‘third-party contact - participant inquiry significant index no mae oo tax_exempt_and_government_entities_division inre department of the treasury internal_revenue_service washington d c pr rat az oa ‘ hospital health system ‘ nursing home ‘ child_care_facility this letter is to inform you that a the waiver of the minimum_funding_standard for the which was granted in our ruling letter plan for the plan_year ending december dated date has been modified to remove the conditions outlined in that letter and replace them with the conditions below and b waivers of the minimum_funding have standard for the plan for the plan years ending december been granted subject_to the following conditions and collateral acceptable to the pbgc is provided to the plan for the full amount of the waiver by the later of a days from the date of the ruling letter or b the earlier of i the date the pbgc notifies the service in writing that this condition has not been met or ii days from the date of the ruling letter is anticipated that the pbgc will take a second position until the expiration of the liens currently held by hud at which time the pbgc’s security will automatically be moved to the first position furthermore it is expected that the security_agreement will require that the pbgc will be notified in advance of any disposition of hospital assets or merger of the hospital with another organization and that the pbgc will be given an opportunity to protect its it financial interests in the hospital 2v062205 will be paid_by september the hospital makes contributions to the plan of at least per plan_year including contributions paid directly to plan participants in the form of benefit payments beginning with the plan_year ending december any amount needed to bring the total contribution for the dollar_figure' december by each due_date for required quarterly contributions under sec_412 of the internal_revenue_code code beginning april contributions will continue until the enrolled_actuary certifies that the plan is fully funded according to the provisions of sec_404 of the code proof of such contributions must be provided within days after each contribution is due and later contributions of at least dollar_figure for plan years ending plan_year to will be paid such the hospital timely files form_5330 and pays the excise_tax under sec_4971 of the code on the amount of any funding deficiency existing as of the end of any plan_year while the plan is subject_to a waiver of the minimum_funding_standard furthermore for each plan_year that a deficiency exists in the funding_standard_account of the plan the hospital requests a waiver of the excise_tax under sec_4971 of the code according to the procedures and timing specified in applicable guidance published by the service for each year during which any of the funding waivers is in effect or until any deficiency in the funding_standard_account is eliminated if later the hospital provides the following information i ii copy of the annual actuarial valuation report form_5500 including attachments and december statement of plan assets to be provided within days after the form_5500 is filed beginning with the information filed for the copies of consolidating and consolidated quarterly financial results including balance_sheet income and expense statement and cash_flow information for the hospital care center to be provided within days after the end of each quarter beginning with the quarter ending march care center and plan_year iii copy of audited annual report including consolidated and consolidating child ’ care center and iv copy of document outlining the hospital’s long-term strategic plan and financial forecast to be provided by december of each year beginning with december _- - - statements for the hospital care center to be provided by april after the end of each fiscal_year beginning with the fiscal_year ending december 2vu062205 - for the period during which any of the funding waivers is in effect or in which adeficiency exists if later the hospital does not establish a new defined benefit or defined_contribution_plan nor does it increase the benefits payable under the existing plans based on information provided by the company accrued_benefits under the only defined_benefit_plan were frozen as of april and the only defined_contribution_plan is a b plan providing employer matching_contributions of of employee contributions up to of compensation please note that the hospital has received three funding waivers beginning with the plan_year ending december funding waivers to three in any fifteen-year period therefore the hospital will not be able to request any additional funding waivers until the plan_year ending december sec_412 of the code limits the number of the information required in the above conditions must be provided to both the service and to the pbgc using the addresses or fax numbers below internal_revenue_service pension_benefit_guaranty_corporation - you agreed to these conditions in a letter dated date if any one of these conditions is not satisfied all three waivers are retroactively null and void these conditional waivers have been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which each conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of the last day of the applicable_plan year however the amount of any funding waiver will not include any portion of the funding_standard_account charges which represent the amounts necessary to amortize any funding waiver under sec_412 of the code the hospital is a small independent facility located in short-term acute care hospital and is part of the health system along with the nursing home and child_care_facility it is a general the hospital experienced a significant decrease in operating cash_flow beginning in primarily due to decreased patient volume and the loss of one of its general surgeons and later the loss of its entire - and groups the ee hospital was able to replace both groups and return surgical volumes to their previous levels by the end of continue to face cash_flow difficulties however the hospital and the health system as a whole the hospital has taken a number of steps to address its financial difficulties including the review of referral patterns and employed physician contracts the identification of cost-saving opportunities the recruitment of surgical specialties in order to increase patient volume and revenue and the renegotiation of hmo contracts in order to gain better reimbursement terms in addition the hospital froze the pension_plan effective april to eliminate the cost of continuing benefit accruals of the approximately dollar_figure despite the health system’s financial difficulties they continued to make contributions to the plan for the plan years ending december and have funded dollar_figure hence the waiver of the minimum_funding_standard for the plan for the plan_year ending december standard for the plan for the plan years ending december been granted subject_to the conditions listed above has been modified and waivers of the minimum_funding contributions required for those plan years and have and -your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment that increases the liabilities of a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa in addition any such amendments would violate the above conditions upon which the waivers are granted we also wish to remind you that our review of the hospital’s schedule bs form showed inconsistencies between the plan assets reported on schedule b and those reported on schedule h of form_5500 and between the unfunded accrued liability and remaining amortization balances beginning with the plan_year your actuary has agreed to correct these inconsistencies when he updates the schedule bs to reflect the appropriate waiver amounts this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years ending december and date of this letter should be entered on schedule b actuarial information the we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in and to your authorized representative pursuant to a power_of_attorney on file in this office lf you require further assistance in this matter please contact sincerely yours 4k sook for cason ow carol gold director employee_plans


george c huff petitioner v commissioner of internal revenue respondent docket no filed date claiming to be a bona_fide_resident of the u s virgin islands virgin islands and claiming he was qualified for the gross_income tax exclusion provided by sec_932 p a u s citizen filed territorial income_tax returns with and paid income_tax to the virgin islands bureau of internal rev- enue bir for and years involved p did not file federal_income_tax returns with or pay federal_income_tax to the internal_revenue_service irs for those years p asserts he was a member of nasco corporate finance consultants llc nasco a virgin islands limited_liability_company nasco filed virgin islands partnership returns with the bir for the years involved nasco did not verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner file partnership returns with the irs because p did not file tax returns with the irs for the years at issue r conducted a nonfiler examination r determined that for the years involved p did not qualify for the sec_932 income_tax exclusion and therefore was not excused from his federal tax filing and tax payment obligations r mailed p a notice_of_deficiency p maintains that this case involves a partnership_item and therefore r should have issued a notice of final part- nership administrative adjustment to the tax_matters_partner of nasco pursuant to the procedural rules of the tax equity and fiscal responsibility act of tefra as opposed to issuing p a notice_of_deficiency p posits r’s notice of defi- ciency is invalid and thus he requests the court to dismiss this case for lack of jurisdiction held the procedural rules of tefra do not herein apply in that nasco did not file a partnership return with the irs and nasco is not classi- fied as a partnership for purposes of tefra held further p’s motion to dismiss for lack of jurisdiction will be denied william m sharp lawrence r kemm joseph a diruzzo iii and marjorie rawls roberts for petitioner daniel n price ladd christman brown jr and justin l campolieta for respondent opinion jacobs judge this matter is before the court on peti- tioner’s motion to dismiss for lack of jurisdiction petitioner’s motion the resolution of which turns on whether respondent should have issued a notice of final partnership administra- tive adjustment fpaa to the tax_matters_partner tmp of nasco corporate finance consultants llc nasco pursu- ant to the procedural rules of the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite rather than issue as respondent did a notice_of_deficiency to petitioner i petitioner background petitioner is a u s citizen who claims he was a bona_fide_resident of the u s virgin islands virgin islands during for additional background information see 135_tc_461 rev’d 430_fedappx_135 3d cir 135_tc_222 and 135_tc_605 verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports and years involved respondent disputes petitioner’s claim petitioner filed territorial income_tax returns with and paid income_tax to the virgin islands bureau of internal revenue bir for each of the years involved petitioner asserts that during the years involved he was a member of nasco which was established under the laws of the virgin islands as a limited_liability_company llc petitioner maintains he qualified for the sec_932 gross_income exclusion for each of the years involved con- sequently he did not file federal_income_tax returns or pay federal_income_tax for those years because he did not file returns with the internal_revenue_service irs respondent conducted a nonfiler examination for the years involved and determined that petitioner did not qualify for the income exclusion under sec_932 on date respondent mailed petitioner a notice_of_deficiency respondent’s primary position in the notice_of_deficiency was that nasco was not a legitimate business_entity and that petitioner was not a partner in nasco rather respondent alleges petitioner used nasco in connection with a tax_avoidance scheme which involved petitioner’s improperly claiming to be a resident of the usvi and superficially recasting us-source income as usvi-source income in order to inappropriately and invalidly claim a tax_credit of under the usvi economic develop- ment program in contrast petitioner asserts that nasco was a valid llc organized under the laws of the virgin islands was rec- ognized as such by the bir and should be respected for fed- eral tax purposes and this case involves a partnership_item and hence respondent should have issued an fpaa to the tmp of nasco pursuant to the procedural rules of tefra as opposed to issuing petitioner a notice_of_deficiency for purposes of petitioner’s motion respondent treats nasco as a legitimate virgin islands business_entity however respondent’s litigating position is that nasco is not a legitimate business_entity we make no determination with respect to the actual status of nasco unless otherwise indicated all section references are to the internal_revenue_code code in effect for the years involved respondent asserts alternate positions in the notice_of_deficiency as each of these alternate positions is a variation of respondent’s primary position we need not discuss them in the con- text of petitioner’s motion verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner ii nasco as noted supra p nasco was organized as a virgin islands llc in this regard the virgin islands government issued a certificate of existence to nasco on date article of nasco’s articles of organization provides no member of the company shall be liable for the debts and obligations of the company under section subsection c of the uniform limited_liability act during each of the years involved nasco had more than members and at least of its members was neither an indi- vidual a c_corporation nor an estate of a deceased person for each of the years involved nasco filed a virgin islands partnership tax_return with the bir iii the virgin islands the virgin islands is an insular area of the united_states it is not part of one of the states or the district of columbia the virgin islands is generally treated as a for- eign country see sec_7701 135_tc_222 and has a mirror_tax system ie the virgin islands uses as its tax law the tax laws of the united_states in this regard u s c sec_1397 provides that the code is to be used by the virgin islands with the words virgin islands being substituted for the words united_states and vice versa the revised version of the code is known as the mirror code virgin islands residents are required to file territorial returns with and pay territorial taxes to the bir mirror code sec_1 a a virgin islands partnerships are required to file territorial partnership returns with the bir pursuant to mirror code sec_6031 the bir does not have its own territorial tax forms rather it uses irs tax forms for reporting purposes thus resident virgin islands individuals file form_1040 u s individual_income_tax_return with the bir virgin islands partner- ships file form_1065 u s return of partnership income with the bir and virgin islands corporations file form_1120 u s_corporation income_tax return with the bir sec_932 coordinates u s and virgin islands income_tax_liability and filing_requirements for individuals who are verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports subject_to u s taxation eg u s citizens and residents an individual subject_to u s taxation who is a bona_fide resi- dent of the virgin islands may satisfy his federal_income_tax reporting and payment requirements by filing solely with and paying tax to the bir provided the individual satisfies all of the requirements of sec_932 if the individual fails to satisfy all of the sec_932 requirements he she may be required to file tax returns with and pay tax to both the irs and the bir see s rept no pincite u s c c a n in order to ensure the fair implementation of sec_932 the united_states and the virgin islands entered into an agreement for the exchange of information and mutual assistance with respect to taxes in order to prevent the eva- sion or avoidance of united_states or virgin islands taxes tax implementation agreement between the united_states of america and the virgin islands tia date 1989_1_cb_347 the tia applies to all taxes imposed by the code all taxes imposed by the mirror code and all local_income_taxes imposed by the virgin islands as authorized by the tax_reform_act_of_1986 see id art c b pincite tia article governs the exchange of information between the two governments clause thereof provides that the competent_authorities of the united_states and the virgin islands shall exchange information to admin- ister and enforce their respective tax laws see id art c b pincite tia article b provides that the virgin islands shall routinely supply to the united_states information with respect to audit changes that disclose information of interest to the u s government including among other matters information about the ownership interests of all corporations subject_to virgin islands tax having non-virgin islands- source income and which receive a rebate subsidy or deduc- tion of virgin islands taxes as well as information about any individual subject_to virgin islands tax who has non- virgin islands-source income and who claims for the first in general the united_states taxes u s citizens and alien individuals residing in the united_states on all of their income regardless of the income’s origin ie on their worldwide income see 265_us_47 gross_income for the purpose of calculating taxable_income is defined as all income from whatever source derived sec_61 individuals subject_to u s tax are generally required to file a tax_return if their income exceeds a threshold_amount sec_6012 sec_932 preempts these general rules verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner time to be a virgin islands resident in addition tia article b provides that the virgin islands shall supply to the united_states copies of reports of individual partnership corporate and employment audit changes that disclose information relevant to the united_states id art b c b pincite to this end the tia provides that the bir will permit the irs to examine virgin islands tax returns id app a sec_3_1 c b pincite discussion this court is a court of limited jurisdiction we may exer- cise our jurisdiction only to the extent provided by congress see sec_7442 see also 114_tc_519 we have jurisdiction to redetermine a deficiency only if a valid notice_of_deficiency is issued by the commissioner and a petition contesting the commis- sioner’s deficiency determination is timely filed by the tax- payer 114_tc_519 petitioner’s motion is premised on petitioner’s assertion that respondent’s notice_of_deficiency is invalid i tefra partnership proceedings partnerships in general do not pay federal income taxes rather they file annual information returns reporting the partners’ distributive shares of the partnership’s income deductions and other tax items sec_701 sec_6031 each partner reports his her respective distributive_share of part- nership income deductions and credits on his her income_tax return secs sec_1_702-1 income_tax regs before the enactment of tefra adjustments of partnership items were determined at the individual partner level resulting judicial resources and inconsistent results between partners to resolve this problem congress enacted tefra which created a single unified procedure for determining the tax treatment of all partnership items pursuant to the procedures of tefra assessments for nonpartnership item adjustments are subject_to deficiency proceedings sec_6212 a whereas the tax treatment of a partnership_item is deter- mined at the partnership level sec_6221 in duplication of administrative and verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports sec_761 provides that a ‘partnership’ includes a syndicate group pool joint_venture or other unincorporated organization through or by means of which any business financial operation or venture is carried on and is not a cor- poration or a_trust or estate sec_6231 provides that except as provided in sec_6031 regarding small partnerships the term ‘partnership’ means any partnership required to file a return under sec_6031 thus an entity falls under the provisions of tefra if the entity is required to file a partnership return see wolf v commissioner tcmemo_1991_212 aff ’d 4_f3d_709 9th cir business entities that are classified as foreign_partnerships for federal tax purposes are generally exempt from filing partnership returns and are not subject_to the provisions of tefra sec_6031 however foreign_partnerships that earn gross_income derived from sources within the united_states or earn gross_income that is effectively connected with the conduct_of_a_trade_or_business within the united_states are required to file partnership returns and therefore are within the purview of tefra sec_6031 ii contentions of the parties petitioner asserts that this case should be dismissed for lack of jurisdiction because respondent failed to follow the procedural rules of tefra petitioner maintains that because nasco filed territorial partnership returns with the bir it in essence filed federal partnership returns with the irs for the years at issue pursuant to sec_6233 consequently petitioner reasons the procedural rules of tefra apply alter- natively petitioner posits that nasco should be classified as a foreign_partnership and was required to file a federal part- nership return for each of the years involved because for such years it had u s -source income or income effectively connected with a u s trade_or_business continuing peti- tioner maintains that the issues raised in respondent’s notice_of_deficiency are in reality partnership items and hence pursuant to the procedural rules of tefra are determined at the partnership level thus petitioner concludes respondent sec_6031 provides that partnerships shall make a return for each taxable_year stating each item_of_gross_income and deduction allowable by subtit a verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner properly should have issued an fpaa to the tmp of nasco rather than as respondent did a notice_of_deficiency to peti- tioner see sec_6223 sec_301_6223_a_-1 proced admin regs solely for purposes of disposing of petitioner’s motion respondent accepts petitioner’s assertion that nasco is a legitimate foreign_business_entity respondent disputes the remainder of petitioner’s assertions maintaining nasco never filed federal partnership returns and if nasco is to be treated as a business_entity it should be classified as a foreign_corporation consequently respondent posits tefra procedures do not apply and the notice_of_deficiency issued to petitioner is valid iii whether filing a partnership return with the bir con- stitutes the filing of a partnership return with the irs nasco timely filed and partnership returns with the bir using form_1065 it did not file partner- ship returns with the irs on date the irs obtained copies of the returns filed by nasco with the bir pursuant to the information sharing provisions of the tia between the united_states and the virgin islands petitioner claims that nasco’s filing of form_1065 with the bir constitutes its filing of a federal partnership return with the irs in this regard petitioner asserts that the virgin islands is not an independent sovereign like a state or a for- eign country but rather is an unincorporated territory of the united_states and as such is an extension of the federal government petitioner’s claim that for tax_return filing purposes the virgin islands is an extension of the federal government is incorrect since courts have noted that the united_states and the virgin islands are distinct taxing jurisdic- tions although the virgin islands income_tax laws arise from an identical statute applicable to each 258_f2d_182 3d cir aff ’g 28_tc_992 see 300_f3d_320 3d cir 994_f2d_140 3d cir 820_f2d_618 3d cir 792_f2d_392 3d cir chi bridge iron co v wheatley f 2d verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports 3d cir consistent with this principle courts have held that a notice_of_deficiency issued by the bir cannot be petitioned to the tax_court 258_f2d_182 and a notice_of_deficiency issued by the commis- sioner of internal revenue cannot be petitioned to the u s district_court district of the virgin islands mchenry v commissioner no 10-cv-00021 d v i date order granting motion to dismiss for lack of jurisdiction petitioner next asserts that even if the filing of a return with the bir does not constitute a filing of a return with the irs pursuant to the tia the bir should be treated as an agent of the irs and continuing petitioner posits that because the bir should be deemed an agent of the irs and because the bir forwarded copies of nasco’s partnership returns to the irs the filing of nasco’s virgin islands part- nership return with the bir constitutes the filing of a federal partnership return with the irs we do not agree with peti- tioner’s assertion an agency relationship is defined as the fiduciary rela- tionship that arises when one person a principal mani- fests assent to another person an agent that the agent shall act on the principal’s behalf and subject_to the prin- cipal’s control and the agent manifests assent or otherwise consents so to act restatement agency 3d sec dollar_figure an agency relationship is created when by mutual consent either implied or expressed one party ie the agent agrees to act on behalf of the other ie the principal and be subject_to the principal’s control this consent is gen- erally manifested by statements or actions by the prin- cipal that the agent will act on behalf of the principal the agent’s acceptance of such undertaking and an under- standing by both parties that the principal is to be in control of such undertaking see 2a c j s agency sec_32 the tia does not establish an agency relationship or sup- port the existence of such a relationship between the united_states and the virgin islands or their respective tax depart- ments ie the irs and the bir to the contrary the tia is an agreement between equal parties for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion or avoidance of united_states or virgin islands taxes tia c b pincite the bir is not under the control of the irs or vice versa verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner finally relying on 82_tc_766 aff ’d 793_f2d_139 6th cir petitioner asserts that the copies of the partnership returns nasco filed with the bir for the years at issue should be treated as nasco’s partnership returns for federal tax purposes we do not agree with petitioner’s assertion in beard we held that within the context of determining the commencement of the period of limitations with respect to the filing of one’s federal_income_tax return the document submitted to the irs will be considered a valid tax_return if the document contains sufficient data to calculate the tax_liability the document purports to be a tax_return there is an honest and reasonable attempt by the filer of the document to satisfy the requirements of the tax law and the filer executes the return under penalties of perjury id pincite petitioner claims that the returns nasco filed with the bir satisfy all four of the aforementioned criteria and thus should be treated as federal partnership returns filed with the irs because first the information on the return filed by nasco is sufficient to cal- culate the tax_liability as nasco used the very form drafted and issued by the service second the form_1065 is by definition a return and claims to be nothing other than a return third a form drafted and issued by the service that taxpayers in turn used must be considered to be an honest and reasonable attempt to satisfy the requirements of the tax law fourth the return was signed under penalties of perjury as the jurat provision was executed petitioner cites 309_us_304 as the seminal case to support his position in germantown trust co the taxpayer filed the wrong form with the irs as its tax_return the supreme court held that the filing constituted a tax_return because the taxpayer filed in good_faith a return from which its tax could be computed thus the underlying issue therein was whether the return filed with the irs constituted a valid_return such is not the case here the issue here is whether the commissioner has adopted these four criteria in determining whether the purported tax_return should be respected as such see internal_revenue_manual pt date verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports the filing of a return with the bir constitutes the filing of a return with the irs the returns nasco filed with the bir do not purport to be federal returns as required by criterion of beard nor are those returns an attempt to satisfy the requirements of fed- eral tax law as required by criterion of beard nasco filed its partnership returns with the bir in order to comply with its virgin islands filing obligations as opposed to any obliga- tion under the tax laws of the united_states iv whether nasco is classified as a partnership even though nasco an llc did not file federal partner- ship returns nasco may come under the purview of tefra if it can be classified for federal tax purposes as a partner- ship that is required to file a federal partnership return petitioner takes the position that nasco had a federal part- nership return filing obligation and thus should be classified as a partnership for federal tax purposes on the other hand respondent contends that nasco is a corporation for federal tax purposes and therefore the procedural rules of tefra do not apply business entities are generally classified for federal tax purposes by sec_7701 and the check-the-box_regulations of sec_301_7701-1 through proced admin regs the virgin islands and the businesses estab- lished therein are generally considered foreign for purposes of the code because the virgin islands is not one of the states or the district of columbia see sec_7701 petitioner concedes that nasco is a foreign_entity peti- tioner further concedes that generally the check-the-box_regulations of sec_301_7701-3 proced admin regs would classify nasco as a foreign association_taxable_as_a_corporation because it is a foreign eligible_entity in which all of its owning members have limited_liability and generally in such a situation the provi- the virgin islands classifies business entities with the mirror versions of these sections sec_7701 provides that domestic when applied to a corporation or partnership gen- erally means one created or organized in the united_states under the law of the united_states or one of the states sec_7701 provides that a foreign_corporation or partnership is one that is not domestic sec_7701 provides that the term ‘united states’ when used in a geo- graphical sense includes only the states and the district of columbia a business_entity that is not a corporation as defined in sec_301_7701-2 proced verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner sions of tefra do not apply however petitioner argues that the check-the-box_regulations are superseded by sec_1_932-1 income_tax regs which provides solely for the purpose of determining classification of an eligible_entity under sec_301_7701-3 of this chapter the check-the-box_regulations and under that section as mirrored in the virgin islands an eligible_entity sub- ject to this paragraph h will be classified for both federal and virgin islands tax purposes using the rule that applies to domestic eligible enti- ties thus petitioner posits that although nasco is generally treated as a foreign_entity for purposes of the code for pur- poses of determining whether nasco is a corporation or a partnership the court should treat nasco as a domestic eligible_entity and use the check-the-box_regulations that apply to such entities petitioner reasons that pursuant to sec_301_7701-3 proced admin regs the domestic eligible_entity check-the-box_regulations would clas- sify nasco as a partnership since it is an entity with two or more members we are of the opinion that sec_1 h income_tax regs does not apply to nasco sec_1_932-1 income_tax regs provides that sec_1_932-1 income_tax regs applies to domestic ie u s business entities that are owned in whole or in part by bona_fide residents of the virgin islands or by virgin islands business entities sec_1_932-1 income_tax regs applies sec_1_932-1 income_tax regs to virgin islands business entities that are owned in whole or in part by u s persons other than bona_fide residents of the virgin islands in this case nasco is a virgin islands llc and according to petitioner all of the members of nasco are bona_fide residents of the virgin islands therefore the regu- lations petitioner relies upon do not apply to his situation moreover sec_1_932-1 income_tax regs pro- vides that in the case of an entity created or organized prior admin regs is an eligible_entity and may elect its classification for federal tax purposes sec_301_7701-3 proced admin regs if an eligible_entity does not make an election for fed- eral tax purposes then the regulations provide for default classifications depending on the at- tributes of the eligible_entity a foreign eligible_entity in which all of its owning members have limited_liability as apparently is the case with respect to all of the owning members of nasco is classified by the default rules as an association see sec_301_7701-3 proced admin regs for the definition of limited_liability sec_301_7701-2 proced admin regs provides a list of foreign business entities that are corporations and may not elect their classification in the virgin islands entities that are established as corporations are not eligible entities and may not elect their status verdate 0ct jun jkt po frm fmt sfmt v files huff sheila united_states tax_court reports to date paragraph h of this section will take effect for federal_income_tax purposes or virgin islands income_tax purposes as the case may be as of the first day of the first taxable_year of the entity beginning after date nasco operates on a calendar_year basis hence the first year that the classification rules of sec_1 h income_tax regs would apply is but the years involved are and petitioner argues that the regulations should be applied retroactively regardless of the specific effective date peti- tioner points to the preamble to the temporary_regulation which states to the extent they provide rules under the operative provisions of the code relating to the possession as amended by the act and the act these regulations generally apply to taxable years ending after date the underlying statutory rules however generally apply to taxable years beginning after date accordingly taxpayers may rely upon the guidance provided in these regulations with respect to prior years for which the underlying statutory rules are in effect provided they do so consistently t d 2005_1_cb_1016 we apply a regulation according to its plain or ordinary meaning unless that interpretation would lead to absurd results or another construction is supported by unequivocal evidence of administrative intent philips petroleum co v commissioner 101_tc_78 aff ’d without pub- lished opinion 70_f3d_1282 10th cir sec_1 h iv income_tax regs specifically provides that the classification rules of sec_1_932-1 income_tax regs apply only to tax years beginning after date petitioner does not suggest that the application of the plain meaning of sec_1_932-1 income_tax regs will lead to an absurd result nor does the preamble amount to unequivocal evidence of administrative intent to retroactively apply the default classification rule_of the regulation the preamble discusses how affirmative elections by tax- payers regarding the classification of entities will be treated under the regulation it does not mention taxpayers who allowed their business entities to be classified under the we are mindful that the language of sec_1_932-1t h temporary income_tax regs fed reg date is identical to the language in the final regula- tion and that sec_1_932-1t h iv temporary income_tax regs supra has the same effective date of date as the final_regulation verdate 0ct jun jkt po frm fmt sfmt v files huff sheila huff v commissioner default rules through their own inaction moreover the pre- amble to the temporary_regulation discusses retroactivity regarding the temporary regulation’s general effective date of date sec_1_932-1 income_tax regs has its own specific effective date ie effective for tax years beginning after date as the temporary regulation’s preamble does not mention that effective date it cannot be said that there is unequivocal evidence of administrative intent to retroactively apply the default classification rule consequently sec_1_932-1 income_tax regs does not apply to conclude because nasco did not file a federal partner- ship return and because nasco is classified as a foreign cor- poration for federal tax purposes the tefra procedural rules do not apply consequently we hold that respondent was not required to issue an fpaa and respondent issued a valid notice_of_deficiency consistent with the foregoing peti- tioner’s motion will be denied an appropriate order will be issued f because we conclude that nasco is not classified as a partnership for federal tax pur- poses we need not address the issue of whether nasco has u s -source income or income effec- tively connected to a u s trade_or_business verdate 0ct jun jkt po frm fmt sfmt v files huff sheila


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 tege eoeg eo plr-106797-11 date date legend city --------------- trust ---------------- plan ----------------- date ---------------- date ---------------------- dear ----------------- this is in response to your date letter and a supplemental submission requesting the following ruling trust’s income is excludable from gross_income under sec_115 because trust’s income is derived from the exercise of an essential_governmental_function and accrues to a state or political_subdivision thereof facts and representations trust was established on date effective date by the city commission city’s chief financial officer serves as administrator of the trust and the trust’s trustee city has established health_plans to which retirees of city and of participating employers may participate to obtain medical_care pursuant to resolution participating employers are defined as city a political_subdivision or an entity the income of which is excluded under sec_115 separate_accounts or sub-trusts may be maintained in trust for appropriate categories of retirees of city and of participating employers trust is used as a funding vehicle by which the administrator accepts contributions to the trust and forwards the contributions to the custodian for holding and administration the administrator is also responsible to credit deposits to appropriate sub-accounts plr-106797-11 the trustee will invest and reinvest the trust and pay benefits from trust at its direction solely to provide medical benefits to retirees spouses and dependents of retirees contributions to fund for benefits under the trust shall be designated by resolution of city or of participating employers with the annual amounts determined pursuant to the resolution the trust provides that in no event will trust’s assets be distributed to or revert to an entity that is not a state a political_subdivision or an entity whose income is excluded under sec_115 the trust is only seeking a ruling with respect to the federal tax treatment of trust’s income plan documents provide eligibility rules and describe individuals eligible to participate in the plan eligible persons include retirees of the city or of participating employers a spouse under a legal existing marriage and a retiree’s unmarried dependent_children are dependents eligible to participate benefits are paid in accordance with benefit schedules in the plan’s handbook and booklets retirees and employees through the trust share in the cost of the medical coverage under the plan plan provides no cash-out of unused amounts and is not funded by any conversion of sick or vacation days there is no employee election with respect to any provision so that no employer contributions are made through pre-tax salary reductions law and analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to plr-106797-11 taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust was established by city a political_subdivision to enable the pre-funding of health benefits for retirees their spouses and eligible dependents and for retirees their spouses and eligible dependents of participating employers payment of such benefits constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code no private interests participate in or benefit from the operation of trust any distribution of funds in trust can only be used to pay benefits or revert to city or participating employers the benefit to city the participating employers or the participating employees is incidental to the public benefit see revrul_90_74 based on the information and representations submitted by trust we hold that the income of trust is derived from the exercise of an essential government function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no representation is made that contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be tax-free this ruling concerns only the federal tax treatment of trust's income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits 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-106797-11 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely sylvia f hunt assistant branch chief exempt_organizations branch eoeg tax exempt government entities


internal_revenue_service department of the treasury number release date uil in re washington dc person to contact telephone number refer reply to cc corp-plr-100614-01 date date parent acquiring state a state b date u v w x y z this is in response to your letter dated date on behalf of the above referenced taxpayer requesting rulings concerning the federal_income_tax consequences of a proposed transaction additional information was supplied in subsequent submissions plr-100614-01 the information submitted indicates that parent is a state a mutual legal reserve_insurance corporation that is the common parent_corporation of a life- nonlife consolidated_group parent is a blue cross and blue shield organization that was in existence on date and was exempt from federal income_taxation for its last taxable_year beginning before date as a mutual company parent’s equity is held by its members each policyholder of parent is a member of parent parent’s policyholders and members will be used interchangeably under parent’s bylaws each policyholder has the right to a number of votes equal to the aggregate premium or other_amounts attributable to such policyholder except that no member shall be entitled to votes in excess of u percent of the total votes available to all policyholders acquiring was a state b stock insurance_company which holds insurance licenses in v states in addition to the insurance licenses acquiring retains assets sufficient to maintain its insurance licenses acquiring has only one remaining policyholder on date parent purchased all of the acquiring stock from an unrelated corporation no election was made under sec_338 parent wishes to acquire acquiring’s insurance licenses while remaining a state a mutual company under state law the licenses cannot be transferred in order to obtain the licenses parent must merge into acquiring with acquiring surviving i ii iii iv to accomplish this goal the following steps are proposed acquiring has changed its domicile from state b to state a in a transaction intended to qualify as a reorganization under sec_368 the redomestication parent will purchase w insurance policies representing x percent of acquiring’s premiums from acquiring for cash acquiring will convert to a mutual company mutual acquiring in a transaction intended to qualify as a reorganization under sec_368 the mutualization approximately y days after acquiring becomes a mutual company parent will merge into mutual acquiring with mutual acquiring surviving in a transaction intended to qualify as a reorganization under i r c plr-100614-01 sec_368 the merger the current remaining acquiring policyholder will retain his or her mutual interest in mutual acquiring while the members of parent will become members of mutual acquiring mutual acquiring will change its name to parent’s name parent will purchase the policies from acquiring step ii solely for the purpose of retaining control of acquiring both before and after acquiring converts to a mutual corporation state a law requires that the policyholders approve the plan of mutualization for this purpose state a law provides that each policyholder is entitled to one vote for each policy in force on the day of the meeting therefore parent will own w of the z policies and will approve the plan of mutualization absent the newly issued policies the one remaining acquiring policyholder would be able to veto the mutualization after acquiring converts to a mutual company mutual acquiring by operation of state a law each policyholder of mutual acquiring will have an equity_interest in mutual acquiring mutual acquiring’s by-laws will provide that each policyholder have the right to vote a number of votes equal to the aggregate premiums attributable to such policyholder therefore after the conversion to a mutual company parent will hold policies with x percent of the vote in mutual acquiring and the current policyholder will have the remaining vote in connection with the transactions described above it has been represented that a b c parent is a blue cross and blue shield organization that was in existence on date parent was exempt from tax for its last taxable_year beginning before date parent has not changed its health benefits coverage for individuals or small groups since date or its capital structure in any way that would result in a material_change in operation or structure as described in the legislative_history to sec_833 1the taxpayer states that the y day delay is necessary to satisfy the requirements of state a law policyholders must approve each transaction separately and be given y days notice prior to voting on each transaction plr-100614-01 d e f g h i j k l m parent is an existing_blue_cross_or_blue_shield_organization as that term is used in sec_833 pursuant to state a law the mutualization will occur under a plan of mutualization approved by acquiring's board_of directors and policyholders before the transaction each party to the mutualization will pay its own expenses if any in connection with such transaction the mutualization is not part of a plan to periodically increase the proportionate interest of any policyholder in the assets or earnings_and_profits of parent or of any shareholder or policyholder in the assets or earnings_and_profits of acquiring no new corporation will be formed as part of the mutualization process accordingly acquiring will continue its corporate existence following the mutualization acquiring will not dispose_of or transfer sec_38 sec_1245 or sec_1250 property as part of the mutualization the fair_market_value of the proprietary interests to be received in acquiring by parent will be approximately equal to the fair_market_value of its interest in acquiring surrendered in exchange therefor acquiring is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the merger of parent into acquiring will qualify as a reorganization within the meaning of sec_368 provided that the acquiring proprietary interests received by the policyholders are continuing equity interests for purposes of satisfying the continuity_of_interest requirement parent is an eligible_corporation under sec_1 d because for the five full taxable years of parent preceding the current taxable_year parent was in existence and was a member of the affiliated_group of which parent was the common parent ii was engaged in the active_conduct of the insurance_business iii did not experience a change in tax character within the meaning of sec_1 d vii and iv did not undergo a disproportionate asset plr-100614-01 acquisition within the meaning of sec_1_1502-47 d viii upon the mutualization the policyholders of acquiring will have similar rights to those that parent's current policyholders have under state a law and parent’s organizational documents the policies issued to parent will represent greater than 80-percent of the voting rights of acquiring's outstanding policies and greater than 80-percent of the value of acquiring the business_purpose for the proposed transaction is for parent to gain access to the licenses of acquiring and the merger is intended to be completed within approximately y days of the mutualization parent as a policyholder of acquiring will own greater than percent of all of the votes that can be cast for the election of members of the board_of directors of acquiring parent as a policyholder of acquiring will be entitled to greater than 80-percent of the proceeds upon liquidation of acquiring parent as a policyholder of acquiring will control the votes sufficient to assure policyholder approval of the merger acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by parent immediately prior to the merger the parent policyholders immediately before the merger as a result of being parent policyholders will own more than 50-percent of the value of the proprietary interests in acquiring immediately after the merger parent and acquiring are have been and will be engaged in the same insurance_business activities or integrated business activities before consummation of the proposed transaction and those business activities will continue unchanged and uninterrupted after the proposed transaction is consummated there were no sales or other dispositions of proprietary interests in parent made in anticipation of the proposed transaction for each parent policyholder his or her proprietary interest in acquiring after n o p q r s t u v plr-100614-01 the merger will be virtually identical to his or her proprietary interest in parent prior to the merger the only change will be attributable to the interests of the one remaining policyholder based solely on the information and representations submitted we rule as follows the merger of parent into acquiring will not be considered a material_change in operations or structure under sec_833 after the merger acquiring the surviving entity in the merger will be treated as an existing_blue_cross_or_blue_shield_organization for purposes of sec_833 the mutualization and merger will not affect the qualification of the redomestication as a reorganization described in sec_368 provided that the redomestication otherwise qualifies as such a reorganization the mutualization of acquiring will constitute a reorganization within the meaning of sec_368 and the qualification for this treatment will not be affected by the redomestication or the merger acquiring will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by acquiring upon the issuance of proprietary interests to parent in exchange for its prior stock interest in acquiring sec_1032 the mutualization will not affect acquiring's tax_attributes specifically the mutualization will not affect acquiring's basis in its assets holding_period for its assets net_operating_loss and capital_loss carryovers earnings_and_profits or accounting methods no gain_or_loss will be recognized by parent on the receipt of acquiring proprietary interests in exchange for parent's interest in acquiring in the mutualization sec_354 the redomestication and mutualization will not affect the qualification of the merger as a reorganization described in sec_368 provided that the merger otherwise qualifies as such a reorganization plr-100614-01 the continuity_of_interest requirement set forth in sec_1_368-1 is satisfied in the merger of parent with and into acquiring pursuant to sec_381 and sec_1_381_a_-1 acquiring will succeed to and take into account the items of parent described in sec_381 c these items will be taken into account by acquiring subject_to the provisions and limitations specified in sec_381 sec_382 and sec_383 and the regulations thereunder the consolidated_group of which parent was the common parent immediately before the merger the parent group will remain in existence after the merger with acquiring the surviving entity in the merger as the common parent of the parent group sec_1_1502-75 the election of the parent group to file a life-nonlife consolidated federal_income_tax return under sec_1504 will remain in effect following the merger after the merger acquiring will be an eligible_corporation under sec_1 d sec_1 d vi all of the parent group members that were eligible corporations under sec_1_1502-47 before the merger will remain eligible corporations after the merger sec_1_1502-75 and sec_1_1502-47 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 whether the writing of new types of insurance by acquiring following the proposed merger may affect acquiring’s future status as an existing blue cross and blue shield organization under sec_833 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 a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this plr-100614-01 letter is being sent to the taxpayer the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely jasper l cummings associate chief_counsel corporate edward s cohen chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number date date uniform issues list numbers egend i a l u l dear we have considered your letter of date in which you request rulings on the federal tax consequences of the transactions described below facts you are a non-profit non-stock corporation that is exempt from federal income_taxation under r c sec_501 as an organization described in sec_501 you are considered a private_foundation within the meaning of sec_509 as well as an operating_foundation within the meaning of sec_4942 you were formed by the artist b to further his philanthropic and educational initiatives as stated in your articles of incorporation your purposes include the following to directly or indirectly support charitable religious scientific artistic literary educational or cultural purposes and more specifically kak to cultivate promote encourage and support the production and exhibition of art to enlarge the interest and importance of the quality of art to establish and maintain a permanent collection of works_of_art and to establish a center for the advancement of such purposes consistent with these purposes your stated mission is to further b’s philanthropic initiatives and to preserve and advance the global understanding of the legacy of his life and artwork within tnat mission you focus on a philanthropic initiatives that were important to b during his lifetime eg fostering artistic collaborations integrating art into education and using art to change awareness and increase funding for the environment and b scholarly programs related to the life and legacy of b pp b formed p a corporation to house his artistic enterprise b his studio assistants and other art production staff were employees of p p acquired and stored the materials used by b in the creation of his artwork handled the creation fabrication shipment storage and insurance of this work and managed its sale reproduction and licensing b transferred the stock of p toa revocable_trust of which b was the sole beneficiary during his lifetime the revocable_trust b actively oversaw the operations of p until his death by which time p had accumulated a large collection of original b artwork the b collection as well as nearly all b copyrights since a certain year the p-b copyrights pursuant to the instrument governing the revocable_trust which remains the sole shareholder of p the stock of p is to be transferred to you as sole remainder beneficiary upon the transfer of the stock of p you will hold all of the issued and outstanding shares of p you state that you wish and intend to hold the stock of p indefinitely with the death of b the focus of activities within p switched from the production sale and licensing of artwork to curatorial activities and the management of the b artistic legacy proposed use of the b collection and the p-b copyrights you intend to use the b collection and the p-b copyrights to increase public exposure and understanding of the broad scope of b’s work advance b scholarship and encourage artists’ involvement in civic issues by showing that art can change the world toward that end and using the assets that are held by p you pian to respond to requests from museums scholars publishers and others seeking knowledge and understanding of b’s life and artistic legacy develop a comprehensive scholarly resource - a catalogue raisonné - that document sec_3 all work produced by b and illustrates the evolution of his work over his lifetime create a robust digital repository of images of b’s work so as to support scholarship on a global basis and prepare record edit and archive a series of interviews with artists and scholars that will constitute an oral history of b’s life and artistic legacy in addition using the b collection held by p you plan to create a lending bank that will place artwork from the b collection in museums and other charitable organizations focused on art promotion and scholarship throughout the world the lending bank program will complement your grantmaking support of curatorial programs at university museums to ensure creative and educational use and interpretation of the artwork from the b collection by graduate and undergraduate students your charitable and educational priorities will guide decisions about loans gifts and sales from the b collection to museums schools art institutes and other charitable entities loans of artwork from the b collection may be authorized if the prospective borrower’s use of the artwork will be consistent with and in furtherance of your charitable and educational objectives your standards for art preservation and conservation security and insurance will govern all such lending decisions and you will as appropriate specify those works that may not be lent due to their condition or significance gifts or sales by p of artwork from the b collection may be authorized if the prospective donee or purchaser is a museum or other sec_501 organization and the arrangement will further your charitable and educational objectives in addition sales may be authorized if you determine that works comparable to the item being sold will remain in the b collection or other publicly accessible collection that the sale can be made in the context of an art gallery exhibition that will advance public and scholarly knowledge and understanding of one or more aspects of b’s work or that the sale will enable you to pursue critical philanthropic or scholarly activities similarly your charitable and educational priorities will guide decisions about licensing and reproduction the aesthetic and quality standards for all licensing and reproductions involving b copyrights including the p-b copyrights and the standards and practices for policing and controlling the b copyrights you plan to make information about the b collection available to those seeking to authenticate works believed to have been created by b the collection of information about such works will advance your goals for b scholarship particularly the development of an authoritative catalogue raisonné you will undertake the ongoing conservation and management of the b collection the management function will include cataloguing and tracking the whereabouts and condition of the artwork in the b collection obtaining appropriate insurance coverage for the b collection and overseeing and managing security insurance claims climate control and operations generally at the art exhibition and storage facilities where you plan to require that the b collection be stored finally all activities involving p or its assets will be conducted so as to avoid any transactions that would constitute an act of self-dealing within the meaning of sec_4941 you will adhere to policies and procedures to identify and address potential conflicts of interest collection agreement upon receipt of the stock of p you as its sole shareholder plan to enter into the art collection management agreement the collection agreement with p described below the collection agreement will appoint you as its sole and exclusive agent for the purpose of managing the b collection management activities will include the conservation cataloguing and documentation of the b collection responsibility for making decisions concerning the use sale exchange loan donation storage shipment and insurance of the b collection responsibility for making decisions concerning the licensing policing and control of the p-b copyrights and the negotiation implementation and administration of all agreements pertaining to the b collection and the p-b copyrights you will be entitled to receive reasonable_compensation for your services to p the compensation will be set before the commencement of each contract_year and paid in monthly installments the collection agreement will automatically renew from year to year to facilitate your ability to catalogue document conserve lend and otherwise manage the b collection the collection agreement will require that tangible works_of_art in the b collection be housed in one or more secure and climate-controlled art storage or exhibition facilities under your control works_of_art in electronic form ie digital or video works will be stored on servers designed by and under your control p will cease to have its own employees you will employ a staff which will include a curator a collections manager an archivist a registrar an executive director chief financial officer and other staff necessary for the management of your activities including the activities related to your ownership of p rulings requested you have requested the following rulings the stock of p will not be excess_business_holdings under sec_4943 and will not be taken into account in determining your minimum_investment_return under sec_4942 because p will be a functionally_related_business under sec_4942 compensation paid to you by p pursuant to the collection agreement will not be unrelated_business_taxable_income under sec_512 law r c sec_4943 imposes a tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 provides that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundations would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 provides generally that the permitted holdings of any private_foundation in an incorporated business_enterprise are i percent of the voting_stock reduced by ii the percentage of voting_stock owned by all disqualified persons sec_4943 provides that the term business_enterprise does not include a functionally_related_business as defined in sec_4942 sec_4942 imposes a tax on the undistributed_income_of_a_private_foundation for any taxable_year that has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period il r c sec_4942 provides that the term undistributed_income means the amount by which- the distributable_amount for such taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 provides that the term distributable_amount means with respect to any foundation for any taxable_year an amount equal to- the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 il r c sec_4942 provides generally that the minimum_investment_return for any private_foundation for any taxable_year i sec_5 percent of the excess of- a b the aggregate fair_market_value of all assets of the foundation other than those which are used or held for use directly in carrying out the foundation’s exempt_purpose over the acquisition_indebtedness with respect to such assets sec_53_4942_a_-2 provides that assets which are used or held for use directly in carrying out a foundation’s exempt_purpose for the purposes of calculating the minimum_investment_return includes any interest in a functionally_related_business il r c sec_4942 provides that the term functionally_related_business means- a b a trade_or_business which is not an unrelated_trade_or_business as defined in sec_513 or an activity which is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which is related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exempt purposes of the organization sec_53_4942_a_-2 illustrates the provisions with respect to functionally_related_business by the following examples for the convenience of the public x through a wholly x a private_foundation maintains a community of historic value which is example open to the general_public owned separately incorporated taxable entity maintains a restaurant and hotel in such community such facilities are within the larger aggregate of activities which makes available for public enjoyment the various buildings of historic interest and which is related to x's exempt_purpose thus the operation of the restaurant and hotel under such circumstances constitutes a functionally_related_business y a private_foundation as part of its medical_research program under example sec_501 publishes a medical journal in carrying out its exempt_purpose space in the journal is sold for commercial advertising notwithstanding the fact that the advertising activity may be subject_to the tax imposed by sec_511 such activity is within a larger complex of endeavors which makes available to the scientific community and the general_public developments with respect to medical_research and is therefore a functionally_related_business the general explanation of the tax reform act of prepared by the staff of the joint_committee_on_internal_revenue_taxation date includes the following explanation to the exception an exception to the limitation on the holding of business interests is provided in the case of a business which is related under the provisions dealing with taxes on unrelated_business_income another exception is provided even where the business although unrelated to the direct activities of the foundation is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which is related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exempt purposes of the organization these exceptions are intended to make clear that certain types of business activities may continue to be held by the foundation notwithstanding the general_rule many museums maintain cafeterias and snack bars for the convenience of the public visiting the museums although advertising in a foundation's journal may be an unrelated_trade_or_business it comes under the second of these exceptions if the foundation's journal is related to the foundation's exempt purposes such business activities do not have to be disposed of under these provisions sec_511 imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 provides that the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it less allowable deductions and certain modifications sec_513 provides that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of the charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_513 provides that for purposes of this section the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question - the activities that is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization’s exempt purposes sec_1_513-1 provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved sec_1_513-1 provides that gross_income derived from charges for the performance of exempt functions does not constitute gross_income from the conduct of unrelated_trade_or_business analysis ruling the analysis of the first requested ruling involves three issues whether p is a functionally_related_business within the meaning of sec_4942 under sec_4943 the taxes on excess_business_holdings under sec_4943 do not apply with respect to holdings in a functionally_related_business under sec_4942 a functionally_related_business includes an activity which is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which is related to the exempt purposes of the organization see also sec_53_4942_a_-2 one of your exempt purposes is to cultivate promote encourage and support the production and exhibition of art to enlarge the interest and importance of the quality of art and to establish and maintain a permanent collection of works_of_art particularly the art of b as described in your mission statement you fulfill that purpose by preserving and advancing the global understanding of the legacy of the life and artwork of b your policies and staff are devoted to the achievement of that mission in turn p’s sole corporate purpose will be to promote the work of b as the holder of the b collection and the p-b copyrights p will be an essential ingredient for the accomplishment of your exempt charitable and educational_purposes the collection agreement will ensure that the works_of_art and copyrights held by p will be fully integrated into your larger aggregate of exempt_purpose activities by ensuring that those assets will be fully available to support the charitable and educational programs that preserve b’s artwork and advance the global understanding of the legacy of his life and artwork furthermore through your ownership of p you will ensure that p’s activities are conducted in ways that advance the global understanding of the legacy of b’s life and artwork additionally conducting the activities described above through a for-profit subsidiary will not prevent p from qualifying_as a functionally_related_business sec_53_4942_a_-2 example specifically contemplates the operation of a business functionally related to the accomplishment of a private operating foundation’s exempt_purpose through a separately incorporated taxable entity consequently since acquisition of the stock of p will cause the administration of its assets to be in accordance with your policies and the activities of p will be carried on within the scope of preserving promoting and furthering global understanding of the legacy of b's life and artwork p will be a functionally_related_business within the meaning of sec_4942 whether the stock of p would constitute excess business holding under sec_4943 for you will receive all of the stock of p as the remainder beneficiary of b’s revocable_trust purposes of sec_4943 the term excess_business_holdings refers to the holdings of a private_foundation in a business_enterprise thus your holdings in p will be subject_to sec_4943 only if p is deemed a business_enterprise sec_4943 provides that the term business_enterprise does not include a functionally_related_business as defined in sec_4942 as explained above p should be treated as a functionally_related_business therefore p is nota business_enterprise under sec_4943 and your holdings of all the stock of p would not constitute excess_business_holdings under sec_4943 whether holdings in p would be taken into account in determining your minimum_investment_return under sec_4942 for purposes of sec_4942 the term minimum_investment_return takes into account the aggregate fair_market_value of all assets of a foundation other than those which are used or held for use directly in carrying out the foundation’s exempt_purpose sec_53 a - c i d explicitly excludes any interest in a functionally_related_business from the calculation of the minimum_investment_return since p will be considered a functionally_related_business the value of any interest that you have in p would be excluded from the calculation of your minimum_investment_return under sec_4942 ruling whether the compensation that you receive from p under the collection agreement would constitute unrelated_business_taxable_income within the meaning of sec_512 under the collection agreement p will compensate you for your management of the b collection which management will include the conservation cataloguing and documentation of the b collection as well as responsibility for making all final decisions concerning the use sale exchange loan donation storage shipment and insurance of the b collection and responsibility for making decisions concerning the licensing policing and control of the p-b copyrights sec_512 defines unrelated business taxable income’ as gross_income derived from an unrelated_trade_or_business as defined in sec_513 that is regularly carried on since the management fee would constitute income from a trade_or_business regularly carried on it would be includible in your unrelated_business_taxable_income under sec_512 unless the conduct of the trade_or_business that produces the income - here the management of the b collection - is substantially related to your exempt purposes within the meaning of sec_1 d under sec_1_513-1 a trade_or_business is substantially related to exempt purposes only if it contributes importantly to such purposes the conservation cataloguing and documentation of the b collection your control of the use lending storage maintenance and sale of the b collection and your control of the reproduction and licensing of the p-b copyrights contribute importantly to the preservation and promotion of the understanding of b's artistic legacy - a central aspect of your charitable and educational mission therefore the activities for which you will be compensated under the collection agreement are substantially related to your exempt purposes within the meaning of sec_1_513-1 and thus do not constitute an unrelated_trade_or_business within the meaning of sec_513 consequently the compensation that you receive from p under the collection agreement would not constitute unrelated_business_taxable_income within the meaning of sec_512 conclusion in light of the foregoing we rule as follows upon your acquisition of all of the issued and outstanding_stock of p the implementation of the plans described in proposed use of the b collection and the p-b copyrights and the consummation of the collection agreement p will be considered a functionally_related_business accordingly your ownership of all of the stock of p would not constitute excess_business_holdings under sec_4943 and the value of your interest in the stock of p would not be taken into account in determining your minimum_investment_return under sec_4942 the compensation payable to you under the collection agreement with p will not be considered unrelated_business_taxable_income within the meaning of sec_512 this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented without consideration of alternative plans of proposed transactions without consideration of hypothetical situations and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the r c or treas reg to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely peter a holiat acting manager exempt_organizations enclosure technical group notice


office_of_chief_counsel department of the treasury i n t e r n al r e v e n u e s e r v i c e washington d c date number info release date index number cc intl b03 genin-161741-04 ------------------------ ------------------------------------ ------------------------------------------ -------------------- ------------ dear -------------- this is in rely to your e-mail dated date in which you inquire whether the salary paid_by the ------------- government to your client mr ------------------------------- ------ -------------- former ambassador to the united_states while he was stationed in the united_states and performing official duties for the ------------- government is exempt from u s federal income_taxation under sec_893 of the internal_revenue_code_of_1986 code the office of associate chief_counsel international of the internal_revenue_service may issue letter rulings to individuals as to the tax effects on their acts or transactions in circumstances described in revenue procedures 2004_1_irb_1 and 2004_1_irb_237 these revenue procedures which also set forth the procedural requirements for obtaining a ruling are available on the internet at http www irs gov irb 2004-01_irb index html while your e-mail did not comply with the requirements for obtaining a letter_ruling we offer the following general information sec_893 of the code provides in part that if certain conditions are satisfied the wages fees or salary of any employee of a foreign government including diplomatic representatives received as compensation_for official services to that government will not be included in gross_income and will be exempt from u s federal income_taxation the exemption under sec_893 only applies if the employee is not a citizen_of_the_united_states the services performed by the employee are of a character similar to those performed by employees of the government of the united_states in foreign countries and the foreign government eg ------------ grants an equivalent_exemption to employees of the government of the united_states performing similar services in that foreign_country the tax exemption however is not available to any employee of a foreign government whose services are primarily in connection with a commercial activity whether within or genin-161741-04 outside the united_states of the foreign government the regulations under sec_893 also provide that an employee of a foreign government who executes and files the waiver provided by sec_247 of the immigration and nationality act bureau of citizenship and immigration services form i-508 to keep his or her immigrant status ie green card will no longer qualify for the sec_893 tax exemption from the date of filing the waiver the foregoing is general information provided for your assistance and does not constitute a letter_ruling we hope the information will be helpful to you sincerely richard l chewning senior counsel branch office of associate chief_counsel international irs i d no -------------


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc ita b04 number info release date conex-138079-09 uil the honorable ginny brown-waite member u s house of representatives spring hill drive brooksville fl attn -------------- dear congresswoman brown-waite this letter responds to your enquiry dated date submitted on behalf of your constituent ---------------------------- he purchased a home in date and claimed the first-time_homebuyer credit available in on his tax_return ------------- asks whether he can file an amended tax_return to claim the more generous credit allowed for purchases in and avoid the repayment requirement for purchases in sec_36 of the internal_revenue_code allows qualifying taxpayers to take credits for purchasing certain homes the section allows different credits for first-time home purchases occurring in different years purchases a first-time_homebuyer who purchased a home on or after date and before date can take a sec_36 credit equal to percent of the purchase_price of the residence up to a maximum of dollar_figure taxpayers who take the credit for purchases made in generally must repay the credit in equal installments over years purchases section of the american recovery and reinvestment tax act of amended sec_36 to provide a different credit for purchases made on or after date and before date the maximum credit increased from dollar_figure to dollar_figure the statute also eliminated the repayment requirement for the credit conex-138079-09 because ------------- bought his residence in date the rules for purchases apply those rules limit ------------- to the dollar_figure repayable credit the statute explicitly limits the type of credit available for purchases in the law does not give the internal_revenue_service administrative authority to relax the statutory requirements i hope this information is helpful if you have any questions please contact -------- ------- ----------- at --------------------- sincerely george blaine associate chief_counsel income_tax accounting


internal_revenue_service number info release date index number 280f ---------------------------- ------------------------------ --------------------------------- - 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 b06 genin-137381-03 date date this letter is in response to your letter received in our office on date in re schedule c deduction under sec_179 dear ------------- requesting a ruling concerning whether you are entitled to an expense deduction under sec_179 of the internal_revenue_code on the purchase of a sports utility vehicle with a loaded gross vehicle weight in excess of pounds in order for us to respond to your specific request you must submit a request for a private_letter_ruling the request must comply with all the requirements of section of revproc_2004_1 2004_1_irb_1 a copy of selected selections of revrul_2004_1 has been enclosed for your reference we hope that you find the following general information to be helpful sec_179 of the code allows a taxpayer to treat the cost of any qualifying property as an expense deductible in the year that the property is placed_in_service subject_to a dollar limitation on the aggregate cost that can be deducted in a particular year under the provisions of the jobs and growth tax relief reconciliation act of the dollar limit applicable to qualifying property placed_in_service in taxable years beginning after is dollar_figure a sport_utility_vehicle suv built on a truck chassis is considered a truck for purposes of sec_280f of the code trucks that have a gross vehicle weight in excess of big_number pounds are not subject_to the dollar limits imposed under sec_280f which would otherwise limit the amount of the depreciation deduction including the deduction under sec_179 available for the vehicle however these suvs are nonetheless listed_property under sec_280f and the remainder of the provisions of sec_280f still apply furthermore if a taxpayer uses an suv more than fifty percent in a qualified sec_280f of the code provides that if any listed_property is not used genin-137381-03 more than fifty percent in a qualified_business_use for any taxable_year then depreciation for the property must be calculated under the alternative_depreciation_system as defined in sec_168 a taxpayer required to depreciate an suv under the alternative_depreciation_system may not claim the sec_179 expense deduction the bonus first-year allowance under sec_168 or accelerated_depreciation but must instead depreciate the entire cost of the suv ratably over the five-year recovery_period using the straight-line method business use in the taxable_year the suv is placed_in_service but the taxpayer’s qualified_business_use drops to fifty percent or less in a later taxable_year sec_280f requires the taxpayer to include in current income for that later year the excess_depreciation for each previous taxable_year ie the excess of the sum of the deductions taken for the vehicle in each previous year for any sec_179 expense deduction any bonus first-year allowance under sec_168 and any accelerated_depreciation over the deductions that would have been available under the alternative_depreciation_system for those years and to use the alternative_depreciation_system for the remainder of the five-year recovery_period a trade_or_business of the taxpayer however certain use by a 5-percent_owner or related_person may not be qualified_business_use pursuant to sec_280f it should be noted that the use of a vehicle for commuting between a taxpayer’s home and the taxpayer’s regular place of business is personal_use of the vehicle not use in a trade_or_business of the taxpayer and would not count towards qualified_business_use deduction in a particular year is limited by the percentage of the use of the property in the taxpayer’s trade_or_business so for instance if a taxpayer purchases an suv for dollar_figure and uses it percent in the taxpayer’s trade_or_business and percent for personal_use such as commuting the sec_179 deduction available to the taxpayer for the suv is limited to dollar_figure revproc_2004_1 provides the general procedures the internal_revenue_service follows in issuing private letter rulings and the related instructions for the submission of private_letter_ruling requests by taxpayers in addition taxpayers are required by statute to pay user fees for requests for private letter rulings under sec_15 of revproc_2004_1 the user_fee must accompany the request in order to be processed by the service in general the user_fee is dollar_figure for private letter rulings however there is a reduced fee of dollar_figure for a request involving a business-related tax issue from a taxpayer with a gross_income of less than dollar_figure million see appendix a of revproc_2004_1 proc provides information as to where to send the request also as we have for purposes of sec_280f qualified_business_use generally means any use in you should also be aware that the depreciation deduction including the section if you should decide to request a private_letter_ruling section of rev this letter has discussed certain general principles of tax law it is intended for genin-137381-03 noted above section of revproc_2004_1 provides general instructions for requesting a private_letter_ruling informational purposes only and does not constitute a ruling see sections dollar_figure and dollar_figure of revproc_2004_1 we hope the materials enclosed will be helpful to you however if you should have any additional questions or comments please contact our office at enclosures charles b ramsey charles b ramsey chief branch office of associate chief_counsel passthroughs and special industries sincerely yours