an amount sufficient only to retire the indebtedness incurred to finance the hospital facility and meet necessary operating_expenses ii lessor and lessee were under common_control and iii title to the facility would be transferred to the municipality once all indebtedness had been paid association was organized for the purpose of maintaining a general hospital in village so as to ensure the highest quality of healthcare services for its community acting on the recommendation of the state-commissioned study that it develop an affiliation with plr-106763-16 university hospital to strengthen community hospital and to create a healthcare system that better serves the needs of the region association proposes to lease the premises to state university which is an integral part of state that is organized and operated for educational_purposes the lease of the premises to state university acting through university hospital will not cause community hospital to be operated other than in a manner that will continue to benefit the public and serve the public interest in entering into the lease state university covenants to maintain the core services already rendered by community hospital including emergency room services open to the entire community in addition state university covenants to maintain community hospital as a first-class community hospital to maintain community hospital’s accreditation by the joint commission and its current centers of excellence designations to operate community hospital in a manner consistent with state university’s mission vision values and tax-exempt status and to maintain state university’s exemption from u s federal income_taxation if state university breaches its covenants association can terminate the lease the rent under the lease will be in an amount sufficient only to satisfy association’s obligations under instruments pertaining to tax-exempt_bonds the proceeds of which were used to expand and modernize community hospital and to pay other liabilities and expenses_incurred or to be incurred by association on behalf of community hospital and new community hospital once the obligations under the bonds are satisfied the rental amount will decrease accordingly finally although the persons who control state university are not the same persons who control association association controls the joint advisory committee that will advise university hospital on the operation of and strategic planning for community hospital consequently as in revrul_80_309 in which an unusual set of facts resulted in a conclusion that the lease of a hospital facility to a sec_501 organization was in furtherance of charitable purposes the particular facts of this case - specifically the study’s recommendation that community hospital affiliate with university hospital in order to gain access to tertiary care services and the other_benefits inherent in a relationship with an academic medical center association’s determination that affiliation with state university would be the best way to maintain and enhance health care and hospital services for the residents of the community state university’s status as an integral part of state organized and operated for educational_purposes state university’s commitments under the iaa and association’s control of the joint advisory committee - lead to a conclusion that the lease of the premises to state university acting through university hospital furthers association’s charitable purpose of see fn plr-106763-16 promoting health by maintaining a general hospital at village thus under the particular facts of this case the proposed lease structure will be used to accomplish the same purposes previously carried out directly by association revrul_73_313 provides another example of an instance in which a unique fact - the absence of medical providers in an isolated rural community - resulted in the conclusion that the activity of leasing property - in this case the lease of a medical office under terms that would induce a private physician to set up a practice in the community and make his services available to the entire community - is directed to the furtherance of a charitable purpose namely the purpose of promoting the health of the residents of the community by lessening the health hazards resulting from the absence of a local medical practitioner similarly the study noted that community hospital serves a thinly populated area in which access to emergency and acute inpatient care must be maintained the iaa and accompanying lease will enable community hospital to share resources with university hospital a tertiary academic medical center which will give members of the community access to a broader and more efficient network of emergency services healthcare providers medical specialists specialty medical_care and clinical trials the affiliation will also guarantee the long-term financial stability of community hospital therefore by leasing the premises to state university association will be furthering a charitable purpose namely the purpose of promoting the health of the residents of an isolated thinly populated area by lessening the health hazards that would result should in the absence of the affiliation community hospital be forced to discontinue core services or to close entirely in revrul_73_313 furthermore the leasing of property to a medical provider for reasonable rent under terms that were negotiated at arm’s length and in good_faith did not cause an arrangement that otherwise served a public interest to be construed as serving an impermissible private interest similarly the leasing of the premises to state university will not cause the affiliation between association and state university - which as discussed above otherwise serves a public interest - to serve impermissible private interests as previously noted the lessee state university is an integral part of state with the mission of providing educational_services to the people of state as such it owes a singular duty to and is charged with unique responsibilities toward the residents of state therefore the lease of the premises to state university as provided under the iaa and the lease will not redound to private interests but will continue to accrue to the benefit of the people of state and the residents of village and the surrounding region plr-106763-16 whether the use of the premises by university hospital under the lease is substantially related to the exercise or performance by association of its exempt_purpose the premises are the subject of tax-exempt_bond financing the proceeds of which were used to expand and modernize those premises therefore community hospital would be considered debt-financed_property under sec_514 and a percentage of any payments derived under the lease that would otherwise be excluded as rents under sec_512 would be includible in association’s unrelated_debt-financed_income unless university hospital’s use of the premises under the lease is substantially related to the exercise or performance by association of its charitable purpose association’s charitable purpose is to establish and maintain a general hospital at village under the terms of the iaa and the accompanying lease state university acting through university hospital is required to use the premises to maintain community hospital and to continue providing healthcare services to the public served by association consequently the use of the premises by state university acting through university hospital is substantially related to the exercise or performance by association of its charitable purpose and the premises are not considered debt- financed property within the meaning of sec_514 for purposes of determining whether any part of the income derived under the lease is excludible from association’s unrelated_business_taxable_income under sec_512 rulings based solely on the facts and representations submitted by association we rule as follows the leasing of the premises to state university as provided in the lease will further association’s charitable purpose under sec_501 and the use of the premises by state university acting through university hospital will be substantially related to the exercise or performance by association of its charitable purpose therefore the premises will not be considered debt-financed_property within the meaning of sec_514 for purposes of determining whether any part of the income derived under the lease will be excludible from association’s unrelated_business_taxable_income under sec_512 the rulings contained in this letter are based upon information and representations submitted by or on behalf of association accompanied by a penalty of perjury statement executed by an individual with authority to bind association and upon the plr-106763-16 understanding that there will be no material changes in the facts this office has not verified any of the material submitted in support of the request for rulings and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions the controlling facts change during the course of the transaction see revproc_2016_1 sec_11 no ruling is granted as to whether association qualifies as an organization described in sec_501 and or sec_509 or and except as expressly provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspects of any transaction or item_of_income described in this letter_ruling in addition no ruling is granted regarding whether association satisfies or is required to satisfy the requirements of sec_501 this ruling applies only to the lease and does not extend to any future lease with respect to new community hospital this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely david l marshall assistant branch chief exempt_organizations branch tege associate chief_counsel


office_of_chief_counsel 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 washington d c cc intl -------------- genin-152483-04 date number info release date uil ------------------ -------------------------------------- --------------------------------- ----------- reference dear ----------- treatment of lump-sum pension distributions under u s - canada income_tax treaty this responds to your letter dated date in response to your inquiry we are providing the following general information this information_letter is advisory only and has no binding effect on the internal_revenue_service you have asked about the application of the income_tax treaty between the united_states and canada treaty and the appropriate rate of withholding for a u s -source lump-sum retirement payment received by a resident of canada article xviii pensions and annuities of the treaty provides in relevant part emphasis added pensions and annuities arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state but the amount of any pension included in income for the purposes of taxation in that other state shall not exceed the amount that would be included in the first-mentioned state if the recipient were a resident thereof however a pensions may also be taxed in the contracting state in which they arise and according to the laws of that state but if a resident of the other contracting state is the beneficial_owner of a periodic pension payment the tax so charged shall not exceed per cent of the gross amount of such payment for the purposes of this convention the term pension includes any payment under a superannuation pension or other retirement arrangement armed_forces retirement pay war veterans pensions and allowances and amounts paid under a sickness accident or disability plan the general_rule of paragraph a is that even though the pension may be taxed by the residence state pursuant to paragraph the pension may also be taxed by the source state according to the laws of that state in the event the pension payment is periodic the tax charged by the source state is limited to of the gross amount of the payment however if the pension is paid in a lump-sum_distribution there is no limit on the rate_of_tax by the source state meaning that the source state may tax the distribution at its regular domestic rate where the united_states is the source state pension distributions are generally subject_to withholding under sec_871 and sec_1441 see sec_1_1441-4 you asked whether article xxii other income might apply in lieu of article xviii in the case of a lump-sum pension distribution article xxii applies only with respect to items of income not dealt with in the preceding articles of the treaty the definition of pension provided in paragraph of article xviii does not distinguish between periodic_payments and lump-sum payments therefore a lump-sum payment that is a pension payment within the meaning of paragraph is covered by article xviii although it is not eligible for the rate and article xxii has no application_for an example of a qualified_plan distribution that was covered by article xxii instead of article xviii because it was a distribution from a stock_bonus_plan a terminated esop rather than a pension or annuity see 33_fedclaims_628 aff’d without published opinion 91_f3d_170 fed cir cert_denied 519_us_1040 to the extent that as a result of the application of article xviii the recipient is subject_to double_taxation you might consider the effect of article xxiv elimination of double_taxation for additional general information regarding the treaty see publication information on the united states-canada income_tax treaty available on the internet at http www irs gov pub irs-pdf p597 pdf we hope this information will be helpful to you if you require a definitive determination of the law applicable to your particular facts you may submit a request for a private_letter_ruling to this office pursuant to the rules set forth in revproc_2004_1 which is available on the internet at http www irs gov pub irs-irbs irb04-01 pdf if you should have any further questions in this matter please contact -------------------------------- --l at --------------------- not a toll-free number sincerely m grace fleeman senior counsel branch office of associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-152846-02 date date legend x d1 d2 state dear this letter responds to your representative's letter dated date submitted on behalf of x requesting a ruling that x be given an extension of time to elect under sec_301_9100-3 of the procedure and administration regulations to be classified as an association_taxable_as_a_corporation for federal tax purposes and relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was formed on d1 under state law and began doing business on d2 x intended to elect to be treated as an