department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code date date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service cincinnati oh legend date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records do you meet the operational_test under sec_1_501_c_3_-1 no for the reason sec_2 have your net_earnings inured in whole or in part to the benefit of private shareholders or individuals as stated in sec_1_501_c_3_-1 yes for the reasons stated below do you meet the requirements to be a supporting_organization under sec_509 of the code dear issues stated below and sec_1_509_a_-4 no for the reasons stated below facts you were formed as an unincorporated association on date r in the state of t according to your articles of association your purpose is to generate and oversee funds for increasing student achievement student engagement and development which align with the mission of v your secondary function is to advise the school administration in areas of policy or other administrative affairs you state you are charitable religious educational and may make distributions under c of the code and desire to carry on any other purposes or acts permitted by the laws of t your articles and bylaws state that no part of your net_earnings shall inure to the benefit of or be distributable to your members officers or other private persons except that you shall be authorized and empowered to pay reasonable_compensation for services rendered and to make payments and distributions in furtherance of your stated purposes v is a for-profit sub-chapter s_corporation owned by individual b b is your president c is your vice president and e is your secretary your board_of directors is composed of individuals b c d and e as well as two additional members appointed by the parents of v individuals c and d are parents of a former student of v e is a non-voting member of the board and is employed as the principal of v the responsibility of the board shall include but not be limited to fundraising establishing funding priorities approving general budgets advising school policy and advising school personnel matters revenue will come from fundraisers grants and individual donors your board will oversee all revenues and expenses v will be the only recipient of funds your treasurer will keep receipts documentation and books for all grants loans or distributions to them you will require quarterly reports on the use of funds you requested to be recognized as a supporting_organization to v to date all of your expenditures have been for supplies equipment and other items for the exclusive use of children attending v you have also purchased equipment required by the state for increased licensing requirements of v law sec_501 of the code provides for the recognition of exemption of organizations that are organized and operated exclusively for religious charitable or other purposes as specified in the statute no part of the net_earnings may inure to the benefit of any private_shareholder_or_individual sec_509 of the code describes an organization which is organized and at all times thereafter is operated exclusively for the benefit of one or more specified organizations described in sec_509 or sec_509 sec_1_501_a_-1 provides that the terms private_shareholder_or_individual in sec_501 of the code refer to persons having a personal and private interest in the activities of the organization letter rev catalog number 47630w sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 stipulates that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 provides that an organization is not organized and operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest the organization must establish that it is not organized or operated to benefit private interests such as designated individuals or the persons who created it sec_1_509_a_-4 states in order to qualify as a supporting_organization under sec_509 of the code an organization must be both organized and operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified publicly supported organizations if an organization fails to meet either the organizational_test or the operational_test it cannot qualify as a supporting_organization revrul_76_206 1976_1_cb_154 held that a nonprofit organization formed to promote the retention of music programs of a local for-profit radio station by seeking program sponsors urging the public to patronize the sponsors and soliciting subscriptions to the station's program guide all of which activities tended to increase the station's revenues did not qualify for exemption under sec_501 of the code the organization's board_of directors represented the community at large and did not include any representatives of the for-profit radio station it was held that the activities resembled a public relations campaign designed to enable the for-profit radio station to continue broadcasting classical music the organization's efforts enabled the radio station to increase its total revenues the increase in listening audience that may occur as a result of the organization's activities would enhance the value and salability of the station's airtime a similar enhancement was derived through the sale of the station's program directories thus the organization's activities would benefit the for-profit radio station in more than an incidental way in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes the petitioner's activities were largely animated by non-exempt purposes directed fundamentally to ends other than that of education in 71_tc_1067 several for-profit organizations exerted significant indirect control_over est of hawaii a nonprofit entity through contractual arrangements the question for the court was not whether the payments made to the for-profits were excessive but whether they benefited substantially from the operation of the nonprofit the tax_court concluded that the for-profits were able to use the nonprofit as an instrument to further their for-profit purposes neither the fact that the for-profits lacked letter rev catalog number 47630w structural control_over the organization nor the fact that amounts paid to the for-profit organizations under the contracts were reasonable affected the court's conclusion consequently est of hawaii did not qualify as an organization described in sec_501 of the code in international postgraduate medical foundation v commissioner t c memo the court considered whether a nonprofit corporation that conducted continuing medical education tours qualified for exemption under sec_501 of the code the court found that a substantial purpose of the petitioner was benefiting the for-profit travel agency it concluded that when a for-profit organization benefits substantially from the manner in which the activities of a related_organization are carried on the latter organization is not operated exclusively for exempt purposes within the meaning of sec_501 of the code even if it furthers other exempt purposes in salvation navy v commissioner tcmemo_2002_275 the court found that the organization failed to meet the operational_test under sec_1_501_c_3_-1 because it could not prove that it was not organized to serve the private interests of its founder the organization conceded that it and the individual in question were one in the same the court found that the affairs of the organization and the individual in question were irretrievably intertwined and that the benefits the individual sought to obtain via a determination_letter would have inured to the individual himself application of law sec_501 of the code sets forth two requirements for an organization to be recognized as exempt an organization must be both organized and operated exclusively for purposes described in sec_501 see sec_1_501_c_3_-1 according to your organizing document in addition to being a charitable religious and educational_organization you will also carry on any other purposes or acts permitted by the laws of t in addition your organizing document limited your activities to those of a corporation exempt under sec_501 of the code or an organization to which contributions are deductible under sec_170 of the code because you do not meet the operational_test you do not qualify for exemption under sec_501 of the code the facts indicate that v will benefit directly from your operations you will direct funds to v a for-profit sub s_corporation owned by your president b your funds will be used to offset operating costs and to purchase equipment and supplies that v would otherwise be responsible for these costs accordingly your board members a majority of whom are related benefit from the funds you direct to v’s operations since your earnings inure to the benefit of private individuals you do not meet the requirements of sec_1_501_c_3_-1 your board members are private shareholders or individuals as described in sec_1_501_a_-1 because they have a personal and private interest in your activities sec_1_501_c_3_-1 states an organization will not be exempt if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose you are paying expenses for which v would otherwise be liable v is a related for-profit school owned by b your president as a result your operations are providing a substantial private benefit to v and b a substantial non-exempt purpose sec_1_501_c_3_-1 provides that an organization is not organized and operated exclusively for exempt purposes unless it serves a public rather than a private interest you were formed to subsidize the letter rev catalog number 47630w operations of v thus because of v’s relationship with you it receives the benefit of receiving equipment and supplies free of charge that it would otherwise have to purchase sec_1_501_c_3_-1 also provides that the organization must establish that it is not organized or operated to benefit private interests such as designated individuals or the persons who created it by purchasing equipment and supplies that will be used exclusively at v you are benefitting the private interests of b your president who founded and owns v as an s_corporation you do not meet the provisions of sec_509 of the code and sec_1 b because you are organized and operated exclusively for the benefit of v a for-profit s_corporation founded by your president b generally in order to be a supporting_organization under sec_509 of the code you must have been organized and operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified publicly supported organizations ie an organization exempt under c and publicly supported under either sec_509 or sec_509 you are similar to the organization described in revrul_76_206 in that the organization’s activities in the ruling helped a for-profit radio station increase its total revenues likewise you are helping a for-profit school increase its total revenues by subsidizing operating costs it would otherwise incur the fact that the organization in the ruling had a board_of directors from the community at large who did not include any representatives of the for-profit radio station did not strengthen their claim to exemption as held in better business bureau of washington dc inc a single non-exempt purpose if substantial will preclude tax exemption under sec_501 of the code your activities result in substantial private benefit to v and your earnings inure to the benefit of your president b the owner and founder of v like the organization described in this case an organization with the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of other exempt purposes you are similar to the organizations in est of hawaii and international postgraduate medical foundation given that_v’s for-profit activities benefit from your operations you were formed as a supporting_organization to and intended your funds to be distributed to v in the form of purchasing equipment and supplies for the school you are serving as an instrument to further the purposes of v because your related for-profit organization v benefits substantially from the manner in which you operate you are not operated exclusively for exempt purposes you are comparable to the organization described in salvation navy because you could not prove that you were not organized and operated to serve the private interests of your president b conclusion you are not operated exclusively for exempt purposes as set forth in sec_501 your net_earnings inure to the benefit of your president a private individual in addition it is clear that your operations result in substantial private benefit to v letter rev catalog number 47630w as aresult we conclude that you are not operated exclusively for public rather than private purposes we conclude based on the stated facts that you do not qualify for tax exemption because more than an insubstantial part of your activities is not in furtherance of exempt purposes therefore you do not qualify for exemption under sec_501 because we have determined you are not exempt under sec_501 of the code you do not meet the requirements of a supporting_organization under sec_509 if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ l forward your case to the office of appeals and notify you you can find more letter rev catalog number 47630w information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it sincerely if you agree you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements jeffrey i cooper director exempt_organizations rulings and agreements letter rev catalog number 47630w enclosure publication


department of the treasury internal_revenue_service te_ge eo examinations commerce street dallas tx tax_exempt_and_government_entities_division number release date legend org name of organization num ein number datel effective date date2 year-end of effective date date uil person to contact identification_number contact telephone number in reply refer to ein num dear org last date for filing a petition with the tax_court this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code the internal_revenue_service ‘s recognition of your organization as an organization described in sec_501 is hereby revoked effective datel you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 you failed to comply with the conditions of your exemption in that you did not file all required forms or respond to repeated reasonable requests to allow the internal_revenue_service to we have made this determination for the following reasons examine your books records and activities you have provided no information showing that you conduct a real and substantial charitable program you appear to operate a program of seller - funded downpayment assistance as such you failed to meet the requirements of sec_501 and sec_1_501_c_3_-1 in that you failed to establish that you were operated exclusively for an exempt_purpose and you do not appear to fall within the guidelines of exempt downpayment assistance programs as set forth in revrul_2006_27 2006_21_irb_915 you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending date2 and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by writing to internal_revenue_service taxpayer advocates office local office taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations tax_exempt_and_government_entities_division org department of the treasury internal_revenue_service te_ge room sw 6th court plantation fl date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice - letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at local office sincerely thank you for your cooperation if you write please provide a telephone number and if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you enclosures publication publication report of examination marsha a ramirez director eo examinations letter catalog number 34809f form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit yeat period ended legend org name of organization address address of organization datel effective date date2 date of tax period ending state name of state issue whether exempt_organization qualifies for exemption under sec_501 of the internal_revenue_code facts exempt_organization failed to respond to the internal_revenue_service correspondence for the tax period ending date’ on april the examiner mailed letter form_4564 information_document_request and publication to address listed on the return filed for year ended date1 sender as undeliverable on july located at address the internal revenue correspondence was returned to obtained an annual report filed on september and noted a change to the address and registered agent from the public records the exempt organization’s new principal address is listed at address the organization was administratively dissolved on september for failure_to_file annual reports with the state additionally examiner was unable to locate the organization as a business incorporated in state on state’s website on october the examiner attempted to locate a trustee of the organization in order to verify current address examiner was contacted by trustee on october he confirmed that he is a trustee for org and confirmed his home address as per accurint trustee was supposed to contact examiner to provide current mailing address for org but never did and never answered telephone calls or return messages on november the examiner subsequently mailed letter along with copies of previously mailed letter form_4564 and publication to the trustee the internal revenue correspondence was returned unclaimed on december law form 886-a rev department of the treasury - internal_revenue_service page -1- form 886a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service org sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 of the regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 a -of the code and subject_to the tax imposed by the sec_511 on its unrelated_business_income must keep such permanent books and accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 of the regulations states that the books_or_records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status department of the treasury - internal_revenue_service form 886-a rev page -2- form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org schedule no or exhibit year period ended in accordance with the above cite provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information an other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax conclusion it is the irs’s position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under c of the internal_revenue_code accordingly the organization exempt status is revoked effective date1 form 886-a mev department of the treasury - internal_revenue_service page -3-


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 7-plr-135433-01 date date legend taxpayer x y dear we received your letter requesting permission for taxpayer to revoke its election under sec_41 this letter is in response to that request for the tax_year ending on x taxpayer as a member of a sec_41 controlled_group_of_corporations determined its credit_for_increasing_research_activities research_credit under the alternative_incremental_research_credit rules of sec_41 before the due_date of its return including extensions for the tax_year ending on y taxpayer submitted a request to revoke its election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred on or after the tax_year ending on y and all subsequent taxable years for tax years beginning after date taxpayers may elect to determine their research_credit under the alternative_incremental_research_credit rules of sec_41 sec_41 provides that any election under sec_41 shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary based solely on the facts submitted and the representations made we grant permission for taxpayer to revoke its election to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred during the tax_year that plr-135433-01 ended on y taxpayer should compute its research_credit for the tax_year ending on y and all succeeding taxable years using the general_rule of sec_41 provided that taxpayer does not make a new election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 taxpayer should attach a copy of this letter to its tax_return for the tax_year ending on y with the applicable service_center within days after issuance of this letter except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures taxpayer treated as qualified_research_expenses this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely leslie h finlow chief branch associate chief_counsel passthroughs and special industries enclosure


t c memo united_states tax_court charles b covert petitioner v commissioner of internal revenue respondent docket no filed date george w connelly jr for petitioner susan k greene for respondent memorandum opinion kroupa judge this case is before the court on petitioner’s motion for litigation costs including attorney’s fees pursuant to section and rule 1all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated we are asked to decide whether petitioner is entitled to recover litigation costs we hold that he is not background respondent issued petitioner a notice_of_proposed_deficiency 30-day_letter proposing deficiencies in his income_tax for and regarding whether petitioner a psychiatrist operated his ranch for a profit under sec_183 the notice_of_proposed_deficiency also advised petitioner of his opportunity for review by the appeals_office and informed petitioner that his rights in court including for example the right to litigation costs depended on his full participation in the administrative consideration of his case including appeals_office review petitioner met with his counsel david allie mr allie before the 30-day period expired and the two decided to forego a hearing with the appeals_office and await the deficiency_notice to petition the tax_court petitioner and mr allie believed this course would avoid a protracted battle with respondent and reasoned that a hearing would only delay a resolution of the case accordingly petitioner did not request an appeals_office conference neither petitioner nor his counsel met with an appeals officer for an appeals_office conference before the petition was filed respondent sent petitioner a deficiency_notice in which he determined a dollar_figure deficiency for a dollar_figure deficiency for and a dollar_figure deficiency for petitioner filed a petition with this court the sole issue for each year was whether petitioner engaged in his ranching activity for profit as defined by sec_183 mr allie met with the appeals officer assigned to petitioner’s case several months after the petition was filed mr allie believed that the appeals officer was not interested in settling the case under terms acceptable to petitioner petitioner retained new counsel george connelly before the trial after trial respondent conceded all issues in the deficiency_notice and the parties filed a stipulation of settled issues resulting in no deficiencies due from petitioner for any of the years at issue petitioner now seeks to recover dollar_figure in litigation costs from respondent including his attorney’s fees discussion we now address whether petitioner may recover any of the dollar_figure in litigation costs the prevailing_party may be awarded reasonable_litigation_costs in any court_proceeding by or against the united_states sec_7430 if the government establishes that its position was substantially justified the moving party will not be treated as having prevailed sec_7430 a prevailing_party must establish in order to obtain such an award that the party has exhausted the administrative remedies available the party has substantially prevailed in the controversy the party satisfies certain net_worth requirements the party has not unreasonably protracted the proceedings and the amount of costs is reasonable sec_7430 and c we may grant petitioner’s motion if he meets all of the statutory requirements for an award of litigation costs see sec_7430 and c see also rule e swanagan v commissioner tcmemo_2000_294 a threshold requirement exists for the recovery_of litigations costs the taxpayer must have exhausted the available administrative remedies before filing a petition sec_7430 burke v commissioner tcmemo_1997_127 sec_301_7430-1 proced admin regs a taxpayer exhausts his or her administrative remedies where an appeals_office conference is available only if the taxpayer participated in such a conference before filing a petition burke v commissioner supra sec_301_7430-1 g example proced admin regs none of the limited exceptions applies here to relieve petitioner of the requirement that he participate in an appeals_office conference to be treated as having exhausted available administrative remedies see shaw v commissioner tcmemo_2005_106 the appeals mission is to resolve tax controversies without litigation administration internal_revenue_manual cch pt at big_number date the internal_revenue_service is seeking facts during the appeals phase to decide whether it should determine a deficiency and thereby force a taxpayer to incur litigation costs or pay the determined tax see eg shaw v commissioner supra this court has previously warned taxpayers and their counsel about waiving the opportunity for an appeals_office conference where a taxpayer hopes to comply with the exhaustion-of-administrative-remedies requirement to preserve a right to recover litigation costs 117_tc_48 affd 55_fedappx_476 9th cir this court seeks to preserve the role that the administrative appeal process plays in resolving tax disputes by requiring taxpayers to participate in an appeals_office conference before litigation see burke v commissioner supra citing h rept pincite and technical explanation of committee amendment cong rec daily ed date respondent issued petitioner the 30-day_letter providing him with an opportunity for an appeals_office conference petitioner’s affidavit explains that because he believed a meeting with the appeals officer would delay resolution of his case he did not pursue a conference before filing a petition in this court petitioner’s counsel argues that a conference would have been futile mr allie’s affidavit states that when he met with the appeals officer after filing the petition he understood that the appeals_office was determined to take the case to trial and settlement was not a possibility as a result petitioner claims that his decision to forego an appeals_office conference should not bar reimbursement of litigation costs we disagree petitioner was advised of his right to challenge respondent’s determination in an appeals_office conference he chose not to participate in such a conference he was warned that in many instances this meant he would have no opportunity to recover litigation costs we hold that petitioner did not exhaust his administrative remedies by participating in an appeals_office conference and therefore petitioner is not entitled to an award of reasonable_litigation_costs accordingly we need not nor do we address whether any remaining requirements of sec_7430 have been satisfied to reflect the foregoing an order will be issued denying petitioner’s motion for litigation costs as sup- plemented and decision will be entered for petitioner


t c memo united_states tax_court charles durham petitioner v commissioner of internal revenue respondent docket no filed date maurice w gerard for petitioner caroline r krivacka for respondent memorandum opinion holmes judge sec_6404 of the code1 gives the commissioner power to abate interest that has accrued on unpaid unless otherwise indicated all section references are to the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure constitution references are to the constitution of the united_states taxes in congress amended the section to allow abatement more often but made the amendment effective only for interest accruing on tax deficiencies or payments for tax years beginning after the date of enactment--date petitioner charles durham was under audit for his tax years when the amendment was enacted he wants to take advantage of the amendment’s terms and so challenges the constitutionality of its effective date the case comes to us on cross-motions for summary_judgment background before the amendment the commissioner could abate interest under sec_6404 only when interest had accrued because of an irs employee’s error or delay in performing a ministerial_act sec_6404 old sec_6404 see 112_tc_19 but ministerial_act was narrowly defined as a procedural or mechanical act that does not involve the exercise of judgment or discretion proced admin regs sec_301_6404-2t b temporary proced admin regs fed reg date this definition captured only such bureaucratic snafus as delays in transferring a case between offices or in issuing an already agreed-upon notice_of_deficiency id examples and the identical definition carried over to the final regulations in effect for tax years commencing after date proced admin regs sec_301_6404-2 congress came to think that other sorts of delays called for relief from the relentless accrual of interest the amendment new sec_6404 therefore empowered the commissioner to abate interest caused by any unreasonable error or delay by an officer_or_employee of the internal_revenue_service in performing a ministerial or managerial act taxpayer bill of right sec_2 publaw_104_168 110_stat_1452 emphases added managerial acts include such mistakes as the temporary or permanent loss of records and more generally mistakes in the exercise of judgment or discretion relating to management of personnel proced admin regs sec_301_6404-2 petitioner’s problems began in date when the irs started to audit his tax_return the irs later expanded the audit to his and returns the audit went slowly in date the irs reassigned the first revenue_agent working on this case to other matters and didn’t put a second agent on it until date a year later the case went to the irs’s appeals_office the appeals officer concluded that the audit needed additional work and returned the case to the district_office in date where it went into suspended animation respondent blames this on petitioner’s attorney and petitioner blames it on respondent’s personnel assignments and mishandling of files work finally resumed in early and the parties closed the case in date with petitioner’s agreeing to the assessment and collection of deficiencies for in date petitioner asked respondent to abate at least part of the accrued interest citing respondent’s delays in handling the case respondent issued his final_determination in date it completely disallowed petitioner’s request and this appeal followed petitioner has at all relevant times been a resident of tennessee and this case was originally set to be tried in knoxville before trial however both parties moved for summary_judgment respondent’s motion was simple petitioner’s allegations of irs errors all involved managerial acts proced admin regs sec_301_6404-2 sec_6404 allows respondent to abate interest for delays caused by managerial acts but only for tax years after the years involved here were therefore respondent could not abate interest petitioner’s motion agrees with respondent’s right up to the therefore he argues that the effective date in the statute is trumped by the constitution whose guarantees of equal protection make an effective date based on when a tax_year commenced rather than when irs misfeasance occurred unconstitutional he concedes as he stated in his last filing with the court that if the effective date was congress’ intent and does not violate petitioner’s constitutional rights then the acts taken by respondent would be within the statutory authority the parties thus agree that for purposes of these motions delays occurred in respondent’s handling of the case and those delays were due to managerial acts the parties also agree that petitioner would not be entitled to an abatement of interest under old sec_6404 but would be under new sec_6404 we therefore need not untangle the parties’ contradictory positions on who and what caused how much delay and the case is ripe for decision on this disputed and apparently novel legal issue petitioner’s concession also frees us of having to analyze whether some of the delay was the result of what we might consider ministerial acts under the old temporary regulations see palihnich v commissioner tcmemo_2003_297 irs’s year failure to process amended returns after losing them was ministerial_act under sec_301_6404-2t b temporary proced admin regs fed reg date discussion although petitioner makes passing efforts to argue that the effective date doesn’t mean what it say sec_4 or fails to correctly reflect congress’s intent his main argument is grounded in equal protection law he contends that all victims of managerial errors committed after date should be treated equally and that congress by applying new sec_6404's interest abatement provisions only to tax years beginning after he suggests that the effective date provision was an oversight by congress that is capable of judicial revision however we note that new sec_6404's effective date is but one of many in that section of taxpayer_bill_of_rights 2--notably including the one governing the right to judicial review formerly sec_6404 now sec_6404 publaw_104_168 effective date based on time of request for interest abatement even if we had a general power of judicial correction this close proximity of different effective dates shows that congress did pay attention to such provisions and was capable of making a different choice if it had wished petitioner argues that applying the effective date as written would thwart congress’s clearly expressed intent that taxpayers not suffer the ill effects of bureaucratic gaffes by the irs but his only evidence of this intent is a quote that the purpose of amending sec_6404 was to provide for increased protections of taxpayer rights in complying with the internal_revenue_code h rept pincite 1996_3_cb_49 so general a statement of legislative purpose is insufficient to overcome the plain meaning of the amendment’s effective date the due process clause of the fifth_amendment provides guarantees against the federal government that are essentially identical to those provided against the states by the fourteenth amendment’s equal protection clause 347_us_497 that date unfairly discriminated between two classes of similarly situated taxpayers he asks us to imagine two taxpayers a and b a has a deficiency for the tax_year and b has one for the tax_year a and b are dealing with the same irs agent who while handling their cases is sent for a prolonged bout of training clearly a managerial act that causes unreasonable delays in the resolution of both cases if the effective date of new sec_6404 is constitutional however only b would be allowed an interest abatement despite a and b’s both being in apparently identical predicaments petitioner contends that no justifica- tion exists for this disparate treatment petitioner faces daunting odds though because such fine distinctions are common in the law and particularly common in tax law courts have long held that l egislatures have especially broad latitude in creating classifications and distinctions in tax statutes 461_us_540 and the burden is on the taxpayer to negate every conceivable basis which might support it id pincite this judicial deference flows from a recognition that--as a practical matter--congress will often have to draw distinctions between different taxpayers who seem in some ways to be in similar positions no scheme of taxation whether the tax is imposed on property income or purchases of goods and services has yet been devised which is free of all discriminatory impact 411_us_1 as with laws granting economic benefits drawing dis- tinctions inevitably requires that some persons who have an almost equally strong claim to favored treatment be placed on different sides of the same line fcc v beach com- munications inc 508_us_307 yet courts have repeatedly held that these distinctions do not violate the constitution’s guarantee of equal protection instead they re- flect congress’s exercise of its legitimate prerogative to enact laws with an eye to their practical administration and cost to the fisc petitioner’s argument is thus defective in its implicit premise that distinctions drawn in tax legislation be entirely logical this is not to say that congress has unbridled authority to selectively tax the citizenry but only that courts it might be possible to review new sec_6404’s constitutionality under precedents involving the granting of economic benefits instead of those imposing a tax but this would have little impact on the analysis and none on the result ultimately both economic benefit cases and tax classification cases are subject_to rational basis review see eg n y rapid transit corp v city of 303_us_573 will uphold classifications in tax legislation if they have any rational basis--unless they impinge a fundamental right or use a suspect classification see 68_tc_603 if this case featured one of those classifica- tions it would trigger a different kind of scrutiny as the supreme court noted in regan the case would be different if congress were to discriminate invidiously in its subsidies in such a way as to aim at the suppression of dangerous ideas internal citations omitted u s pincite see also 472_us_612 greater scrutiny may be required when tax distinctions are made on the basis of durational residence requirements petitioner does not argue that congress was impinging on any fundamental right or making any suspect classification but only that new sec_6404's effective date lacks any rational basis and although petitioner’s is the first challenge to the constitutionality of this particular part of the code history shows that few rational basis challenges succeed--the deference courts pay to legislatures when reviewing any statute for a rational basis being a paradigm of judicial restraint beach communications u s pincite while there are even tax laws struck down under rational basis review eg 488_us_336 petitioner’s problem is that any rational basis-- whether articulated by congress or hypothesized by a court--will suffice one obvious rational basis for new sec_6404’s effective date is simple administrative convenience in enacting new sec_6404 congress needed to define the situations that would and would not be subject_to its provisions taking into account that income taxes are levied on an annual basis it was rational for congress to restrict the amendment’s application by tax_year limited to liabilities for tax years beginning after the date of enactment and so giving the irs some time to adjust its own administrative routine at a lower cost to the government considerations of administrative convenience have long been recognized as a valid reason for legislative line drawing see n y rapid transit u s pincite 301_us_495 we need not indeed we must not engage in judicial second-guessing of such a legislative decision the fact that another reasonable classification or courts have traditionally granted even greater deference to distinctions drawn by tax laws than they have to distinctions drawn by laws in other rational basis areas see eg kelso equal protection after the rational basis era is it time to reassess the current standards of review u pa j const l recognizing that there exists a second- order rational review more stringent than the one applied in allegheny pittsburgh coal even more reasonable classification exists does not render violative of due process the classification congress has chosen hamilton t c pincite because we cannot say that new sec_6404's effective date is without a rational basis an order and decision will be entered granting respondent’s and denying petitioner’s motion for summary_judgment


internal_revenue_service department of the u i l washington dc contact person telephone number in reterence to date ep ra t2 jul attn ‘legend church c church u order b order c_corporation a corporation b corporation d corporation e corporation f conference g council p institute h n a p g n u n a t n u h entity entity system system hospital k hospital l organization m organization n directory c committee m committee n plan x plan z plan y state o agreement a a t w t l u p page -2- city individuaia dear this letter is in response to a ruling_request dated date as supplemented by correspondence dated date date and date submitted on your behalf by your authorized representative concerning the church pian status of plans x z and y under sec_414 of the internal_revenue_code code the following facts and representations have been submitted on your behalf order b is a religious community of approximately members organized as pontifical members under the auspices of church c each member of order b has agreed to live according to the teachings tenets and ecclesiastical law of church c under such tenets and laws order b and its members are an integral part of church c and are charged with furthering church c’s avowed religious functions of promoting education human development and care for the sick and needy in the course of their work order b and its members are subject_to some control by certain church c authorities order b appears in directory c shares common religious convictions and bonds with church c and is engaged in carrying out the functions of church c to further its religious functions in the health care area order b created corporation a a not-for-profit corporation chartered in state o prior to its merger with corporation b the board_of trustees of corporation a operated and controlied a large system of health care facilities including acute care hospitals long-term health care facilities a psychiatric hospital a rehabilitation hospital and retirement communities one of the hospitals within the health care system of corporation a was hospital k hospital k opened in as a church c hospital under the sponsorship of order b to provide care for the poor and the medically underserved hospital k was incorporated in state o to carry out a portion of the health care ministry of church c and the religious institutes sponsoring hospital k hospital k maintains its direct connection to church c through corporation b the successor to corporation a one of the oldest and largest church c health care systems in the united_states prior to its merger with corporation b under the articles of incorporation of hospital k three of its purposes are to establish maintain and operate in a manner which recognizes the total good of the patient which includes his higher spiritual as well as his bodily welfare and in a manner p ss page -3- which recognizes the sanctity of human life and the principles of church c a general hospital with facilities to give patient and out-patient care accommodation diagnosis and treatment to persons suffering from injury disease or from any other condition where medical surgical obstetrical nursing and allied professional services may be required and to provide medical_care for the indigent sick to carry on educational and research activities related to rendering care to the sick and injured or the protection of health which in the opinion of the board_of trustees may be justified by the facilities personnel funds or other requirements that are or can be made available and to participate in any activity designed and carried to promote the general heaith rehabilitation and sociai needs of the community which is consistent with the sanctity of human life and the principles of church c church c gives high priority to healing ministries as a vital part of its christian mission as part of its healing ministries church c has placed important emphasis on the provision of health care services hospital k is a recognized church c hospital corporation b is the successor by merger of corporation a and system and system corporation b was created in to carry out a portion of the health care ministry of church c_corporation b’s mission is to nurture the healirig ministry of church c by emphasizing human dignity and social justice while moving toward the creation of healthier communities these health care facilities are managed and directed according to the ethical and religious directives for church c health facilities promulgated by conference g corporation b is sponsored within the meaning of canon law by religious institutes of church c that agree to accept corporation b’s healing and health care mission called sponsoring congregations who own or have owned health care facilities in the united_states one of the sponsoring congregations is order b hospital k is related to the sponsoring congregations through corporation b as its sole voting member corporation b proposes to ensure the creation of healthier communities in accordance with church c beliefs through research_and_development of new ministries that integrate health education pastoral and social services and by advocating systemic changes within the community with a specific concern for persons who are poor alienated and whose medical needs are underserved corporation b’s health care mission is carried out through various health care facilities located in over eighteen states the management of the affairs of corporation b are controlled by a board_of stewardship trustees which has powers equivalent to those granted to a board_of directors from two to five board_of stewardship trustees are members of the sponsoring active congregations and are appointed by the members of corporation b sponsorship trustees the sponsorship trustees in turn approve the election of the remaining elected trustees one-half of the board’s elected membership must be members of religious institutes and an equal number are to be lay persons a majority 1s page -4- of the board_of stewardship trustees must at ail times be individuals of the church c faith the chief_executive_officer of corporation b is an ex-officio member of the board who may vote corporation b is officially recognized by church c as a public juridic person within the meaning of the code of canon law for church c as organization m a public juridic person is a group of persons incorporated by church c whose purpose is congruent with the mission of church c a public juridic person has pontifical rights which means that its purpose is for a common good of church c its property is church c’s property and it can speak on behalf of church c at large organization m was recognized as a public juridic person in as the church c counterpart to corporation b’s predecessor_corporation f by written decree of institute h an office of individual a the members of corporation b’s board also serve as the members of organization m corporation d is a not-for-profit corporation organized under the laws of state in corporation d opened a second hospital and immediately continued o corporation d was founded in by german methodist deaconesses who ministered to city 1's sick and its poor it opened its first hospital facility with beds in throughout the century corporation d and its physicians developed and introduced numerous programs that changed the way heaith services were provided in city an impressive series of product and program expansions many of which were firsts for a three state region today as one of the largest health care systems in city corporation d operates a diverse array of inpatient outpatient home health and corporate health services including hospital l a wholly-owned subsidiary of corporation d as well as retirement and skilled nursing facilities corporation d continues to maintain its affiliation with church u hospital k corporation a prior to its merger into corporation b hospital l and corporation d entered into an agreement on date the agreement represents the long-term vision of an integrated health care delivery system for the citizens of city initiated by hospital l and hospital k which was fully endorsed by their sponsors corporation d and corporation a the purpose of the agreement is to provide a comprehensive and integrated provider base in order to combine their strengths reduce duplicative services take advantage of economies of scale and otherwise work in concert to optimize the health status of the citizens they serve at the lowest cost attainable the agreement created an integrated multi-entity health care delivery system consisting of the affiliation of hospital k hospital l corporation d corporation a their affiliates and corporation e a state o nonprofit corporation collectively network participants corporation e guides their efforts and serves as parent of the network corporation e coordinates and integrates the activities of the is page -5- network participants through certain powers reserved to corporation e by the network participants in order for corporation e to satisfy its purpose and to carry out its powers rights and obligations corporation e became a nonvoting member of hospital k and hospital l as of date hospital k retains corporation b as its sole voting member corporation d and corporation b as sponsors are equal members of corporation e beginning in date hospital k hospital l and corporation e established a common board_of trustees network parent board common executive committee membership and a common chief_executive_officer and other designated officers similar provisions of the corporate codes of regulation have been adopted by the network participants the network parent board consists of voting trustees of whom are elected trustees and one of whom is the chief_executive_officer serving ex officio of the elected trustees six trustees are elected and subject_to removal by and serve at the discretion of each of the sponsors accordingly corporation b has the sole and exclusive authority to remove and fili a vacancy in the office of any corporation e’s trustee which it appoints the network parent board manages corporation e’s business and affairs and has all the powers responsibilities and obligations given a board_of trustees of a nonprofit corporation under the laws of state o subject_to certain limitations corporation e obtained the power to coordinate and integrate the activities of hospitals k and l through a delegation of power of certain specified powers to corporation e by hospitals k and l the delegated powers fall into two broad categories the power to approve and the power to review and comment although the articles of incorporation and the corporate bylaws of hospital k and hospital l have been amended to add corporation e as a additional non-voting member the powers of corporation e as a member of each hospital are limited because corporation b and corporation d continue to have the authority to elect the sole elected members of its respective hospital’s board_of trustees and the power to adopt amend or repeal its respective hospital’s articles of incorporation and corporate bylaws hospital k and hospital l retain their separate corporate existence under the agreement hospital k continues to be a church c institution and continues to be a member of corporation b in forming and operating the network hospital k is obligated to carry out the mission and vision of corporation b and continues to adhere to the core values of corporation b as a member of corporation b hospital k is obligated to comply with corporation b’s policies procedures and canonical or civil obligations to utilize corporation b's programs and services and to pay the corporation b administrative s page -6- fee corporation e cannot exercise any power or control which will cause hospital k to violate policies procedures or legal obligations of corporation b or hospital k resulting from or associated with corporation b’s membership the activities of corporation b and hospital k including their participation as a sponsor and hospital in the network respectively continue to be subject_to the ethical and religious directives for church c health facilities and similar guidelines promulgated by council p if hospital k and or corporation b deem an activity or proposed activity tobe contrary to or otherwise require corporation b or hospital k to violate the ethical and religious directives for church c health facilities or similar guidelines promuigated by council p corporation b or hospital k may invoke an informal dispute resolution force a vote at the network parent board which would require their approval to pass and finally obtain an injunction against corporation d without contest if corporation d proceeds with the activity this provision extends beyond network activities and includes any activity of the network corporation e corporation d hospital l and any affiliates of these entities effective date hospital k adopted a defined_benefit_plan whict has-been amended and restated from time to time effective date hospita k amended and restated the defined_benefit_plan in its entirety and it became plan x on date and again on date the internal_revenue_service ruled that plan x was a church_plan within the meaning of sec_414 of the code effective date employees of organization n a for-profit corporation wholly-owned and directly controtted by corporation a became eligible to participate in pian x organization n conducted related service activities primarily printing and biomedical equipment repair for corporation a hospital k and many other healttrcare and educational facilities operated by order b throughout the united_states the employees of organization n were former employees of corporation a who were eligible to participate in plan x since organization n's employees constituted less than five percent of the total number of participants in pian x the internat revenue service ruled in that substantially_all participants in plan x were employees within the meaning of sec_414 or sec_44 by of the code and that piarr x was not maintained primarily for the benefit of church employees who are employed in connection with an unrelated_trade_or_business effective date plan x was amended and restated to become plan z a cash batance defined benefit pension_plan effective date employees of corporation a and organization n were no longer eligible to participate in plan z sec_4 page -7- since date only the employees of hospital k have been eligible to participate in plan z except for the emptoyees of entity who became eligible to participate in plan z effective date entity is a wholly-owned subsidiary of hospitat k that is tax exempt under sec_501 of the code entity owns and operates physician practices throughout the greater city region one ofthe purposes of entity fis to act for the exclusive benefit of and carry out the purposes of hospital k by primarily supporting the research education and clinicat service progranrof hospital k in accordance with the agreement plan z was amended and restated effective date into a separate pension equity ptan in an effort to achieve parity in the retirement programs of hospital k and hospital l and to provide for the orderly transfer me of emptoyment between the two hospitats ptan z as amended and restated plan y through date the eligible employees of hospital k continued to earn benefits under plan z beginning july t eligible employees of hospitat k and entity began earning benefits under the new formula prescribed by plan y effective date the benefits under plan y were catculated-based on alt étigibie service with hospitals k and l and their affiliates accordingly plan y offers a common form of retirement benefits to all eligible emptoyees of hospitals k and l and recognizes accommodates the transfer of employment between them as of date there were approximately active participants in and ptan y prior to date plan z was administered by committee m whose members were appointed by the board-of trustees of hospital k the board_of trustees maintained the power_of_appointment and removal over the members of committee m committee m members were choserror the basis of their individual skills backgrounds and familiarity with hospital k and retirement plans committee m was composed of at least three or more-persons-appointed-by the board of- trustees of hospital k member of order c a predecessor of corporation b all decisions or actions made or taken under plan z by committee m had to be consistent with the religious convictions of order b order c and church c the sole function of committee m was to administer the plans of hospital k at least one member of committee m was a member of order b or a effective date committee n replaced committee m as the plan_administrator committee n’s members were appointed by the board_of trustees of hospital k the board_of trustees maintains the power_of_appointment and removal over the members of committee n committee n members were chosen on the basis of their individual skills backgrounds and familiarity with hospital k and retirement plans committee n is composed of five ex officio and five individual members of page -8- hospital k and an ex officio of entity the five ex officio members of hospital k are vice president of human resources vice president corporate counsel director of mission effectiveness director of human resources and benefits manager the controller is the ex officio committee n member representative of entity members of committee n serve at the pleasure of the board_of trustees or any other appointing board having responsibility for their appointment when it administers hospital k's plans committee n is required to be mindful of and act in accordance with the teachings and tenets of church c and the sponsoring congregation of church c initiatives in addition all decisions or actions made or taken under the plan y an plan z by committee n shall be consistent with the religious convictions of chureh c with which it shares common bonds the sole function of committee n is to administer the plans of hospital k health the sponsoring congregations and many of corporation b’s health care facilities are listed in directory c_corporation b is exempt from federal taxation under sec_501 of the code based upon its inclusion in-the church c group ruling order b and hospital k are also organizations appearing in directory c for the internal_revenue_service has determined that an organization appearing in directory-c is an organization described in sec_501 c of the code and therefore is exempt from federal taxation under sec_501 based on the foregoing facts and-representations you request the following rulings plan x continued to be a church_plan within the meaning of sec_414 of the code on date through date and plan z continued to be'a church_plan within the meaning of sec_44 e of the code on date through date plan z remained a church_plan on or after date following the extension of coverage by plan z to the employees of entity the agreement made and entered on date between hospital k hospital l corporation d and corporation b as successor_in_interest to corporation a did not detrimentally affect plan z’s status as a church_plan within the meaning of sec_414 of the code plan y is a church pian within the meaning of sec_414 of the code as of date l page plan y remains a church pian on or after date following the continuation of coverage by plan y to the emptoyees of entity i the present application of the agreement does not detrimentally affect plan y’s status as a church_plan within the meaning of sec_414 of the code sec_414 of the code defines the term church_plan as a plan established and maintained for its employees or their beneficiaries by a church-or by a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides that a church pian does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of a church or convention-or association of churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 of the code or if less than-substantially all of the individuals included in the plan are church employees as described in sec_414 or sec_414 sec_414 of the code-provides that-a-ptan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches includes a plan maintained by an-organization whether-a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of plan-or program for the provision of retirement ponents or welfare benefits or both for the employees of a church or a convention or association of churches if such organizatiorris controlled by-or associated with a church or a convention or association of churches sec_414 of the code defines employee to-include a duly ordained commissioned or licensed minister of a church in the exercise of a ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association o-2 page -10- of churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches with regard to ruling_request number one on date the internal_revenue_service ruled that plan x was a church_plan within the meaning of sec_414 of the code you represent that hospital k joined with corporation a prior to its merger into corporation b hospital l and corporation d to provide a comprehensive and integrated provider base in order to combine their strengths reduce duplicative services take advantage of economies of scale and otherwise work in concert to optimize the health status of the citizens they serve at the lowest cost attainable specifically you state that the agreement provides that corporation e is a nonvoting member of hospital k that corporation b remains the sole voting member of hospital k and that corporation b is an equal member of corporation e with corporation d the powers ceded to corporation e by the network participants are limited because corporation b continues to have the sole authority to elect the sole elected members of the board_of trustees of hospital k and the power to adopt amend or repeal its artictes of incorporation and corporate bylaws hospital k preserves and retains its separate corporate existence under the agreement corporation b may remove of the elected members of corporation e’s board which it appoints and has the sole and exclusive authority to fill a vacancy in the office of any member of corporation e's board which it appoints hospital k is obligated to carry out the mission and vision of corporation b and continues to adhere to the core values of corporation b corporation e cannot exercise any power or control which will cause hospital k to violate policies procedures or legal obligations of corporation b or hospital k resulting from or associated with corporation b’s membership the activities of corporation b and hospital k continue to be subject_to the ethical and religious directives for church c facilities and similar guidelines promulgated by the national council of church c bishops per your representation that the agreement did not substantially change the facts governing the foregoing private_letter_ruling we conclude that plan x continued to be a church pian within the meaning of sec_414 of the code on date through date and plan z continued to be a church_plan within the meaning of sec_414 of the code on date through date regarding ruling_request number two beginning date the employees of entity began participating in plan z plan z existed from date through date entity is a wholly-owned subsidiary of hospital k that is tax exempt under sec_501 of the code entity owns and operates physician practices throughout the greater city region one of the purposes of entity is to act for the exclusive benefit of and carry out the purposes of hospital k by primarily supporting the research education and clinical service program of hospital k in view of the foregoing facts and representations we conclude that plan z remained a church_plan on or after q3 page -11- date following the extension of coverage by plan z to the employees of entity i regarding ruling_request number three you represent that entering the agreement did not compromise the church pian status of plan z because under the agreement hospital k continued to be controlled by church c although the agreement created an integrated multi-entity health care delivery system consisting of the affiliation of hospital k corporation a hospital l corporation d and corporation e hospital k preserved and retained its separate corporate existence under the agreement the agreement represents the long-term vision of an integrated health care delivery system for the citizens of city initiated by hospital l and hospital k which was fully endorsed by their sponsors corporation d and corporation a the purpose of the agreement is to provide a comprehensive and integrated provider base in order to combine their strengths reduce duplicative services take advantage of economies of scale and otherwise work in concert to optimize the health status of the citizens they serve at the lowest cost attainable the agreement did not alter church c’s control_over or association with hospital k therefore we conclude that the agreement made and entered on date between hospital k hospital l corporation d and corporation b as successor_in_interest to corporation a did not detrimentally affect plan z’s status as a church_plan within the meaning of sec_414 of the code regarding ruling_request four hospital k is exempt from federal_income_tax under sec_501 and is associated with church c by virtue of its creation and operation hospital k was established under the sponsorship of order b to provide care for the poor and the medically underserved and to carry out a portion of the health care ministry of church c and the religious institutes sponsoring hospital k hospital k is controlled by church c because its board_of trustees are appointed by corporation b which was created to carry out a portion of the health care ministry of church c in addition corporation b elects or causes the board_of trustees of hospital k to elect the officers of hospital k also hospital k is associated with church c by reason of sharing common religious bonds and convictions as evidenced by its listing in directory c any organization listed in directory c is considered associated with church c and its employees are deemed to be employees of church c because hospital k is controlled by and shares common bonds and convictions with church c through corporation b hospital k is controlled by and associated with church c within the meaning of sec_414 of the code of page -12- committee n administers plan y committee n is controlied by hospital k’s board_of trustees through its powers of appointment and removal committee n is composed of five ex officio and five individual members of hospital k and an ex officio of entity members of committee n serve at the pleasure of the board_of trustees of hospital k or any other appointing board having responsibility for their appointment when it administers hospital k’s plans committee n is required to be mindful of and act in accordance with the teachings and tenets of church c and the sponsoring congregation of church c health initiatives in addition ali decisions or actions made or taken under plan y by committee n shall be consistent with the religious convictions of church c with which it shares common bonds the sole function of committee n is to administer the plans of hospital k since hospital k is associated with church c by the sharing of common religious bonds and convictions committee n associated with church c by virtue of the fact that it is controlled by hospital k therefore committee n qualifies as an organization described in sec_414 of the code accordingly we conclude that plan y qualifies as a church_plan within the meaning of sec_414 of the code since date is indirectly regarding ruling_request five entity is a code sec_501 tax exempt wholly-owned subsidiary of hospital k in ruling_request number two we concluded that plan z remained a church_plan on or after date following the extension of coverage by plan z to the employees of entity although plan z has been amended and restated to become plan y the facts have not substantially changed to the extent that qualification has been affected therefore we conclude that plan y remains a church_plan on or after date following the continuation of coverage by plan y to the employees of entity regarding ruling_request six we concluded in ruling_request number three that the agreement did not adversely affect plan z per your representation the facts regarding plan z for church_plan purposes have not substantially changed since the period covered by ruling_request number three except that hospital k’s board_of trustees amended pian z to become pian y and committee n was established to administer plan y in view of the foregoing facts and circumstances we conclude that the present application of the agreement does not detrimentally affect plan y’s status as a church_plan within the meaning of sec_414 of the code this letter expresses no opinion as to whether plan x plan z and pian y satisfy the requirements for qualification under sec_401 of the code the determination as to whether a plan is qualified under sec_401 is within the - jurisdiction of the appropriate key district_office of the internal_revenue_service a s page -13- 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 by others as precedent in accordance with a power_of_attorney on file in this office a copy of this ruling is being sent to your authorized representative sincerely yours aligned joyce b fits joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of this letter notice of intention to disclose


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-111543-10 date september legend x a ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ------------------------- state ------------ d1 year ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ------- dear ---------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts x was formed as a limited_liability_company under the laws of state x is treated as a partnership for federal tax purposes a was a partner in x until d1 when a died x relied on its tax advisor for advice x's partnership return for year the year of a's death was timely filed however x inadvertently failed to timely make a sec_754 election plr-111543-10 x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election 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 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-111543-10 conclusion based solely upon 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 following the date of this letter to make an election under sec_754 effective for year the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_754 election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express no opinion as to whether or not x is a partnership for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely associate chief_counsel passthroughs and special industries by _____________________________ melissa c liquerman chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------------- --------------------------------------- ---------------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc corp b05 plr-150739-09 date december legend taxpayer exchange year1 dear ------------------ ------------------------------------------------------------- ---------------------- ------------------------------------ ------- this ruling responds to your letter dated date submitted on behalf of taxpayer requesting rulings under internal_revenue_code the code sec_301 and sec_305 the ruling_request additional information was received subsequently the rulings contained in this letter are based upon facts and representations that were submitted on behalf of taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts taxpayer is an accrual basis taxpayer that files its federal_income_tax returns as a real_estate_investment_trust reit on a calendar_year basis taxpayer represents that it qualifies as a reit under the code taxpayer has one class of common_stock outstanding the common_stock which is publicly traded and listed on the exchange all references to stockholder herein refer to holders of common_stock plr-150739-09 for year1 taxpayer subject_to the approval of its board_of directors intends to make a fourth quarter dividend payment in a combination of money and stock the special dividend taxpayer has asked whether certain aspects of the special dividend will preclude it from satisfying any of the conditions of sec_3 of revproc_2009_15 2009_4_irb_356 amplifying and superseding revproc_2008_68 2008_52_irb_1373 the relevant facts of the special dividend highlighting those aspects are described below the total amount of cash payable in the special dividend will be limited to no less than percent or more up to percent of the total value of the special dividend the cash limit taxpayer’s board_of directors will determine the amount of the limitation prior to declaring the special dividend in no event will the total amount of cash available be less than the cash limit each stockholder will have the right to elect to receive cash stock or a combination thereof as follows option a - percent cash the cash_option option b - percent stock the stock_option or option c - a combination of to percent cash depending upon the cash limit and the remaining percentage in stock the mixed option if a stockholder fails to make a valid election by the election deadline that stockholder will be deemed to have made an election to be determined by taxpayer at taxpayer’s sole discretion taxpayer will retain the right to pay the special dividend solely in cash if it so decides prior to the payment_date if the total number of shares of common_stock with respect to which the cash_option or the mixed option is made cash election shares would result in the payment of cash in an aggregate amount that is less than or equal to the cash limit then all holders of cash election shares will receive cash equal to the amount elected if the number of shares with respect to which the cash_option and mixed option is made is such that the cash limit would be exceeded then i stockholders electing to receive the mixed option will receive to percent of the special dividend in cash depending upon the cash limit with the remainder being received in shares of common_stock and ii stockholders electing to receive the cash_option will receive a pro rated portion of the remaining available cash ie the cash limit minus the aggregate amount of cash payable to shareholders electing the mixed option with the remainder being received in shares of common_stock based on this formula in no case will cash election shares receive less than to percent of the special dividend in cash depending upon the cash limit plr-150739-09 taxpayer has asked whether either of the following two aspects of the special dividend will preclude it from satisfying any of the conditions of sec_3 of revproc_2009_15 supra i the mixed option or ii its right to pay the special dividend solely in cash if it so decides prior to the payment_date taxpayer represents that the special dividend will otherwise satisfy conditions through of sec_3 of revproc_2009_15 supra rulings based solely on the facts and representations submitted we rule as follows neither i the mixed option nor ii taxpayer’s right to pay the special dividend solely in cash if it so decides prior to the payment_date will preclude the special dividend from satisfying any of the conditions of sec_3 of revproc_2009_15 supra in accordance with revproc_2009_15 supra the internal_revenue_service will treat any distribution of stock in the special dividend as a distribution_of_property to which sec_301 applies by reason of sec_305 and the amount of such distribution of stock will be considered to equal the amount of the money which could have been received instead caveats 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 in particular no opinion is expressed with regard to whether taxpayer qualifies as a reit under subchapter_m of the code furthermore no opinion is expressed with regard to whether the special dividend constitutes a preferential_dividend under sec_562 of the code procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-150739-09 pursuant to the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely _t ian russell__________ t ian russell senior counsel branch office of associate chief_counsel corporate