internal_revenue_service number release date index number ------------------- ---------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- telephone number --------------------- refer reply to cc tege eb ec plr-104366-09 date date taxpayer employer ------------------- ----------------------------------------- organization a --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- organization b ------------------------------------------------ successor employer ------------------------------------ year year city a dear -------------- ------- ------- --------- this letter responds to taxpayer’s request for a private_letter_ruling dated date taxpayer has asked for a ruling that for purposes of sec_451 of the internal_revenue_code code he did not have constructive receipt in year of a check he actually received in year taxpayer represents the following facts taxpayer is an individual who files his federal_income_tax return on a calendar_year basis under the cash_receipts_and_disbursements_method of accounting taxpayer participated in employer’s sec_457 deferred_compensation plan plan employer was placed into involuntary liquidation by organization a and organization b was appointed as the liquidating agent to conclude employer’s affairs following the involuntary liquidation employer merged with successor employer and organization b terminated taxpayer’s employment with employer following the termination of his employment taxpayer submitted to organization b’s plr-104366-09 attorney an application requesting distribution of his funds from the plan organization b’s insurance_company mailed a disbursement check to successor employer which successor employer received on december of year on december of year an employee of successor employer phoned taxpayer advising him that the disbursement check had arrived and was available for pick up at successor employer’s office in city a successor employer’s city a office was closed all day on december of year on january of year taxpayer picked up the disbursement check code sec_451 provides that the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-1 of the income_tax regulations regulations provides that gains profits and income are to be included in gross_income for the taxable_year in which they are actually or constructively received by the taxpayer unless includible for a different year in accordance with the taxpayer’s method_of_accounting sec_1_451-1 of the regulations further provides that under the cash_receipts_and_disbursements_method of accounting such amount is includible in gross_income when actually or constructively received sec_1_451-2 of the regulations provides that income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable_year during which it is credited to his account set apart for him or otherwise made available so that he may draw upon it at any time or so that he could have drawn upon it during the taxable_year if notice of intention to withdraw had been given however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions based on the information submitted taxpayer could not have received the disbursement check in year accordingly we rule that a b taxpayer was not in constructive receipt of the disbursement check in year and taxpayer may report the disbursement check as income in year the year in which he actually received the payment except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-104366-09 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely _____________________________________ john b richards senior technician reviewer executive compensation branch office of the division counsel associate chief_counsel tax exempt and government entities


internal_revenue_service number release date index number ------------------------ ------------------------------------------------------------ --------- ----------------------------------- ------------------------------------ -------------------------- department of the treasury washington dc person to contact ---------------------------------------------- telephone number --------------------- refer reply to cc intl plr-158483-06 date date taxpayer ------------------------------------------------------------------------------- entity ----------------------------------------- ------------------------------------------------------------ ----------- year year year year country a cpa firm cpa firm dear------------------- --------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- --------------------- ------------------- this is in response to a letter dated date from your authorized representative requesting an extension of time under sec_301_9100-3 for taxpayer to file elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i as applicable with respect to dual consolidated losses as defined in sec_1_1503-2 incurred in year sec_1 through the information submitted for consideration is substantially as set forth below plr-158483-06 the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country a that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year sec_1 through no dual consolidated losses were attributable to the interest in entity taxpayer prepared its tax_return for year and engaged cpa firm to review the return taxpayer prepared its tax returns for year sec_2 through and engaged cpa firm to review the returns cpa firm and cpa firm failed to advise taxpayer of the need to include elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i as applicable with respect to dual consolidated losses_incurred in year sec_1 through taxpayer represents that the income_tax laws of country a do not deny the use of losses expenses or deductions of entity branch to offset income of another person because the dual_resident_corporation or separate_unit is also subject_to income_taxation by another country on its worldwide income or on a residence basis sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the filings described in sec_1_1503-2 and sec_1_1503-2t g are regulatory elections as defined in sec_301 b therefore the commissioner has discretionary authority under treas reg plr-158483-06 sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the above described elections and agreements taxpayer is not required to file annual certifications with respect to losses attributable to entity branch because entity branch is a separate_unit described in sec_1_1503-2 and therefore an extension of time is not necessary in this regard sec_1_1503-2 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election agreement sec_301_9100-1 for example a taxpayer that is subject_to mirror legislation enacted by a foreign_country may be ineligible to file election agreements pursuant to sec_1_1503-2 a copy of this ruling letter should be associated with the elections that are the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representatives sincerely ________________ richard l chewning senior counsel cc intl br3


t c summary opinion united_states tax_court eugenia gonzalez petitioner v commissioner of internal revenue respondent docket no 14909-04s filed date eugenia gonzalez pro_se jeffrey d heiderscheit for respondent vasquez judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure this opinion shall not be treated as precedent for any other case respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for and a dollar_figure accuracy-related_penalty under sec_6662 after concessions the issues for decision are whether petitioner had allowable business_expense deductions for tax_year and whether petitioner is liable for the accuracy-related_penalty under sec_6662 for tax_year background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time she filed the petition petitioner resided in texas during petitioner was employed by both raytheon co raytheon and ymca of greater el paso ymca in petitioner reported wages from both raytheon and ymca on her federal_income_tax return for the ymca she facilitated group exercise classes on an average of three nights per week as a group exercise instructor she was not reimbursed by the ymca for mileage music or clothing petitioner therefore purchased her own clothing music and drove her personally owned vehicle to respondent concedes that there is no self-employment_tax due for tax_year and that petitioner is entitled to deduct dollar_figure for music used as a group exercise instructor and from the ymca for the aerobics classes the distance between her jobs at raytheon and the ymca averaged miles in addition to transportation between work sites petitioner used her vehicle for personal purposes petitioner also worked as a mary kay consultant as a mary kay consultant she purchased cosmetics attended meetings downloaded information and brochures and performed one-on-one skin care classes she conducted this business out of her home for tax_year petitioner reported dollar_figure as cost_of_goods_sold on her schedule c profit or loss from business associated with her mary kay consulting however she reported no sales and no income she deducted dollar_figure in car and truck expenses dollar_figure for homeowners insurance dollar_figure in interest_expenses dollar_figure in during tax_year petitioner worked at three different ymca work sites in el paso texas the distance between petitioner’s raytheon work location and the ymca work locations was miles miles and miles this amount differs from the amounts claimed at trial at trial petitioner claimed dollar_figure in car and truck expenses including dollar_figure in gasoline dollar_figure in maintenance and dollar_figure in auto insurance petitioner acknowledges that this amount is inaccurate and should have been dollar_figure petitioner acknowledges that this amount is inaccurate and should have been dollar_figure office expenses dollar_figure in repairs and maintenance dollar_figure for supplies and dollar_figure for utilities in the notice_of_deficiency respondent disallowed all of petitioner’s claimed schedule c deductions due to a lack of substantiation discussion petitioner has neither claimed nor shown that she satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent with regard to any factual issuedollar_figure accordingly petitioner bears the burden_of_proof see rule a petitioner acknowledges that this amount is inaccurate and should have been dollar_figure the claimed amount for utilities includes dollar_figure for water dollar_figure for gas dollar_figure for telephone dollar_figure for electricity and dollar_figure for cell phone in the notice_of_deficiency respondent set forth self- employment_tax of dollar_figure based on a dollar_figure increase in self- employment income respondent concedes that petitioner had no self-employment_income and therefore owes no self-employment_tax at trial respondent attempted to raise issues regarding filing_status capital_loss and receipt of rental income these issues were not referenced in the statutory_notice_of_deficiency nor did respondent assert a claim for an increased deficiency pursuant to sec_6214 and rule sec_36 and sec_41 we find that these issues are not before the court see 92_tc_376 affd per curiam 920_f2d_1196 5th cir 64_tc_989 petitioner does not contend that sec_7491 applies to this case sec_7491 is in any event inapplicable because of petitioner’s failure to comply with the substantiation requirements of sec_7491 business_expenses are deductible from gross_income pursuant to sec_162 deductions are a matter of legislative grace and the taxpayer has the burden of showing that he or she is entitled to any deduction claimed rule a 503_us_79 290_us_111 during petitioner maintained a business as a mary kay consultant and was employed as a group exercise instructor however petitioner failed to meet her burden of proving that she is entitled to claim deductions in excess of those amounts conceded by respondent home_office expenses sec_280a provides that no deduction otherwise allowable shall be allowed with respect to the business use of a taxpayer’s residence sec_280a provides exceptions to the general_rule of sec_280a and requires that expenses be allocated between the business and personal_use of the dwelling accordingly in order to qualify under sec_280a a portion of petitioner’s dwelling must be exclusively used on a regular basis as the principal_place_of_business for her trade_or_business see 94_tc_348 petitioner has not established that a portion of her home was used exclusively on a regular basis as the principal_place_of_business for her mary kay consulting furthermore sec_280a limits the home_office deduction to the amount of gross_income received from the business reduced by deductions otherwise allowable petitioner reported no income from her mary kay business accordingly she is not entitled to any home_office_deductions id petitioner has claimed business_expense deductions for office expenses repairs maintenance supplies utilities and other expenses specifically petitioner has indicated that the dollar_figure she claimed in utilities expenses included water gas telephone electric cell phone and internet access fees for expenses that include both personal and business uses the taxpayer must show that the total expense was greater than what would have been made for personal_use only and if it is not then the expense is entirely nondeductible see sec_162 sec_274 sec_280f 21_tc_170 petitioner has not established that she made expenditures and she has not substantiated either her total usage or the amount of business use sec_274 provides that no deduction shall be allowed with respect to any listed_property as defined under sec_280f without strict substantiation listed_property under sec_280f includes but is not limited to cellular phones passenger automobiles and computer equipment see sec_280f iv v pursuant to sec_274 petitioner must substantiate the amount of total use and the amount of business use and only the portion of the expense that petitioner has substantiated to be ordinary and necessary business_expense is deductible see sec_162 sec_274 sec_280f sec_1_274-5t temporary income_tax regs fed reg date petitioner has not substantiated either total usage or amounts of business use for her cellular phone or demonstrated that the expenses were greater than they would have been had there been no business use for utility expenses that are not listed items under sec_274 the strict substantiation rules of sec_274 do not apply and the court may estimate the business portion of a utility expense 39_f2d_540 2d cir farran v commissioner tcmemo_2007_151 pistoresi v commissioner tcmemo_1999_39 however petitioner still must present evidence supporting the amount of the expense and the portion attributable to a business_purpose to allow the court to apply the cohan_rule cohan v commissioner supra davis v commissioner tcmemo_2006_272 although petitioner did in fact present copies of her water gas and electric statements there is nothing in the record that would indicate what portions of these expenses are attributable to ordinary and necessary business purposes or what portions are attributable to personal_use we therefore find that petitioner has not adequately substantiated these expenses and they are personal and nondeductible car and truck expenses automobile expenses are not deductible as a business_expense and will be disallowed in full unless the taxpayer satisfies the substantiation requirements under sec_274 substantiation includes adequate_records or other corroborating evidence of the amount of the expense the time and place of the automobile’s use and the business_purpose of its use see 50_tc_823 affd 412_f2d_201 2d cir maher v commissioner tcmemo_2003_85 respondent concedes that petitioner is entitled to a deduction for the cost of driving between her job at raytheon and her aerobics instruction classes at the ymca the average distance between petitioner’s places of employment is miles and petitioner traveled between workplace sec_3 times a week during tax_year for a total of big_number miles as such respondent concedes that petitioner may properly claim a deduction of dollar_figure for mileage on schedule a as a miscellaneous itemized_deduction petitioner did not however substantiate that she incurred any mileage in pursuance of her mary kay consulting activities we therefore find that petitioner has not adequately substantiated these expenses and they are nondeductible fitness-related expenses petitioner has provided receipts that she claims represent deductible business_expenses associated with her work as a fitness instructor the receipts include expenses for music clothing laundry and hairstyling petitioner argues that these expenses should be deductible because she was required to be presentable during the course of her aerobics instruction clothing is deductible as a business_expense only if it is required for the taxpayer’s employment unsuitable for general wear and not worn for personal_use see 74_tc_1266 30_tc_757 the determination of suitability for general use is an objective measure and does not rely on whether the taxpayer actually used the items in general use 628_f2d_467 5th cir revg tcmemo_1979_311 such costs are not deductible even when it has been shown that the particular clothes would not have been purchased but for the employment 524_f2d_640 10th cir 262_f2d_411 2d cir affg 28_tc_1278 hynes v commissioner supra pincite respondent concedes that petitioner is entitled to deduct dollar_figure for music used as a group exercise instructor for the ymca petitioner believes that it is through her appearance that she is able to bring them ymca a profit clothing and shoes purchased for use while exercising may be used in a variety of other settings and therefore are generally not a deductible expense see mella v commissioner tcmemo_1986_ further expenses_incurred for maintenance of nondeductible clothing are also nondeductible see eg pevsner v commissioner supra hairstyling and grooming expenses are generally considered nondeductible personal expenses see hynes v commissioner supra pincite boltinghouse v commissioner tcmemo_2007_324 like clothing expenses deductions for grooming expenses are limited to those that are considered unsuitable for general wear see genck v commissioner tcmemo_1998_105 petitioner has not substantiated that her clothing or hairstyling were required for the fitness activities or that they were unsuitable for general use accuracy-related_penalty sec_7491 provides that the commissioner will bear the burden of production with respect to the liability of any individual for additions to tax and penalties the commissioner’s burden of production under sec_7491 is to produce evidence that it is appropriate to impose the relevant penalty addition_to_tax or additional_amount 118_tc_358 see also 116_tc_438 once the commissioner has done so the taxpayer must come forward with evidence sufficient to persuade a court that the commissioner’s determination is incorrect see higbee v commissioner supra pincite pursuant to sec_6662 a taxpayer may be liable for a penalty of percent on the portion of an underpayment_of_tax attributable to negligence or disregard of rules or regulationsdollar_figure see sec_6662 a taxpayer is negligent when he or she failed ‘to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 91_f3d_670 4th cir quoting 33_f3d_426 4th cir affg in part vacating in part and remanding t c memo affg tcmemo_1995_46 negligence includes the failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and also includes any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1 b income_tax regs a taxpayer however may avoid the application of the accuracy-related_penalty by proving that he or she acted with reasonable_cause and in good_faith see sec_6664 whether a sec_6662 is not applicable in this case due to respondent’s concession that petitioner had no self-employment_income or self-employment_tax thereby reducing the deficiency by dollar_figure taxpayer acted with reasonable_cause and in good_faith depends upon all the pertinent facts and circumstances and most importantly the extent to which he or she attempted to assess the proper tax_liability see 85_tc_934 stubblefield v commissioner tcmemo_1996_537 sec_1_6664-4 income_tax regs petitioner failed to maintain adequate_records relating to claimed business_expenses petitioner knew or should have known at all times that the claimed expenses were personal expenses and not deductible business_expenses petitioner argues that she should be excused from the accuracy-related_penalties because she relied on her tax_return_preparer reliance on a return preparer may relieve a taxpayer from the accuracy-related_penalty where the taxpayer’s reliance is reasonable 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 however a taxpayer’s reliance must be in good_faith and demonstrably reasonable 91_tc_396 affd without published opinion 940_f2d_1534 9th cir freytag v commissioner supra pincite the ultimate responsibility for a correct return lies with the taxpayer who must furnish the necessary information to the agent who prepared the return 57_tc_781 in other words reliance upon expert advice will not exculpate a taxpayer who supplies the return preparer with incomplete or inaccurate information 14_tc_255 petitioner’s reliance on the advice of her tax_return_preparer was not reasonable petitioner provided information to the preparer and she knew or should have known that the amounts entered on the return were not accurate reliance on a preparer is not reasonable where even a cursory review of the return would reveal inaccurate entries see pratt v commissioner tcmemo_2002_279 petitioner failed to establish that she had reasonable_cause or acted in good_faith for the year at issue respondent has shown that petitioner has failed to keep adequate books_and_records or to properly substantiate the items in question accordingly we conclude that respondent has produced sufficient evidence to show that the sec_6662 accuracy-related_penalty is appropriate and petitioner has not proven that her negligence was due to reasonable_cause petitioner is therefore liable for the sec_6662 accuracy- related penalty in reaching our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing decision will be entered under rule


department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc fip b02 plr-122595-09 date date internal_revenue_service number release date index number ----------------------- ------------------------------------ ---------------------------- ----------------------- ---------------------------------- legend taxpayer ---------------------------------------------------------------------- ---------------------------- state a lp a b c d e year f year g city a h ------------ --------------------------- ---- ---------- ------------ ---------- ---- ------- ----- ------- -- ------------------- ---- plr-122595-09 city b i j state a date k l ------------------------ ----- -- ---------------- -------------------------- ------------ ---------- property a ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- llc month type type month m n o date month date month p -------------------------------- -------------- ----------- ---------- ---------------- ------------- ------------- ------------- ----------------------- ---------------------- ---------------------- -------------------- -------------- plr-122595-09 q r -- ----- dear ------------ this is in reply to a letter dated date requesting a ruling on behalf of taxpayer you have requested a ruling that the net_income derived by taxpayer from the sale of property a will not be treated as net_income derived from a prohibited_transaction under sec_857 of the internal_revenue_code and therefore the tax under sec_857 will not apply to taxpayer’s sale of that property facts taxpayer is a state a real_estate_investment_trust reit that has elected under sec_856 to be treated as a reit for federal_income_tax purposes taxpayer is the managing general_partner of lp and owns approximately a percent of the outstanding common units of lp lp through business entities classified as taxable reit subsidiaries trss partnerships or disregarded entities owns and operates a diversified portfolio of real properties and makes loans to third parties taxpayer currently has a market capitalization of b dollars taxpayer has total debt outstanding of approximately c dollars of which d dollars will come due over the next three years through its interest in lp taxpayer owns a portfolio of rental real_estate that has ranged from e properties in year to approximately f properties in year as of date taxpayer’s portfolio included g office properties located in the city a metropolitan area h office properties in the city b metropolitan area i retail properties located in various areas j industrial properties located in state a and other properties the gross value of the portfolio as of date was in excess of k dollars taxpayer’s gross rental income for year was approximately l dollars taxpayer represents it acquired each of the properties in its real_estate portfolio with the intention to hold it on a long-term basis for the production of rental income and appreciation in value taxpayer intends to sell property a which is owned by the property partnership llc taxpayer has acquired interests in llc both directly and through lp lp has owned nearly r percent of llc at all times since month to date llc has never owned other real_estate_assets and has made no sales taxpayer’s intent was to convert property a from a type building to a type building and to hold the building on a long-term basis for rental to tenants as of the end of month taxpayer had spent approximately m dollars in reconstruction costs for property a and has budgeted another n dollars to cover additional costs additionally plr-122595-09 taxpayer will also pay approximately o dollars to reimburse the sole tenant of property a for the tenant’s costs of improvements to the building on date llc entered into a lease in which it agreed to lease the entire office space in property a to a tenant for years with rent payable beginning in month on date lp entered into a lease with a tenant to occupy the retail_space at property a in month taxpayer was contacted by an independent unrelated real_estate broker concerning whether taxpayer would be interested in selling one of its type properties in city b the real_estate broker was seeking property on behalf of a client and property a matched the buyer’s criteria taxpayer represents that the broker’s inquiry was wholly unsolicited and that the taxpayer had not previously intended to sell the property or engage in any marketing or advertising activity with respect to selling property a it is anticipated that taxpayer and the buyer will reach an agreement for the purchase and sale of property a and that the sale will close in month the gross_proceeds of the sale are expected to be approximately p dollars the aggregate expenditures made by taxpayer during the 2-year period that will end on the date of sale that are includible in the basis_of_property a will exceed percent of the net selling_price of property a llc has never owned any other real_estate_assets and has made no sales from time to time taxpayer has made a limited number of property sales from its portfolio of rental real_estate taxpayer represents that each of those sales was motivated by its own unique business reasons and circumstances and none of the prior sales constituted the sale of property_held_for_sale to customers in the ordinary course of the taxpayer’s business over the course of the past twelve years in which taxpayer’s rental real_estate portfolio has grown from approximately e properties to f properties taxpayer has made on average one sale per year the highest number of sales made in any year during that period was q in light of the current extreme economic conditions taxpayer is now willing to sell property a as a result of the current credit crisis taxpayer has limited access to financing to meet its operating cash needs and repay debt obligations taxpayer intends to use the proceeds from the sale of property a to fund those cash needs law and analysis sec_857 of the code imposes a tax for each taxable_year of a reit equal to percent of the net_income_derived_from_prohibited_transactions under sec_857 the term prohibited_transaction means a sale_or_other_disposition of property described in sec_1221 that is not foreclosure_property plr-122595-09 sec_857 excludes certain_sales from the definition of a prohibited_transaction under sec_857 the term prohibited_transaction does not include a sale of a property that is a real_estate asset as defined in sec_856 and that is described in sec_1221 if - i ii iii iv v the reit has held the property for not less than years the aggregate expenditures made by the reit or any partner of the reit during the 2-year period preceding the date of sale that are includible in the basis of the property do not exceed percent of the net selling_price of the property i during the taxable_year the reit does not make more than sales of property other than sales of foreclosure_property or sales to which sec_1033 applies or ii the aggregate bases as determined for computing earnings_and_profits of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the aggregate bases of all the assets of the reit as of the beginning of the taxable_year or iii the fair_market_value of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the fair_market_value of all the assets of the reit as of the beginning of the taxable_year in the case of property which consists of land or improvements not acquired through foreclosure or deed in lieu of foreclosure or lease termination the reit has held the property for not less than years for production of rental income and if the requirement of clause iii i is not satisfied substantially_all of the marketing and development_expenditures with respect to the property were made through an independent_contractor as defined in sec_856 from whom the reit itself does not derive or receive any income_property described in sec_1221 includes property held by a taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business the legislative_history underlying sec_857 which was added to the code by the tax reform act of indicates that the purpose of that section was to prevent a reit from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development project s rep no 84th cong 2d sess vol c b to determine whether a taxpayer holds property primarily_for_sale_to_customers in the ordinary course of its trade_or_business the tax_court has held that several factors must be considered none of which is dispositive among those factors are the nature and purpose of the acquisition of the property and the duration of the ownership the extent and nature of the taxpayer’s efforts to sell the property the plr-122595-09 number extent continuity and substantiality of the sales the extent of subdividing developing and advertising to increase sales and the time and effort the taxpayer habitually devoted to the sales generally it is the purpose for which property is held at the time of the sale that is determinative although earlier events may be considered to decide the taxpayer’s purpose at the time of the sale see 89_tc_467 under sec_1_856-3 a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 taxpayer has represented that property a was acquired to generate rental income and to hold as a long-term investment for appreciation in value taxpayer made no affirmative effort to sell the property and is only selling property a to obtain needed liquidity due to the current extreme economic conditions taxpayer did not use a sales office or have a sales representative acting on its behalf with respect to the sale of property a neither taxpayer nor llc has a history of making numerous extensive continuous or substantial sales of properties as discussed in cottle supra rather taxpayer has a minimal prior sales history and llc has not held or sold any other_property accordingly we conclude that property a is not held by llc or taxpayer for sale in the ordinary course of its trade_or_business therefore the net_income derived by taxpayer from the proposed sale of property a will not be treated as income derived from a prohibited_transaction under sec_857 and no tax under sec_857 will be imposed on the income derived by taxpayer from the sale except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code plr-122595-09 this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely david b silber_________ david b silber chief branch office of associate chief_counsel financial institutions products


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division significant index no rekereee rrerkerke krarekreee attn ete rekkekrer legend employer a rerkkere plan xx - krekekkkk dear rekekekkeke may pie fe it this is in response to your request for a private_letter_ruling dated date as supplemented by a letter dated date concerning whether a reversion of excess amounts in plan x a defined_benefit_plan upon its termination would be subject_to the excise_tax described in sec_4980 of the internal_revenue_code the following facts and representations have been submitted plan x is a defined_benefit_plan that was established date to provide retirement income and other_benefits for certain employees and their beneficiaries the most recent amendments were made date and december effective retroactive to date plan x covers substantially_all of the employees of employer a who have attained age and have completed six months of continuous employment or one year of credited service whichever is earlier sec_1 of plan x provides that it is the intent of employer m that plan x shall be established and maintained as a retirement program which is in full compliance with the employee retirement income and security act of erisa and as a qualified_plan under the terms of sec_401 of the internal_revenue_code - sec_15 of plan x provides the employer m reserves the right to terminate plan x at any time sec_15 further provides in general that after the assets of pan x have been withdrawn and allocated any amount remaining in plan x will be returned to employer m a employer a is an organization exempt from federal_income_tax under sec_501 of the code in your letter dated date you represent that employer m has been subject_to unrelated_business_income_tax on income from nonmember use of club facilities as well as investment_income under other guidance employer m is not treated as having a profit_motive as such employer m is unable to use its loss from nonmember use of club facilities to offset its investment_income you further state that employer m has paid unrelated_business_income_tax on its investment_income but has never received a tax_benefit from its pension contributions to plan x you further state that employer a intends to terminate plan x the estimated assets at the date of termination total dollar_figure million with dollar_figure million is estimated liabilities this results in a reversion of approximately dollar_figure million employer m has decided not to establish a replacement plan employer m intends to terminate plan x and to receive an employer_reversion as defined in sec_4980 of the code employer m asserts that no amount of the reversion should be included in unrelated_business_taxable_income and that employer m should not be subject_to the excise_tax under sec_4980 of the code because it has not received a tax_benefit from the contributions it made to plan x based on these facts and representations you request the following ruling upon the termination of plan x the amount of the reversion will not be included in unrelated_business_income and employer a will not be subject_to the excise_tax under sec_4980 of the code sec_4980 of the code imposes an excise_tax of twenty percent on the amount of any employer_reversion from a qualified_plan in accordance with sec_4980 the excise_tax will be imposed on the employer maintaining the plan sec_4980 of the code provides in pertinent part that a qualified_plan for purposes of sec_4980 is a plan meeting the requirements of sec_401 or sec_403 other than a plan maintained by an employer if such employer has at all times been exempt from tax under subtitle a sec_4980 of the code provides that the term employer_reversion means the amount of cash and the fair_market_value of other_property received directly or indirectly by an employer from a qualified_plan sec_4980 d of the code provides that percent shall be substituted for percent in sec_4980 with respect to any employer_reversion from a qualified_plan unless the employer establishes or maintains a qualified_replacement_plan or the plan provides benefit increases that meet the requirements of sec_4980 sec_501 of the code provides for the exemption from federal_income_tax of clubs organized for pleasure recreation and other nonprofitable purposes where - wenenene substantially_all of the activities are for such purposes and no part of the net_earnings inures to the benefit of any private shareholder sec_1_501_c_7_-1 of the income_tax regulations ‘regulations states that the exemption provided to organizations described in sec_501 of the code applies only to clubs which are organized exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club it its net_earnings inures to the benefit of any private shareholder the regulation also states that in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitied to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities sec_511 of the code imposes a tax on unrelated_business_taxable_income of organizations described in sec_401 and sec_501 c which are exempt from tax by reason of sec_501 sec_512 provides in general that in the case of an organization described in sec_501 the term unrelated_business_taxable_income means the gross_income excluding any exempt_function_income less the deductions allowed by this chapter which are not directly connected with the production of the gross_income excluding exempt_function_income both computed with modifications provided in paragraphs and of subsection b sec_512 of the code defines exempt_function_income as the gross_income from dues fees charges or similar amounts paid_by members of the organization as consideration for providing such members or their dependents or guests goods facilities or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid such term also means ail income other that an amount equal to the gross_income derived from an unrelated_trade_or_business regularly carried on by such organization computed as if the organization were subject_to paragraph which is set_aside i for a purpose specified in sec_170 or ii in the case of an organization described in paragraph or of sec_501 to provide for the payment of life sick accident or other_benefits if during the taxable_year an amount which is used for a purpose other than that described in i or ii such amount shall be included in unrelated_business_taxable_income for the taxable_year sec_513 of the code provides in relevant part that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade of 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 derives to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_1_513-1 of the income_tax regulations regulations provides that - for purposes of sec_513 of code the term trade_or_business has the same sesnee meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the regulations provides that in determining whether a 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 sec_1_513-1 of the regulations 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 regulations indicates that the primary objective of the adoption of the unrelated_business_income_tax was to eliminate a source of unfair competition by placing the unrelated business activities of certain exempt_organizations upon the same tax basis as the nonexempt business endeavors with which they compete where an activity does not possess the characteristics of a trade_or_business within the meaning of sec_162 of the code the unrelated_business_income_tax does not apply since the organization is not competition with taxable organizations the issue of whether the reversion or any part thereof is income to employer m and taxed as unrelated_business_taxable_income involves an analysis of whether the reversion or any part thereof is income as defined in sec_61 of the code as modified by sec_111 under sec_61 of the code gross_income generally includes income from whatever source derived however under sec_114 a gross_income does not include income attributable to the recovery during the taxable_year of an amount deducted in any prior taxable_year to the extent such amount did not reduce the amount of tax_imposed_by_chapter_1 sec_11 a represents the exclusionary arm of the tax_benefit_rule conversely if the taxpayer recovers an amount previously deducted which did not reduce the amount of tax the recovery is includible in income this is the so- called inclusionary arm of the tax_benefit_rule recovery is defined in sec_1_11-1 a of the regulations as resulting from the receipt of amounts in respect of the previously deducted or credited code sec_111 item such as bad_debts or taxes thus the application of the tax_benefit_rule requires a fundamentally_inconsistent_event under the regulations a previously deducted item that is recovered would represent such an event even if the item is not listed there if the taxpayer derived no benefit from the inconsistent deduction the recovery would be exciuded from gross_income this principle has been followed when the taxpayer did not receive a benefit from the deduction because the taxpayer was tax- exempt en the potential reversion in this case may not just represent the return of contributions to plan x but may also represent previously untaxed income earned on the contributions while in plan x you represent that employer m has never received a tax_benefit from the contributions it made to plan x therefore with respect to the first part of your ruling_request we conclude that employer m does not have unrelated_business_taxable_income from the recovery_of the surplus of assets from plan x following the termination of plan x with respect to the second part of your ruling_request concerning the applicability of the code sec_4980 excise_tax to employer m you represent that employer m has paid unrelated_business_income_tax on its investment_income and income it receives from nonmember use of its club facilities a tax-exempt employer is subject_to tax under subtitle a of the code if it has unrelated_business_taxable_income because employer m has been subject_to tax under subtitle a of the code plan x has not at all times been maintained by an employer that has at all times been exempt from tax under subtitle a therefore with respect to the second part of your ruling_request we conclude that employer m will be subject_to the excise_tax under sec_4980 of the code this ruling is based on the assumption that plan x is qualified under sec_401 of the code and its trust is tax exempt under sec_501 a this letter_ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may be used or cited by others as precedent a copy of this ruling has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions about this ruling please contact t ep ra t2 at krekkkeee sincerely yours james e holland jr manager employee_plans technical enclosures deleted copy of ruling letter form_437


internal_revenue_service number release date index number ---------------------- ------------- ---------------------------- -------------------------------------- --------------------------- - department of the treasury washington dc person to contact ---------------------- id no --------------- telephone number --------------------- refer reply to cc psi b02 - plr-161323-04 date date legend x state date year dear ---------------- ---------------------------- ein ---------------- ------------- ---------------- ------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code x was incorporated on date under the laws of state the shareholders of x intended that x elect s_corporation treatment effective on date but x’s form_2553 election by a small_business_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date sec_1362 of the code provides that if b a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely plr-161323-04 made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely yours beverly katz senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number cc tege eoeg teb-plr-143699-01 date legend issuer bonds owner manager independent organization state law date dollar_figurea dollar_figureb c percent dollar_figured plr-143699-01 this responds to the issuer’s request for a ruling that the management_contract more fully described below the management_contract does not constitute private_business_use under revproc_97_13 sec_5 1997_1_cb_632 or in the alternative under sec_1_141-3 of the income_tax regulations facts and representations the issuer issued the bonds and loaned a portion of the proceeds to the owner to finance the construction of a hotel the hotel the useful_life of the hotel i sec_40 years as determined under revproc_62_21 1962_2_cb_418 the owner is a non-profit local_government corporation under the state law the issuer represents that the owner is an instrumentality of the issuer according to factors set forth in revrul_57_128 1957_1_cb_311 the owner will be the legal owner of the hotel and is authorized to enter into all contracts with respect to the hotel the owner and the manager entered into the management_contract on date the stated term of the management_contract i sec_15 years beginning on the date the hotel is placed_in_service_date is approximately three years before the date on which the hotel will be placed_in_service on date the owner and the manager also entered into the technical services and preopening agreement the preopening agreement the terms of the management_contract require the manager and the owner to enter into the preopening agreement the term of the preopening agreement began on date and will terminate on the date on which the hotel is placed_in_service the same date on which the 15-year term of the management_contract begins the approximate term of the preopening agreement i sec_3 years under the preopening agreement the manager is to provide technical services which include advising the owner regarding the hotel’s design construction and preopening services the preopening services include preparing an initial plan for the organization and operation of the hotel booking the initial reservations for hotel rooms and facilities and developing and implementing an initial marketing plan the manager’s compensation under the preopening agreement is a stated dollar amount payable in equal monthly installments the manager will be paid the following amounts under the management_contract the management fee the productivity reward the centralized service fee the inducement fee deemed repayment and expenses_incurred by the manager for certain employees and third parties the management fee the management fee is a fixed dollar amount payable per year for each year of the term of the management_contract during the first four years of the term of the management_contract the fee will not be adjusted beginning with the fifth year of the management_contract the amount of the fee in effect the previous plr-143699-01 year will be adjusted annually by a specified percentage the adjustment percentage the adjustment percentage is the percentage change from the prior year in total revenues per available room the market room revenues for a comparable group of hotels in the city excluding the hotel the comparable hotels the market room revenues for any year will be determined by dividing the total revenues from the available rooms of comparable hotels for a period specified in the management_contract by the total rooms available for occupancy in the same hotels over the same time period each of the comparable hotels must meet the standards and criteria prescribed by the independent organization for hotels that have same rating as the hotel beginning with the third year of the management_contract and in each year thereafter the owner has the right to defer paying a stated dollar amount of the management fee if the owner’s net operating revenues are not sufficient to fund the hotel’s primary capital replacement reserve and to pay the owner a percentage specified in the management_contract of the total cost of the hotel but not to exceed dollar_figurea the preferred_return any deferred_amount of the management fee will be payable after these two funding obligations have been met however any amounts that are deferred must be paid when the management_contract expires or is terminated regardless of whether the primary capital replacement reserve and preferred_return funding obligations have been met the feasibility study commissioned by the issuer and the owner projects that no deferrals will occur the productivity reward the manager will be eligible for a single productivity reward during the term of the management_contract in the amount of dollar_figureb in order for the manager to qualify for this reward the hotel's gross revenues per available room for a period specified in the management_contract must equal or exceed c percent of the market room revenues the market room revenues will be computed in the same manner as those revenues will be computed for purposes of determining the adjustment percentage for the management fee component described above the productivity reward is also subject_to deferral in the same manner as the deferred portion of the management fee as noted above the feasibility study projects that no deferrals will occur the centralized services fee the centralized service fee is a stated dollar amount per year for each year of the term of the management_contract for certain group services that the manager provides to a majority of hotels that it owns or manages beginning in the fifth year of the management_contract the amount of this fee will be adjusted annually according to the revised consumer_price_index for all urban consumers the cpi in effect for the preceding year the inducement fee deemed repayment the manager is required to pay the owner an inducement fee in the amount of dollar_figured within the period specified in the management_contract the owner is deemed to repay the manager a fixed amount per month over the term of the management_contract if the owner terminates the management_contract other than for cause the owner is obligated to repay the plr-143699-01 remaining outstanding balance of the inducement fee if the owner terminates the management_contract for cause the owner is entitled to retain the remaining outstanding balance of that fee as liquidated_damages for the costs of finding a replacement manager the parties expect that the entire inducement fee will be deemed to be repaid to the manager over the term of the management_contract because the parties do not expect that the management_contract will be terminated prior to the end of the stated term the expenses_incurred by the manager for certain payments to employees and third parties the management_contract provides that the owner will reimburse the manager for third party expenses and for the salaries of the manager’s on-site employees the owner will also reimburse the manager for the salaries and expenses of the manager’s off-site employees who provide services to the hotel the reimbursed salaries and expenses will not be based on a share of the hotel's net profits and will not exceed the fair_market_value of the services provided the manager’s on-site and off- site employees do not include the hotel executive staff the owner has the right to terminate the management_contract for various reasons provided in the management_contract including but not limited to the manager’s default under any provision term or material covenant under the management_contract and the failure of the hotel to generate revenues at levels specified in the management_contract the manager has no role or relationship with the owner that in effect substantially limits the owner’s ability to exercise its rights including cancellation rights under the management_contract none of the voting power of the governing body of the owner in the aggregate is vested in the manager and its directors officers shareholders and employees there are no overlapping board members between the manager and either the issuer or the owner the manager is not a related_party as defined under sec_1_150-1 of the income_tax regulations to the issuer or the owner law sec_103 generally provides that gross_income does not include interest on any state_or_local_bond sec_103 provides that this exclusion does not apply to any private_activity_bond unless it is a qualified_bond as defined under sec_141 sec_141 provides that a bond is a private_activity_bond if the bond satisfies the private business tests of sec_141 under sec_141 and sec_141 private_business_use occurs if more than percent of the proceeds of the bonds are used directly or indirectly in a trade_or_business carried on by any person other than a governmental person under sec_141 any activity carried on by a person other than a natural_person is treated as a trade_or_business under sec_1_141-3 in general a nongovernmental person is treated as a private business user of the proceeds as a result of ownership actual or beneficial use of property pursuant to a lease or a management or incentive payment plr-143699-01 contract or certain other arrangements such as a take or pay or other output-type contract as material to this ruling_request sec_1_141-3 provides that a management_contract with respect to financed property may result in private_business_use of that property based on all of the facts and circumstances a management_contract with respect to financed property generally results in private_business_use of that property if the contract provides for compensation_for services rendered with compensation based in whole or in part on a share of net profits from the operation of the facility id under sec_1_141-3 a contract to provide for services if the only compensation is the reimbursement of the service provider for actual and direct expenses paid_by the service provider to unrelated parties is generally not treated as a management_contract that gives rise to private_business_use revproc_97_13 sets forth conditions under which a management_contract does not result in private_business_use under sec_141 section dollar_figure provides that if the requirements of sec_5 are satisfied the management_contract does not itself result in private_business_use under sec_5 of revproc_97_13 the management_contract must provide for reasonable_compensation for services rendered with no compensation based in whole or in part on a share of net profits from the operation of the facility reimbursement of the service provider for actual and direct expenses paid_by the service provider to unrelated parties is not by itself treated as compensation id sec_5 of revproc_97_13 further provides that for purposes of sec_1 b i and revproc_97_13 a productivity reward equal to a stated dollar amount based on increases or decreases in gross revenues or adjusted gross revenues or reductions in total expenses but not both increases in gross revenues or adjusted gross revenues and reductions in total expenses in any annual period during the term of the contract generally does not cause the compensation to be based on a share of net profits section dollar_figure of revproc_97_13 sets forth six specific arrangements that satisfy the requirements of sec_5 under sec_5 at least percent of the compensation_for services for each annual period during the term of the contract must be based on a periodic fixed fee sec_5 further provides that the term of the contract including all renewal options must not exceed the lesser_of percent of the reasonably expected useful_life of the financed property and years for purposes of sec_5 a fee does not fail to qualify as a periodic fixed fee as a result of a one-time incentive award during the term of the contract under which compensation automatically increases when a gross revenue or expenses target but not both is reached if that award is equal to a single stated dollar amount section dollar_figure of revproc_97_13 provides as follows a periodic fixed fee means a stated dollar amount for services rendered for a specified period of time for example a stated dollar amount per month is a periodic fixed fee the stated dollar amount may automatically increase according to a specified objective external standard that is not linked to the output or efficiency of a facility for example the plr-143699-01 consumer_price_index and similar external indices that track increases in revenues or costs in an industry are objective external standards sec_5 of revproc_97_13 generally provides that a service provider must not have any role or relationship with the qualified user the state_or_local_government or instrumentality that is a party to the management_contract that substantially limits the qualified user’s ability to exercise its rights including cancellation rights based on all the facts and circumstances under sec_5 the qualified user’s rights are not substantially limited if the following requirements are satisfied not more than percent of the voting power of the governing body of the qualified user in the aggregate is vested in the service provider and its directors officers shareholders and employees overlapping board members do not include the chief executive officers of the service provider or its governing body or the qualified user or its governing body and the qualified user and the service provider under the contract are not related parties as defined in sec_1_150-1 analysis the management_contract must meet all requirements of revproc_97_13 for that contract to be deemed not to result in private_business_use of the hotel by the manager if any requirement is not met then whether the management_contract results in private_business_use depends on all of the facts and circumstances in the latter case the principles set forth in revproc_97_13 are useful reference points ie the manager's compensation the term of the management_contract and the relationship of the manager to the owner see revproc_97_13 sec_5 whether the manager's compensation meets the requirements of revproc_97_ first requires an analysis of the amounts paid to the manager ie the management fee the productivity reward the centralized services fee the inducement fee deemed repayment and expenses_incurred by the manager for certain employees and third parties the following amounts paid to the manager satisfy the revproc_97_13 dollar_figure definition of a periodic fixed fee because each is a stated dollar amount for a period specified in the management_contract and is adjusted only by a specified objective external standard the centralized services component is a stated dollar amount for services rendered for a specified period that will be adjusted by the cpi the non- deferrable amount of the management fee component is a stated dollar amount for services rendered for a specified period that will be adjusted by the adjustment percentage the adjustment percentage is based on an external indicia that tracks revenues and is therefore based on a specified objective external standard that is not linked to the efficiency of the hotel the following amounts do not constitute compensation to the manager the inducement fee is analogous to a discount of the total amount of manager’s fee in the amount of dollar_figured that is deemed to be amortized over the term of the contract and that the plr-143699-01 parties use as a measure for liquidated_damages in the event that the management_contract is terminated for cause hence the deemed repayment of the inducement fee does not constitute compensation to the manager the expenses_incurred by manager for third parties and certain employees not including the hotel executive staff are based on fair_market_value and are not based on a share of hotel net profits hence because these reimbursements are for the manager’s actual and direct expenses to unrelated third parties they are not treated as compensation to the manager under revproc_97_13 sec_5 for similar reasons these reimbursements are not treated as compensation under sec_1_141-3 the owner’s right to defer a stated dollar amount that represents a portion of the management fee and the full amount of the productivity reward the deferred fees under the circumstances presented raises the issue of whether the these fees are based on a share of hotel net profits although the timing of payment of the deferred fees is based on hotel net profits and therefore indicates private_business_use of the hotel by manager we think that the circumstances support a conclusion otherwise the full amount of all deferred fees will be payable regardless of the existence and amount of net profits when the management_contract expires or is terminated in addition the deferrable portion of the management fee is a stated dollar amount and is not itself a percentage of hotel net profits the productivity reward is analogous to the productivity reward approved by revproc_97_13 sec_5 because it is to be made only once and is based on an increase in gross revenues for a period specified in the management_contract finally the feasibility study projects that no deferrals will occur thus although the deferred elements of the manager’s compensation do not satisfy the requirements of revproc_97_13 sec_5 on balance these deferred elements do not indicate private_business_use under sec_1_141-3 to satisfy revproc_97_13 sec_5 the term of the management agreement cannot exceed years the management_contract requirement that the owner and the manager to enter into both the preopening agreement and the management_contract the contracts on date suggests that it may be appropriate to aggregate the terms of the two contracts so that the total term is of the contracts is years nevertheless assuming aggregation the emphasis of the preopening agreement is on supervision of the design and construction of the hotel prior to the date the hotel is placed_in_service hence the management phase of the contracts occurs primarily during the 15-year term of the management_contract as a result the management phase of the contracts standing alone would be limited to a term that satisfies revproc_97_13 sec_5 hence based on these facts the term of the contracts does not indicate private_business_use under sec_1_141-3 the management_contract meets the requirements of revproc_97_13 sec_5 because the manager does not have a relationship with owner that would limit owner's rights under the management_contract including the owner’s cancellation rights conclusion plr-143699-01 although the management_contract does not satisfy all requirements of revproc_97_13 sec_5 based on all facts and circumstances we conclude that the management_contract does not result in private_business_use under sec_1_141-3 this conclusion is based upon information and representations submitted by the issuer 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 a ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 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 issuer sincerely assistant chief_counsel office of tax exempt employment_tax government entities by timothy l jones assistant branch chief enclosure


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-110496-11 date date internal_revenue_service number release date index number ------------------------------------- ----------------------------- ------------------ --------------------------- legend -------------------------------- x ------------------------------------------ d ---------------------- state -------------------- dear ---------------- this responds to a letter dated date requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if the election is made after the first two and one-half months of a plr-110496-11 corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes 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 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 joy c spies joy c spies acting senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes