t c memo united_states tax_court vicki s pless and coy e pless jr petitioners v commissioner of internal revenue respondent docket no 1917-03l filed date vicki s pless and coy e pless jr pro_se james r rich for respondent memorandum findings_of_fact and opinion cohen judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or and a notice_of_determination concerning your request for relief from joint_and_several_liability under sec_6015 the issue for decision is whether there was an abuse_of_discretion in issuing the notices of determination without conducting a hearing requested by petitioners under sec_6330 unless otherwise indicated all section references are to the internal_revenue_code findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in south carolina at the time that their petition was filed petitioners filed a joint federal_income_tax return for reporting taxable_income of dollar_figure taxes of dollar_figure and an unpaid balance of dollar_figure the return described the occupation of petitioner coy e pless jr mr pless as chiropractor and the occupation of petitioner vicki s pless ms pless as office manager the amount shown as due was not paid with the return as of the time of trial in date petitioners had not filed federal_income_tax returns for any years subsequent to on date the internal_revenue_service irs sent to petitioners a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with respect to unpaid taxes for in the amount of dollar_figure on date mr pless submitted a form request for a collection_due_process_hearing in which he disagreed with the proposed action as due to business failure on date ms pless submitted a form in which she disagreed with the proposed collection action because of the innocent_spouse_rule ms pless also submitted a form_8857 request for innocent spouse relief in the form_8857 ms pless requested equitable relief ie relief from joint_and_several_liability under sec_6015 with respect to the underpayment of the tax shown on the return on date an appeals officer for the irs sent to petitioners a letter referring to the claims for relief that had been submitted by them the letter stated your request for a due process hearing will be scheduled after the innocent spouse claim has been worked the due process hearing may be in person or over the phone please let me know which you prefer when you are contacted to schedule your due process hearing if you plan to propose collection alternatives certain financial information is needed in order to determine the merits of any collection alternative proposal you make in this regard if you plan to propose collection alternatives please complete the enclosed form 433-a and form 433-b if applicable and return them to me as soon as possible since interest continues to accrue while your case is being considered you may wish to pay as much as you can as soon as you can if you have questions or concerns please contact me at the above address fax or telephone number also on date the appeals officer sent to an innocent spouse coordinator ms pless’s form_8857 noting ms pless did not provide any explanation as to why she feels she qualifies for innocent spouse relief other than the information that is reflected on the form_8857 enclosed on date a tax_auditor wrote to ms pless concerning her claim under sec_6015 the letter stated among other things it is important that you call me within days of the date of this letter in order to arrange an appointment for your convenience the following space is provided for you to record the appointment ms pless did not call but on date the tax_auditor called petitioners’ home and left a message for ms pless to return the call ms pless did not return the call on date the tax_auditor interviewed ms pless over the telephone after questioning ms pless about the factors considered with respect to relief under sec_6015 the tax_auditor recommended denial of relief because the taxpayers were still married and living together hardship was not shown there was no indication of marital abuse there was no legal_obligation by divorce decree or agreement for mr pless to pay the liability ms pless had knowledge of the unpaid liability when she signed the tax_return ms pless worked periodically in mr pless’s office during ms pless made some of the deposits into personal and business bank accounts and ms pless participated with mr pless in paying the household expenses on date the appeals officer again wrote to petitioners asking that they contact her by date to schedule a hearing petitioners responded to the appeals officer’s letter on date requesting that an in person hearing be scheduled if possible after date on date the appeals officer notified petitioners that she had scheduled an appointment for a hearing on date the letter stated if this date or time is not convenient for you please call me to reschedule this appointment by date on date ms pless wrote to the appeals officer requesting that the hearing be rescheduled because of a conflict with my doctor’s appointments in october on date the appeals officer wrote to petitioners suggesting three tentative dates for the hearing to wit october october or date that letter also indicated that ms pless would be given an opportunity to present factors relating to her innocent spouse claim during the hearing on date ms pless mailed a letter dated date to the appeals officer stating my husband had an unexpected death in his family that resulted in his being hospitalized for a stress related illness therefore it will be necessary to schedule hearing date in november preferably november 9th or november 16th this will also allow me to meet my doctor’s appointments in october on date the appeals officer prepared a memorandum reviewing the facts applicable law and procedure and chronology and concluding that the proposed collection action be sustained her memorandum stated in part it should be noted that date and date are both saturdays the internal_revenue_service offices in south carolina are not open on saturdays when i offered to let mr and ms pless pick a date for the hearing they asked that it not be held for the entire month of september but be put off until october i honored that request and scheduled an appointment for date when they wrote that that date was not convenient but did not suggest a convenient date i tried to call them but they did not return my phone call then i wrote them giving them three different dates to choose from to this they responded again by certified mail that none of these dates was convenient but either of two days that the office is closed in november would be a possibility in the date letter i explained to mr and ms pless that if they did not confirm one of the three hearing dates scheduled for them by date i would make a determination in this matter based on the information available to me mr and ms pless did not confirm one of the dates scheduled for them mr and ms pless have been given numerous opportunities to schedule a collection_due_process_hearing mr pless is a chiropractor i assume his office has a telephone from which a mutually convenient hearing time could be scheduled mr and ms pless negated the entire month of september as not being convenient for them to hold the hearing they negated all four hearing dates i scheduled for them in october since they did not suggest a date that would be convenient for them in october then they suggested dates on which the office is closed as possibilities that might be convenient for them since mr and ms pless have not scheduled a hearing the determination is made in this matter based on the information available to me the appeals officer adopted the tax auditor’s recommendation against sec_6015 relief the appeals team manager approved the appeals officer’s memorandum on date the notices of determination that are the basis of this action were sent to petitioners on date on date the appeals officer received a letter dated date but postmarked date from ms pless which stated this letter is to inform you that i am recovering from the cancer surgery that was performed on date i am now able to ride without pain from sitting and the risk of further complications this will allow me to reschedule for a hearing in january or date previously i had to reschedule the hearing because of the necessary pre-surgical evaluations that had led up to the april and october surgeries opinion sec_6330 specifies the issues to be considered at the hearing requested by petitioners as follows sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability petitioners have not suggested any challenge to the underlying liability that they reported on their tax_return respondent objected to consideration of any testimony at trial or any evidence as to whether ms pless qualifies for relief under sec_6015 that was not presented during the telephonic hearing of date the court indicated that the testimony would be allowed see ewing v commissioner t c ___ although ms pless was present at trial of this case she did not testify no medical records were ever presented to respondent to corroborate ms pless’s claims about scheduling of medical appointments or hospitalization mr pless testified generally to financial difficulties arising from his chiropractic practice and medical bills for ms pless his testimony however failed to explain why petitioners could not attend a hearing at any time between date and date or the inconsistency between the letters sent prior to the notices of determination and the letter sent after the notices of determination with respect to the multiple excuses for their inability to attend a hearing petitioners did not present any proposal for payment of the unpaid balance of their tax_liability for other than an offer in court that ms pless would pay dollar_figure toward the balance petitioners never supplied the financial information requested in the appeals officer’s letter of date ms pless failed to present evidence that she would qualify for relief from joint_and_several_liability or any evidence contradicting the tax auditor’s findings which were adopted by the appeals officer her failure_to_file tax returns for years subsequent to as well as the factors considered by the tax_auditor are factors weighing against relief see revproc_2000_15 sec_4 2000_1_cb_447 on consideration of the entire record we conclude that petitioners were provided several opportunities for a hearing contemplated by sec_6330 they failed to take advantage of that opportunity and they engaged in dilatory conduct to postpone collection moreover we conclude that even if the evidence that they offered at trial of this case had been offered at a hearing the determination would have been the same thus we conclude that there was no abuse_of_discretion in denying ms pless’s claim for relief under sec_6015 or in determining that the proposed collection action could proceed pursuant to the notice_of_federal_tax_lien with respect to petitioners’ federal_income_tax liability for decision will be entered for respondent


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c date number release date uil egend contact person identification_number telephone number employer_identification_number w l c c o a - i z z i o i v i n i m - s o o o - n a a m e o n l a m o w w b e t o w n a g o h dear we have considered your letter of date as supplemented by your letters of date and date in which you request rulings on the federal tax consequences of the transactions described below facts purpose organization and governance you are a nonprofit corporation that is exempt from federal income_taxation under r c sec_501 as an organization described in sec_501 you are a health_maintenance_organization hmo that provides the following healthcare and healthcare-related services behavioral healthcare to individual subscribers who qualify for publicly funded services under title xix of the social_security act medicaid healthcare to individual subscribers who qualify for publicly funded services under title xxi of the social_security act chp e e e healthcare to low-income individual subscribers under a medicare advantage plan under title xviii of the social_security act medicare advantage e e coordinated case management and administrative services in state and state administrative services for certain programs in state under title xix and title xxi of the social_security act except for administrative functions b will assume under a contract you will continue to engage in the activities listed above you are a membership_organization your members currently consist of l m and n and o jointly you intend in the near future to replace joint members n and o with p or an entity affiliated with p l is a managed care network m and p are hospitals o is the centralized clinical faculty practice plan of the faculty affiliated with medical school z each of l m o and p is an organization exempt from tax under sec_501 n recently elected to terminate its exemption under sec_501 on its last filed form 990-n e-postcard even though n terminated its exemption under sec_501 it continues to exist under state corporations law and remains an affiliate of z you are managed by a nine-member board_of directors consisting of three class a directors three class b directors one class c director one class d director and one class e director each member nominates a class a director who represents the member that nominated him or her the class b directors represent the community at large and may not be drawn from employees officers or directors of a member in addition no class b director may be an employee officer or directors of an entity that is concurrently represented on the board by a for example so long as an employee officer or director of l is director of any other class serving as a class a director no one else who is employed by or is an officer or director of l can serve as a class b director the class c director must have expertise in the field of behavioral health for the underserved_population the class d director represents the interests of o the class e director represents the interests of a federally qualified health center election of a class a director requires the unanimous vote of your members class a directors serve for an indefinite term subject_to removal or resignation directors other than class a directors are elected by a majority vote of your directors and serve for two-year terms with the terms of the class b directors being staggered your elected officers consist of a chair of the board one or more vice chairs a secretary and a treasurer your other executive officers including the president chief_executive_officer chief financial officer medical director and vice presidents are employees the president chief_executive_officer and chief financial officer may be hired only with the consent of your board_of directors proposed reorganization state created an american health benefit exchange within the meaning of uscs b the exchange your board_of directors authorized you to create one or more insurance products that may be offered on the exchange to that end you created two taxable subsidiary corporations a and b which are described below in connection with the formation of a and b you will reorganize your operations by transferring your employees and certain contracts to bsub a shareholders a’s articles of incorporation provide for the issuance of the following three classes of stock with the rights described below a b c founder stock a is authorized to issue big_number shares of founder stock all founder stock will be issued only to you as the holder of founder stock you are entitled to dividends and a share of the net assets remaining available for distribution if a is ever liquidated each share of founder stock entitles you to one vote in matters requiring a shareholder vote other than the election of directors founder stock votes as a class to elect the number of directors equal to one less than the aggregate number of directors elected by the director stock and the investor stock currently you elect two members of a’s five-member board_of directors director stock a is authorized to issue three shares of director stock the director stock is held collectively by your three members l m and o and n to be replaced by p director stock is not entitled to dividends or a share of the net assets remaining available for distribution if a is ever liquidated each share of director stock entitles its holders to one vote in matters requiring a shareholder vote other than the election of directors director stock votes as a class to elect three directors subject_to the condition that if a holder of director stock acquires sufficient investor stock to control the election of one director by the investor stock class the number of directors elected by the holders of the director stock will be reduced by one investor stock a is authorized to issue up to big_number shares of investor stock however a has no immediate plans to issue investor stock the holder of investor stock would be eligible to receive dividends at the same rate per share as founder stock in addition a holder of investor stock would be entitled to a ratable share of the net assets remaining available for distribution if a were ever liquidated each share of investor stock would entitle its holder to one vote in matters requiring a shareholder vote other than the election of directors investor stock would vote as a class to elect the number of directors determined by a resolution of the board_of directors but not to exceed four governance a b board_of directors a’s board_of directors is elected as described above while your officers directors and key employees within the meaning of sec_416 may serve on a’s board_of directors a’s bylaws provide that such individuals may not comprise the majority of a’s board officers a’s officers consist at a minimum of a president secretary and treasurer and are elected by a’s board_of directors a's board_of directors may create additional officer positions any person including your officers directors or key employees may hold two or more offices provided however that your officers directors or key employees may not in the aggregate hold a majority of the officer positions in supplemental correspondence you stated that the person who serves as your president and chief_executive_officer currently serves as a’s president the persons serving as a's secretary and treasurer are not among your directors officers or key employees capitalization funds you paid for your shares of founder stock provided a’s start-up funding and its initial insurance reserves you contemplate that the only payments you will receive from a will be as dividends in respect of your ownership of the shares of a activities a is licensed by the state division of insurance to provide insurance products under the exchange a will bear the insurance risk with respect to the products a will not limit its insurance risk through the use of capitation or sub-capitation agreements with providers a will not limit the sale of its products to low-income high-risk medically underserved or elderly individuals furthermore premiums a will charge will not be established on a community-rated basis nonetheless you anticipate that a will attract low- income high-risk medically underserved or elderly individuals because of their familiarity with you you contemplate that you will market a’s products in a manner that creates a link between you and a to attract individuals who already possess a familiarity with the healthcare benefits you provide to family members who qualify for your services in addition you anticipate that family members of your subscribers and former subscribers who cease to qualify to acquire healthcare services through your programs may purchase health insurance from a you expect that this will be due in part to their familiarity with you or your trade_name furthermore you also anticipate that a will specifically reach out to that population through its marketing program you will not transact business directly with a you anticipate that a will contract with bsub for administrative services shareholders b’s articles of incorporation provide for the issuance of the following two classes of stock with the rights described below a founder stock b is authorized to issue big_number shares of founder stock founder stock will be issued only to you as the holder of founder stock you are entitled to dividends and a share of the net assets remaining available for distribution if b is ever liquidated each share of founder stock entitles you to one vote in matters requiring a shareholder vote other than the election of directors founder stock votes as a class to elect the number of directors equal to one less than the number of directors elected by the director stock currently you elect two members of the five-member board_of directors b director stock b is authorized to issue three shares of director stock one share of director stock will be issued to each of your members director stock is not entitled to dividends or a share of the net assets remaining available for distribution if b is ever liquidated each share of director stock entitles its holder to one vote in matters requiring a shareholder vote other than the election of directors director stock votes as a class to elect three directors governance a b board_of directors b’s board_of directors is elected as described above while your officers directors and key employees may serve on b’s board_of directors b’s bylaws provide that such individuals may not comprise the majority of b’s board officers b’s officers consist at a minimum of a president secretary and treasurer and are elected by its board_of directors the board_of directors may create additional officer positions any person including your officers directors or key employees may hold two or more offices provided however that your officers directors or key employees may not in the aggregate hold a majority of the officer positions in supplemental correspondence you stated that the person who serves as your president and chief_executive_officer currently serves as b’s president the persons serving as b's secretary and treasurer are not among your directors officers or key employees capitalization your payment to acquire your founder's stock provided b’s start-up funding in supplemental correspondence you explained that you also extended short-term loans to b which b will use to cover operating costs prior to recouping those costs in its ordinary billing cycle you anticipate that b will fully repay the loans with interest prior to the end of the interest rate is the same rate that you pay on short-term debentures you issue to your members from time to time you contemplate that other than interest and principal paid on short-term loans the only payments you will receive from b will be as dividends in respect of your ownership of the shares of b activities b will be administered as a holding_company that will initially be the sole member of bsub bsub will be organized as a member-managed limited_liability_company a contractual relationships all of your employees will be transferred to bsub in addition you will transfer certain administrative functions to bsub you will retain all contracts pertaining specifically to your social welfare activities such as medicaid chp and medicare advantage you will enter into a contractual agreement with bsub under which bsub will provide you with various administrative services a also will enter into a separate contractual agreement with bsub under which bsub will provide administrative services to a in connection with its insurance_business in supplemental correspondence you state that the amounts that you and a will pay to bsub in exchange for administrative services are intended to reflect the reasonable fair_market_value of those services according to an arms-length standard you explain that although bsub has prepared various projections of its operating costs in order to derive the fair_market_value of such services reliable comparable data for such projections is not available accordingly bsub will charge you and a for services based upon i a ratable allocation of direct costs generated by the services being rendered ii a ratable allocation of indirect overhead costs incurred and iii a profit margin of one percent you further state that the one-year term of the contractual agreements with bsub creates an opportunity annually to adjust the pricing for bsub’s services if the leadership of the contracting parties determines that the proposed pricing structure fails or ceases to reflect the price at which such services would be provided between unrelated parties the terms of the contracts can be adjusted at that time services provided bsub will administer your social welfare contracts and agreements in addition bsub will administer a’s insurance products bsub’s administrative services will include but will not be limited to claims processing managerial_services general administration insurance and information_technology logos business cards bsub will display logos and signage for you and for a but not for itself bsub’s employees will carry business cards showing your and or a’s logo but not its own potential future affiliations b’s board_of directors contemplates and intends that b will remain the sole member of bsub however b may also acquire interests in other for- profit ventures such as telemedicine and third-party administration for self-funded medical_plans you anticipate that such entities will obtain administrative services from bsub under separately negotiated contracts b c d rulings requested you have requested the following ruling subsequent to the proposed reorganization the activities of your taxable subsidiaries a and b will not be attributed to you for the purposes of your continued qualification for exempt status or liability for unrelated_business_income_tax under sec_511 law r c sec_501 describes in part organizations that are operated exclusively for the promotion of social welfare r c sec_511 imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 provides that the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it less allowable deductions and certain modifications sec_512 generally modifies sec_512 to exclude dividends and interest from the definition of unrelated_business_taxable_income sec_512 establishes special rules for certain payments received from a controlled_entity in the form of interest annuities royalties and rents such a payment is included in unrelated_business_taxable_income under sec_512 to the extent it reduces the net_unrelated_income of the controlled_entity or any net_unrelated_loss of the controlled_entity sec_1_501_c_4_-1 provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community in 293_us_465 55_sct_266 the taxpayer created a subsidiary_corporation for the sole purpose of receiving taxpayer’s shares of another corporation and then immediately redistributing those shares to herself in a liquidation of the new corporation after the transfers were complete the new corporation dissolved without ever engaging in any business activities the court held that this use of a corporation would not qualify as a reorganization within the meaning of the statute that would exempt from tax gain arising from a transfer of assets by one corporation to another incident to a plan_of_reorganization the court found that the new corporation had no business or corporate purpose and was a mere device which put on the form of a corporate_reorganization as a disguise for concealing its real character gregory v helvering u s pincite s ct pincite even though a new and valid corporation was created under state law it was nothing more than a contrivance d the separate existence of the new corporation was disregarded for tax purposes the amounts realized by shareholder in the transaction were recast as a dividend from the parent_corporation in 308_us_473 60_sct_355 the taxpayer created a wholly owned corporation to engage in securities transactions with him the transactions were structured solely to provide a tax_benefit to the sole shareholder his ultimate beneficial interests in and control_over the securities or the proceeds of their sale were unchanged by the transactions the court held that the transactions between the sole shareholder and his corporation lacked a business_purpose other than to reduce tax_liability accordingly the corporation and its sole shareholder were treated as the same person for tax purposes higgins v smith u s pincite s ct pincite in 319_us_436 63_sct_1132 the court held that as a general_rule for federal_income_tax purposes a parent and its subsidiary corporations are separate taxable entities so long as the purposes for which the subsidiary is formed are the equivalent of business activities when a corporation is organized with the genuine intention that it will have real and substantial_business_activities its existence will not be disregarded for tax purposes however the separate identity of a corporation can be disregarded for tax purposes when the circumstances of its creation or its transactions with a sole shareholder show that the corporation was not created for any business_purpose but was merely a device to achieve a particular tax result moline properties u s pincite s ct pincite citing 308_us_473 60_sct_355 and 293_us_465 55_sct_266 the shareholder in moline properties had created the corporation upon the advice of a creditor the shareholder then transferred his shares in the corporation to a voting trustee appointed by the creditor shares of the corporation were retained by the trustee until the loan was repaid after the loan was repaid the shareholder ‘continued to use the corporation to engage in transactions involving the real_property moline properties u s pincite s ct pincite upon the sale of the corporation’s final asset the shareholder argued that the separate existence of the corporation should be ignored if the corporation's separate existence were disregarded the shareholder would obtain a more desirable result than if the gain were taxable to the corporation d the court found that in satisfying the demands of a creditor the corporation served a valid business_purpose therefore the shareholder could not later disregard the existence of the corporation for his own convenience 431_f2d_227 5th cir involved three corporations created to hold interests in a family business operated as a de_facto partnership the corporations were formed to encourage the children of one original partner to take an interest in the business and to facilitate each original partner’s estate_planning the partnership continued to manage the family's citrus groves corporate formalities were respected each corporation joined as a party to various banking transactions affecting the partnership's business activities d pincite in his concurrence judge tuttle noted that all actual business activities were undertaken at the partnership level by the original individual partners and that the corporations took no active role in the day to day management of the business d pincite nonetheless a subsidiary or related corporation can be created to to serve the creator's personal or undisclosed convenience and so long as that purpose is the equivalent of business activity or is followed by the carrying on of business by the corporation the corporation remains a separate taxable entity d pincite citing moline properties v commissioner u s pincite s ct pincite the court in britt found that only a minimal level of business activity is required for the corporation to be recognized as a separate taxable entity britt v u s f 2d pincite because the activities of the corporations in question met that low threshold the separate existence of each corporation was respected 483_f2d_1098 5th cir examined the instrumentality doctrine which allows the courts to disregard the separate legal existence of a corporation when it is a mere instrumentality of a dominant entity in krivo industrial supply company the court_of_appeals was called upon to determine whether a creditor corporation should be held liable for debts of its borrower where the financial circumstances of the borrower put the creditor in a position to exert substantial influence over the operations of the borrower d pincite the corporate form is not lightly disregarded however a subservient corporation’s separate existence may be disregarded if the subservient corporation exists to further the purposes of the parent dominant corporation and the subservient corporation has no separate independent existence of its own d pincite direct and actual operative control of the subservient corporation is required to apply the instrumentality doctrine the court will look past stock ownership to the specific facts to determine whether the dominant entity in fact possessed full control_over the subservient corporation and whether through its manipulation of the subservient corporation a third party was harmed d pincite the court held that the absence of an independent corporate purpose is most apparent in those cases in which the dominant corporation to further its own corporate purposes either organized or acquired the subservient corporation d pincite in krivo industrial supply company the court found that the creditor lacked the level of contro over the borrower for the instrumentality doctrine to apply d pincite 30_f3d_494 3rd cir analyzed the basis on which the separate corporate existence of an entity created by a tax-exempt_organization could be disregarded to entitle the subordinate organization to vicarious exemption through its exempt parent in denying vicarious exemption to the subordinate organization the court cited moline properties v commissioner u s pincite s ct pincite for the principle that a separately incorporated entity must generally qualify for exemption on its own merits the court noted that the subordinate organization was organized as a separate corporation for reasons its organizers found administratively and politically advantageous geisinger health plan v commissioner f 3d pincite although the subordinate organization was closely related to and was controlled by the exempt parent the subordinate organization engaged in a line_of_business that was distinct from that of the parent furthermore the court found that determining each entity's tax status based upon its own organizational structure is less complex and more certain for courts and administrators d analysis the analysis of the requested ruling involves three issues whether the activities of your taxable subsidiary a of your continued qualification for exempt status will be attributed to you for the purposes ais a separately incorporated entity and its separate existence should be respected for tax purposes you formed a to engage actively in a line_of_business distinct from your own you provide healthcare services to a specific population comprised of individuals and families who qualify for medicaid chp or medicare under your contracts with state a will issue health_insurance_policies through the exchange this factor distinguishes a from the entities described in 293_us_465 55_sct_266 and 308_us_473 60_sct_355 the corporations in those cases were created solely to achieve an advantageous tax result for the sole shareholder while lacking any business_purpose in addition since a will actively engage in a business with the public its business activities exceed the level required to satisfy the minimal standard established by the court in 431_f2d_227 5th cir you and a are related but possess materially different governance structures you are a nonprofit membership corporation your membership is limited to organizations that are exempt under sec_501 or sec_501 your board_of directors includes representatives of see 293_us_465 55_sct_266 308_us_473 60_sct_355 319_us_436 63_sct_1132 431_f2d_227 5th cir and 483_f2d_1098 5th cir cf 30_f3d_494 3rd cir the community at large as well as an expert in behavioral medicine relevant to the population that you serve a is a for-profit corporation whose articles of incorporation create a capital structure that allocates rights among three classes of shareholders although it has not yet done so a’s articles of incorporation authorize it to issue investor shares in addition a’s bylaws prevent a majority of its you appoint a minority of a’s directors directors from being drawn from your officers directors or key employees therefore while you participate in a’s management you cannot exert direct management contro over a the interests of constituencies ensured of participation in your operations such as the community at large are at most indirectly represented on a’s board furthermore a’s bylaws permit but do not require that your directors officers or key employees may serve as a's corporate officers however a’s bylaws also prohibit a majority of its officers from concurrently serving as your directors officers or key employees you represent that your president and chief_executive_officer currently serves as the president of a but that the secretary and treasurer of a are not your directors officers nor are they currently key employees of yours accordingly you do not possess the level of control over_a’s operations that would justify ignoring a’s separate corporate existence under the instrumentality doctrine whether the activities of your taxable subsidiary b will be attributed to you for the purposes of your continued qualification for exempt status as stated above with respect to a b is a separately incorporated entity and its separate legal existence should be respected b acting through bsub will actively engage in business activities different from your activities bsub will assume responsibility for the administrative activities that you previously engaged in for your own benefit you will cease to engage in those activities bsub will also acquire your employees even though the activities of b will continue to serve your interests bsub will also concurrently provide services to a furthermore b intends to investigate and potentially pursue additional businesses such as telemedicine and third-party administration of self-insured health_plans therefore b’s business activities exceed the low threshold to support b’s separate corporate existence ’ you and b are subject_to significantly different governance as with a your officers directors and key employees are precluded from comprising a majority of b’s board_of 483_f2d_1098 5th cir see 293_us_465 55_sct_266 308_us_473 60_sct_355 319_us_436 63_sct_1132 431_f2d_227 5th cir and 483_f2d_1098 5th cir cf 30_f3d_494 3rd cir ‘ 431_f2d_227 5th cir directors key constituencies entitled to direct representation on your board_of directors are only indirectly represented on b’s board_of directors owing to your right to elect a minority of b’s directors furthermore you will not be the only customer of bsub a will also purchase services from bsub as may other businesses that b may acquire in the future creating b and transferring your employees and administrative functions to bsub is consistent with your desire to establish a clear separation between yourself and a at the same time obtaining administrative services from bsub potentially enables you to realize efficiencies the separate contracts between you and bsub and between a and bsub will allocate bsub’s costs and overhead in a manner that reflects the value of goods and services provided to you and a’s respectively the contractual agreements also reflect the separate existence of each contracting party accordingly so long as b operates in accordance with its contractual relationships with you and a it should not be recast as an instrumentality of you whether you will have unrelated_business_taxable_income tax under sec_511 because of the activities of a or b as discussed above the factors necessary to disregard the separate corporate existence of either a or b are not present accordingly a or b will be treated as separate taxpayers they will report their items of income and expense on their respective corporate tax returns consequently neither the activities of a and b nor the gross_income derived from those activities will be attributed to you for the purposes of sec_511 you have not asked us to address the issue of whether payments you may receive from a or b such as in the form of dividends or interest will themselves be treated as unrelated_business_taxable_income therefore we are not ruling specifically on the effect of sec_512 or sec_512 on income arising from loans you have made to b or any loans you may in the future make to a or b conclusion in light of the foregoing we rule as follows subsequent to the proposed reorganization the activities of your taxable subsidiaries a and b will not be attributed to you for the purposes of your continued qualification for exempt status or liability for unrelated_business_income_tax under sec_511 this ruling will be made available for public inspection under sec_6110 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 483_f2d_1098 5th cir this ruling is directed only to the organization that requested it sec_6110 provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented without consideration of alternative plans of proposed transactions without consideration of hypothetical situations 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 i r c or treas reg to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter 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 steven b grodnitzky manager exempt_organizations technical group enclosure notice


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp -plr date date legend company district selling shareholders date date date date state c xxx ppp project b ddd percent purchaser purchaser purchaser ccc hhh plr dollar_figurefff dollar_figureggg dollar_figureiii case j dear this letter responds to the date request for rulings submitted by your representative on behalf of company and the selling shareholders listed on the attached schedule a with respect to the transfer of certain water rights you have requested a ruling that for federal_income_tax purposes company's participation in the procedures by which the transfer of the water is accomplished in conjunction with the sales by the selling shareholders of their rights to the water will not constitute a sale_or_other_disposition of property by company nor a distribution_of_property by the company to the selling shareholders with respect to their stock additionally you have requested rulings on whether the water rights will constitute capital assets in the hands of the selling shareholders and whether certain_sales of these water rights will constitute sales or exchanges of capital assets the information submitted in the request and in a later submission is summarized below facts company was organized on date as a ditch and reservoir company and is subject_to state c's statutory requirements for mutual ditch companies company uses the cash_method_of_accounting and its fiscal_year ends on date approximately xxx of the company's shareholders are selling shareholders the other shareholders are not transferring any of their water rights and are not involved in the transactions described herein state c mutual ditch companies generally were created when a group of farmers banded together and formed the cooperative company for the express purpose of storing and conducting water for irrigation purposes company's primary function has been to deliver to and store the water of its shareholders the company's assets are limited to those necessary to deliver and store the water these assets include weirs canals dams water control devices and a storage reservoir the shareholders used the bylaws and shares to quantify each of their beneficial use rights in the water transported by the company the company owns no land on which to make use of the water it transports and stores although water is derived from two sources only the water from project b the project b water as described below is the subject of this ruling_request plr on date district a quasi-governmental corporation subject_to state c's statutory requirements for such entities entered into an agreement the repayment contract with the united_states bureau of reclamation the bureau for the development of project b project b emanates from the reclamation act of as amended the repayment contract grants district the right to allocate the project b water the district does so through allotment contracts that require the water users to pay their proportionate share of the district's costs to operate and maintain project b and to repay the federal government for its construction costs the operating reimbursements costs on date district entered into an allotment contract with company which provided that company would be entitled to receive an allocation of water for the beneficial use of its shareholders the project b water was then allocated pro_rata among the shareholders based on their shares in addition to paying on a pro_rata basis company's annual operating_expenses based on their respective allocation of project b water each shareholder pays his proportionate share of the operating reimbursements costs under the allotment contract conditions in state c are such that water is in great demand as such the selling shareholders intend to relinquish their beneficial_ownership of ddd percent of the project b water through three sales agreements the master sales agreements with purchaser purchaser and purchaser the master sales agreements with purchaser and purchaser provide they will acquire an aggregate of ccc units of project b water at dollar_figurefff per unit and dollar_figureggg per unit respectively the master sales agreement with purchaser provides for an allocation of hhh units of project b water at dollar_figureiii per unit in order to satisfy certain transfer requirements of the district the master sales agreement with purchaser includes an option for purchaser to take all or some of the units through a twenty-five year interruptible supply contract the interruptible supply contract under the interruptible supply contract the price for the units is the same as in the master sales agreement and it includes an option to purchase the units for a nominal fee by its terms the interruptible supply contract will remove beneficial_ownership of the units from the selling shareholders you have indicated that purchaser has elected to take all the units pursuant to the interruptible supply contract the selling shareholders will be paid in full for all units upon the closing of all three transactions including the transaction subject_to the interruptible supply contract to facilitate the negotiation of the master sales agreements and the interruptible supply contract the selling shareholders created ppp to act as their agent the only members of ppp are the selling shareholders the selling shareholders are not selling their shares in company but their shares will bear a legend to reflect that they are no longer entitled to their full allocation of the project b water plr you have indicated that company is not materially participating in the transactions described above company as a party to the allotment contract however will agree to the amendment of the allotment contract to reflect the reduced allotment of project b water the master sales agreements and the interruptible supply contract are conditioned on our rulings herein however the selling shareholders due to the crisis situation in state c have already transferred some of the project b water to the purchasers the emergency sales the consideration received by the selling shareholders from these emergency sales is being held in escrow pending our rulings herein according to the courts of state c mutual ditch companies are unique entities which are formed not under state c' s general corporation statutes but under special legislation reserved for ditch and reservoir companies in analyzing the relationship between the shareholders and mutual ditch companies in regards to water rights the supreme court of state c in case j has stated that a mutual ditch company is merely engaged in the business of transporting and storing the water for its shareholders benefit and the law of state c uniformly holds that the actual ownership of the water rights is in the shareholder the supreme court's analysis noted that a longstanding tenet of state c law is that ownership of a water right can be acquired only by the actual beneficial use of the water mere diversion is not sufficient to meet the requirements of state c's constitution finally the supreme court noted that it is well established that the water rights owned by the shareholders are property rights accordingly based on this supreme court's decision and other decisions by this court it is clear that under state c law company is not the beneficial_owner of any of the water it transports for the benefit of its shareholders including the project b water representations company has represented that it is not a party to the master sales agreements or the interruptible supply contract and shall not receive any proceeds or other consideration arising or resulting from the transactions described herein based on the information and representations submitted we rule as follows the selling shareholders for federal_income_tax purposes are the beneficial owners of the project b water rights and the sale of such rights including the short-term emergency sales described above will not be deemed to be a sale_or_other_disposition of property by the company or a distribution_of_property by the company to the selling shareholders with respect to their stock accordingly the company will not realize gain_or_loss as a result of the selling shareholders' transactions sec_1001 sec_301 sec_311 plr the beneficial rights in the project b water constitutes a capital_asset in the hands of the selling shareholders sec_1221 the transfer of the beneficial rights in the project b water under the master sales agreements and the interruptible supply contract constitute sales of capital assets by the selling shareholders sec_1222 caveat no opinion is expressed about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling for example no opinion is expressed about whether the short-term emergency sales constitute sales or exchanges of capital assets nor are we opining on the selling shareholders' bases in these water rights the rulings contained in this letter are based upon information and a representation submitted by the company 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 procedural statements this ruling is directed only to the taxpayers 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your taxpayer_representative sincerely steven hankin senior technical reviewer branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-111702-98 date date company shareholders subsidiaries entity plr-111702-98 partnerships properties a b c plr-111702-98 d e f g h i j dear this letter responds to your letter dated date as well as subsequent correspondence requesting a private_letter_ruling specifically you ask the internal_revenue_service to rule that company’s elections to treat its wholly-owned first and second tier subsidiaries as qualified subchapter_s subsidiaries qssss will not cause any of the subsidiaries to recognize income from built-in gains solely by reason of the elections and the rents received by company from the leasing of the properties do not constitute passive_investment_income under sec_1362 company represents the following facts company was incorporated on a and elected on b under sec_1362 to be an s_corporation effective c it has subchapter_c_earnings_and_profits company also elected on b under sec_1361 to treat subsidiaries as qssss effective c company manages the operations of the properties it owns interests in the properties either directly or through subsidiaries or partnerships in which it owns a general_partner interest the properties consist mainly of apartment and office buildings a listing of partnership ownership percentages and property addresses is attached as appendix a company provides various services in its real_estate leasing and management business these services are provided by d persons including property managers onsite managers onsite leasing agents and onsite maintenance personnel in addition to the shareholders of company and outside contractors when required these services include but are not limited to plr-111702-98 regular property inspection comprehensive maintenance and repair office tenants are responsible only for servicing the equipment and fixtures they install janitorial services mainly for the office buildings landscaping snow and rubbish removal security and a 24-hour on-call service for emergencies and tenant problems in addition to the services provided to tenants company handles the usual marketing leasing and administrative functions involved in leasing and managing real_estate none of the properties is rented on a net_lease basis the owner pays for insurance taxes repairs and all other operating_expenses the properties generated a total of approximately e in rents and a total of approximately f in relevant expenses for g the comparable figures for h are i and j company’s_share of the income and expenses of the indirectly held properties is determined by its ownership interests as reflected in app a sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 defines qualified_subchapter_s_subsidiary as any domestic_corporation that is not an ineligible_corporation as defined in sec_1361 if i percent of the stock of that corporation is held by the s_corporation and ii the s_corporation elects to treat that corporation as a qsss notice_97_4 1997_1_cb_351 provides guidance on making the qsss election sec_1361 provides that except as provided in regulations i a corporation that is a qsss shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsss shall be treated as assets liabilities and such items as the case may be of the s_corporation the statutory provisions do not provide guidance on how the commingling of assets liabilities and other items occurs after the election is made the legislative_history however indicates that when the parent_corporation makes the election the subsidiary will be deemed to have liquidated under sec_332 and sec_337 immediately before the election is effective see s rep no 104th cong 2d sess h_r rep no 104th cong 2d sess sec_1374 imposes a corporate level tax on the built-in gains recognized by a former c_corporation during the 10-year plr-111702-98 period beginning with the first day of the first tax_year for which the corporation becomes an s_corporation for this purpose built-in gains means any pre-s election appreciation of an asset under sec_1374 if an s_corporation acquires an asset and the s corporation's basis in the asset is determined by reference to the basis of the asset or any other_property in the hands of a c_corporation the sec_1374 tax is imposed on any net_recognized_built-in_gain attributable to any such assets for any_tax year beginning in the recognition_period sec_1374 defines recognized_built-in_gain as any gain recognized during the recognition_period on the disposition of any asset except to the extent that the s_corporation establishes that a the asset was not held by the s_corporation as of the beginning of the first tax_year for which it was an s_corporation or b such gain exceeds the excess of the fair_market_value of the asset as of the beginning of the first tax_year over the adjusted_basis of the asset at that time sec_1362 provides that an election under sec_1362 to be an s_corporation terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in subparagraph c sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the plr-111702-98 number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts as presented in this ruling_request and viewed in light of the applicable law and regulations and provided that the deemed liquidations resulting from the qsss elections qualify as complete liquidations under sec_332 we conclude that neither company nor any of the subsidiaries will recognize income from built-in gains solely because of the deemed liquidations resulting from the qsss elections filed with respect to subsidiaries instead the deemed liquidations will be treated as sec_1374 transactions and sec_1374 will apply accordingly in addition we conclude that the rents company receives from the properties either directly or as part of its distributive_share of partnership income are not passive_investment_income under sec_1362 temporary or final regulations pertaining to issues addressed in this ruling letter have not yet been adopted therefore this ruling will be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria of dollar_figure of revproc_99_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances except for the specific rulings above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company's eligibility under sec_1361 to be an s_corporation the validity of its election under sec_1362 to be an s_corporation the effectiveness of its election to treat subsidiaries as qualified subchapter_s subsidiaries the qualification of the deemed liquidations resulting from the qsss elections as complete liquidations under sec_332 or the effect the qsss elections will have on entity further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative plr-111702-98 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries encl copy for sec_6110 purposes list of partnerships including ownership percentages assets and property addresses app a plr-111702-98 appendix a


internal_revenue_service number info release date ------------------------------------------ ----------------------------------- ------------------------------------------------------------------------------------------------------- ---------------------------- --------------------------- oct cc psi 1-genin-156659-03 uilc dear ------------ we are responding to your letter requesting automatic relief in order to establish s_corporation status effective as of the taxable_year the information submitted indicates that you filed a form_2553 timely however the internal_revenue_service failed to receive a timely election for your account and you have not produced proof of mailing it eg certified mail receipt in your situation automatic relief is unavailable under revproc_97_48 because irs records indicate that a notice regarding the missing s_corporation_election was sent to you within six months of the date your first form_1120s was filed although we are unable to grant automatic relief this letter provides information relating to your request announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling plr from the national_office the request sent to our office is insufficient for us to process a plr the procedures for requesting a plr are set forth in revproc_2003_1 copy enclosed in addition a user_fee must be submitted along with the request the standard fee is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_period qualify for a reduced fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement indicating that your corporate gross_income for the last 12-month taxable_year was less than one million dollars if you decide to submit a formal request for a private_letter_ruling please follow the sample format provided in appendix b of revproc_2003_1 your request should include all required procedural statements a check for the user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room in addition the irs has developed two new cd-roms to help educate small_business owners on their tax responsibilities introduction to federal taxes for small_business self-employed and a virtual small_business workshop these two cd- roms are free and can be ordered by calling the irs also provides a special website www irs gov smallbiz which is dedicated to providing information to small_business taxpayers please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2003_1


internal_revenue_service number release date index number --------------------------------------------- ---------------------------------------- ------------------------------ ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-130833-11 date date ----------------------------------------- ---------------- ---------------------- ----------------------------------------------------------------------------------------- x -------------------------------------------------- d1 d2 trust -------------------------------------------------------------------------------------------------------------- -------------------------------------------------- trust -------------------------------------------------- a ---------------------------------------------------- b ---------------------------------------------------- ---------------------------------------------------------------- ------------------------------ ----------------- dear ----- ------------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in d1 and filed an election to be treated as an s_corporation effective d2 trust and trust were each shareholders of x on d2 however the respective income beneficiaries of trust and trust failed to make timely and effective qualified_subchapter_s_trust qsst elections with respect to trust and trust therefore x’s s_corporation_election was ineffective a was and remains the income_beneficiary of trust and b was and remains the income_beneficiary of trust x represents that x and each of its shareholders have filed consistent with the treatment of x as an s_corporation since d2 x further represents that the failure to properly file a qsst election for either trust or trust was not motivated by tax plr-130833-11 avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that in the case of a qsst for which a beneficiary makes an election under sec_1361 the trust is treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of the trust shall be treated as the owner of that portion of the trust that consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of a qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax returns the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or plr-130833-11 termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s election to be treated as an s_corporation was ineffective and that the ineffectiveness was inadvertent within the meaning of sec_1362 we further conclude that pursuant to the provisions of sec_1362 x will be treated as being an s_corporation from d2 and thereafter provided that x is otherwise eligible to be an s_corporation and provided that the election was not otherwise terminated under sec_1362 both trust and trust will be treated as qssts from d2 and thereafter this ruling is conditioned upon the shareholders of x including in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 making any adjustments to basis as provided in sec_1367 and taking into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this letter_ruling shall be null and void this ruling is further conditioned upon the respective income beneficiaries filing with the appropriate service_center qssts election effective d2 for trust and trust the qssts election must be filed within days following the date of this letter and a copy of this letter should be attached to the elections except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x is a small_business_corporation under sec_1361 or whether either trust or trust is a qsst within the meaning of sec_1361 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes