internal_revenue_service number info release date cor-127123-01 uil no 25a date the honorable phil gramm united_states senator bryan street no dallas tx attention michael fitzgerald dear senator gramm this letter is in response to your inquiry dated date on behalf of a constituent mr is concerned that proposed_regulations under sec_25a of the internal_revenue_code may prevent his daughter and other students from claiming an education tax_credit at college mr also notes that the instructions on irs form_8863 education credits mr state that the tax_credit is available if the educational_institution is eligible to participate in a student aid program administered by the department of education college however is financially independent of the government mr assurance that the federal government is not trying to coerce educational conformity by selective allowance of the education tax_credit by withholding the credit from families of students at college wishes the congress added sec_25a by of the taxpayer_relief_act_of_1997 vol c b in general sec_25a allows taxpayers to claim a nonrefundable credit against their federal_income_tax for the qualified_tuition_and_related_expenses of a taxpayer spouse or certain dependents the committee on finance of the united_states senate stated that the purpose of the credit is to assist low- and middle-income families and students in paying for the costs of post-secondary education s rep no 105th cong 1st sess l997 vol c b under sec_25a the taxpayer may claim a hope scholarship credit for the qualified_tuition_and_related_expenses paid during a taxable_year for each eligible_student the amount of the credit is the total of percent of the first dollar_figure of qualified_tuition_and_related_expenses plu sec_50 percent of the next dollar_figure of such expenses paid with respect to the same student under sec_25a the taxpayer may also claim a lifetime_learning_credit for the qualified_tuition_and_related_expenses paid during a taxable_year for students for whom no hope scholarship credit is claimed the amount of the credit is percent of the first dollar_figure of qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year for education furnished during any academic period beginning in that taxable_year increased to dollar_figure after in enacting sec_25a the congress imposed a number of eligibility requirements such as income ceilings sec_25a defines the term qualified_tuition_and_related_expenses to mean tuition and fees required for the enrollment or attendance of the student at an eligible_educational_institution for courses of instruction sec_25a defines an eligible_educational_institution to mean an institution that is described in sec_481 of the higher education act of u s c and therefore eligible to participate in the student aid programs administered by the department of education under title iv of such act in the department of treasury issued proposed income_tax regulations under sec_25a fed reg l999 the proposed_regulations define an eligible_educational_institution to mean a college university vocational school or other postsecondary educational_institution that is described in sec_481 of the higher education act of this generally includes all accredited public nonprofit and proprietary privately owned profit making postsecondary institutions the educational_institution must either participate in a federal financial aid program under title iv of the higher education act of u s c or be certified by the department of education as eligible to participate in such a program the proposed_regulations therefore do not alter the statutory mandate of the congress taxpayers may claim the education tax_credit under sec_25a as long as the educational_institution is eligible to participate in a federal financial aid program under title iv of the higher education act of i hope this information is helpful please call g channing horton identification_number at if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch


t c no united_states tax_court paul j pekar petitioner v commissioner of internal revenue respondent docket no filed date p a u s citizen resided in germany and the united kingdom during his tax_year he paid resident income_tax to the foreign countries in an amount exceeding his reported u s income_tax_liability p claimed a foreign_tax_credit that reduced his u s income_tax to zero p did not compute or report liability for the alternative_minimum_tax amt under sec_55 i r c or the foreign_tax_credit limitations under sec_59 i r c p claimed that the sec_59 i r c limit on foreign tax_credits violated the double_taxation prohibitions of the u s income_tax treaties with germany and the united kingdom held the u s -germany treaty and the u s --united kingdom treaty interpreted--p is not entitled to relief from the amt under either treaty held further the u s -germany treaty recognizes and does not prohibit the sec_59 i r c limit as double_taxation held further even if the u s -united kingdom treaty conflicts with sec_59 i r c because of the established last-in-time rule the sec_59 i r c limitation on the foreign_tax_credit trumps any conflicting provision in the treaty because the code section was subsequently promulgated paul j pekar pro_se wendy l wojewodzki for respondent gerber judge respondent determined a deficiency in petitioner's federal_income_tax of dollar_figure a penalty pursuant to sec_6662 of dollar_figure and a late-filing addition_to_tax pursuant to sec_6651 of dollar_figure the primary issues for our consideration are whether petitioner was subject_to the alternative_minimum_tax amt and whether he was negligent when he failed to calculate and or report the amt on his federal_income_tax return petitioner also challenges the late-filing addition_to_tax determined by respondent findings_of_fact the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference at the time his petition was filed petitioner was a u s citizen residing in hamburg germany petitioner emigrated to germany in establishing a permanent residence in berlin unless otherwise stated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure over the years he worked in europe and the middle hast residing at job locations in petitioner lived and worked in the united kingdom and in germany while in germany petitioner was the chief financial officer for conoco during his absence from the united_states petitioner paid income_tax to his respective resident countries and continued to report his income to the internal_revenue_service irs however petitioner did not report that he was subject_to the amt respondent audited petitioner's return and determined that petitioner had failed to report or pay the amt during date petitioner conceded the amt issue which he had disputed in a petition to this court in that proceeding we entered the parties' stipulated decision at the time he filed his return petitioner had agreed that he owed the amt for but he chose not to report amt liability for in petitioner reported dollar_figure gross_income and dollar_figure adjusted_gross_income he claimed a dollar_figure standard_deduction in a head_of_household filing_status personal exemptions for himself and his sons totaling dollar_figure a foreign_earned_income_exclusion of dollar_figure and a housing exclusion of dollar_figure he reported dollar_figure taxable_income and dollar_figure tax stating that he had lived in and paid resident income taxes to germany and the united kingdom for the entire tax_year petitioner reduced his u s tax_liability to zero by applying a dollar_figure foreign_tax_credit respondent examined petitioner's return and determined that petitioner had negligently failed to report that he owed the amt respondent determined that petitioner owed dollar_figure in amt after allowing a foreign_tax_credit as permitted by sec_59 respondent also determined a dollar_figure penalty for negligence for failing to report and pay the amt and that petitioner was liable for a dollar_figure late filing addition_to_tax because his return was received and filed after the required date opinion alternative_minimum_tax as a nonresident u s citizen petitioner was required to file federal_income_tax returns and report his worldwide income see sec_6012 sec_1_6012-1 income_tax regs he was entitled to claim a foreign_tax_credit each year for income_tax paid to foreign jurisdictions see sec_27 sec_901 using these foreign tax_credits petitioner reduced his regular federal_income_tax liability to zero he did not report however any liability for the sec_55 amt sec_55 imposes an amt on noncorporate taxpayers equal to the excess of the tentative_minimum_tax over the regular_tax for the taxable_year that excess_amount is paid in addition to any regular_tax owed the amt is intended to prevent a taxpayer with substantial income from avoiding significant tax_liability through the use of exemptions deductions and credits see 866_fsupp_1414 s d fla affd per curiam 71_f3d_855 11th cir s rept pincite 1986_3_cb_1 noncorporate taxpayers may reduce their tentative_minimum_tax by the foreign_tax_credit see sec_55 a however that foreign_tax_credit is limited by sec_59 a the the term regular_tax means the regular_tax_liability for the taxable_year as defined in sec_26 reduced by the foreign_tax_credit allowable under sec_27 sec_55 the rationale underlying the foreign_tax_credit_limitation was explained in a senate report as follows a further change that the committee believes is necessary relates to the use of foreign tax_credits by u s taxpayers to avoid all u s tax_liability absent a special rule a u s taxpayer with substantial economic_income would be able to avoid all u s tax_liability so long as all of its income was foreign_source_income and it paid foreign tax at the u s regular_tax_rate or above while allowance of the foreign_tax_credit for minimum_tax purposes generally is appropriate the committee believes that taxpayers should not be permitted to use the credit to avoid all minimum_tax liability u s taxpayers generally derive benefits from the protection and applicability of u s law and in some cases from services such as defense provided by the u s government even if all of such taxpayers income is earned abroad thus it is fair to require at least a nominal tax contribution from all continued foreign_tax_credit cannot offset more than percent of the tentative_minimum_tax figured see id petitioner's allowable foreign_tax_credit i sec_90 percent of dollar_figure or dollar_figure therefore his amt the tentative_minimum_tax minus the foreign_tax_credit is dollar_figure because he had no regular_tax due he owes dollar_figure application of the treaties in his challenge of the deficiency determined by respondent petitioner does not gquestion respondent's calculation of the amt instead he labels as unfair the amt as applied to american citizens like himself who live permanently outside the united_states at trial petitioner referenced the double_taxation protection given to expatriates by our tax_treaties with the united kingdom and germany see convention for the avoidance of double_taxation and three protocols date-mar continued u s taxpayers with substantial economic incomes 98_tc_672 quoting s rept pincite c b vol affd without published opinion 15_f3d_1160 d c cir some emphasis added petitioner reported dollar_figure of regular_tax and claimed an egual amount of foreign_tax_credit unreduced by the amt limitations the amount of the limitation on the credit is based on the amt and not on the dollar_figure of tax reported by petitioner before he claimed the credit respondent's computation of the amount of the amt limitations on the foreign_tax_credit and the resulting amt liability are set forth in the appendix u s -u k art u s t hereinafter u s - u k treaty convention for the avoidance of double_taxation date u s -germany art i l m hereinafter u s -germany treaty because petitioner contends that the amt was outside the double_taxation agreements of the treaties we interpret his argument to be that the amt and the resulting limitation on the credit violate the treaties and therefore cannot be applied if there is a conflict between a code provision and a treaty provision the last-in-time provision will trump the earlier provision see 98_tc_672 affd without published opinion 15_f3d_1160 d c cir jamieson v commissioner tcmemo_1995_550 affd without published opinion 132_f3d_1481 d c cir however if there is no conflict between the two then the code and the treaty should be read harmoniously to give effect to each see we note that respondent never questioned petitioner's failure to disclose this treaty-based return position as required by sec_6114 unless excepted by regulations each u s taxpayer who takes a position that a treaty of the united_states overrules any provision of the internal_revenue_code and effects a reduction of any_tax must disclose that position on either a form_8833 or a separate attached statement see sec_6114 sec_301_6114-1 proced admin regs treaty--based return position a taxpayer who fails in a material way to disclose one or more positions taken for a taxable_year is subject toa separate penalty for each failure to disclose a position see sec_301_6712-1 proced admin regs failure to disclose a treaty--based return position however there is no indication that this failure estops a taxpayer from taking such a position 41_f3d_647 fed cir accordingly we proceed to consider the relationship between sec_59 and the double_taxation prohibitions found in each of the two treaties the u s -u k treaty and the u s -germany treaty a u s -u k treaty article of the u s -u k treaty generally prohibits double_taxation and provides to u s residents and citizens a credit against their u s income_tax in an appropriate amount u s -u k treaty art an appropriate amount is defined as that amount of tax paid to the united kingdom not to exceed the limitations provided by u s law for that taxable_year id one of the limitations for the taxable_year was the foreign_tax_credit_limitation of sec_59 therefore the u s -u k treaty provides for the imposition of the tax_credit limit and the treaty and the code may be harmonized and the limit applied to petitioner even if one were to argue that the u s -u k treaty provision for limits of law for the taxable_year included only those in effect when the treaty was adopted and that the code and the treaty conflicted such a conflict does not work to petitioner's advantage if there is a conflict the code section will supersede the treaty provision because of the last-in-time rule see lindsey v commissioner supra sec_59 was added to the code by the tax_reform_act_of_1986 publaw_99_514 sec 7o1 a 100_stat_2336 years after the u s -u k treaty became effective because the code section was enacted after the treaty the code section would prevail if we were to find a conflict between the treaty and the code resulting in petitioner's liability for the tax b u s --germany treaty with language similar to that used in the u s -u k treaty the double_taxation provision of the u s -germany treaty first recognizes that the treaty is subject_to the existing limitations placed by u s law and then provides guidelines for the avoidance of double_taxation by the two countries see u s -germany treaty art although we have interpreted the u s ---u k treaty the u s -germany treaty has not previously been interpreted by this court the u s -germany treaty provision details when and how the united_states will provide foreign tax_credits to its taxpayers to alleviate double_taxation when and how germany will provide similar relief to its citizens through the use of foreign tax_credits and income exemptions and how to apply a special set of credit and income-sourcing rules for u s citizens resident in germany receiving a certain type of income see u s -germany treaty art - the paragraphs pertinent to petitioner's circumstances are the first and last because relief to german taxpayers is of no import to this controversy according to article tax under the u s -germany treaty shall be determined in accordance with the provisions and subject_to the limitations of the law of the united_states this section further provides that the united_states will allow as a credit against u s tax taxes paid_or_accrued to germany by u s citizens or residents subject_to the limitations of u s law under this general_rule there is harmony between the u s -germany treaty and sec_59 because sec_59 had been enacted years before the u s -germany treaty became effective and therefore was one of the existing laws recognized as a limitation on the u s -germany treaty in article the interaction of sec_59 and the u s -germany treaty provision was specifically recognized in the technical explanation to the u s model income_tax treaty double_taxation provision after which the u s -germany treaty provision is patterned the commentary states that when the alternative_minimum_tax is due the alternative_minimum_tax foreign credit generally is limited in accordance with u s law to percent of alternative_minimum_tax liability rhodes langer u s international_taxation and tax_treaties u s model income_tax treaty technical explanation mod-4 sec_1 pincite the treaty-based system of u s credits and german credits and exemptions has in certain cases been modified as described in paragraph of article where the unique position of u s citizens resident in germany is addressed that paragraph provides that where a foreign_tax_credit is given by germany for u s tax paid on u s -source income under article the credit need not exceed the rate_of_tax provided for in the u s - germany treaty even if the united_states actually taxes its citizen on that u s -source income at a rate higher than the treaty rate this can result in double_taxation because the taxpayer must pay the full u s tax rather than the reduced treaty rate and yet receives less than the full foreign_tax_credit from germany see u s treasury_department technical explanation of the convention and protocol between the united_states of america and the federal republic of germany for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and capital and to certain other taxes cch tax_treaties par at big_number accordingly a u s citizen resident in germany is disadvantaged when compared to a non-u s citizen resident in germany receiving the same u s -source income because the non-u s citizen would receive full credit from germany for the tax paid to the united_states to mitigate this potential ineguity article b provides special rules for the u s determination of the tax owed and the foreign_tax_credit furthermore any excessive taxation that may result even after these rules are applied shall be avoided by treating a portion of the income in question as though its source was shifted from the united_states to germany so that further foreign_tax_credit may be given to the taxpayer by the united_states see u s -germany treaty art c petitioner is a u s citizen residing in germany and article c provides for special measures to avoid potential double_taxation of u s citizens article however is applicable only to u s -source income petitioner's income was foreign-earned german-source income article has no application to this income or to the tax owed by petitioner to either germany or the united_states because we find harmony between the amt limitation of the foreign_tax_credit in sec_59 and article of the u s - germany treaty both may be applied to petitioner petitioner is therefore subject_to the amt on that income he earned while in germany constitutionality of amt petitioner cryptically questioned the constitutionality of the amt provisions petitioner did not specify how the amt is unconstitutional beyond saying that nonresident americans are treated differently from resident american citizens we have already determined that the amt code sections and specifically the foreign_tax_credit_limitation of sec_59 are constitutional see keese v commissioner tcmemo_1995_417 finding the amt code sections including the foreign_tax_credit_limitation constitutional 73_tc_1223 72_tc_677 affd per curiam 625_f2d_202 8th cir 71_tc_235 affd 644_f2d_1282 9th cir in another attempt to avoid the amt petitioner also characterized it as an unconstitutional poll_tax a poll_tax is a tax of a given amount levied upon every person ina jurisdiction's taxing power without reference to the person's property income or ability to pay black's law dictionary petitioner chose not to explain his position on the question of constitutionality he reasoned that it would be more appropriate to present his views to the court_of_appeals we find this curious because the court_of_appeals to which petitioner would likely proceed has already affirmed our holdings on similar issues see lindsey v commissioner 15_f3d_1160 d c cir 6th ed the amt does not meet this definition it is an income_tax and is necessarily dependent on the amount of income the taxpayer receives moreover by definition it is applicable only to certain taxpayers petitioner's characterization of the amt as a poll_tax is without substance accordingly respondent's determination of a dollar_figure income_tax deficiency attributable to the amt for petitioner's taxable_year is sustained negligence_penalty petitioner attempts to justify his decision not to report or pay the amt for on the ground that he had consistently acted in the same manner and had been the subject of only one audit by the commissioner where ultimately he agreed that he owed the amt because the irs has not pursued this issue in every prior year petitioner contends that the penalty should not apply because a full foreign_tax_credit had been allowed and because petitioner was merely continuing an accepted practice he argues that the commissioner's failure to make adjustments in all but one of petitioner's prior years means that his failure to report the amt has been tacitly sanctioned petitioner's argument must fail because each taxable_year stands on its own and must be separately considered see 394_us_678 respondent is not bound in any given year to allow the same treatment permitted in a previous year see lerch v commissioner f 2d n 7th cir 783_f2d_69 7th cir 155_f2d_164 6th cir taxpayers have no right to continue a prior tax treatment that was wrong either on the law or under the facts see 92_tc_206 the mere fact that petitioner may have obtained a windfall in prior years does not entitle him to like treatment for the taxable_year here in issue 58_tc_397 affd 481_f2d_812 10th cir see also schaeffer v commissioner tcmemo_1994_227 petitioner also claims that the language on his tax forms did not clearly indicate to him that he should perform the computation to determine whether he would owe the amt because the forms said only that a taxpayer may owe tax because of the amt we do not accept petitioner's forced interpretation of may as mitigation to respondent's negligence determination in this setting we find most persuasive the fact that petitioner had been audited and agreed that he owed the amt for that concession occurred before petitioner's return filing petitioner also admitted that he had received training on the amt as it applied to americans living abroad through a seminar and that he had engaged in many discussions with other american expatriates about the amt petitioner's experience had given him a basic understanding of the amt he cannot reasonably claim that he did not know that he could be subject_to the tax furthermore as we noted in jamieson v commissioner tcmemo_1995_550 98_tc_672 had been decided by our court and affirmed by the court_of_appeals by the time petitioner filed his return therefore petitioner was on notice that the amt foreign_tax_credit claimed by him was calculated improperly see jamieson v commissioner supra moreover we note that petitioner failed to make any reference to the amt or to disclose his views on his return we also consider petitioner's educational background in determining whether he acted reasonably under the circumstances see vick v commissioner tcmemo_1984_353 petitioner was the chief financial officer for conoco in germany and had general economic and financial knowledge under these circumstances we hold that petitioner acted negligently when he failed to calculate and report the amt due on his return late-filing addition individual federal_income_tax returns are generally due on or before april of the year following the close of the calendar_year see sec_6072 however there are exceptions to this general_rule including an exception for u s citizens whose tax homes are outside the united_states and puerto rico see sec_1_6081-5 income_tax regs an extension to file returns of citizens in foreign countries up until the 15th day of the 6th month following close of the taxable year--june in this case will be granted for those u s citizens who have properly requested one see sec_1_6081-5 income_tax regs to obtain an extension under sec_1_6081-5 income_tax regs taxpayers must attach a statement to their return showing eligibility for the extension see sec_1 b income_tax regs there is no evidence that petitioner had attached any such statement to the return in question respondent however did not question whether petitioner had properly requested an extension respondent’s argument assumes the june filing_date to be correct and concludes that petitioner did not meet that deadline by mailing his return on june from a foreign situs petitioner argues that as a nonresident citizen his return_due_date was june and that because he mailed his return on the due_date his return should be considered timely filed thereby avoiding the late-filing addition because of respondent’s position we assumed petitioner qualified for the extension even with a june filing_date petitioner did not meet the due_date by mailing his return on -- - june sec_7502 provides that in certain circumstances an untimely received return is deemed timely filed on the date of the u s postal service postmark on the envelope or the date a receipt is issued by the u s postal service for either certified or registered mail however the timely mailing-timely filing rule_of sec_7502 does not apply to foreign postmarks it is well established that foreign postmarks do not effectively cause the filing_date of a document to be the postmark date see 33_tc_214 28_tc_1301 hlectronic automation sys inc v commissioner tcmemo_1976_270 sec_301_7502-1 proced admin regs accordingly petitioner's mailing of his return did not come within the provisions of sec_7502 and the filing of his return would have been untimely even if the return had been mailed on the due_date petitioner also argued that he should not be liable for the late-filing addition because he was advised by tax professionals that a foreign postmark would effectively date his return as filed however he presented no evidence that he received this advice before he mailed his return nor did petitioner show that the advice was provided by anyone who was competent to render tax_advice he was unable to show that he relied upon or that it was reasonable to rely upon that advice when he mailed the return accordingly respondent's late-filing addition determination is sustained because of a concession by respondent decision will be entered under rule appendix the taxpayer's tentative_minimum_tax is computed as follows the taxable_income as it is normally calculated is recomputed to create a new tax_base the alternative_minimum_taxable_income amti see sec_55 the normal taxable_income is reduced by the adjustments provided for in sec_56 and sec_58 and increased by the amount of the items of tax preference described in sec_57 in petitioner's case the only applicable adjustment from these sections is the disallowance of the standard_deduction and the personal_exemption see sec_56 be petitioner's regular taxable_income was dollar_figure and was increased by the previously allowed deduction of dollar_figure and exemption of dollar_figure his amti was dollar_figure the amti is then reduced by the special amt exemption allowed according to the taxpayer's status see sec_55 for taxpayers who are unmarried but not widowed like petitioner the exemption_amount is dollar_figure see id however the exemption_amount is phased out if the amti exceeds a certain amount for unmarried not widowed individuals percent of income exceeding dollar_figure is subtracted from the exemption_amount see id petitioner's amti exceeded dollar_figure by dollar_figure twenty-five percent of that is dollar_figure so petitioner's dollar_figure exemption is reduced to dollar_figure once the amti is reduced by the correct exemption_amount amti tax_rates are applied to the new amti to arrive at the tentative_minimum_tax the rate i sec_26 percent of any amount up to dollar_figure petitioner's amti of dollar_figure was reduced by dollar_figure leaving dollar_figure to be taxed twenty-six percent of that is dollar_figure the foreign_tax_credit is limited to percent of the tentative_minimum_tax amount ninety percent of dollar_figure is dollar_figure after this amount is applied against the tentative_minimum_tax the amount remaining and due from petitioner is dollar_figure


page department of the treasury internal_revenue_service washington d c no third party contacts contact person identification_number contact number fax t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n -4942 number release date se t eo ra t date employer_identification_number legend trust company holding_company reserve_plan r s t u v x y z dear ---------- page this is in reply to your request for rulings as amended under sec_4941 sec_4942 and sec_4945 of the internal_revenue_code the code facts the trust is exempt from federal_income_tax as an organization described in sec_501 of the code and is classified as a private_operating_foundation under sec_509 and sec_4942 the general purpose of the trust is to promote open space recreation and education on the reserve and potentially on additional lands outside the reserve together with the reserve the preservation lands and to assure the preservation enhancement and protection of the preservation lands in perpetuity all for the benefit of the public habitats on the reserve promote an exceptional range of recreation and education opportunities on the reserve and perpetuate the care and public enjoyment of the reserve the trust was formed and will serve as a central organization for planning management environmental enhancement and expansion of public access programs and facilities to the reserve in particular the trust will protect and preserve significant wilderness and natural the reserve encompasses z acres within s that are committed to open space and recreational uses for the benefit of the general_public the reserve i sec_83 of natural open space and wilderness lands wildlands and of developed urban park and recreation facilities parklands r and the company are substantial contributors to the trust and are disqualified persons within the meaning of sec_4946 of the code with respect to the trust the company is a developer of large-scale communities on s public and private parks golf courses bike trails and other recreational facilities are found throughout the developed areas of s the company has incorporated conservation and environmental enhancement of land into its master planning r is the chairman of the company and sole shareholder of the holding_company which is the sole shareholder of the company the reserve is owned in parts by the company political subdivisions and private parties other than the company the company own sec_54 political subdivisions own and various public and private owners own of the reserve of the wildlands portion of the reserve is owned by the company and is owned by political subdivisions of the parklands portion of the reserve is owned by the company and is owned by various public agencies and private owners all of the wildlands are committed to open space use for example certain wildlands currently owned by the company are committed to the plan by an agreement executed by the company and numerous state and federal governmental agencies the plan addresses endangered and threatened species issues on a larger scale and multi-species basis and requires the company to permanently protect specified open space in return for development rights on other_property owned by the company the plan provides for the transfer of the designated open space lands to public agencies or nonprofit entities or other methods of pursuant to a management agreement between t and the company dated v the the other portion of the wildlands owned by the company is subject_to permanent page permanently protecting the open space over the next several years in conjunction with company development projects conservation easements in favor of t easement lands the company gave t conservation easements over x acres and a dollar_figurey commitment to underwrite planning management environmental enhancement and the expansion of public access to the wildlands t is tax exempt under sec_501 of the code and is classified as a public charity under sec_509 and sec_170 of the code this ruling does not address any specific issues regarding arrangements with t management agreement t is currently providing natural resource stewardship and public access programs on all company-owned wildlands including the easement lands and on some wildlands owned by public agencies under the management of the company hiking mountain bike rides and equestrian trail rides are now available in the wildlands pursuant to the terms of the easements the easement lands are committed in perpetuity for open space in addition the company will transfer its fee interest in the easement lands by no later than u to either i a political_subdivision ii the trust or iii another sec_501 public charity each hereinafter referred to as an eligible donee or collectively as eligible donees to better facilitate management and protection of the wildlands as a whole the trust is envisioned to eventually own portions of the wildlands and be a land steward of the reserve to promote its vision of a single open space program preserved for the general_public in the midst of urban development the trust will promote preservation of natural habitats throughout the wildlands without regard to current ownership boundaries in acting as land steward the trust aims to provide the public with hiking and equestrian trails as well as other recreational and educational opportunities in the wildlands the trust will also create and publish maps sponsor public events and gatherings develop tour routes and training materials for public tours and engage in other activities for the reserve as described in greater detail below the trust will enter into contracts with t to perform certain land management and improvement services on the preservation lands one such contract will be substantially_similar to the current management agreement between the company and t both in substance and in the land it covers under no condition will the trust directly assume the company’s obligations to t under the management agreement or otherwise unless the company and t mutually agree to terminate the management agreement the trust will not enter into any such similar contract with t the trust will not assume any obligations of the company when it contracts with t because all such obligations will have been previously extinguished as previously noted this ruling does not address any specific issues regarding arrangements with t recreational and educational_purposes in some instances they provide linkages eg bike trails and wildlife movement corridors important to the recreational enjoyment and environmental preservation of all of the reserve the parklands are part of the reserve as they are already developed and enjoyed for the trust may make grants or provide services or facilities to benefit specific parklands page owned by an eligible donee eg a nature center in a city park the trust will not engage in any activity to directly benefit any specific parklands owned by the company or other private parties the trust however will fund or provide services that generally include such parklands as a part of the reserve eg produce public information materials regarding the reserve and all property in the reserve conduct scientific wildlife studies involving all applicable portions of the reserve the trust will have at least one management level employee and other staff as necessary from time to time such as project directors and administrative assistants in addition from time to time as necessary employees of the company whose time will be provided at no charge by the company to the trust may carry out certain activities of the trust the company will also provide administrative support services office space and utilities to the trust at no cost the trust may also contract with other commercial public and nonprofit_organizations that are not disqualified persons with respect to the trust as defined in sec_4946 of the code to provide services and facilities in connection with the reserve the trust will establish adequate procedures to see that such service providers fulfill their obligations under these contracts the trust relies for financial support primarily from funding by the company and r and other sec_501 organizations supported by r the trust may also conduct public fund-raising activities and seek public and nonprofit organization grants to support its activities additionally the trust’s financial support will come from fees that may be charged to cover costs associated with public access or use of the reserve such as camping fees or equestrian center fees the trust will engage in the following activities on the preservation lands collectively preservation activities a prepare and communicate a comprehensive stewardship plan for the reserve create publish distribute and promote plans for the reserve sponsor public events to promote and advocate plans for the reserve sponsor meetings and forums to discuss how reserve landowners and community interests can work to implement a comprehensive plan for the reserve assist and support the creation of community organizations and government entities to support and manage reserve lands b produce research and scientific studies to advance understanding of the reserve and land stewardship strategies observe habitat and species conditions activities set up monitoring cameras and equipment trap tag photograph and or observe species habitats geological and cultural features create test plots and other scientific experiments produce and distribute reports and findings of research and studies and page make recommendations on conservation c provide resource stewardship and environmental enhancement for the reserve document and photograph resources and resource problems identify suitable sites for future relocation or reintroduction of native plant sec_3 conduct plant and animal surveys examine lands to identify needs for resource protection rehabilitation and and animals enhancement enhance and restore habitats by eradicating non-native plants and animals and planting watering feeding transplanting and relocating native plants and animals take actions to protect native species and habitats such as erosion prevention predator control and fire management design and execute activities - such as spraying digging burning and trapping - to remove harmful species coordinate with public entities wildlife agencies and adjoining land managers with respect to habitat restoration fire management and wildlife monitory programs d produce and distribute public education and public information regarding the reserve create and maintain a website about the reserve its features resources and activities produce books articles newsletters films videos direct mail pamphlets and displays about the reserve and conservation and access activities occurring on it including maps and photographs produce and distribute information designed to educate the public on caring for and living harmoniously with the reserve sponsor community events to showcase reserve activities and achievements plan and execute education programs tours and seminars that feature natural historic or cultural resources produce and distribute field guides maps illustrations and photographs e promote and facilitate educational and recreational public access on the reserve fund install and maintain park-type improvements for public use and enjoyment such as biking hiking and equestrian trails restrooms drinking fountains parking lots access roads viewpoints picnic tables public safety and information signs develop tour routes and training materials for public tours recruit and train docents and other volunteers provide docent led or other public access tours and programs create maps and other interpretive information depicting trails and access page opportunities sponsor public events and gatherings distribute or otherwise communicate schedules and information about public access and activities provide site patrols and other security services for public safety the trust also plans to fund construct and maintain significant capital improvements to facilitate and promote public access education and enjoyment of the reserve collectively improvement activities these improvement activities will be conducted only on easement lands and lands owned by eligible donees such as camping facilities nature centers interpretive centers equestrian centers and gardens law sec_4941 of the code imposes an initial tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code provides that the term self-dealing means any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation that the fact that a disqualified_person receives an incidental or tenuous benefit from the use by a foundation of its income or assets will not by itself make such use an act of self-dealing sec_53_4941_d_-2 of the foundation and similar taxes regulations provides example of sec_53_4941_d_-2 of the regulations provides as follows m a private_foundation makes a grant of dollar_figure to the governing body of n city for the purpose of alleviating the slum conditions which exist in a particular neighborhood of n corporation p a substantial_contributor to m is located in the same area in which the grant is to be used although the general improvement of the area may constitute an incidental and tenuous benefit to p such benefit by itself will not constitute an act of self-dealing example of sec_53_4941_d_-2 of the regulations provides as follows a disqualified_person with respect to a private_foundation contributed certain real_estate to the private_foundation for the purpose of building a neighborhood recreation center in a particular underprivileged area as a condition of the gift the private_foundation agreed to name the recreation center after the disqualified_person since the benefit to the disqualified_person was only incidental and tenuous the naming of the recreation center by itself was not an act of self- dealing revrul_66_358 1966_2_cb_218 holds in part that the acceptance of a gift by an exempt sec_501 organization will not affect its exempt status even though the donor retained the right to continue using a picture of a certain scenic view in the park as its brand symbol in this case it was concluded that the benefits derived from the gift which included maintenance and operation costs flow principally to the general_public through access to and use of the park and its continued operation page revrul_73_407 1973_2_cb_383 holds that the public recognition afforded by a private_foundation to a disqualified_person through the use of the disqualified person’s name by the private_foundation for years is an incidental and tenuous benefit which does not constitute an act of self-dealing under sec_4941 of the code revrul_77_367 1977_2_cb_193 holds that a nonprofit organization formed to create and operate a replica of an early american village is engaging in educational activities similar to those of a museum and qualifies for exemption under sec_501 or the code even though a corporation that donated land and a substantial percentage of the organization’s support benefits by having the village named after it and by having its name associated with the village through both the corporations’ and the organization’s advertising the ruling recognized that any benefit going to the corporation was merely incidental to the benefits flowing to the general_public from access to the village and its historic structures sec_4942 of the code and sec_53_4942_a_-3 of the regulations define qualifying_distribution as any amount_paid by a private_foundation to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation organization--- sec_4942 of the code defines the term operating_foundation to mean any a which makes qualifying distributions within the meaning of paragraph or of subsection g directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated equal to substantially_all of the lesser of-- i its adjusted_net_income as defined in subsection f or ii its minimum_investment_return and b i substantially more than half of the assets of which are devoted directly to such activities or to functionally related businesses as defined in paragraph or to both or are stock of a corporation which is controlled by the foundation and substantially_all of the assets of which are so devoted ii which normally makes qualifying distributions within the meaning of paragraph or of subsection g directly for the active_conduct of the activities constituting the purpose or function for which it is organized and operated in an amount not less than two-thirds of its minimum_investment_return as defined in subsection e or iii substantially_all of the support other than gross_investment_income as defined in sec_509 of which is normally received from the general_public and from or more exempt_organizations which are not described in sec_4946 with respect to each other or the recipient foundation not more page than percent of the support other than gross_investment_income of which is normally received from any one such exempt_organization and not more than half of the support of which is normally received from gross_investment_income sec_53_4942_b_-1 of the regulations provides that in general qualifying distributions are not made by a foundation directly for the active_conduct of activities constituting its charitable educational or other similar exempt_purpose unless such qualifying distributions are used by the foundation itself rather than by or through one or more grantee organizations which receive such qualifying distributions directly or indirectly from such foundation thus grants made to other organizations to assist them in conducting activities which help to accomplish their charitable educational or other similar exempt_purpose are considered an indirect rather than direct means of carrying out activities constituting the charitable educational or other similar exempt_purpose of the grantor foundation regardless of the fact that the exempt_activities of the grantee organization may assist the grantor foundation in carrying out its own exempt_activities amounts paid to acquire or maintain assets that are used directly in the conduct of the foundation's exempt_activities such as the operating_assets of a museum public park or historic site are considered direct expenditures_for the active_conduct of the foundation's exempt_activities likewise administrative expenses such as staff salaries and traveling expenses and other operating costs necessary to conduct the foundation's exempt_activities regardless of whether they are directly for the active_conduct of such exempt_activities shall be treated as qualifying distributions expended directly for the active_conduct of such exempt_activities if such expenses and costs are reasonable in amount revrul_74_450 1974_2_cb_388 states that amounts set_aside to pay for the conversion of an acquired farmland into a wildlife sanctuary and public park that includes extensive tree planting building of a large earthen dam and construction of various fences roads and other public service facilities constitute qualifying distributions directly for the active_conduct of the foundation’s exempt_activities revrul_78_315 1978_2_cb_271 describes a_trust which is exempt from federal_income_tax as an organization described in sec_501 and a private_foundation whose sole activity is the operation of a cultural center the managing trustees of the trust formed a separate corporation to act only in a fiduciary capacity on behalf of the trust in conducting the operations of the cultural center the trust turned over substantially_all of its annual adjusted_net_income to the corporation for disbursement in the operation of the cultural center that included contracting for goods and services on behalf of the trust the ruling reasoned that because the corporation acted only in a fiduciary capacity on behalf of the trust it was not a grantee organization to the trust the payment of goods and services constituted qualifying distributions directly for the active_conduct of activities constituting its exempt purposes in determining the trust's qualification as an operating_foundation under sec_4942 sec_4945 of the code imposes a tax on any taxable_expenditure as defined in sec_4945 of the code made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure includes any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 page sec_53_4945-6 of the regulations generally provides that any payment that constitutes a qualifying_distribution under sec_4942 of the code will not be treated as a taxable_expenditure under sec_4945 sec_4946 of the code provides that the term disqualified_person includes with respect to a private_foundation a person who is a substantial_contributor to the foundation analysis the trust was formed for the charitable purpose of preserving and protecting the preservation lands all for benefit of the public the trust will conduct preservation activities that include preparing and communicating a comprehensive stewardship plan for the reserve producing research and scientific studies to advance understanding of the reserve and land stewardship strategies providing resource stewardship and environmental enhancement for the reserve producing and distributing public education and public information regarding the reserve and promoting and facilitating public access on the reserve these preservation activities will promote the trust’s exempt_purpose and benefit the general_public primarily by promoting open space recreation and education on the reserve and by assuring its preservation enhancement and protection in perpetuity the trust will also conduct improvement activities that include the building of camping facilities nature centers interpretive centers equestrian centers gardens and the maintenance of such facilities all for the benefit of the public the trust will expend income and assets for improvement activities only on the easement lands and on lands owned by eligible donees and for uses that benefit the general_public the activities will be conducted by the trust's own staff support services provided at no cost to the trust by the company and by contracts with third party service providers the payments for these are similar to the payments made on activities benefiting the public made by the private_foundation in revrul_74_450 supra which were held qualifying distributions for the active_conduct of its exempt_function in addition we consider the trust's payments on contracts with third party service providers to be fees for services rendered and not grants the services rendered are directly for the conduct of activities constituting the trust’s exempt purposes pursuant to revrul_78_315 such payments for services constitute qualifying distributions under sec_4942 of the code under sec_4941 of the code any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation generally constitutes self-dealing the trust will conduct preservation and improvement activities that involve spending its income and assets on easement lands and on lands owned by eligible donees under the facts and circumstances company currently owns the fee interest in the easement lands however the easement lands are irrevocably committed in perpetuity to open space for the benefit of the public are and will be continually used and enjoyed by the general_public and will be transferred to an eligible donee by no later than u the easement lands cannot revert to the company under these particular facts and circumstances any present benefit if there is present benefit to the company by the trust's expenditures on the page easement lands will be tenuous or incidental these benefits are analogous to the benefits provided and received by the disqualified persons in rev ruls and and will not give rise to self-dealing under sec_53_4941_d_-2 of the regulations the trust will expend funds on improvement activities building camping facilities interpretive centers equestrian centers gardens etc on only i lands owned by an eligible donee and ii easement lands in contrast the trust will engage in other activities to promote its exempt purposes these preservation activities include preparing and communicating a comprehensive stewardship plan for the reserve producing research and scientific studies to advance understanding of the reserve and land stewardship strategies providing resource stewardship and environmental enhancement for the reserve producing and distributing public education and public information regarding the reserve and promoting and facilitating public access on the reserve these preservation activities will promote the trust’s exempt_purpose and benefit the general_public primarily by promoting open space recreation and education on the reserve and by assuring its preservation enhancement and protection in perpetuity because of their broad nature these activities involve all preservation lands including lands owned by the company because all wildlands under company ownership are already committed to open space use any benefits derived by the company will also be incidental or tenuous under sec_53_4941_d_-2 of the regulations and therefore will not give rise to self-dealing lastly because the preservation activities promote the trust’s charitable purpose to promote open space recreation environmental preservation and education on the preservation lands for the public benefit the expenditure of funds for preservation activities will not constitute taxable_expenditures under sec_4945 of the code because the expenditures are treated as qualifying distributions under sec_4942 as discussed earlier they are not taxable_expenditures pursuant to sec_53_4945-6 of the regulations based on the foregoing and the representations made we rule as follows payments by the trust made with respect to the preservation lands including capital improvements to the preservation lands and amounts paid to commercial public and nonprofit service providers none of whom will be disqualified persons for services related to preserving and enhancing the preservation lands will constitute qualifying distributions directly for the active_conduct of the trust’s charitable activities within the meaning of sec_4942 and sec_4942 of the code payments by the trust for preservation activities and improvement activities as described above on i the easement lands and on ii lands owned by an eligible donee will not constitute acts of self-dealing under sec_4941 of the code or taxable_expenditures under sec_4945 payments by the trust for preservation activities as described above on all preservation lands including lands owned by the company will not constitute acts of self-dealing under sec_4941 of the code or taxable_expenditures under sec_4945 page the contribution of land to the trust by the company which land is legally required to be transferred by the company to one or more public entities followed by the transfer by the trust of such land to one or more public entities will not constitute acts of self- dealing under sec_4941 of the code or taxable_expenditures under sec_4945 except as we have ruled above we express no opinion as to the tax consequences of the activities under the cited code provisions or under any other provisions of the code further this does not purport to opine on any charitable_contribution deductibility issues under sec_170 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the parties who requested it sec_6110 of the code provides that it may not be used or cited as precedent 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 enclosure notice sincerely lois g lerner director exempt_organizations rulings agreements


internal_revenue_service number release date index numbers --------------------------------------------------- ------------------------ ------------------------------------------------------- --------------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number ------------------- refer reply to cc psi b03 plr-124295-09 date date x --------------------------------------------------------------------------------------------------- ----------------------- legend country --------------------- date ------------------------- dear ---------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 facts x was formed under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in plr-124295-09 sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-124295-09 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 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 conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 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 we are sending a copy of this letter to your authorized representative the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely s curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc