t c summary opinion united_states tax_court karl meyer and vickie meyer petitioners v commissioner of internal revenue respondent docket no 7403-00s filed date karl meyer and vickie meyer pro sese r scott shieldes for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority ' unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency in petitioners’ federal_income_tax for the taxable_year in the amount of dollar_figure after a concession by respondent ’ the sole issue for decision is whether petitioners engaged in an amway activity for profit within the meaning of sec_183 background some of the facts have been stipulated and they are so found petitioners are husband and wife and have been married since they resided in houston texas at the time that their petition was filed with the court a petitioner husband petitioner husband mr meyer is by profession a salesman of medical equipment and has been employed by xomed inc xomed for approximately years xomed specializes in the production of medical equipment for use by health care providers who practice in the ear nose and throat area as a salesman for xomed mr meyer typically contacts doctors and nurses within an at trial respondent conceded that petitioners are entitled to the schedule a itemized_deductions deduction for unreimbursed employee business_expenses incurred by petitioner karl meyer in the course of his employment as a salesman for xomed inc as claimed by petitioners on their return for the year in issue at trial we deferred ruling on respondent’s relevancy objection to petitioners’ exhibit 23-p a collection of business articles we now overrule that objection and admit the exhibit into evidence - - assigned geographical territory in texas for the purpose of demonstrating and selling xomed’s products mr meyer is compensated by xomed on a straight commission basis and he is precluded by his employer from participating in other for-profit sales activities his compensation_for through was dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively b petitioner wife petitioner wife mrs meyer is a homemaker and mother of three children alexandra born in date jeffrey born in date and andrea born in date in mrs meyer filed an assumed name certificate with the harris county houston texas clerk’s office adopting the business name of vickie zozaya enterprises however mrs meyer never conducted any type of activity with respect to this enterprise in mrs meyer began designing and making jewelry pins and selling them at craft shows under the assumed name of trinkets etc less than a year thereafter mrs meyer ceased to operate trinkets etc because its time-consuming nature and lack of profitability did not allow mrs meyer to properly care for her children petitioners’ income_tax return for included a schedule c profit or loss from business claiming a net_loss of dollar_figure i e gross_income of dollar_figure less car expenses of dollar_figure from trinkets etc cc amway in date petitioners began to operate an amway distributorship under the name of meyer enterprises petitioners began the amway activity after being recruited as downline distributors by an upline distributor amway is a supplier of household and personal_use products that are sold by individuals distributors through direct marketing an amway distributor purchases amway products for resale to both customers and downline distributors as well as for personal_use at least in theory amway distributors generate receipts by selling amway products directly to customers and by recruiting new distributors the new recruits become downline distributors of the sponsoring distributor and a part of his or her organization in turn each downline distributor is encouraged to sponsor additional new distributors all of whom become a part of the initial distributor’s organization amway does not assign exclusive geographical territories to any distributor nor does amway impose a minimum sales quota on any distributor the sponsoring distributor is referred to as the upline distributor the process of recruiting new distributors is often referred to as building the legs of a distributor's network - amway maintains a pyramid incentive system under this system an upline distributor receives a bonus based on the volume of sales generated by his or her downline distributors thus the system presumes that the upline distributor’s potential for profit will increase as his or her network of downline distributors becomes wider and deeper ’ because the upline distributor’s bonus is based on the volume of sales generated by downline distributors such bonus is not directly affected by a downline distributor’s profitability or lack of profitability the amway pyramid incentive system is promoted by amway in the form of the plan under the plan each amway distributor is encouraged to personally recruit downline distributors each of whom in turn is encouraged to recruit at least downline distributors each of whom in turn is encouraged to recruit at least downline distributors for the upline distributor’s bonus is also based on the volume of sales generated by the upline distributor himself or herself however the volume of such sales is generally minimal and the portion of the bonus attributable to such sales is negligible ’ the width of a network refers to the number of downline distributors that are personally sponsored by the distributor in guestion and length refers to the number of downline distributors that make up each leg of the network more typically the amway system is promoted in the form of the plan see nissley v commissioner tcmemo_2000_178 the two plans are identical except for the number of first-tier downline distributors -- - a total of downline distributors in the initial distributor’s organization the plan is promoted as the theoretical break-even point for a distributorship assuming that the distributor and each downline distributor within the distributor’s organization purchases dollar_figure of amway products per month and that the distributor does not have expenses exceeding dollar_figure per month at least in theory the potential for profit is enhanced as each of the downline distributors in the distributor’s network successfully implements the plan the amway plan does not provide meaningful guidance to distributors regarding how expenses_incurred in pursuing an amway activity may be reduced the structure of the amway pyramid incentive system effectively serves to discourage distributors from spending their time personally trying to sell amway products in contrast the system effectively serves to encourage distributors to spend their time trying to recruit an ever-increasing number of downline distributors amway distributors are entitled to purchase amway products for their personal_use at distributor’s cost without the customary percentage markup ’ although the record is not crystal clear it would appear that percent was the customary markup - jj - d nature of petitioners’ amway activity at the time that they were recruited as amway distributors in date petitioners had no prior experience with amway or an amway type activity other than accepting the amway plan petitioners never developed a business plan for their amway activity nor did they ever prepare profit projections or undertake any type of market analysis although petitioners maintained a monthly report of expenses_incurred in pursing their activity they never prepared a break-even analysis nor a formal budget despite their lack of experience with either amway or an amway type activity petitioners never sought meaningful counsel from disinterested third parties rather petitioners relied principally on advice from upline distributors and other interested amway individuals petitioners spent little time personally trying to sell amway products indeed from february through date no retail sales were made rather petitioners concentrated on trying to recruit and retain downline distributors gross_income received by petitioners consisted principally of bonuses earned from the sale or personal consumption of amway products by downline distributors eb petitioners’ separation and its effect on the amway act ivity upon becoming amway distributors in date petitioners assigned themselves different roles because mrs meyer had virtually no time to spend operating a business outside the home due to parental obligations and because of mr meyer’s experience as a salesman the task of operating the amway activity was initially assumed by mr meyer indeed on their income_tax returns petitioners identified mr meyer as proprietor of the distributorship in contrast mrs meyer assumed responsibility for taking care of the paperwork for the amway activity this responsibility included inputting data related to income and expenses onto quicken the personal finance software program mrs meyer would then periodically compile a list of expenses for the preceding month in addition to such paperwork tasks mrs meyer also associated with the wives of prospective and actual downline distributors in or about petitioners experienced marital problems that lead to their separation in date and the commencement of an action for divorce that december mr meyer disassociated himself from the amway distributorship and mrs meyer assumed her husband’s role in particular petitioners filed a business status change form with amway in date which form served to remove mr meyer’s name from the --- - distributorship and to place the distributorship in mrs meyer’s sole name in addition to the dollar_figure in negotiated child_support to which she was entitled mrs meyer hoped to receive from the amway distributorship enough money so that i could continue staying home with my kids in this regard mrs meyer estimated that monthly amway income of dollar_figure would be sufficient to sustain herself and her children in order to produce that income mrs meyer estimated that downline distributors were reguired each of whom needed to purchase dollar_figure of amway products for their personal_use each month in so estimating mrs meyer relied on a profitability worksheet that was included with the plan given to her by her upline distributor mrs meyer devoted very little time to making retail sales rather she was out for distributors in this regard mrs meyer attempted to recruit downline distributors by talking to anybody and everybody i knew anybody that shops in order to talk to anyone who shops mrs meyer would frequent public areas such as churches malls and parks in order to make contacts so that she could distribute hope back into people’s lives -- - f petitioners’ reconciliation and the termination of the amway activity by date petitioners had reconciled and the divorce action was nonsuited subsequently at some point in petitioners decided that they would no longer actively pursue the amway activity since that time however mrs meyer has continued to renew her status as an amway distributor in order to retain the right to purchase amway products such as vitamins and cleaning products for petitioners’ personal_use at discount prices g petitioners’ schedule c losses for all relevant years specifically including the taxable years through petitioners filed joint federal_income_tax returns petitioners attached to each of those returns a schedule c income or loss from business identifying karl l meyer as proprietor of meyer enterprises and describing the principal business or service of such enterprise as distribution petitioners have never reported a profit from the amway activity rather petitioners have consistently claimed losses from this activity and have used such losses to offset mr meyer’s compensation as a salesman the following schedule reflects the losses claimed by petitioners from the amway activity on schedules c of their tax returns for through year since petitioners amway activity petitioners determined amway activity on schedules through as follows gross_income sec_27 less expenses big_number net_loss big_number net_loss dollar_figure big_number big_number big_number big_number big_number have not claimed any losses from the the amounts of their losses from the c of their tax returns for dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number ' gross_income was essentially the bonuses earned from the sale or personal consumption of amway products by downline distributors petitioners themselves sold relatively few amway products petitioners deducted expenses for the amway activity on schedule c of their tax returns for through as follows advertising car expenses commissions fees legal prof services office expense supplies travel meals entertainment utilities other expenses pubs seminars workshops rally tickets cell phone dues postage voice way total expenses ‘net after 50-percent reduction per sec_274 for the year in issue dollar_figure dollar_figure big_number big_number --- --- big_number --- big_number big_number big_number big_number big_number --- --- big_number dollar_figure dollar_figure big_number big_number big_number --- big_number big_number big_number --- big_number big_number a suburban suv based on business use of dollar_figure percent petitioners deducted car expenses for petitioners determined this percentage based on the following figures business miles driven big_number personal miles driven big_number total miles driven big_number discussion under sec_183 if an activity is not engaged in for profit then no deduction attributable to the activity shall be allowed except to the extent provided by sec_183 pertinent part sec_183 b allows deductions to the extent of gross_income derived from an activity that is not engaged in for profit - - sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 deductions are allowable under sec_162 or under sec_212 or if the taxpayer is engaged in the activity with the actual and honest objective of making a profit 90_tc_74 78_tc_642 affd without opinion 702_f2d_1205 d c cir the existence of the requisite profit objective is a guestion of fact that must be decided on the basis of the entire record 63_tc_375 in resolving this factual question greater weight is accorded objective facts than a taxpayer's statement of intent 68_f3d_868 cir affg tcmemo_1993_634 sec_1_183-2 income_tax regs for purposes of deciding whether the taxpayer has the requisite profit objective profit means economic profit independent of tax savings 81_tc_210 the regulations set forth a nonexhaustive list of factors that may be considered in deciding whether a profit objective exists these factors are the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and any elements indicating personal pleasure or recreation sec_1_183-2 income_tax regs no single factor nor even the existence of a majority of factors favoring or disfavoring the existence of a profit objective is controlling id ogden v commissioner tcmemo_1999_397 affd per curiam 244_f3d_970 cir rather the relevant facts and circumstances of the case are determinative 72_tc_411 affd without published opinion 647_f2d_170 9th cir based on all of the facts and circumstances in the present case we hold that petitioners did not engage in the amway activity for profit within the meaning of sec_183 we shall not analyze in depth all nine of the factors enumerated in the regulation but rather focus on some of the more important ones that inform our decision first the history of consistent and substantial losses_incurred by petitioners in the amway activity is indicative of a lack of profit objective see golanty v commissioner supra at - - sec_1_183-2 income_tax regs a series of losses during the initial stage of an activity is not necessarily an indication that a taxpayer is not engaged in an activity for profit sec_1_183-2 income_tax regs however if such losses continue beyond the period in which it is customary for an activity to become profitable then the losses if they are unexplainable may be indicative of a lack of a profit objective id since the inception of the amway activity in petitioners never earned a profit therefrom but rather incurred losses for consecutive years indeed petitioners’ aggregate losses for the 5-year period from through amounted to dollar_figure thus averaging approximately dollar_figure per year further no significant trend is discernible in the history of petitioners’ losses for and petitioners incurred losses of dollar_figure dollar_figure and dollar_figure and dollar_figure respectively it bears mention that petitioners became amway distributors in the latter part of thus the loss for that year is based solely on months of operation further although it is true that petitioners’ loss decreased in to dollar_figure it is also true that was the last year in which petitioners actively pursued the amway activity second we are not convinced that petitioners conducted the amway activity in a businesslike manner sec_1_183-2 -- - income_tax regs although petitioners maintained computer- generated records for the amway activity and may also have utilized a separate bank account such records appear to have been maintained principally to satisfy substantiation requirements imposed by the internal_revenue_code and thus to guarantee the deductibility of expenses in contrast such records do not appear to have been used as analytic or diagnostic tools in an effort to achieve profitability of the amway activity as we have previously stated the keeping of books_and_records may represent nothing more than a conscious attention to detail in this case there has been no showing that books_and_records were kept for the purpose of cutting expenses increasing profits and evaluating the overall performance of the operation the petitioner reviewed her records but she has failed to show that she used them to improve the operation of the enterprise golanty v commissioner supra pincite moreover petitioners did not maintain certain types of records nor did petitioners employ certain elementary business practices that one would expect of individuals pursuing an activity with a profit objective see nissley v commissioner tcmemo_2000_178 ogden v commissioner supra theisen v commissioner tcmemo_1997_539 hart v commissioner tcmemo_1995_55 thus although a monthly report of expenses was maintained neither profit projections a break-even analysis nor a formal budget was ever prepared further no market analysis was ever undertaken nor was any business plan other than the amway plan ever developed furthermore for the year in issue no in-depth analysis was ever performed in order to determine how many downline distributors were needed to attain a break-even point although mrs meyer estimated that distributors were required to attain a bare bones standard of living such estimate was not based on a business plan or any independent analysis rather mrs meyer was content to rely on the profitability worksheet given to her by an upline distributor a third factor militating against petitioners’ claim of profit objective is the fact that petitioners had no experience with amway or an amway type of activity at the time that they were recruited by an amway distributor see sec_1_183-2 income_tax regs since that time petitioners have principally relied only on advice from upline distributors and other interested amway individuals yet under the amway system the upline distributor’s bonus is not directly affected by the downline distributor’s profitability or lack of profitability rather what is important to the upline distributor is the downline distributor’s volume of sales nevertheless petitioners have steadfastly refused to seek meaningful counsel from disinterested third parties regarding means by which the amway activity might be made -- - profitable ’ see poast v commissioner tcmemo_1994_399 for the most part petitioners’ advisers were not experts as much as they were upliners with a financial stake in petitioners’ retail and downline sales ogden v commissioner tcmemo_1999_397 amway distributors may be biased when discussing amway because they have a natural desire to advance the organization and or obtain income from a downliner petitioners’ refusal to seek meaningful counsel from disinterested third parties is all the more telling given the fact that the advice received from interested amway individuals did nothing to reverse petitioners’ history of uninterrupted and substantial losses furthermore the record suggests that the advice petitioners received consisted of little more than platitudes generalities and encouragement to give it all you've got a fourth factor militating against petitioners’ claim is the amount of time that petitioners devoted to the amway activity see sec_1_183-2 income_tax regs in this vein mrs meyer repeatedly testified that the key to a successful amway business was not selling products but rather establishing an extensive network of downline distributors in order to change we do not regard general encouragement given by mrs meyer’s divorce lawyer to stick with it to constitute meaningful business counsel in any event mrs meyer admitted that this individual never gave her advice concerning how the amway activity might be made profitable the way people shop however for the year in issue mrs meyer could not approximate how much time she spent on the amway activity other than to state that very little time was devoted to retail sales indeed the record reflects that no sales were made for a consecutive 8-month period mrs meyer’s time and effort consisted of nothing more than engaging in the daily activities of a homemaker and mother her testimony at trial underscores this conclusion q do you know how much time you spent a day or a week during showing the plan a not much in the beginning because again like i said i was out meeting people getting to know someone to - in order to show them the plan i went to a lot of bible studies i was attending second baptist church and they had a lot of singles activities and so i would go to them i went to shopping in the mall that’s places i could take the kids i would go to parks i would go to - basically i talked to people and anywhere and any way that i could get a name something that i could find in common with them to get back with them again later to try and develop and build a friendship fifth sec_1_183-2 income_tax regs provides that substantial income from sources other than the activity particularly if the losses from the activity generate substantial tax benefits may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved golanty v commissioner supra pincite see ransom v commissioner tcmemo_1990_381 - - in the present case mr meyer is a successful salesman his aggregate commission income for the 3-year period from to amounted to dollar_figure or approximately dollar_figure per year for the year in issue mr meyer’s commission income exceeded dollar_figure on joint returns for each of these years petitioners claimed losses from their amway activity which losses served to reduce mr meyer’s compensation thereby decreasing petitioners’ taxable_income and achieving substantial tax savings this court has observed that there are significant elements of personal pleasure attached to the activities of an amway distributorship and that an amway distributorship presents taxpayers with opportunities to generate business deductions for essentially personal expenditures brennan v commissioner tcmemo_1997_60 see also sec_1_183-2 income_tax regs cf sec_1_183-2 income_tax regs regarding the reference to personal or recreational elements quoted above moreover petitioners received a personal benefit from their amway activity through their ability to purchase amway products for their own personal_use at distributor’s cost without the customary percentage markup at trial petitioners candidly ‘t those savings also helped to finance car expenses thus for example in petitioners deducted automobile expenses on their suburban suv based on business use in excess of percent --- - admitted that one of the major benefits of being amway distributors was the savings that they could realize on the purchase of products for personal_use the fact that mrs meyer has continued to renew her amway membership in order to purchase merchandise at discount prices illustrates the personal dimension of the amway activity on this record we find that petitioners did not have the requisite objective in of making a profit in the amway activity accordingly we hold that petitioners are not entitled to deduct the loss from the amway activity for that year reviewed and adopted as the report of the small_tax_case division in order to give effect to our disposition of the disputed issue as well as respondent’s concession see supra note decision will be entered under rule


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 fip b03 plr-106603-17 date date legend reit reit reit partnership retail center state a state b city city utility state initiative a b c --------------------------------- --------------------------- --------------------------------- --------------------------- --------------------------------- --------------------------- --------------------------------- ----------------------------------- -------------- -------------- ------------------ -------------------------------------------------------------- ---------------------------------- ------------ ------ ------ plr-106603-17 dear --------------- this letter responds to your letter dated date and a subsequent submission requesting a ruling on behalf of reit taxpayer that pursuant to sec_856 of the internal_revenue_code code taxpayer’s income from the base solar incentive amount as defined below will be considered qualifying_income for purposes of sec_856 and c facts taxpayer is a state a limited_liability_company that has elected to be taxed as a real_estate_investment_trust reit under sec_856 through of the code collectively taxpayer reit and reit wholly own partnership a state b limited_liability_company treated as a partnership for u s federal_income_tax purposes partnership directly and through a disregarded_entity owns an a square foot mixed- use shopping center retail center partnership leases space at retail center to tenants for use as retail outlets retail center features an anchor store and ancillary fueling station upscale retail boutique specialty shops personal services restaurants a community center and other retail outlets typically found in a mixed-use regional shopping center along with associated common spaces parking and landscaping taxpayer represents that retail center is a building within the meaning of sec_1_856-10 of the income_tax regulations and is therefore real_property within the meaning of sec_1_856-10 taxpayer also represents that the rental income that is generated from leasing space at retail center is qualifying_income for purposes of sec_856 and c the state initiative mandates that all state b electric utilities implement a solar incentive program in accordance with the state initiative the city utility has established a solar incentive program solar incentive program that offers an estimated performance-based incentive solar incentive to city utility customers who purchase or lease and install solar pv systems and who meet certain other eligibility requirements including a requirement that the solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a city utility customer who demonstrates their rights to the roof space for the duration of the incentivized period the solar incentive consists of a one-time lump sum upfront payment that is the lesser_of the amount calculated by a formula that estimates the expected performance of the customer’s solar pv system incentive formula or the net installed cost of the system after any_tax benefits or other outside funding sources are subtracted from the gross cost of the system thus in no case will the amount of the solar incentive exceed the net installed cost of the solar pv system plr-106603-17 the incentive formula is based on the capacity of the solar pv system adjusted to consider inverter and module losses and a design factor that compares the estimated output of the solar pv system to the simulated output of an optimal reference system these factors are multiplied by one of two incentive rates depending on whether or not a participant in the solar incentive program retains ownership of renewable energy credits recs or transfers the recs to city utility the incentive rate for a city utility customer that transfers its recs to city utility is dollar_figureb per watt rec incentive rate the incentive rate for a customer that retains ownership of its recs is dollar_figurec per watt base incentive rate taxpayer represents that partnership intends to purchase or lease and permanently install a solar pv system on the roof of retail center taxpayer represents that the solar pv system will be designed and intended to produce electricity only to serve retail center and that partnership will not sell any electricity generated by the solar pv system to third parties taxpayer also represents that the solar pv system will be a structural_component within the meaning of sec_1_856-10 taxpayer intends for the solar pv system to comply with the terms of the solar incentive program and allow partnership to apply for and receive a solar incentive from city utility taxpayer represents that partnership intends to transfer any recs that it receives in connection with the solar pv system and would therefore qualify for the rec incentive rate taxpayer is not seeking a ruling with respect to its receipt of any portion of the solar incentive that is attributable to the transfer of recs to city utility solar incentive rec component and taxpayer intends to treat such an amount as non-qualifying income for purposes of sec_856 and c the portion of the solar incentive that is not attributable to the transfer of recs to city utility is the base solar incentive amount thus taxpayer intends to treat the difference between the solar incentive calculated using the rec incentive rate and the solar incentive calculated using the base incentive rate as non-qualifying income for purposes of sec_856 and c taxpayer is seeking a ruling under sec_856 that the base solar incentive amount will be considered qualifying_income for purposes of sec_856 and c law and analysis sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property other than sec_1221 property abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees and gain from certain_sales or other dispositions of real_estate_assets sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from plr-106603-17 prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by mortgages on real_property or interests_in_real_property gain from the sale_or_other_disposition of real_property other than sec_1221 property dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit's gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business under sec_1_856-3 a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 income attributable to the receipt of the base solar incentive amount constitutes gross_income not listed as qualifying_income under sec_856 or c taxpayer will earn the base solar incentive amount for purchasing or leasing and installing a solar pv system on the roof of retail center in accordance with the state solar initiative in order to be eligible for the solar incentive program a solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a party who demonstrates its rights to the roof space for the duration of the incentivized period taxpayer represents that partnership intends to permanently install a solar pv system on the roof of retail center taxpayer also represents that the solar pv system once completed will be a structural_component within the meaning of sec_1_856-10 that it will therefore be real_property within the meaning of plr-106603-17 sec_1_856-10 and that substantially_all of the other income taxpayer derives from retail center will be qualifying_income for purposes of sec_856 and c under these circumstances treating income from the base solar incentive amount as qualifying_income does not interfere with or impede the objectives of congress in enacting sec_856 and c accordingly pursuant to sec_856 the base solar incentive amount is treated as qualifying_income for purposes of sec_856 and c conclusion based on the fact submitted and representations made by taxpayer we hereby rule that pursuant to sec_856 taxpayer’s income from the base solar incentive amount is considered qualifying_income for purposes of sec_856 and c this ruling’s application is limited to the facts representations code sections and regulations cited herein 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 otherwise qualifies as a reit under subchapter_m of the code additionally no opinion is expressed regarding whether any credits or offsets earned in connection with the solar incentive program constitute gross_income whether such income is qualifying_income for purposes of sec_856 and c and whether any credit or offset qualifies as real_property for purposes of sec_856 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives plr-106603-17 the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 _________________________________ julanne allen assistant branch chief branch office of the associate chief_counsel financial institutions products enclosure copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-118628-98 jan cc dom p si b1 taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend d taxpayer a b c d issue s whether for income_tax purposes the taxpayer is estopped from reporting the basis of stock in a closely-held corporation inherited from a decedent different from the fair_market_value used in calculating the tax on the decedent’s estate conclusion in this case the taxpayer is not estopped from claiming a basis in the stock different from the fair_market_value of the stock used on the decedent’s estate_tax_return thus under revrul_54_97 1954_1_cb_113 the taxpayer may rebut the presumptive value of the stock by clear_and_convincing evidence tam-118628-98 facts d died in at her death she owned stock in two closely held corporations the original estate_tax_return filed on behalf of d’s estate valued these interests at a on audit the service proposed a value of b for the stock the estate argued for a lower valuation and in the service agreed to an estate_tax_valuation of c for the stock taxpayer inherited a one-sixth interest in the stock from d in the two closely held corporations redeemed all of the stock owned by taxpayer on his original return taxpayer reported a basis of d in the redeemed stock which caused him to have a taxable gain in he amended his return to reflect a basis in the stock equal to the redemption price leaving him with no taxable gain taxpayer calculated this revised basis by discounting for a lack of marketability the service’s original proposed stock value of b while the basis of d was lower than taxpayer’s proportionate share of c the agreed upon value of the stock in the two corporations the basis reported on the amended_return was greater than both taxpayer’s proportionate share of the fair_market_value of the stock originally proposed by d’s estate a and the agreed upon value c taxpayer was one of seven beneficiaries of d’s estate and is currently represented by the attorney for d’s estate taxpayer however was not a personal representative of the estate and was not involved in preparing the estate_tax_return or in resolving the subsequent audit moreover we have been provided with no evidence that taxpayer was consulted or provided assistance in settling d’s estate other than his informal conversations with one or more of the other beneficiaries or personal_representatives law and analysis sec_1014 states that the basis_of_property in the hands of a person who acquired the property from a decedent if not sold exchanged or otherwise_disposed_of before the decedent’s death by such person is the fair_market_value of the property at the date of the decedent’s death sec_1_1014-3 of the income_tax regulations provides that the value of property as of the date of the decedent’s death as appraised for the purpose of the federal estate_tax shall be deemed to be its fair_market_value in revrul_54_97 1954_1_cb_113 the service held that for the purpose of determining the basis under sec_113 the predecessor of sec_1014 of property transmitted at death for determining gain_or_loss on the sale thereof or the deduction for depreciation the value of the property as determined for the purpose of the federal estate_tax shall be deemed to be its fair_market_value at the time of acquisition except tam-118628-98 where the taxpayer is estopped by his previous actions or statements such value is not conclusive but is a presumptive value which may be rebutted by clear_and_convincing evidence as ordinarily applied the duty_of_consistency or quasi-estoppel holds the taxpayer to a representation made for tax purposes if the service acquiesced in or relied on it and the statute_of_limitations bars an adjustment for the earlier year stea291_us_54 the duty applies when the taxpayer has made a representation or reported an item for tax purposes in one year the commissioner has acquiesced in or relied on that act for that year and the taxpayer desires to change the representation previously made in a later year after the statute_of_limitations on assessments bars adjustments for the initial year 495_f2d_211 8th cir mcmillan v u s ustc sd w va courts have found a duty_of_consistency in federal tax cases when the executor and the beneficiary are in privity see eg 109_tc_290 wife’s estate estopped from asserting that trust did not qualify for qtip treatment in general the courts have equated privity with either fiduciary duties owed by the beneficiary to the estate or a sufficiently close relationship between the party making the prior representation and the party to be estopped in holding that the beneficiaries could not repudiate estate_tax values 100_f3d_778 10th cir taxpayer was the executor of the decedent’s estate 105_tc_324 estoppel applied because the taxpayer’s spouse was executor and the spouses had filed joint tax returns for the years at issue 495_f2d_211 8th cir taxpayer was co-executor of the decedent’s estate griffith v u s ustc n d tex taxpayer served as executrix of her deceased husband’s estate mcmillan v u s ustc sd w va taxpayers were co-executors of the estate 537_f2d_457 ct_cl cert_denied 430_us_931 testamentary_trust whose trustees were executors of the estate thus courts have not estopped beneficiaries from arguing a different value than that reported on the estate_tax_return where such a 1for purposes of the preclusive effects of judgments in civil actions however the restatement second of judgements sec_41 states that a person who is not a party to an action but who is represented by a party is bound by and entitled to the benefits of a judgment as though he were a party a person is represented by a party who is the trustee executor or similar fiduciary manager of an estate of which the person is a beneficiary restatement second of judgements sec_41 cited with approval by richards v jefferson county 117_us_793 123_f3d_877 6th cir see also 285_fsupp_41 e d wis estate beneficiary held to be in privity with the estate administrator such that the doctrine_of res_judicata barred the beneficiary’s suit tam-118628-98 close relationship did not exist ford v u s 270_f2d_17 ct_cl decedent’s minor beneficiaries residing outside of the united_states were not estopped from arguing a different value because they were not fiduciaries of the decedent’s estate and had no knowledge of the decedent’s estate_tax_return 713_f2d_662 11th cir estoppel not extended to an estate beneficiary for merely indicating approval over executor’s handling of the estate over which the executor had total control and the beneficiary none the case of shook v u s is very similar to the situation here in shook the decedent’s will included a provision providing for shares of stock in a closely_held_corporation to be given to mrs shook upon decedent’s death immediately before the decedent’s death however the corporation purchased the decedent’s shares pursuant to a previously granted option leaving the decedent’s estate without the stock left to mrs shook the executor’s of decedent’s estate were a bank and two officers of the corporation mrs shook sued those executors the corporation and various other persons and in lieu of the shares of stock received the corporation’s debenture on her income_tax return for that year mrs shook did not report any of the debenture’s principal_amount as taxable_income the irs however disagreed with mrs shook the irs claimed that only the portion of the debenture’s principal_amount equal to the value of shares of corporate stock as reported on the decedent’s estate_tax_return was non-taxable with the remainder of the principal_amount being taxable_income the shook court held that mrs shook was not estopped from arguing that the value of the shares of stock was greater than the value reported on the decedent’s estate_tax_return the court found nothing in the record to suggest that anyone other than the decedent’s executors and their attorney had or exercised any authority in handling the resolution of the estate’s tax_liability in addition mrs shook never had any contact with the irs in connection with settling the decedent’s estate nor did the irs rely on any representation made by her finally the court found that the executor’s attorney’s discussion of the estate’s tax settlement with mrs shook and the obtaining of an expression of her approval was a prudent measure based on the parties’ animosity and not a legal necessity thus the court was unwilling to extend the estoppel doctrine to an estate beneficiary for merely indicating approval of the executor’s handling over which they have total control and the beneficiary none although sec_1_1014-3 provides that the appraised value of property for federal estate_tax purposes is deemed to be the fair_market_value of such property for purposes of sec_1014 where the taxpayer is not estopped by his previous actions or statements this rule merely establishes a rebuttable_presumption and may not be conclusive in the face of clear_and_convincing evidence to the contrary revrul_54_97 here we have been presented with no evidence that taxpayer was a fiduciary of d’s estate and no other facts sufficient to hold that taxpayer is estopped by his previous actions or tam-118628-98 statements from reporting a basis under sec_1014 different than the value reported on d’s estate_tax_return caveat s this technical_advice_memorandum speaks only to the sufficiency of the evidence presented in relation to the question of whether this taxpayer is estopped from claiming a basis under sec_1014 different from his proportionate share of the fair_market_value reported on d’s estate_tax_return specifically this technical_advice_memorandum does not speak to the question of whether taxpayer has met his burden of rebutting by clear_and_convincing evidence the presumptive value of the stock as reflected on d’s estate’s tax_return or the application of revrul_54_97 to a beneficiary of d’s estate other than this taxpayer a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


tax_exempt_and_government_entities_division release number release date uil code department of the treasury internal_revenue_service te_ge eo examinations commerce street dallas tx date dec taxpayer_identification_number tax period december 20xx person to contact employee identification_number employee telephone number phone fax dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 for the tax period s above your determination_letter dated in october 19xx is revoked our adverse determination as to your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be operated under the lodge_system or for the exclusive benefit of the members so operating and have established system for the payment to its members or the dependents of life sick accident or other_benefits you have failed to produce documents or otherwise establish that you are operated for these exempt purposes further you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by sec_6001 sec_6033 and the regulations thereunder organizations that are not exempt under sec_501 generally are required to file federal_income_tax returns and pay tax where applicable for further instructions forms and information please visit www irs gov if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia washington d c constitution ave n w processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code the taxpayer_advocate_service tas is an independent organization within the irs that can help protect you taxpayer rights we can offer you help if your tax problem is causing a hardship or you’ve tried but haven’t been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours mary a epps acting director eo examinations enclosure publication department of the treasury internal_revenue_service irs tax_exempt_and_government_entities_division 25th st rm6025 mail stop ogden ut date date taxpayer mdentification number form 990-n tax_year s ended december 20xx person to contact id number contact numbers phone number manager's name id number manager's contact number response due_date april25 20xx certified mail- return receipt requested why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form6018 consent to proposed action - sec_7428 and return it to the contact person atthe address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 dear after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don’t hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies letter catalog number 34809f effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you may also file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how toappealan irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you internal_revenue_service office_of_the_taxpayer_advocate contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn'ta substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition ina urted states court they can however see that a tax matter that hasn’t been resolved through normal channels gets prompt and proper handling you may call toll free and ask tor taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at for additional information_letter catalog number 34809f if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely paul a marmolejo acting director exempt_organizations examinations enclosures report of examination form_6018 publication publication letter catalog number 34809f schedule number or exhibit explanations of items form 886-a rev date year period ended name of taxpayer tax identification_number december 20xx issue should a c exempt_organization be revoked due to failure to respond and failure to produce records facts the organization has not provided the requested information for the examination of the form_990 for the tax_year ending december 20xx the organization received their approval for tax exemption in december 19xx exhibita below provides a list of the internal_revenue_service correspondence or phone contact made to the organization requesting that it provide information pertaining to your form_990 for the years ending december 20xx december 20xx and december 20xx date sent or called 5-9-xx certified mail y n n receipt signed date or phone response no response phone call compliance check tried to call summarv of exhibit a contact type siiaemcaes letter correspondence sent phone contact sent letter compliance check for tax_year 20xx to 886-a rev letter form - 6-14-xx not good numbers could not find a good number letter follow up to 6-14-xx y left messages to return call returned one of these calls he had the phone number for a long time and was not associated with the organization signed ps3811 6-23-xx signed by no other response department of the treasury - internal_revenue_service page -1- form 886-a rev date schedule number or exhibit explanations of items name of taxpayer tax identification_number year period ended december 20xx letter letter eoca start examination to 4-3-xx n no response letter 7-30-xx letter no response response left message and told him of coming letter signed ps3811 8-10-xx signed by phone call no other 12-14-xx satan y letter follow up etter to 12-14-xx y signed ps3811 xx signed by 1-4-xx response no other to return call left message phone call phone call phone call and told him of coming letter left message call received message from called back and left message asked for clarification of what we wanted left message telling response ina week will start revocation left message no response will revocate the exemption of the organization for no response phone phone call 2af-rx to return 2-8-xx 1-6-xx if no call i ‘ revenue service correspondence for information pertaining to the form_990 for the tax periods ending december 20xx december 20xx and december 20xx has failed to respond to the internal fo tm 886-a rev departm ent of the treasury ‘internal revenue service page -2- form 886-a rev date schedule number or exhibit explanations ofitems name oftaxpayer tax identification_number year period ended ’ december 20xx law c sec_501 are organized fraternal beneficiary societies orders or associations -- c a operating_under_the_lodge_system or for the exclusive benefit of the members of a fraternity itself operating_under_the_lodge_system and c b providing for the payment of life sick accident or other_benefits to the members of such society order or association or their dependents reg c -1 in order to be exempt under sec_501 a fraternal beneficiary society is exempt from tax only if operated under the lodge_system or for the exclusive benefit of the members so operating operating_under_the_lodge_system means carrying on its activities under a form of organization that comprises local branches chartered by a parent organization and largely self-governing called lodges chapters or the like in order to be exempt it is also necessary that the society have an established system for the payment to its members or their dependents of life sick accident or other_benefits sec_6001 provides that every person liable for any_tax imposed by the irc 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_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under rc sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or 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 states that the books_or_records required by this section shall be kept at all times 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_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 a 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 886-a rev form department of the treasury - internal_revenue_service page -3- ie siopaecrg fate so rev date explanations of items name of taxpayer tax identification_number year period ended j december pox xk sec_1_6033-1 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 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 organization's position several attempts to contact the organization have been made by either letters or phone calls the organization has not responded to any attempts by either mail or phone government's position in accordance with the above cited 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_return and 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 several attempts have been made to contact the organization starting in may of 20xx the organization has never responded to any phone call or information request document three of the letters were sent by certified mail and the certification was signed and returned several phone calls and voice messages have not resulted in any information being provided using the rationale that was developed in revrul_59_95 the organization's failure to provide requested information should result in the termination of exempt status form 886--a rev department of the treasury - internal_revenue_service page -4- ' form 886-a rev date schedule number or exhibit explanations of items name of taxpayer tax identification_number year period ended december 20xx 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 sec_501 furthermore the organization has failed to establish that it continues to qualify for tax exempt status accordingly the organization's exempt status is revoked effective january 20xx form s u s_corporation income_tax return should be filed for the tax periods ending on or after december 20xx form a rev department of the treasury - internal_revenue_service page -5-


internal_revenue_service department of the treasury washington dc person to contact patricia a manasevit telephone number refer reply to cc pa apjp b01-plr-110212-00 date date number release date index number legend x dear this letter responds to your submission of and supplemental correspondence dated in which you requested a ruling on behalf of x as to the applicability of the reporting requirements under sec_6041 of the internal_revenue_code to certain cash advances made to third party service providers facts x operates funeral homes x’s business operations involve preparing human remains for burial transporting the deceased to the burial site providing facilities for visitation before and after the funeral the sale of caskets and burial vaults and the orchestration of the funeral in addition to providing these goods and services directly x serves as a liaison between the families of the deceased and providers of other various services additional services or items for which families often incur additional expenses include gratuities to clergy special music death notices hairdressers or barbers florists transportation long distance telephone charges copies of certified documents and professional fees to other funeral directors the families not x select these third party service providers typically families know which cemetery clergy and other service providers they wish to use for those families without strong preferences x furnishes a list of available providers to select from in those rare circumstances when x is asked to provide greater guidance and actually make the arrangements x rotates among available providers x’s random selection under this rotation system is subject_to the approval of the family for the convenience of the families of the deceased it is a common practice in the funeral industry for the funeral home to prepay the providers of these other services ie to make cash advances the option of having x make cash advances to the other service providers is discussed at the time x meets with the family to discuss all the plr-110212-00 funeral arrangements if cash advances are used they are separately enumerated on x’s standard funeral contract the funeral contract reflects that x does not provide this accommodation for profit x is reimbursed dollar for dollar generally on the day of the funeral service x neither negotiates prices for these services nor has any discretion in withholding payments x does not direct or inspect the work that is done by third party providers if unsatisfied with the services rendered the family may seek recourse against the provider but remains obligated to a for the cash advances made on their behalf law and rationale sec_6041 of the internal_revenue_code provides that all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year shall render a true and accurate return setting forth the amount of such gains profits and income and the name and address of the recipient sec_1_6041-1 of the income_tax regulations requires every person engaged in a trade_or_business to make an information_return reporting payments in the course of that trade_or_business to another person of fixed or determinable salaries wages commissions fees and other forms of compensation_for services aggregating dollar_figure or more in a calendar_year unless specifically excluded under sec_1_6041-3 sec_1_6041-3 provides an exception for payments of bills for merchandise telegrams telephone freight storage and similar charges sec_1_6041-3 provides an exception from reporting for payments made to principals by persons carrying on the banking business and payments made by other specified types of institutions of funds collected when acting in the capacity of collection agents sec_1_6041-3 cautions however that the exception does not apply to the regular and continuing collection of items under an escrow trust custody or investment advisory agreement clarification was provided in revrul_77_53 c b explaining that the regulations require reporting when an institution assumes a management function or retains the collected funds under an arrangement other than the customary depositor relationship with this exception as its foundation revrul_93_70 1993_2_cb_295 addresses banks and other businesses acting as escrow agents making disbursements to building contractors the escrow agent on behalf of the owner and general contractor was responsible for ensuring that loan proceeds were properly applied and paid conducting site inspections in order to ascertain whether work had been completed and plr-110212-00 evaluating and assessing project costs and communicating any concerns based on that evaluation to the owner in order to make modifications or obtain additional funding based on these facts the ruling concludes that escrow agent performed management and oversight functions and thus was required to file information returns under sec_6041 on date the service issued a notice of proposed rulemaking adopting a regulatory scheme consistent with the rationale of the exceptions carved out in the revenue rulings in incorporating this oversight and management analysis sec_1_6041-1 the so-called middleman regulations provide as follows in general a person that makes a payment in the course of its trade_or_business on behalf of another person is the payor that must make a return of information under this section with respect to that payment if the payment is described in paragraph a of this section and under all the facts and circumstances that person i performs management or oversight functions ie performs more than mere administrative or ministerial functions in connection with the payment or ii has a significant economic_interest in the payment unlike the escrow agent in the revenue_ruling x performs no oversight function by its very nature the majority of services rendered for a funeral must be completed before or at the time of the funeral service and burial x neither directs nor inspects the quality of the work provided x does not select the providers negotiate the price for services order or direct provision of the third party services further evincing a lack of managerial control or oversight is the fact that x has no discretion to withhold payment the standard funeral contract reflects that x has no significant economic_interest in these payments indeed such interest if extant is required to be disclosed pursuant to the federal trade commission ftc funeral industry practices trade regulation rule see cfr part conclusion pursuant to sec_1_6041-3 telephone freight and similar charges are excluded from the reporting requirements accordingly x is not required to issue an 1the notice of proposed rulemaking makes no change to paragraph a of the current regulation plr-110212-00 information_return for payments of telephone charges made by or on behalf of family members from a’s premises or for removing and transporting remains from one location to another as to the cash advances for clergy special music death notices hairdressers or barbers florists copies of certified documents and professional fees to other funeral directors x performs no management or oversight function and has no significant economic_interest as contemplated by sec_1_6041-1 accordingly x is not required to issue information returns to service providers for those payments made on behalf of a family pursuant to x’s contractual agreement with the family 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 pursuant to the power_of_attorney on file in this office the original of this letter is being sent to the taxpayer’s authorized representative sincerely pamela w fuller acting chief branch administrative provisions and judicial practice enclosures copy of this letter copy for sec_6110 purposes cc district_director district