department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date contact person identification_number date date telephone number employer_identification_number uil legend watershed preserve commission state county this is in response to your ruling_request for a ruling as to whether certain activities conducted by you constitute an unrelated_trade_or_business and whether the sale of proceeds derived from those certain activities are taxable as unrelated_business_taxable_income under sec_511 through of the internal_revenue_code code facts you are a state non-profit corporation described in sec_501 you were organized for cultural and other educational_purposes within the meaning of sec_501 and were specifically formed to educate individuals about the arts and natural sciences you built and manage a nature center as well as related facilities including nature trails to provide formal and participatory environmental education to students and the general_public environment through museum exhibits special programs and interactive experiences in preserve you serve over big_number students from more than school systems and an additional big_number visitors each year you are supported by program fees memberships fundraising events museum admissions and donations from corporations and individuals in furtherance of your exempt_purpose you educate the public about the you later amended your articles of incorporation to expand the description of your exempt purposes your purposes now include protecting the natural and scenic spaces of real_property protecting natural_resources and maintaining or enhancing water and air quality resources of watershed which includes preserve preserve is owned by commission and is leased to you in furtherance of these amended purposes you protect the natural you have represented that commission was created as a public corporation by the state legislature under an act of the general assembly of state and commission is considered a political_subdivision of state an act of state legislature passed in reads there is hereby created a body corporate and politic to be known as commission under its former name which shall be deemed to be a political_subdivision of state and a public corporation by that name an act of state legislature passed in reads the body corporate and politic known as commission under its former name is hereby renamed as commission the general purposes of the commission are declared to be acquiring constructing equipping maintaining and operating a recreational center and area or centers and areas and doing any and all things deemed by the commission necessary convenient or desirable for and incident to the efficient and proper development and operation of such types of undertakings further nine of eleven members of commission are appointed by county or city the act reads commission shall consist of members four of such members shall be appointed by the commissioners of city five members shall be appointed by the board_of commissioners of county and two members shall be appointed by commission in year commission entered into an agreement whereby it leased to county the acreage necessary for constructing an environmental center on preserve commission then subleased this land back from county and assumed total responsibility for the operation regulation and maintenance of the center commission selected you as the sole managing agent and operator of the center and leased that portion of land to you for a substantial term it also forbade you from making any capital improvements to the land other than regular maintenance without first notifying and seeking its approval in year commission leased additional acreage in the watershed to you and extended the term of your lease this amended contract clarified that during the lease period you may not erect any currently unplanned substantial improvements substantially alter the topography nor substantially alter the vegetation growing upon said leased premises without the prior consent of commission entered upon the commission minutes under a declaration of conservation covenants and restrictions commission covenants to maintain the majority of this additional land as stream buffers commission then executed a deed of conservation_easement to you in which the entire acreage is subject_to your management for conservation purposes thus you hold a perpetual conservation_easement over preserve and some additional tracts in watershed that contain streams you indicate that this perpetual easement ensures that preserve is kept undeveloped and its conservation values are preserved by maintaining the woodland and natural character of the property additionally you are responsible for complying with commission's covenant regarding maintaining stream buffers a few years ago you hired a consultant to perform an environmental assessment of watershed the assessment pointed out significant problems with the stream quality in watershed and determined the steps necessary to remediate watershed’s waterways you received a clean water act section grant to address certain storm water detention and stream restoration and could possibly obtain other such grants in the future a national program to address nonpoint sources of water pollution provides funds for the grants that originate from the federal government and are then allocated to state nonpoint source agencies the state agencies may award the grants to awardees such as you the state agencies must ensure that awardees comply with federal laws and that their projects are designed in compliance with those laws however since grant funding may be sporadic in order to complete the remediation activities you plan to form a stream mitigation bank with support of commission by conducting stream mitigation activities to restore deeply eroded degraded streams to a functional form as part of operating the stream mitigation bank you will generate mitigation credits that can be sold within an environmental conservation program created and managed by various state and federal agencies more specifically as inducement to invest in the significant costs associated with stream restoration the u s army corps of engineers corps with the cooperation_and_participation of other federal and state agencies oversees a program pursuant to authority under sec_404 of the clean water act or section of the rivers and harbors act of that allows the owner of impaired streams to create value by restoring and preserving the streams and receive credits from the restoration and preservation activities a stream mitigation bank is the legal structure that provides the mitigation credits the creation of credits occurs under a mitigation banking instrument that must be approved by the corps and the number of credits to be awarded for completed work is established in the mitigation banking instrument releases of credits in the mitigation bank occur when the work has been satisfactorily performed under the requirements of the mitigation banking instrument once all of the mitigation credits are sold as discussed below there are no additional proceeds from the mitigation bank however the owner sponsor of the mitigation bank is responsible for the monitoring and maintenance of the restored stream reaches for seven years after completion of the final phase in your case after this seven year period you as trustee for the preserve are charged with management of the water resources in perpetuity the mitigation credits generated by your stream mitigation activities can be sold to private developers or governmental units who have projects which may cause any stream disturbance or impact on a stream somewhere else in the primary service watershed such projects include the construction of bridges or piped road crossings the corps is responsible for providing permits to developers as pertinent to stream effects and for public review and comment of permits in order to receive construction permits the corps requires developers to mitigate the environmental impacts of their projects as feasible the intent of the corps in its mitigation programs is to ensure that there is no net_loss to the stream or wetland environments mitigation credits serve as a preferred option for meeting the requirements if the developer proposes this option the amount of credits a developer must buy is dependent on the length and severity of the impact on the given streams within a developer's project and is determined by the corps the pricing of mitigation credits is market-driven the corps does not regulate the pricing of the mitigation credits however the corps is the entity that issues the mitigation credits when the mitigation work is completed in accordance with the terms of the mitigation banking instrument sale of mitigation credits is restricted to developers of projects in the primary service area watershed or after certain penalties are applied in secondary zones commission entered into a contractual agreement with you authorizing you to form a stream mitigation bank bank commission appointed you as the manager of bank and delegated to you the authority to negotiate the banking instrument with the corps you and commission submitted the mitigation and other state and federal agencies banking instrument to the corps the u s environmental protection agency the u s fish and wildlife service and the state department of natural_resources the banking instrument was approved and is administered by the corps on behalf of itself and the other agencies under the terms of the banking instrument commission is the sponsor of bank the banking instrument makes clear that as the sponsor commission is solely responsible for planning funding developing managing and monitoring bank in accordance with the mitigation banking instrument as noted above in addition to signing the banking instrument commission also executed the deed of conservation_easement and restrictive covenant related to watershed to you as manager of the bank and under the deed and contractual agreement with commission you provide the financing supervision and future monitoring of preservation construction requirements and conduct and fund the mitigation activities commission authorized you to sell all the mitigation credits generated from bank you state that your activity of protecting watershed lessens the governmental burdens of commission to care for preserve and watershed you state that the effect of the deed of conservation_easement is to require you to perform the obligations of commission as owner of the preserve including those requiring affirmative action under the declaration of conservation covenants and restrictions and those arising under the bank instrument you represent that this arrangement with commission was in accordance with all laws of state including contracting provisions you expect to spend several million dollars in performing your obligations to commission in addition a commitment has been made by you county and city to address storm water management issues in the developed areas surrounding preserve rulings requested that your stream mitigation activities are substantially related to your exempt_purpose under sec_501 of the code and do not constitute an unrelated_trade_or_business within the meaning of sec_513 that the income you receive from the sale of credits by bank is not unrelated_business_taxable_income under sec_512 law sec_501 of the code provides in part for the exemption from federal_income_tax of organizations organized and operated exclusively for religious charitable or educational_purposes 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 certain allowable deductions and modifications 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 the functions constituting the basis for its exemption sec_513 provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_501_c_3_-1 of the income_tax regulations treas reg provides that an organization may be recognized as an organization described in sec_501 of the code if it is operated exclusively for one or more of the following purposes religious charitable scientific testing for public safety literary educational or prevention of cruelty to children or animals sec_1_501_c_3_-1 of the treas reg provides a definition of the term charitable as it is used in sec_501 of the code the term charitable is used in its generally accepted legal sense and includes lessening of the burdens of government sec_1_513-1 of the treas reg provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization’s performance of its exempt functions sec_1_513-1 of the treas reg provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on’ if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the treas reg provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code 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 sec_1_513-1 of the treas reg provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and it is substantially related only if the causal relationship is a substantial one 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 revrul_85_1 1985_1_cb_177 and revrul_85_2 1985_1_cb_178 recognize as charitable certain organizations that assist state and local governments in carrying out their functions the criteria for determining whether an organization’s activities lessen the burdens of government are first whether the governmental_unit considers the organization’s activities to be its burden and second whether these activities actually lessen the burden of the governmental_unit an activity is a burden of the government if there is an objective manifestation by the governmental_unit that it considers the activities of the organization to be its burden the interrelationship between the governmental_unit and the organization may provide evidence that the governmental_unit considers the activity to be its burden whether the organization is actually lessening the burdens of government is determined by considering all of the relevant facts and circumstances a favorable working relationship between the government and the organization is strong evidence that the organization is actually lessening the burdens of the government however the fact that the government or an official of the government expresses approval of an organization and its activities is not sufficient to establish that the organization is lessening the burdens of government see revrul_85_2 supra concluding that the organization’s activity of training guardians ad litem actually lessens the burdens of the juvenile court in part because the court uses the volunteers trained by the organization thus the functions that constitute the burdens of government must be identified and the organization’s activities must actually lessen those burdens in 466_fsupp_1164 d d c virginia psro’ two organizations were formed pursuant to a federal_law that provided for the establishment of professional standards review organizations psros’ to ensure the effective efficient and economic delivery of health care services to medicare and medicaid beneficiaries the department of health education and welfare was charged with implementation of the psro program the district_court stated that t he legislative_history of the statute indicates that the psro programs were created essentially to act in the government's place in ensuring the ‘effective efficient and economic’ delivery of health care services to medicare and medicaid beneficiaries id pincite the court also stated that i t is well established that a corporation which provides a community benefit or lessens the burdens of government may be regarded as engaged in charitable activities the court concluded that these organizations operated exclusively for charitable purposes under sec_501 of the code id at in 74_tc_240 acq 1980_2_cb_2 queens county psro the tax_court held that an organization created pursuant to a federal statute that reviewed the appropriateness and quality of healthcare services provided to medicare and medicaid recipients was exempt under sec_501 of the code because it lessened the burdens of government the tax_court held that the psro’s activities of lessening the burdens of the federal government and promoting public health far outweighed any incidental benefit that individual physicians or even the profession as a whole would derive from petitioner's purposes and activities in 88_tc_1 affd without published opinion 838_f2d_465 4th cir the court_of_appeals upheld the decision of the tax_court that the organization did not lessen any burden of government and thus was not exempt under sec_501 of the code the organization provided a wide range of services and facilities to the residents of columbia maryland the organization contended that if it did not provide these services and facilities the local or state government would have to provide them the tax_court stated that this assertion does not mean that the organization's activities are in fact a burden of government instead the organization must demonstrate that the state of maryland and or the county accept the organization's activities as their responsibility and recognize the organization as acting on their behalf activities actually lessen the burden of the state_or_local_government in addition the organization must further establish that its in 76_tc_394 acq 1981_2_cb_1 the tax_court found that the organization was described in sec_501 of the code because among other purposes it was lessening the burdens of government the organization’s primary activity was the certification of crop seed within the state of indiana a substantial amount of time was also spent conducting scientific research in seed technology and providing instruction in modern seed technology in conjunction with purdue university the state of indiana did not have a department of agriculture to regulate agricultural products within the state and delegated by law agricultural regulatory functions to purdue university and the director of the purdue university agricultural experiment station the function of seed certification was in turn delegated by purdue university to indiana crop improvement association inc the tax_court found that as the official seed certifying agency for the state of indiana the organization was directly assisting the u s department of agriculture in enforcing the standards and procedures established under federal statute rather than primarily promoting the economic interests of commercial seed producers and commercial farmers in 326_us_279 66_sct_112 90_led_67 c b the court stated that the presence of a single regardless of the number or importance of truly nonexempt purpose if substantial in nature will destroy the exemption exempt purposes analysis you have requested a ruling that your stream mitigation activities in watershed are substantially related to your exempt purposes and do not constitute an unrelated_trade_or_business within the meaning of sec_513 of the code unrelated business taxable income’ is gross_income derived from any unrelated_trade_or_business that is regularly carried on by the organization sec_512 gross_income of an exempt_organization is taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization’s performance of its exempt functions sec_1 a of the treas reg a trade_or_business is an activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_513 of the code you will sell credits from bank to a variety of entities and intend to receive income from that activity therefore it meets the definition of a trade_or_business under sec_513 under sec_1_513-1 of the treas reg we examine the frequency and continuity of the activities and the manner in which they are conducted to determine whether a trade_or_business is regularly carried on while the ultimate number of credits that you can sell is finite you will be selling the credits regularly to various parties over a period of several years therefore this activity is regularly carried on within the meaning of the code and regulations see sec_1_513-1 the remaining issue is whether the sale of these credits is substantially related to your exempt purposes a trade_or_business is substantially related to exempt purposes if the business activities have a substantial causal relationship or contribute importantly to the achievement of exempt purposes sec_1_513-1 under the terms of the conservation_easement you are required to protect the conservation values of watershed and preserve on behalf of commission through the arrangements discussed above this responsibility was bestowed upon you by commission a political_subdivision of state by conducting stream mitigation activities you are undertaking activities that lessen the burdens of government lessening the burdens of government is regarded as an exempt_purpose revrul_85_1 supra revrul_85_2 supra virginia professional standards review foundation v blumenthal supra and professional standards review organization of queens county inc v commissioner supra the issue is whether your activities in creating a mitigation bank and selling the resulting mitigation credits is related to this purpose commission was created as a public corporation by the state legislature under an act of the general assembly of state to oversee all activities within preserve as a political_subdivision commission is a governmental_unit you are lessening the burdens of commission because there is an objective manifestation that commission considers the activity of operating bank including the water remediation activities conducted through bank in watershed to be its burden and you are actually lessening commission's burden by operating bank on behalf of commission see revrul_85_2 and columbia park and recreation assoc v commissioner supra under a declaration of conservation covenants and restrictions commission agreed to maintain a significant part of the preserve land as stream buffers furthermore as a signatory to the banking instrument and the listed sponsor of bank commission is legally obligated to plan fund develop manage and monitor the bank by assuming this specific obligation in addition to its general conservation obligations commission demonstrated that it considers the activity of operating bank including the stream remediation activities in watershed performed as a part of bank to be its burden in addition commission assigned its conservation obligations contained in the conservation_easement to you requiring you to maintain the land in essentially pristine condition and seek commission’s approval before making any capital improvements commission authorized you to negotiate the mitigation banking instrument and remediate these waterways furthermore commission delegated the operation of bank its legal_obligation as sponsor of bank to you through a contractual agreement in meeting minutes commission specified that it wanted you to be responsible for all financing supervision and future monitoring of preservation and construction requirements associated with bank commission also provided that you were authorized to sell all credits generated by bank you have assumed all responsibilities for the planning funding developing and monitoring of bank as well as the authority to sell credits generated by bank by carrying out these activities you are fulfilling commission’s conservation and legal obligations and lessening commission's burden revrul_85_1 supra revrul_85_2 supra in order for the income derived from the sale of the credits to be taxable to you as unrelated_business_income under sec_512 of the code the income must be derived from an unrelated_trade_or_business that is regularly carried on by you because the sale is not an unrelated_trade_or_business as defined by sec_513 any mitigation credit income you receive would not be taxable here the activity is substantially related to your exempt purposes within the meaning of sec_513 because it lessens the burdens of government ruling your stream mitigation activities are substantially related to your exempt_purpose under sec_501 of the code and do not constitute an unrelated_trade_or_business within the meaning of sec_513 the income you receive from the sale of mitigation credits created by bank is not unrelated_business_taxable_income under sec_512 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 may not be used or cited by others as precedent sec_6110 provides that it 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 this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described in particular this ruling does not address whether the sale of any other form of credits would be considered unrelated_business_income and be taxable as such because it could help resolved 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 in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald j shoemaker manager exempt_organizations technical group enclosure notice


internal_revenue_service p o box cincinnati oh number release date date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil x foundation y name of program x amount dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that x will operate a grant-making program called y this program will award up to one-time grants in the amount of x to qualifying applicants to help pay for ministry education for the purpose of becoming missionaries or ministers the program will be advertised in x’s quarterly newsletter and sent to all known higher education bible schools interested individuals will be required to complete an application the application requires completion of family education employment and spiritual information a copy of the applicant’s high school completion proof of bible school acceptance or enrollment a two-page essay about themselves and why they should receive the grant and a letter of recommendation from their pastor will also need to be submitted grants will be awarded on a nondiscriminatory basis upon receiving board approval based on the application the selection committee is comprised of the board members of x all board members are either ministers or serve in a ministry area of their church no board members employees or disqualified persons are allowed to apply for a grant recipients will be chosen based on financial need character reference and recommendation those who show a need have good character and show a true calling into the ministry will be awarded a grant the grants will be paid to the school on behalf of the student all funds must be used for educational_purposes such as tuition supplies housing books etc x will track the educational progress of the students by requiring them to send in a copy of their grades and or course completion the information must be on an official school document x will also require that they send in receipts of school expenses and plans for ministerial work after completion of education progress reports are required within the first six months and must continue monthly until all funds are spent if x feels the funds were misused they will immediately contact the school and the recipient for clarification and demand the return of any misused funds x agrees to maintain records that include the following i information used to evaluate the qualification of potential grantees ii identification of the grantees including any relationship of any grantee to the private_foundation iii the amount and purpose of each grant and iv all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any - amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


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 b07 plr-129019-04 date date ---------------- --------------------------------------------------------------- ---------------------- ----------------------- ----------------------- -------------------------------------- legend taxpayer subsidiary field location ------------------------------------------------------------------------------------------------------------ --------------------------------------------- year date date u date v year date date date private_letter_ruling w x year y z dear ------------- ------- -------------- ---------------------- ------ ---------------------- ------ --------- ---------------------- ---------------------- ---------------------------- ---------------------- -------- ---------- ------- -- ---- plr-129019-04 this letter responds to your letter dated date requesting a ruling under sec_43 of the internal_revenue_code the represented facts are as follows taxpayer is an accrual taxpayer utilizing a calendar taxable_year subsidiary is an indirect wholly owned subsidiary of taxpayer included on taxpayer’s consolidated_income_tax_return field is situated in location production from field began in year from date to date the average production rate from field was u thousand barrels of oil per day mbopd subsidiary acquired its operating_mineral_interest in field and became the operator of field on date due to additional drilling and facilities construction production from field increased to v mbopd by year a miscible water-alternating-gas process mwag was implemented on field and was in effect from date to date the mwag process was certified on date since date a process using water-alternating-gas in an under-saturated reservoir us- wag has been used on field the us-wag process was approved as a qualified tertiary_recovery_method in private_letter_ruling at field there are several source water producing wells that produce a low salinity water which contains approximately w parts per million total dissolved solids taxpayer intends to implement a project involving the injection of low salinity water water containing fewer than x ppm total dissolved solids into one of the three reservoirs in field in lieu of conventional high salinity water injection the project will be implemented in year taxpayer represents that the injection of low salinity water will affect the reservoir fluid by increasing the ph of the reservoir fluids and by reducing the interfacial tension between the oil reservoir rock and water the water wettability of the reservoir will also be increased as a result the injection of low salinity water can result in a reduction in residual oil saturation by y of total pore volume leading to an incremental recovery_of z of the original oil in place while the injection of low salinity water will also provide energy and drive mechanisms similar to conventional waterflooding the above-mentioned changes to the relative properties of the reservoir fluids do not occur with conventional waterflooding taxpayer represents that the injection of low salinity water achieves a result similar to alkaline or surfactant flooding projects taxpayer has also provided a substantial amount of literature including laboratory study and simulation data which was been written over several decades and describe the process in detail taxpayer requests a ruling that the process of injecting low salinity water as described is a qualified tertiary_recovery_method not described in sec_1_43-2 or in a revenue_ruling for purposes of the sec_43 enhanced_oil_recovery_credit sec_43 provides a credit in an amount equal to of certain costs paid_or_incurred by a taxpayer in connection with a qualified_enhanced_oil_recovery_project plr-129019-04 sec_43 defines the term qualified_enhanced_oil_recovery_project to mean any project that involves the application in accordance with sound engineering principles of one or more qualified tertiary recovery methods as defined in sec_193 that reasonably can be expected to result in a more than insignificant increase in the amount of crude_oil that ultimately will be recovered is located within the united_states within the meaning of sec_638 and with respect to which the first injection of liquids gases or other matter commences after date sec_1_43-2 of the regulations defines the term qualified tertiary_recovery_method to mean any one or combination of the tertiary recovery methods described in sec_1_43-2 or a method not described in sec_1_43-2 which has been determined by revenue_ruling to be a qualified tertiary_recovery_method a taxpayer may request a private_letter_ruling that a method not described in sec_1_43-2 or in a revenue_ruling is a qualified tertiary_recovery_method generally methods identified in revenue rulings or private letter rulings will be limited to those methods that involve the displacement of oil from the reservoir rock by modifying the properties of the fluids in the reservoir or providing the energy and drive mechanism to force the oil to a production well sec_1_43-2 states that waterflooding is not a qualified tertiary_recovery_method waterflooding is defined as the injection of water into an oil reservoir to displace oil from the reservoir rock and into the bore of the producing well taxpayer represents that the recovery method under consideration changes the properties of the fluids in the reservoir by increasing the ph of the reservoir fluids by reducing the interfacial tension between the oil reservoir rock and water and by increasing the water wettability of the reservoir the proposed recovery method also provides the energy and drive mechanism to force the oil to a production well sec_1_43-2 of the regulations states that a qualified method generally is limited to methods that involve the displacement of oil from the reservoir rock by modifying the properties of the fluids in the reservoir or that provide the energy and drive mechanism to force the oil to a production well this project does both the injection of low salinity water resembles waterflooding an excluded method under sec_1_43-2 in that in both cases water is injected into an oil reservoir to displace oil from the reservoir rock and into the bore of the producing well however the proposed method causes changes in the properties of the fluids in the reservoir which do not occur with conventional waterflooding further as reflected in the literature provided the proposed recovery method is not a conventional recovery method that was in use at the time sec_43 was enacted and is implemented following a previously applied enhanced oil recovery method plr-129019-04 taxpayer has represented that the proposed project is within the united_states and first injection will occur after date as required under sec_43 also taxpayer has represented that the project involves the application in accordance with sound engineering principles of a recovery method which can reasonably be expected to result in a more than insignificant increase in the amount of oil that will ultimately be recovered based on these facts as well as review by service experts we conclude that the recovery method taxpayer will implement at field is a qualified tertiary_recovery_method not described in sec_1_43-2 or in a revenue_ruling and therefore the project using the method is a qualified tertiary recovery project provided it otherwise meets the requirements of sec_43 and the regulations thereunder except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion whether the project implemented by the taxpayer otherwise meets the requirements of a qualified_enhanced_oil_recovery_project under sec_43 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 a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely joseph h makurath senior technician reviewer branch passthroughs special industries cc -


internal_revenue_service department of the treasury number release date index number washington dc person to contact susan m lennon telephone number refer reply to dc acc tege eb ec-plr-120592-00 date date company plan this letter is in reply to your letter dated date on behalf of the company the company has requested a ruling on the federal_income_tax consequences under sec_451 and sec_404 of the internal_revenue_code with respect to the plan the company has established the plan a nonqualified_deferred_compensation_plan to provide retirement benefits to key management personnel in order to provide employees with an incentive to remain with the company and to perform to the best of their abilities the individual participants will be selected by the compensation committee of its board_of directors the committee the committee may also remove a participant from the plan with or without cause the basic_benefit under the plan is a monthly payment for life starting when a participant becomes eligible for payment of benefits after termination of employment the benefit is equal to a stated percent based on the participant’s years_of_service under the plan of the participant’s final average pay as defined under the plan less the participant’s primary social_security_benefit as defined under the plan the plan also provides for a survivorship benefit payable as a contingent annuity to a participant’s spouse following the death of the participant no other_benefits are payable following the participant’s death a participant’s right to payments under the plan vests upon such participant’s attainment of either a age sec_62 with at least years of credited service or b age plr-120592-00 with at least years of credited service the benefit for a participant who starts benefits before age but after age is reduced based on actuarial equivalent factors described in the plan the plan provides for accelerated vesting in the event of a change_of control of the company in general if a vested_participant is removed from participation in the plan then the participant’s accrued_benefit shall be frozen as of the removal date and payment shall commence at retirement if the participant does not meet the requirements for vesting as of the removal date no benefit is preserved in connection with the participant’s prior participation in the plan the plan further provides that a participant will forfeit all benefits both vested and unvested upon a finding of misconduct or competition with the company both as defined in the plan the plan provides that benefits shall be paid from the general assets of the company except for the power to select a payment option with a spouse as a contingent beneficiary no interest of a participant or spouse or representative of a participant may be directly or indirectly transferred encumbered seized by legal process or in any other way subjected to the claims of creditors of that party participants rights under the plan shall be only as general creditors of the company the company may but is not required to set_aside funds in advance for payment of benefits under the plan sec_451 of the internal_revenue_code and sec_1_451-1 of the income_tax regulations provide that an item_of_gross_income is includible in gross_income in the taxable_year in which it is actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to a taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 sec_404 of the code provides the general deduction timing rules applicable to any plan or arrangement for the deferral of compensation regardless of the code section under which the amount might otherwise be deductible pursuant to sec_404 and sec_1_404_a_-12 of the regulations and provided that they otherwise meet the requirements for deductibility amounts of contributions or compensation deferred under a non-qualified plan or arrangement are deductible in the taxable_year in which they are paid or made available whichever is earlier plr-120592-00 provided that the plan is unfunded for purposes of title of the employee_retirement_income_security_act_of_1974 erisa and based on the information submitted and representations made we conclude that under the economic benefit and constructive receipt doctrines of sec_61 and sec_451 of the code benefits payable under the plan to a participant shall not result in taxable_income for the participant or the participant’s beneficiaries under the cash_receipts_and_disbursements_method of accounting until the taxable_year in which the benefits are actually paid or otherwise made available the company is entitled to a deduction pursuant to sec_404 and sec_404 of the code for the amounts paid or made available under the plan in the taxable_year in which such amounts are includible in the gross_income of the participant or his beneficiary provided such amounts otherwise meet the requirements for deductibility under sec_162 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely charles t deliee chief dc acc tege eb ec office of the associate chief_counsel tax exempt and government entities copy for purposes


t c memo united_states tax_court william allen simpson petitioner v commissioner of internal revenue respondent docket nos filed date william allen simpson pro_se trevor t wetherington for respondent memorandum findings_of_fact and opinion laro judge william allen simpson petitioned the court to redetermine respondent's determination of a dollar_figure deficiency in his federal_income_tax and additions thereto under sec_6651 and a of dollar_figure and dollar_figure respectively following the parties’ concessions we must decide whether - - petitioner may deduct amounts for greater than those allowed by respondent and whether petitioner is liable for the additions to tax set forth above we hold that petitioner may not deduct any greater amount and that he is liable for the additions to tax section references are to the internal_revenue_code in effect for the subject years rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded to the nearest dollar findings_of_fact some facts have been stipulated the stipulated facts and the exhibit submitted therewith are incorporated herein by this reference petitioner was self-employed during as a computer engineer he resided in madison heights michigan when he petitioned the court petitioner did not timely file a federal_income_tax return respondent determined petitioner's income_tax_liability for and issued to him a notice_of_deficiency reflecting that determination respondent later adjusted that determination to take into account deductions raised and substantiated by petitioner after the issuance of the notice_of_deficiency petitioner asserts that in addition to the deductions allowed by respondent he may deduct certain other_amounts as business_expenses petitioner paid dollar_figure to a personal acquaintance elizabeth helmboldt dollar_figure to his sister ruth eileen - - simpson and dollar_figure for a flying lesson petitioner asserts that these payments were ordinary and necessary expenses of his computer engineering business petitioner has never obtained a pilot's license nor piloted an airplane in carrying on his business opinion petitioner must prove that respondent's determinations set forth in the notice_of_deficiency are incorrect see rule a 290_us_111 petitioner also must prove his entitlement to any deduction deductions are strictly a matter of legislative grace and petitioner must show that his claimed deductions are allowed by the code see also 292_us_435 petitioner must maintain sufficient records to substantiate his claimed deductions see sec_6001 sec_1_6001-1 income_tax regs petitioner's burden_of_proof requires that he introduce sufficient evidence to make a prima facie case establishing that respondent committed the errors alleged in the petition and overcome the evidence favorable to respondent see lyon v commissioner 1_bta_378 see also lawler v commissioner tcmemo_1995_26 petitioner relies mainly on his testimony to meet his burden we find his testimony unpersuasive and incomplete petitioner provided no written - - documents establishing that the disputed expenses are related to his business nor did he call any witnesses to corroborate his testimony because the record is devoid of evidence disproving any of respondent's determinations we sustain those determinations in full see finesod v commissioner tcmemo_1994_66 to reflect respondent's concessions decision will be entered under rule


internal_revenue_service number release date index number ---------------------------------- -------------------------------- ------------------------------------- re ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-137891-16 date june legend decedent spouse date date ------------------------------------------------- -------------------- ------------------------ ------------------- dear --------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime plr-137891-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-137891-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-137891-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-137891-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner ________________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury person to contact employee id number tel fax contact hours a m -4 p m refer reply to ap fe in re eo examination tax period s ended internal_revenue_service number release date uiil number date oct he a b c legend a b s s m a u this is a final adverse determination ruling letter concerning your organization's continued tax-exempt status under sec_501 of the internal_revenue_code as an organization described in sec_501 cx3 of the code for all years beginning on or after july the evidence presented disclosed that your organization was incorporated under the laws of the state of under the provisions of sec_402 of the not-for-profit corporate laws on august your purposes as stated in your certificate of incorporation are to be operated exclusively for charitable purposes by conducting or supporting activities for the benefit of the qualified organizations specified herein through the financial support of said organizations d hereinafter referred to as ‘ e ’ is so specified grants from the corporation will be made in furtherance of the mission of e ie to aid support and provide for the welfare relief settlement and rehabilitation of united_states of america its territorial possessions or in any foreign countries and for the settlement and welfare of is a qualified_organization for purposes of the certificate only if it is described in sec_501 c and sec_509 or of the internal_revenue_code_of_1986 as amended hereinafter the 'code’ and elsewhere throughout the word an organization of or in the in response to question of part il activities and operational information dealing with past present and planned activities f stated that it was formed to make charitable distributions in affiliation with e a section_501_c_3_organization f will depend on e for recommendations as to appropriate beneficiaries of charitable distributions in response to question of part i dealing with sources of support f stated it contemplated that support would come from contributions grants and bequests in any form and the income derived from investments thereof in response to question of part il dealing with actual and planned fundraising programs f stated all funds to be raised from trustees and family members in response to a request for complete financial statements for the current_year and the two following years on the form_1023 f provided the following statement of receipts and expenditures gifts grants and contributions received dollar_figure total gross_receipts from admissions etc total fundraising expenses contributions gifts grants and similar amounts paid dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total expenses excess of revenues over expenses dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure corporate stock total assets total liabilities total fund balance or net assets total liabilities and fund balances or net assets balance_sheet assets dollar_figure dollar_figure liabilities dollar_figure fund balance dollar_figure dollar_figure shares of g corporate stock sec_501 of the code exempts from federal income taxes organizations that are organized and operated exclusively for religious charitable etc purposes were no part of its net_earnings inure to the benefit of any private_shareholder_or_individual and no substantial part of its activities involve the carrying on of propaganda or otherwise attempting to influence legislation sec_1 c -1 a of the income_tax regulations provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more purposes specified in such section if any organization fails to meet either the organizational or operational_test it is not exempt sec_1 c -1 d ii of the regulations provides that an organization is not organized and operated exclusively for one or more of the purposes specified unless it serves a public rather than a private interest thus to meet the requirements of this subdivision it is necessary for an organization to establish that it is not organized and operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1 c -1 d of the regulations provides that the term ‘charitable’ is used in sec_501 c in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 or other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions such terms includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening the burdens of government and promotion of social welfare by organization's designed to accomplish any of the above purposes cs internal_revenue_manual sec_4 determine if the organization is inactive provides that where an organization recognized as exempt becomes temporarily inactive but retains its identity as a corporation or association the exempt status need not be terminated however if the evidence clearly indicates that the organization will not resume operating for an exempt_purpose as required by sec_1_501_c_3_-1 the examiner should terminate the exempt status revrul_90_27 1990_1_cb_514 underlining added revrul_90_27 supra provides procedures with regard to applications for recognition of exemption from federal_income_tax under sec_501 and sec_521 and with respect to revocation or modification of exemption rulings and determination letters section dollar_figure provides that exempt status will be recognized in advance of operation if proposed operations can be described in sufficient detail to permit a conclusion that the charity will clearly meet the particular requirements of the section under which exemption is claimed the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures section dollar_figure provides that a ruling or determination_letter recognizing exemption is usually effective as of the date of formation of an organization if its purposes and activities during the period prior to the date of the if the organization is ruling or determination_letter were consistent with the requirements for exemption required to alter its activities or to made substantial amendments to its enabling instrument the ruling or determination_letter recognizing its exempt status will be effective as of the date specified therein substantive amendment is made exemption will ordinarily be recognized as of the date of formation if a non- section dollar_figure provides that a ruling or determination_letter recognizing exemption may not be relied upon if there is a material_change inconsistent with exemption in the character the purposes or the method of operation of the organization section dollar_figure provides that a revocation or modification may be retroactive if the organization omitted or misstated a material fact operated in a manner material different from that originally represented where there is a material_change inconsistent with exemption in the character the purpose or the method of operation of an organization revocation or modification will ordinarily take effect as of the date of such material_change when sec_7805 relief is granted retroactivity of the revocation or modification ordinarily will be limited to a date not earlier than that on which the original ruling or determination_letter is modified or revoked underlining added in 81_tc_958 the tax_court held that the petitioner was organized and operated exclusively for exempt purposes and that no part of its net eamings inured to the benefit of any private_shareholder_or_individual the court determined that petitioner had established criteria adequate to guard against abuse and that its proposed missionary support program was described in sufficient detail to warrant tax-exempt status in pertinent part petitioner already has received some contributions in_kind but has not yet converted them and distributed the proceeds the contributions to date are big_number shares of taluco inc stock valued at dollar_figure per share during date and big_number shares of phoenix co stock valued at ‘bid ask 8' per share on date petitioner's plan a fundraising program based on mail solicitations to church and community leaders business people and others the court's rationale was that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will meet the particular requirements of the section in which exemptions is claimed we denied exempt status to the petitioner in 71_tc_102 for failure to provide sufficient information see 71_tc_920 involving circumstances sharply distinct from this case we were persuaded to rule unfavorably where the petitioning organization was uncooperative in providing information we have also been persuaded to rule unfavorably where the nature of the proposed activities is especially ambiguous in 69_tc_615 we find petitioners proposed missionary support program to be adequately described in the administrative record justifying the conclusion that is operated exclusively for exempt purposes in 82_tc_215 the tax_court held that the petition failed to qualify for tax exempt status under sec_501 of the code based upon its failure to provide details regarding its proposed operation in pertinent part the court's rationale was that petitioner has not begun operations and does not plan to it is acknowledged that an organization may commence its activities prior to obtaining tax-exempt status seek tax-exempt status prior to beginning operations it must however described proposed operations in sufficient detail to permit the conclusion that the organization will meet the necessary requirements of the exemption petitioner merely has made statements as to its intended purposes without supplying any concrete information as to how it purports to carry out these purposes petitioner has no fundraising program and no solicitations are planned petitioner intends to receive its financial support from donations from organizations their friends and others that are interested yet petitioner has supplied no estimate of anticipated income the administrative record does not demonstrate that the petitioner will operate exclusively in furtherance of an exempt_purpose therefore respondent's denial of petitioner's request for tax-exempt status is reasonable underlining added under the rationale of the tax court's decision in world family supra and lavendad supra if sufficient detailed information were provided by an applicant for exemption it would establish that the organization would meet the operational requirements required for tax-exempt status and as such exempt status would be granted based upon the above facts law and court decisions cited it has been determined that your organization has failed to meet the operational_test required under sec_501 of the code and applicable regulations for all years beginning on or after july this determination is based upon the fact that your organization’s inactivity from its date of incorporation was temporary in nature due in part to its initial start-up and to your august organization's lack of liquid_assets to make the required charitable_contributions to other organizations to assist them in carrying on their charitable activities j to june in conclusion we have determined that you are not operated exclusively for sec_501 purposes for accordingly your organization does not continue to qualify for all years beginning on or after july exemption under sec_501 of the internal_revenue_code for all years beginning on or after july your organization is required to file federal_income_tax returns on form_1120 u s corporate_income_tax return for all years beginning on or after july if you have not already done so contributions to your organization are not deductible under sec_170 of the code for all periods beginning on or after july you have waived your right to contest this determination under the declaratory_judgment provisions of sec_7428 of the code by your execution of a form_906 closing_agreement conceming specific matters as provided in sec_6104 of the internal_revenue_code and applicable regulations the appropriate state officials will be notified of this determination if you have any questions please contact the person whose name and telephone number are shown above sincerely kevin m brown acting commissioner by charles f fisher appeais team manager tax_exempt_and_government_entities_division organization department of the treasury internal_revenue_service fulton street brooklyn ny taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate_service local office if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely r c johnson director eo examinations letter catalog number 34809f form 886a department of the ‘treasury - internal_revenue_service schedule no or name of taxpayer exhibit year period ended explanation of items org date of incorporation legend org name of organization date date2 date of exemption date3 effective date founder name of founder dot com name of stock suporg name of organization being supported issues whether the tax-exempt status of an organization that was inactive for the first four years of its existence should be revoked retroactively facts organization was incorporated in the state on date1 the purposes of the organization as stated in the certificate of incorporation are as follows the corporation is organized and shall be operated exclusively for charitable purposes by conducting or supporting activities for the benefit of the qualified_organization specified herein through the financial support of said organization supporg is so specified grants from the corporation will be made in furtherance of the mission of suporg exemption under sec_501 of the internal_revenue_code was granted in a 20xx the effective date of exemption is date2 letter dated february the organization was funded on august 20xx by a grant of founder founder is the president of org he is also the president of dot com the form_990 for the year ended june 20xx indicated that the stock was valued at dollar_figure organization however the stock had a reported value of dollar_figure 20xx on the form_990 our analysis indicates that the stock had no value at the time of the contribution to org at the end of the tax_year on june shares of dot com stock from at the time of receipt by the for the year ended june 20xx it was determined that the only disbursements made by the organization were dollar_figure that the only activity was a disbursement of dollar_figure _ for filing fees for filing and incorporation fees the form_990 for the subsequent year indicates form 886-acrev department of the treasury - internal_revenue_service page -1- oneal 886a name of taxpayer schedule no or exhibit year period ended explanation of items department of the ‘treasury - internal revenuc service org we were informed by a representative of suporg in june of 20xx that the organization did not engage in any charitable activities since inception and did not expect to engage in any charitable activities in the future in july of 20xx after our examination had begun we informed the organization that they did not meet the operational_test under sec_501 and proposed revocation the organization at that time called a meeting of its board_of directors and decided to commence its charitable activities’ the organization then received a contribution of dollar_figure suporvg from it's president founder and made a contribution to the law sec_501 of the code describes certain organizations exempt from federal_income_tax under sec_501 and reads in part as follows corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or the prevention of cruelty to children or animals no part the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office sec_1_501_c_3_-1 of the income_tax regulations relating to the requirements of exemption of such clubs under sec_501 reads in part as follows in order to be exempt as an organization described in sec_501 c the 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 an organization will be regarded as operated exclusively for one of more exempt purposes only if engages primarily in activities which accomplish one or more 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 it taxpayer’s position the organization believes that it is entitled to exemption under sec_501 because it was created to support another organization described in sec_501 the organization states that they had a charitable intent even though no contributions were made from the date of formation until july of 20xx the organization cited the proposed budgets on the form_1023 as evidence of their charitable intent the proposed budgets indicate that the organization intended to make grants of dollar_figure per year in the periods ending june 20xx and june 20xx government's position form 886-acrev department of the treasury - internal_revenue_service page -2- form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended our examination of your form_990 for the year ended june 20xx and a review of your operations for subsequent periods disclosed the following the organization did not meet the operational_test under sec_501 of the internal_revenue_code the organization did not have any charitable activities from formation until july of 20xx and only after an audit was started by the internal_revenue_service the majority of income was derived from a contribution of stock that appears to be worthless and has not produced any dividend income an organization cannot be exempt merely because it had an intention to perform activities that are exempt under sec_501 founder did not make additional contributions of dollar_figure proposed budgets indicate for 20xx and 20xx a dollar_figure 20xx after the organization was informed of our proposed revocation contribution was made by founder in july of per year as the accordingly your organization failed the operational_test under sec_501 of the internal_revenue_code because your organization did not have any charitable activity based on the above facts and law we have determined that your organization failed to qualify for any other subsection of sec_501 accordingly our letter granting exemption under sec_501 of the internal_revenue_code is revoked effective date3 conclusion based on the foregoing reason the organization does not qualify for exemption under sec_501 and its tax exempt status should be revoked form 886-acrev department of the treasury - internal_revenue_service page -3-


date cc ita ----------- conex-117556-05 internal_revenue_service number info release date uil ms susan a mauriello county administrative officer county of santa cruz ocean street suite santa cruz ca dear ms mauriello i am responding to your letter dated date to mark w everson commissioner of internal revenue you asked us to rescind the position taken in our date memorandum that taxpayers who receive grants to improve property under the flood mitigation program the pre-disaster mitigation program and the hazard mitigation grant program must include the grants in gross_income these programs are administered by the federal emergency management agenc y fema i assure you that we have thoroughly reviewed the position taken in the memorandum because of its importance to taxpayers who wish to participate in the mitigation programs we concluded that our position is consistent with current law and that the mitigation grants do not qualify for existing statutory or administrative exceptions that would exclude them from income_tax the administration however believes that the congress should amend the internal_revenue_code to achieve the policy objective of reducing damages from future disasters the department of the treasury as part of the administration’s revenue proposals for fiscal_year recommended amending the internal_revenue_code to exclude from gross_income fema mitigation grants used to purchase or repair property and to allow taxpayers to elect to defer gain realized on the sale of property under fema mitigation grant programs under this proposal the treasury_department would have administrative authority to provide retroactive relief department of the treasury general explanations of the administration’s fiscal_year revenue proposals date in response to the treasury department’s revenue proposals the house of representatives passed h_r which if enacted would generally provide that payments under fema mitigation grant programs are not subject_to current taxation for amounts received or with respect to sales or other dispositions after the date of enactment during the debate on h_r house ways_and_means_committee chairman william thomas urged the treasury_department to exercise administrative authority to provide retroactive relief cong rec h1394 daily ed date s a bill identical to that passed by the house of representatives has been introduced in the united_states senate in addition secretary_of_the_treasury snow in his date letters to chairman thomas and senate_finance_committee chairman charles grassley stated i t is our hope that congress consistent with the administration’s budget proposal will encourage the treasury_department to provide retroactive relief to those individuals who have utilized fema mitigation grants in the past i hope this information is helpful if you have any questions please contact ---------------- ------- of my office at sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax accounting


t c memo united_states tax_court richard rewerts petitioner v commissioner of internal revenue respondent docket no 2545-02l filed date richard rewerts pro_se rebecca s duewer-grenville for respondent memorandum opinion haines judge this matter is before us on respondent’s motion for summary_judgment pursuant to rule the issue for decision is whether there was an abuse_of_discretion in unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code_of_1986 as amended respondent’s determination that collection action could proceed for federal_income_tax liabilities for at the time his petition was filed petitioner resided in background nice california on date petitioner and his wife laura e rewerts filed a joint federal_income_tax return for tax_return reporting a total income of zero petitioner and his wife attached to their tax_return a 2-page letter that asserted basic tax-protester arguments they also attached forms w-2 wage and tax statement for that reported wages petitioner received from stergion construction and lakeport unified school district of dollar_figure and dollar_figure respectively and wages petitioner’s wife received from lakeport unified school district of dollar_figure petitioner and his wife claimed the federal_income_tax shown as withheld on the w-2s totaling dollar_figure as a refund on the tax_return on date respondent mailed petitioner and his wife a letter requesting them to respond within days to proposed adjustments to their tax_return 30-day_letter the 30-day_letter proposed an additional dollar_figure in taxes additions to tax penalties and estimated interest being amounts are rounded to the nearest dollar claimed by respondent petitioner responded to the 30-day_letter on date by a letter in which he stated i am requesting an office_audit meeting at which time you should have available the text of any written_determination and any background file documents relating to the determination that my zero return was not correct as provided in usc since sec_6001 and sec_6011 as referred to in the privacy_act notice that is contained in the booklet only direct me to comply with treasury regulations i will expect you to have the treasury regulation that imposes upon me a legal_obligation to treat seriously the changes you have proposed in my return the statute and implementing regulation that allowed you to change my return and your delegation_order from the secretary of treasury authorizing you to act in his behalf on date respondent mailed to petitioner and his wife a notice_of_deficiency for in which respondent determined that petitioner and his wife owed a deficiency of dollar_figure a dollar_figure accuracy-related_penalty under sec_6662 and a dollar_figure addition_to_tax under sec_6654 for failure to pay estimated_tax petitioner and his wife did not file a petition with the court to redetermine the deficiency instead petitioner mailed a letter dated date to the director of the internal_revenue_service center in fresno california stating that he would not file a petition with the court until the director established that respondent had the legal authority to send the notice_of_deficiency in the first place respondent assessed the tax addition_to_tax penalty and interest on date and issued a notice_and_demand for balance due on the same date on date respondent mailed to petitioner and his wife a final notice--notice of intent to levy and notice of your right to a hearing final notice on date respondent received from petitioner a form request for collection_due_process_hearing with a 2-page tax-protester statement attached petitioner’s wife did not sign the form and did not attend the subsequent sec_6330 hearing a recorded sec_6330 hearing was held on date at the san francisco appeals_office at the hearing petitioner asserted that no section in the internal_revenue_code required him to pay tax that he had filed a zero return which required a zero assessment that he had received no demand for payment of the tax and that the notice_of_deficiency he had received was invalid because it was not issued by someone with delegated authority petitioner also demanded a form 23c for a record of his assessments and a copy of the delegation_order authorizing the issuance of the final notice at the hearing petitioner received form_4340 certificate of assessments and payments but did not receive a copy of the delegation_order petitioner was given the opportunity during the hearing to present collection alternatives but he refused in the date notice_of_determination concerning collection action s under sec_6320 and or for notice_of_determination sent to petitioner the appeals officer determined that all of the legal and procedural requirements for taking levy action have been met and collection could proceed on date petitioner and his wife filed a petition with the court for judicial review of respondent’s notice_of_determination the petition contained only tax- protester arguments on date the court granted respondent’s motion to dismiss for lack of jurisdiction as to petitioner’s wife because she failed to sign the form and the notice_of_determination only pertained to petitioner sometime before date petitioner submitted an offer_in_compromise which was rejected by respondent’s offer_in_compromise group on date respondent filed a motion for summary_judgment by order dated date petitioner was given until date to file a response to the motion for summary_judgment to date no response has been received by the court from petitioner discussion a decision on a motion for summary_judgment may be rendered if the pleadings and other materials in the record show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir we have considered the pleadings and other materials in the record and conclude that there is no genuine issue of any material fact and that a decision may be rendered as a matter of law petitioner received a notice_of_deficiency but did not petition the court for a redetermination of the deficiency petitioner claims that the person who sent the notice_of_deficiency did not have delegated authority we have held in numerous cases that an argument such as petitioner’s is without merit see eg 118_tc_162 israel v commissioner tcmemo_2003_338 bethea v commissioner tcmemo_2003_278 fink v commissioner tcmemo_2003_61 koenig v commissioner tcmemo_2003_40 where the underlying tax_liability is not at issue we review respondent’s determination to proceed with collection for abuse_of_discretion 114_tc_604 petitioner has presented only tax-protester arguments to respondent and the court we have held in previous cases that petitioner’s arguments are without merit see eg 118_tc_365 nestor v commissioner supra pincite as to the argument that assessments are improper because the tax_return reported zero taxable_income 115_tc_35 as to the argument that a form 23c is necessary and that a form_4340 does not suffice to verify respondent’s assessments dashiell v commissioner tcmemo_2004_210 as to petitioner’s claim that no internal_revenue_code section makes him liable we reject these boilerplate tax- protester arguments as frivolous and without merit petitioner was asked on several occasions in his sec_6330 hearing whether he wished to propose any collection alternatives petitioner refused the opportunity rather in the sec_6330 hearing petitioner continued to assert a hodgepodge of unsupported assertions irrelevant platitudes and legalistic gibberish similar to those previously rejected by the court 737_f2d_1417 5th cir dunham v commissioner tcmemo_2003_260 although petitioner subsequently submitted an offer_in_compromise to respondent it was rejected by respondent’s offer_in_compromise group petitioner has not presented any evidence or persuasive arguments to convince us that respondent abused his discretion as a result we hold the issuance of the notice_of_determination was not an abuse of respondent’s discretion and respondent may proceed with collection respondent in his motion for summary_judgment has not asked the court to impose a penalty under sec_6673 against petitioner the court however may sua sponte impose a penalty 115_tc_576 jensen v commissioner tcmemo_2004_120 frey v commissioner tcmemo_2004_87 sec_6673 authorizes the court to require a taxpayer to pay the united_states a penalty in an amount not to exceed dollar_figure whenever it appears to the court the taxpayer’s position in such a proceeding is frivolous or groundless sec_6673 in the present case there is no evidence that petitioner has previously been a litigant in the court moreover there is no evidence that a warning was given to petitioner of the possible imposition of a penalty if he continued making his arguments therefore we decline to impose a penalty under sec_6673 but admonish petitioner that if he persists in pursuing frivolous arguments before the court in the future we may not be so favorably inclined see sides v commissioner tcmemo_2004_141 kaeckell v commissioner tcmemo_2002_114 in reaching our holding herein we have considered all arguments made and to the extent not mentioned above we conclude that they are irrelevant and without merit an appropriate order and decision will be entered