association_taxable_as_a_corporation and to then elect to be treated as an s_corporation with both elections effective d2 however form_8832 entity classification election and the election to be treated as an s_corporation inadvertently were not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified either as an entity disregarded as separate from its owner or as an association plr-152846-02 sec_301_7701-3 provides that an eligible_entity with a single owner will be disregarded as an entity separate from its owner unless it elects otherwise to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the service_center designated on that form sec_301_7701-3 provides that all such elections become effective on the date specified by the entity on form_8832 or on the date filed if no effective date is specified the specified effective date must not be earlier than days prior to the filing_date of form_8832 nor later than twelve months after the filing_date sec_301_9100-1 gives the commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of sec_301_9100-2 and sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-3 sets forth the standards which the commissioner uses to determine whether to grant a discretionary extension of time these standards indicate that the commissioner should grant relief when the taxpayer provides evidence proving 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 government sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year conclusion based solely on the information submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result x is granted an extension of time for days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d2 x should make the election by filing form_8832 with the relevant service_center a copy of this letter should be attached to that form in addition based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d2 an original form_2553 along with a copy of this letter must be forwarded to the relevant service_center within days from plr-152846-02 the date of this letter except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs and special industries heather c maloy enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------- ------------------- --------------------------------- --------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ----------------- telephone number --------------------- refer reply to cc corp br plr-130670-13 date date parent ------------------------------------------------------------------- ------------------------------------------------------------ ---------------------------------- taxpayer sub company official tax professionals year state a dear -------------- ---------------------------------- ------------------------------------------------ ------------------------ ------------------------------------------ ------------------------------- ------------------------ ---------------------- --------------------------------------------------------------------------------- -------------------------- ------------------------------------------------------------------- --------------------------------------------------------------------------------- ------- ------------- this letter responds to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election additional information was submitted in letters dated date and plr-130670-13 date the extension is being requested in order to allow taxpayer to file an election under sec_362 of the internal_revenue_code with respect to the year transfers as defined below the election the material information is summarized below taxpayer is a state a limited_liability_company that has elected to be treated as a corporation for federal_income_tax purposes taxpayer wholly owns sub parent is the common parent of a consolidated_group and indirectly owns all the stock in both of taxpayer and sub taxpayer and sub each file a separate federal_income_tax return throughout year taxpayer transferred assets to sub in tax-free transfers described in sec_351 the year transfers at the time of the year transfers the assets transferred had tax bases exceeding fair_market_value taxpayer has represented that it does not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 sec_362 generally provides that if property is transferred to a corporation as a capital_contribution or in an exchange to which sec_351 applies and the aggregate basis of the transferred property would if not for this provision exceed its aggregate value immediately after the transaction then the transferee corporation's basis in such property shall not exceed the fair_market_value of such property under sec_362 however the transferor and transferee may make a joint election to reduce the transferor’s basis in the stock received to its fair_market_value and no reduction of the transferee’s basis in the property received will be required sec_362 provides that the election shall be made at such time and in such form and manner as the secretary may prescribe and once made shall be irrevocable in effect on the dates of the year transfers notice_2005_70 2005_2_cb_694 provided guidance on how to make elections under sec_362 notice_2005_70 generally provided that the transferor made a valid election on or with its tax_return filed by the due_date including extensions for filing its original return for the taxable_year in which the transaction occurred for transactions after date rules for making elections under sec_362 are in sec_1_362-4 however taxpayers may apply sec_1_362-4 to transactions occurring after date the election was required to be filed on or with taxpayer’s timely filed income_tax return for year for various reasons however taxpayer failed to file the election in a timely manner under sec_301_9100-1 the commissioner has discretion to grant a reasonable plr-130670-13 extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory 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 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_301_9100-3 the time for filing the election under sec_362 is fixed by notice_2005_70 or if applicable sec_1_362-4 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the government information affidavits and representations submitted by taxpayer company official and tax professionals explain the circumstances that resulted in the failure to timely file the election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that taxpayer acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter to file the election in the manner described in notice_2005_70 or sec_1_362-4 if applicable this extension of time is conditioned on the tax_liability if any of taxpayer and sub being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the plr-130670-13 tax consequences of any aspect of any transaction discussed in this letter specifically no opinion is expressed as to whether the year transfers are described in sec_351 nor is any opinion expressed concerning the basis or fair_market_value of any asset in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations that taxpayer company official and tax professionals made under penalties of perjury however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply the letter_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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc