department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc psi br9 uilc internal_revenue_service national_office field_service_advice memorandum for houston district_counsel associate chief_counsel passthroughs special industries cc psi from subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend taxpayers partnership a partnership b s_corporation management company trust date issue sec_1 are the losses reported by the taxpayers in connection with their oil_and_gas working interests activities conducted through partnership a passive or nonpassive activity losses for purposes of sec_469 are the losses reported by the taxpayers in connection with their oil_and_gas working interests activities conducted through the s_corporation passive or nonpassive activity losses for purposes of sec_469 conclusion sec_1 the losses reported by the taxpayers in connection with their oil_and_gas working interests activities conducted through partnership a are nonpassive activity losses because where the taxpayers each own a one percent general_partnership interest in partnership a and the taxpayers have liability with respect to the working interests the oil_and_gas working_interest activities are per se nonpassive activities under sec_469 and therefore any losses reported by the taxpayers in connection with those activities would be nonpassive activity losses the s_corporation limits the liability of its shareholders and therefore the working_interest exception is not applicable to the oil_and_gas interests activities of the s_corporation the taxpayers have not proven that they materially participated in the oil_and_gas activities of the s_corporation therefore the losses reported by the taxpayers in connection with these activities would be passive_activity_losses facts on schedule e of their joint income_tax return the taxpayers reported passive and nonpassive activity income and losses from three partnerships and an s_corporation the total amount of passive_activity income reported was dollar_figure and the total amount of nonpassive activity losses reported was dollar_figure for purposes of this memorandum the significant losses were from partnership a dollar_figure we have rewritten the issue statement to address the adjustments in the statutory_notice_of_deficiency the analysis provides the answers to the questions posed in your request for advice and s_corporation dollar_figure the examining agent recharacterized these losses as passive and offset dollar_figure of the losses against the taxpayers’ passive_activity income the taxpayers’ income was adjusted to account for the fact that the remainder of the losses would not offset any nonpassive activity income partnership a is a texas limited_partnership which filed its agreement of limited_partnership partnership a agreement with the texas secretary of state on date during taxpayers each owned a one percent general_partnership interest and a seven percent limited_partnership_interest in partnership a the remaining percent interest was held by the trust a limited_partner the partnership a agreement in sec_5 indemnified the general partners but did not limit the liability of the general partners the s_corporation elected s_corporation status on date in the husband transferred oil_and_gas working interests to the s_corporation in exchange for stock in the s_corporation in the husband was the sole shareholder of the s_corporation the husband was a general_partner of partnership b during the taxpayers liquidated their interests in partnership b in1994 according to the taxpayers during through and in and the taxpayers through partnership a and the s_corporation entered into exploration agreements with the management company whereby the management company as the program manager set up programs whereby the program manager agreed to acquire property interests and to develop those property interests and the taxpayers as the participants agreed to incur the costs of carrying out these programs under these programs the management company as the program manager and participants would engage in the joint acquisition of prospects and the drilling of exploratory wells on prospects situated within a program area property interests included for example interests in petroleum leases royalty interests and any rights relating to the acquisition development exploration and production of petroleum substances within specific geographical areas prospects are specific geographical areas which would contain one or more property interests the management company and the taxpayers also entered into operating agreements whereby the management company the operator of the working interests and the taxpayers the non-operators agreed to share the costs of operating the mineral_interests located in the prospects and share in the oil_and_gas produced in the prospects you have limited your request for advice to the losses_incurred by partnership a and the s_corporation pursuant to the exploration agreements following designation of a prospect for a program the program manager would establish an area of mutual interest ami in connection with that particular program if the participant consents to the acquisition of the property interest located in an ami that property interest is deemed to be a portion of the prospect and its development and operation is governed by the terms of the exploration and operation agreements according to the taxpayers the working interests held by the s_corporation are mutually owned by partnership a and the s_corporation because the property interests are located within ami s in which both the partnership and the corporation are participants the taxpayers contend that all of the activities with respect to partnership a and the s_corporation were conducted by the husband and his office manager not the wife these activities were described by the taxpayers in the date letter the husband received daily exploration work over completion and re-completion reports related to approximately wells via fax from the management company the husband spent approximately one hour each day usually during his lunch hour reviewing the reports determining the price per barrel of oil_and_gas condensate on the open market and if necessary discussing issues arising from the reports with the management company operation personnel the husband also received and reviewed the production logs summaries of the amount of number of barrels and quality of oil_and_gas being produced from a well two or three times a week several times each week the husband would also receive and review authorizations for expenditures afe’s the time spent reviewing and approving the afe’s varied based upon the nature of the expenditure the husband would review the well files and determine whether the expenditure was reasonable and necessary to the operation of the well prior to approving the afe if the afe related to a new exploration or drilling opportunity there were approximately in the husband would make a determination as to whether to participate usually based upon his review of the seismic data available drilling and production logs for the field and conversations with geologists drilling engineers and operations executives of the management company if the husband approved of the new venture he would sign the afe usually on behalf of both the s_corporation and the partnership on or about the tenth day of the month the husband would receive revenue checks for the wells for his review the husband with the assistance of his office manager would spend approximately two or four hours reconciling the revenue checks with the price per barrel of oil_and_gas condensate on the open market for each day in the month on or about the twentieth of each month the husband and the office manager would receive and review the bills for the month for approximately two to four hour the husband would determine which bills should be approved for payment on the fifteenth and the last day of each month the husband would spend approximately one hour cutting and signing the checks for the approved bills the taxpayers claim that the husband spent a total of hours in carrying out various activities with respect to the working interests specifically the husband alleges he spent hours for daily review of reports hours for review of afe’s bills and new exploration and drilling prospects and hours for review in addition to holding interests in the partnerships and the s_corporation the husband was a prominent surgeon a director and professor at a medical school and a partner in a medical partnership law sec_469 disallows a deduction for passive_activity_losses of individuals estates trusts closely held c corporations and personal_service_corporations for the taxable_year the passive_activity_loss is the amount by which the taxpayer’s aggregate passive_activity deductions exceed the taxpayer’s aggregate passive_activity income for the taxable_year sec_469 d the term passive_activity means any activity which involves the conduct of any trade_or_business and in which the taxpayer does not materially participate sec_469 the term trade_or_business is defined as an activity i involving the conduct_of_a_trade_or_business within the meaning of sec_162 ii conducted in anticipation of the commencement of a trade_or_business or iii involving research or experimental expenditures that are or would be deductible under sec_174 sec_1_469-4 we have been asked to assume that the activities at issue qualify as a trade_or_business a passive_activity does not include any working_interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest sec_469 temp sec_1_469-1t this rule applies without regard to the degree of participation of the taxpayer sec_469 for purposes of sec_469 and the regulations thereunder the term working_interest means a working or operating_mineral_interest in any tract_or_parcel_of_land within the meaning of sec_1_612-4 sec_1_469-1 an entity limits the liability of the taxpayer with respect to the interest ie drilling or operation of a well pursuant to a working_interest held through such entity if the taxpayer's interest in the entity is in part in the form of a limited_partnership_interest in a partnership in which the taxpayer is not a general_partner or stock in a corporation temp sec_1_469-1t the following examples illustrate the application of this rule example a owns a percent interest as a general_partner in the capital and profits of p a partnership which owns oil or gas working interests the other partners of p agree to indemnify a against liability in excess of a's capital_contribution for any of p's costs and expenses with respect to p's working interests as a general_partner however a is jointly and severally liable for all of p's liabilities and under paragraph e v b of this section the indemnification agreement is not taken into account in determining whether a holds the working interests through an entity that limits a's liability accordingly the partnership does not limit a's liability with respect to the drilling or operation of wells pursuant to the working interests example c is both a general_partner and a limited_partner in a partnership that owns a working_interest in oil or gas property because c owns an interest as a general_partner in each well drilled pursuant to the working_interest c's entire_interest in each well drilled pursuant to the working_interest is treated under paragraph e i of this section as an interest in an activity that is not a passive_activity without regard to whether c materially participates in such activity temp sec_1_469-1t if the working_interest exception in sec_469 does not apply an activity is a passive_activity if the taxpayer does not materially participate in the activity sec_469 a taxpayer is treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is regular continuous and substantial sec_469 the regulations provide seven tests for purposes of establishing material_participation temp sec_1_469-5t generally limited partners are not permitted to use all of the seven tests but this limitation does not apply if a partner also holds a general_partnership interest temp sec_1_469-5t each test under temp sec_1_469-5t requires some degree of participation participation is defined as any work done by an individual without regard to the capacity in which the individual does the work in connection with an activity in which the individual owns an interest at the time the work is done sec_1_469-5 work done by an individual in the individual’s capacity as an investor in an activity will not be treated as participation in the activity for purposes of determining material_participation unless the individual is directly involved in the day-today management or operations of the activity temp sec_1_469-5t analysis issue the parties have treated the oil_and_gas interests held through partnership a and the s_corporation as working interests for purposes of sec_469 the working_interest activities conducted through partnership a constitute per se nonpassive activities pursuant to sec_469 in the taxpayers each owned a one percent general_partnership interest and a seven percent limited_partnership_interest in partnership a as general partners and under texas law they were generally liable with respect to oil_and_gas working interests the partnership_agreement did not limit the general partner’s liability under texas partnership law the taxpayers were each jointly and severally liable for percent of partnership a’s working interests tex rev civ stat ann art 6132a-1 b provides that a general_partner of a limited_partnership has the liabilities of a partner in a partnership without limited partners to persons other than the partnership and the other partners and except as provided in the partnership_agreement a general_partner of a limited_partnership has the liabilities of a partner in a partnership without limited partners to the partnership and to the other partners tex rev civ stat ann art 6132b-dollar_figure provides that all partners are liable jointly and severally for all debts and obligations of the partnership unless otherwise agreed by the claimant or provided by law in enacting sec_469 congress recognized that the typical oil_and_gas industry deal involved the sharing of the aspects of working interests between several parties including operators and investors the activities of these parties without the exemption would probably lead to passive_activity treatment for the nonoperators involved in these arrangements the exemption is designed to treat a nonoperator’s interest in a working_interest as per se nonpassive provided that the nonoperator did not have limited_liability respecting the interest and the interest was burdened with the cost of development and operation of this property with respect to this exemption the senate report indicated that in certain situations however the committee believes that financial risk or other factors rather than material_participation should be the relevant standard a situation in which financial risk is relevant relates to the oil_and_gas industry the committee believes that relief for this industry requires that tax benefits be provided to attract outside investors moreover the committee believes that such relief should be provided only with respect to investors who are willing to accept an unlimited and unprotected financial risk proportionate to their ownership interests in the oil_and_gas activities see s rep no pincite in this case while the taxpayers were both general and limited partners in partnership a the fact that they each held a one percent general_partnership interest in partnership a and as a result are jointly and severally liable for partnership a’s activities under the partnership_agreement and under texas law is sufficient to satisfy the rule in sec_469 accordingly the oil_and_gas working interests activities conducted through partnership a constitute per se nonpassive activities and the losses reported by the taxpayers in connection with these activities are nonpassive activity losses see sec_469 and example sec_1 and of temp sec_1_469-1t issue an s_corporation is an entity which limits liability for purposes of the working_interest exception of sec_469 therefore the working_interest exception does not apply to the oil_and_gas activities of the s_corporation temp sec_1_469-1t accordingly any losses_incurred in connection with these activities are passive_activity_losses if the taxpayers do not materially participate in the underlying activities further the losses_incurred in connection with the oil_and_gas activities held solely by the s_corporation would be passive_activity_losses because the taxpayers have failed to prove that they materially participated in those activities the taxpayers have attempted to establish their participation through the actions claimed for taxpayer-husband in the date letter for purposes of meeting the tests for material_participation the work done by the husband in his capacity as an investor in the activity is not treated as participation unless the individual is directly involved in the day-to-day management or operations of the activity temp sec_1_469-5t in this case husband’s participation in these activities involved studying and reviewing reports making financial decisions and determining the extent of his participation in the working interests activities identified as investor-type activities in temp sec_1_469-5t see also temp sec_1_469-5t example the husband was not actively involved in the day-to-day operations of these working interests the management company was responsible for the day-to-day management and operation of these interests accordingly the taxpayers failed to establish participation within the meaning of sec_1_469-5 in the oil_and_gas activity and so are precluded from meeting any of the tests for material_participation requirements under temp sec_1_469-5t the failure to establish any participation will also preclude the finding of minimum participation necessary to treat the oil_and_gas activity as a significant_participation_activity under temp sec_1_469-5t case development hazards and other considerations please call if you have any further questions by lorraine e gardner assistant branch chief branch associate chief_counsel passthroughs special industries


number release date internal_revenue_service index numbers - ---------------------------------------- ---------------------------------- ------------------------- ------------------------ --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number --------------------- refer reply to cc psi - plr-100330-06 date date legend x ----------------------------------- -------------- ----------- ----- ---------- ------------------ d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 based on the facts submitted and representations made we conclude that the except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ----------------------------- -------------------------------- -------------------------- -------------- ------------------------------------ ty -------- ty -------- legend department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc intl b02 plr-124017-08 date september taxpayer --------------------------------------------------- -------------------------- year year year year fc country x country y trust ------- ------- ------- ------- ------------------------------- ------------------ ----------- ------------------------- trustee o trustee r ---------------------------- ------------------------------ law firm p law firm q ------------------------------------------------------------------------------------------ ---------------------- ---------------------------------------------------------- dear ------------------ this is in response to your letter received by our office on date submitted by your authorized representative requesting the consent of the commissioner of the internal_revenue_service to make a retroactive qualified electing plr-124017-08 fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to your investment in fc the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalties of perjury statement executed by the appropriate parties 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 facts taxpayer is a u s citizen and a named beneficiary of the trust established under the laws of country x by taxpayer's grandmother a citizen and resident of country y in year the trust acquired shares in fc a corporation organized under the laws of country y at all times since its formation the trust was administered and managed by various foreign nationals who served as the trustees of the trust trustee o who served as a trustee of the trust at all times since inception is an attorney with substantial experience in transnational tax planning and was a partner at law firm p during all the years at issue trustee o is competent to render international tax_advice trustee o and the other trustees had full access to all the records of the trust and trustee o was aware at all relevant times that taxpayer resided permanently in the united_states taxpayer is not a tax professional and has no experience in international tax matters taxpayer represents that as a beneficiary of the trust taxpayer had no control_over the assets of the trust and relied on the trustees to manage the assets of the trust at all times the trustees and in particular trustee o never informed taxpayer that the trust held shares of fc that fc was a passive_foreign_investment_company pfic under sec_1297 of the code for u s federal_income_tax purposes and of the consequences of such investment and of the possibility of making any elections qef or otherwise with respect to such shareholdings for u s federal_income_tax purposes in year after the death of taxpayer's father taxpayer engaged law firm q and others to determine the extent of the family's assets in year during its evaluation of the trust's assets law firm q determined that fc had been a pfic since year and informed taxpayer of fc's characterization as a pfic at that time taxpayer has submitted an affidavit signed under penalties of perjury describing the events that led to the failure to make the qef election by the election due_date plr-124017-08 including the role of the trustees taxpayer has also submitted affidavits of trustee o and trustee r corroborating the representations made by taxpayer taxpayer represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayer requests the consent of the commissioner of the internal_revenue_service to make a retroactive qef election with respect to fc for year under sec_1_1295-3 law sec_1295 of the code provides that any pfic shall be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a taxpayer may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe plr-124017-08 the events which led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc for year provided that taxpayer complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election this private_letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling must be attached to any_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer's authorized representative sincerely ethan a atticks senior technical reviewer branch international


tax_exempt_and_government_entities_division release number release date uil code department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas date date tax_year ending december 20xx taxpayer_identification_number person to contact employee identification_number employee telephone number certified mail - return receipt dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 effective january 20xx your determination_letter dated march 19xx is revoked the revocation of your exempt status was made for the following reason s organizations described in sec_501 of the internal_revenue_code and exempt from tax under sec_501 must be both organized and operated exclusively for exempt purposes you have failed to establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inure to the benefit of private shareholders or individuals you have failed to meet the operational_test described in sec_501 specifically funds were wired to a foreign charitable_organization and used to purchase shares of a publicly-traded company in the benefits to your treasurer facilitated by you are significant and are not incidental this activity served a nonexempt purpose and inured to the benefit of your treasurer the shares were bought by the organization’s treasurer an organization exempt under sec_501 is required to operate exclusively for public benefit as opposed to private interests all directors and officers have a responsibility to ensure that the organization’s primary purpose is directed to the furtherance of a charitable purpose your officers and directors failed their fiduciary responsibilities to operate exclusively for sec_501 purposes because your officers and directors participated in and facilitated in the abusive transactions between the years 20xx and 20xx when an organization operates for the benefit of private interests the organization by definition does not operate exclusively for exempt purposes thus you are not operated exclusively for sec_501 purposes and do not qualify for exemption as an organization described in sec_501 contributions to your organization are no longer deductible under sec_170 after january 20xx organizations that are not exempt under sec_501 generally are required to file federal_income_tax returns and pay tax where applicable for further instructions forms and information please visit www irs gov if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate tel fax if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosure publication department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations commerce street ms dal dallas tx certified mail - return receipt requested date date taxpayer_identification_number form_990 return tax_year s ended december 20xx person to contact id number contact numbers telephone fax manager’s name id number manager’s contact number response due_date october 20xx why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we’ll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code dear if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years letter rev catalog number 34809f what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate letter rev catalog number 34809f for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely margaret von lienen director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f schedule number or exhibit form 886-a row jangery explanations of items name of taxpayer dec 20xx tax identification_number year period ended issue should the exempt status of revenue code irc as an organization described in sec_501 be revoked effective january 20xx under sec_501 of the internal facts was incorporated on october 19xx in the state of as a non-profit corporation article provided the first board_of directors the articles of incorporation provided the purpose of the corporation is to provide was listed as one of the first board_of directors filed the form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code on october 19xx part il of the form_1023 sets forth the purposes of _ underprivileged communities in reducing their poverty t will be accomplished by promoting education and better healthcare and providing assistance in the rehabilitation of victims of natural and man-made disasters and will be one of the beneficiaries of is a charitable foundation promoting education in it states that the purpose of is also a director of the director of is to assist internal_revenue_service granted tax exempt status to on march 19xx the forms filed by and health care in underprivileged communities by working closely with organization in between 20xx and 20xx provide the mission of from 20xx through 20xx a registered non-profit forms listed its website address as is to promote education the registrant’ name and registrant organization of the web address are and respectively reported a total of dollar_figurex xxx xxx grants made to outside u s in its form_990 between 20xx and 20xx did not make any grant or conduct any exempt activity in the united_states the totals of the grants made in the years 20xx 20xx and 20xx were dollar_figurex xxx xxx dollar_figurex xxx xxxk and dollar_figurex xxx xxx respectively the internal_revenue_service did not receive the form_990 for the year 20xx filed by for the years 20xx through 20xx was to similar to the years 20xx through 20xx the only activity of make grants to the organizations outside u s did not make any grant or conduct any exempt activity in the united_states the totals of the grants made in the years 20xx 20xx and 20xx were dollar_figurexxx xxx dollar_figurexxx xxx and dollar_figurexxx xxx respectively ' the registrant information was gathered from on may 20xx department of the treasury-internal revenue service form 886-a catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rev date name of taxpayer dec 20xx tax identification_number year period ended explanations of items relationship between and was a director of from its inception to 20xx and the founder director of he also was the founder chairman and ceo of publicly traded company in isa has a close relationship with between 20xx and 20xx four of directors listed on forms annual reports as the directors of and were also listed on passed away in from complications of a stroke in october 20xx as said by news reports for the years 20xx and 20xx three of were also the directors of report and directors was listed as a chairman of and on its 20xx annual the following table provides the summary of the directors of and the directors of 20xx 20xx 20xx 20xx 20xxk 20xx x xx x x x x xx x xx x xx xx x x x x x x x xx xx xx xx xx xx x x xx xx x x xx x - treasurer of was a director and treasurer of from 20xx to 20xx between 20xx and 20xx for over dollar_figurex xxx xxx from designated as a arranged to repurchase of more than xx xxx xxx shares in whom the u s treasury department’s ofac had shortly after the events of 20xx held an interest in through an company called loaned large sums of money to assist in the purchase those shares from 20xx annual report department of the treasury-internal revenue service catalog number 20810w form 886-a publish no irs gov page form 886-a rov date name of taxpayer explanations of items tax identification_number year period ended schedule number or exhibit dec 20xx between july 20xx and march 20xx at direction sent approximately xx wire transfers to the purchase of shares in x xxxk that had been purchased from interest in the corporation of x xxx percent and a value of over dollar_figurex x regularly communicated with and or see exhibit for the xx wire transfers to as aresult by june 20xx shares of stock in accounts in for a total of dollar_figurex xxx xxx to be used for was the listed holder of over for a total ownership dollars regarding the status of the repurchase of shares from accounts in children and to flood relief buy shares back from as the treasurer of told his donors that money was going to but instead of funding schools a significant portion of school assets went to who has been designated by the treasury_department as a he knew that the money was going to buy back shares of and not to school children as the mission stated signed the plea agreement with the statement of facts described above on january 20xx and received his sentenced on august 20xx - director of 20xx serviced with on the board_of directors of at least from 20xx through was one of the individuals used by to route funds from to united_states on march 20xx one of from on an upcoming trip to wrote that she would transfer money to family members referenced need for reimbursement later that month in the email the family_member if would provide cash to in agreed to the plan and instructed to send check to in accordance with the agreement wrote a check dated march 20xx and made payable to in the amount of dollar_figurexx xxx on march 20xx one of transfer dollar_figurexx xxx into the bank account of when he arrived in brother and between march and april 20xx‘ family members wrote that would take the rest in cash wanted to deducted the dollar_figurexx xxx he sent to as a charitable_contribution even though he was reimbursed for this in claimed charitable deductions to _ for a total of dollar_figurexxx xxx between 20xx and 20xx even reimbursed him for at least a portion of these transfers as a result the government though had a total of dollar_figurexx xxx tax loss’ case document xx position_of_the_united_states with respect to sentencing factors filed on xx case case xx document xx statement of facts filed on xx document xx position_of_the_united_states with respect to sentencing factors filed on department of the treasury-internal revenue service form 886-a catalog number 20810w publish no irs gov page _3 schedule number or exhibit form 886-a rew date name of taxpayer dec 20xx tax identification_number year period ended explanations of items signed the plea agreement with the statement of facts described above on november 20xx and was sentenced on august 20xx - donor of was a donor of who provided a testimony for another donor dollar_figure on april 20xx indicated in his testimony that he made the first donation of dollar_figurex xxx to the in 20xx which was a directed donation to a distant cousin of him he explained what directed donation is in his testimony he said directed donation is being able to direct a part of some of your donation to a cause that otherwise is dear to you as an individual and that included earmarking a certain percentage or proportion of that donation for an end recipient whether it be an organization or an individual whether family_member or otherwise who you wanted to donate money to because you felt they deserved charity subsequent to his first donation to indicated that an approximately x to xx percent of his donations were reimbursed he made other directed donations that routed through he agreed the statement made by his counsel in his testimony that it was not at all unusual for donors to the specific organization they would like to receive that money to indicate as part of their donation either what kind or what at the end of his testimony he stated that the way it was presented was donations to non-501 c entities in that are charitable allowed you to give interview with the officers of the interview with the officers of including the president was requested the interview was held on august 20xx two of representative also appeared for the interview directors and appeared at the interview did not appear at the interview because of the advice of his attorney was asked how long he has been a director of he replied about x years he also was asked why his name was on not know why his name was shown on the forms prior to 20xx forms at least from 20xx through 20xx he replied that he does questions regarding to the xx wire transactions made by the prior treasurer and 20xx were asked to officers and representative the answers were do not know between 20xx testimony provided that did not engage in a scheme to get reimbursement of his charitable_contributions through stock returns case document xx filed xx ’ was appointed by board as a non-voting board member on july 20xx his name is not shown on the forms as a director of publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page schedule number or exhibit form 886-a rev date name of taxpayer dec 20xx tax identification_number year period ended explanations of items questions regarding to the donation reimbursements received by prior director of asked to know about the reimbursements until the audit officers and representative the answer for the questions was that the board does not were questions regarding to the directed donations were asked to answer for the questions was that the board is not aware of the directed donations officers and representative the laws sec_501 provides in part that organizations described in sec_501 are exempt from federal_income_tax sec_501 of the code describes in part an organization that is organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 states that an organization will be regarded as operated exclusively for one or more exempt purposes only if one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages primarily in activities which accomplish sec_1_501_c_3_-1 states that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 states that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_80_278 1980_2_cb_175 jan establishes that in making the determination of whether an organization’s activities are consistent with exemption under sec_501 of the code the service will rely on a three-part test the organization’s activities will be considered permissible under sec_501 if the purpose of the organization is charitable the activities are not illegal contrary to a clearly defined and established public policy or in conflict with express statutory restrictions and the activities are in furtherance of the organization’s exempt_purpose and are reasonably related to the accomplishment of that purpose department of the treasury-internal revenue service form 886-a catalog number 20810w page_5 publish no irs gov form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended schedule number or exhibit dec 20xx government’s position it is the government's position that the organization has failed to meet the operational_test described in sec_1_501_c_3_-1 in order to continue tax-exempt status an organization must prove that it is operated exclusively for tax-exempt purposes and that no part of its net_earnings inured to the benefit of any private individuals the treasurer of followed the direction of to wire a total of dollar_figurex xxx xxx to for purchasing the shares of from whom the u s treasury department's ofac had designated as a 20xx as the children and to flood relief knew that the funds were used to buy back shares of mission stated however he told the donors that money was going to school shortly after the events of not to school children the dollar_figurex xxx xxx of total grants made by facilitated by served a nonexempt purpose and merely inured to the private benefit of funds used to purchase the shares of in the years between 20xx through 20xx the benefits to are significant and are not qualitatively and quantitatively incidental this activity for represented xx xx of also made false representation to internal_revenue_service and general_public by filing its forms for the years 20xx through 20xx indicating that the funds granted to the organizations outside united stated were used for promoting education and health care in underprivileged communities in failed two of the three-part test described in revrul_80_278 the activity of purchasing the shares from of and established public policy and the activity of purchasing the shares of not in furtherance of exempt_purpose a is contrary to a clearly defined was for as mentioned above allowing its officer receive private benefits used its funds for nonexempt purpose _ also facilitated tax_avoidance by and donors to make the improper charitable_contribution deductions and according tax law an sec_501 nonprofit organization is required to operate exclusively for public benefit refraining from allowing individuals to benefit financially all directors and officers have a responsibility to ensure that the organization’s primary purpose is directed to the furtherance of a charitable activity the officers and directors of tax-exempt purpose because the officers and directors participated in and facilitated the abusive transactions between the years 20xx through 20xx failed their fiduciary responsibilities to operate the for exclusively when an organization operates for the benefit of private interests the organization by definition does not operate exclusively for exempt purposes thus purpose and does not qualify for exemption as an organization described in sec_501 is not operated exclusively for c department of the treasury-internal revenue service form 886-a catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rey date explanations of items name of taxpayer dec 20xx tax identification_number year period ended based on the facts and laws presented above within the meaning of sec_501 to be recognized as exempt from federal_income_tax under sec_501 accordingly the organization's exempt status is revoked effective january 20xx has failed to operate exclusively charitable purposes form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_7 schedute number or exhibit form 886-a_ rey date name of taxpayer explanations of items tax identification_number year period ended dec 20xx exhibit - the xx wire transfers to accounts in publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page


internal_revenue_service number release date index number ------------------------- ---------------------------------------------------- --------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc fip b2 plr-132398-16 date date legend portfolio ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------- dear ------------------- this letter revokes a part of plr plr-104670-11 issued to portfolio on date in plr the internal_revenue_service the service issued rulings that i income and gain from certain commodity-linked notes constitute qualifying_income under sec_851 the cln ruling and ii subpart_f_income of the subsidiaries attributable to portfolio is other income derived from portfolio’s business of investing in stock securities or currencies and therefore constitutes qualifying_income under sec_851 the subpart_f ruling in a letter dated date the service notified portfolio that it was considering revoking the cln ruling since issuing plr the service has determined that having provided a private_letter_ruling on the issue in the cln ruling is not in accord with the current views of the service see revproc_2016_50 2016_43_irb_522 superseded by revproc_2017_3 i r b sec_4 see also reg-123600-16 fed reg date section dollar_figure of revproc_2017_1 2017_1_irb_1 provides in part that unless it was part of a closing_agreement a letter_ruling found to be in error or not in accordance with the current views of the service may be revoked or modified accordingly the cln ruling in plr is revoked the subpart_f ruling is not revoked and that portion of plr remains in effect at this time plr-132398-16 section dollar_figure of revproc_2017_1 also provides that if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations on assessment unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation to date portfolio has not responded to the date letter from the service with a request for relief under sec_7805 therefore the revocation of the cln ruling in plr applies retroactively to all years open under the statute_of_limitations on assessment as of the date of this letter and to all future years we are sending a copy of this letter to the appropriate operating division sincerely andrea m hoffenson andrea m hoffenson branch chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service number release date index number 468a ------------------------------- ---------------------------------------- ----------------------------------------------- ----------------------------- ---------------------------- 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 b6 plr-141643-12 date date legend parent company b date x state plant method p study a study b location x y z ba fv year a year b year c year d year e year f ---------------------------------- --------------------------------- ------------------------------------------------- taxpayer ------------------------------------------------------------ company a ---------------------------------------------------------- --------------------------------- -------------------------------------------------- ---------------------- ------- ------------------------------------------------------------ ------------ --------- --------------------------------------------------------------------------------- ------------------------------------------------------------------- -------------------------------------- ---------------- -------- ------ ------------------- ---------------------- ------- ------- ------- ------- ------- ------- ---------------- ---------------- ---------------- ---------------- -------------- plr-141643-12 amount a amount b t pv aa dear ----------------- this letter responds to your request dated date for an initial schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1_468a-3 of the income_tax regulations information was submitted pursuant to sec_1_468a-3 taxpayer represents the following facts and information relating to the ruling_request taxpayer is wholly owned by parent parent through its subsidiaries is engaged in the generation delivery and sale of electricity at wholesale and retail taxpayer owns all of the common_stock of company a company a owns p percent of plant prior to date x plant is located at location on date x company a will convert to company b a limited_liability_company organized under the laws of state company b is disregarded for federal tax purposes thus taxpayer is the owner of plant for federal tax purposes after date x the tax consequences of this transaction were addressed in a ruling issued by the service to taxpayer on date company a received from the service an initial schedule of deduction amounts for plant in a ruling dated date that schedule of deduction amounts provides for deductions beyond the year of the transfer discussed in the date ruling taxpayer has a direct ownership_interest of p percent in plant the estimated base cost for decommissioning plant is based on study a an independent study and estimates of the escalation of those decommissioning costs are based on study b the nuclear decommissioning costs of plant are no longer included in taxpayer’s or any other entity’s cost of service for ratemaking purposes and neither study a nor study b has been reviewed or adopted by any public service commission the proposed method of decommissioning the plant is method the estimated cost of dollar_figureba year a dollars was used as a base cost for decommissioning p percent of the plant the estimated cost of decommissioning p percent of the plant in future dollars is dollar_figurefv it is estimated that substantial decommissioning costs will first be incurred in year b and that decommissioning will be substantially complete at the end of year c the methodology used to convert the year a dollars to future dollars was by escalating the estimated costs at an inflation rate of y percent to the year of estimated expenditure the assumed after-tax rate of return to be earned by the amount collected for decommissioning is z percent plr-141643-12 as part of the ruling dated date the service stated that the deduction of dollar_figurex with respect to plant is an amount allocable to taxable years ending after the date of the transfer which are being allowed as a current deduction to the transferor for the taxable_year that includes the date of the fund transfer because company a is related as defined in sec_1_468a-8 to company b under sec_1_468a-8 the irs will not approve a future schedule of ruling amounts for the transferee for taxable years beginning after the date of the transfer unless the ruling amounts are deferred in a manner that results in the recapture of the acceleration amount as defined in sec_1_468a-8 company a the transferor was able to take a current deduction of dollar_figuret in the year of transfer as a result of the fund transfer the present_value of the stream of deductions that transferor would have taken absent the transfer calculated using z percent is dollar_figurepv the difference between t and pv is the acceleration amount dollar_figureaa taxpayer has reduced the ruling_amount calculated as described above for year d by dollar_figureaa to recapture the acceleration amount from the transfer sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts plr-141643-12 sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- b does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different plr-141643-12 taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition plr-141643-12 that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment deadline for the taxable_year that includes the date on which the license extension is granted sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a sec_1_468a-8 provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8 defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8 provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant however under sec_1_468a-8 if a special transfer is made to a qualified nuclear decommissioning fund there is a subsequent transfer of the fund or the assets of the fund and sec_1_468a-6 applies to that transfer any amount of the deduction under sec_1_468a-8 allocable to taxable years ending after the date of the transfer will be allowed as a current deduction to the transferor for the taxable_year that includes the date of the fund transfer plr-141643-12 sec_1_468a-8 provides that if a deduction is allowed to the transferor under sec_1_468a-8 and the transferee is related to the transferor the irs will not approve the transferee’s schedule of ruling amounts for taxable years beginning after the date of the transfer unless the ruling amounts are deferred in a manner that results in the recapture of the acceleration amount as defined in sec_1_468a-8 sec_1_468a-8 provides that a transferee and transferor are related if their relationship is specified in sec_267 or sec_707 or they are treated as a single_taxpayer under sec_41 or b we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent decommissioning study and a financial escalation study that taxpayer has represented are a standard types of studies used in the industry in this case it is reasonable to rely on these studies in determining the proposed schedule of ruling amounts thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder taxpayer has determined the funding_period by reference to the useful_life of plant as defined in sec_1_468a-3 under that section if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations plr-141643-12 under sec_1_468a-8 the acceleration amount is recaptured if the aggregate present_value of the transferor’s ruling amounts at the beginning of the acceleration period equals the amount by which the aggregate present_value of the transferee’s ruling amounts that would have been approved absent sec_1_468a-8 exceeds the acceleration amount section sec_1_468a-8 provides that present values will be determined using the assumptions used in determining the transferee’s first schedule of ruling amounts taxpayer has recaptured the acceleration amount as defined in sec_1_468a-8 based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year year d each year year e-year f ruling_amount dollar_figureamount a dollar_figureamount b the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


internal_revenue_service number release date index number 468a ------------------------- -------------------------------------------- ----------------------------------------- --------------- ----------------------- - 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 plr-158395-04 date date --------------------------------------------------------------------- in re revised schedule of ruling amounts legend taxpayer plant intermediate intermediate ------------------------------------------ ------------------------ --------------------------------------------------------------------- ------------------------------------- --------------------------------------- ------------------------ ------------------------------ former name ---------------------- parent ------------------------------------------ electric company director --------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- location commission method order a b c d e f g h i j -------------------------------------------------- ------------------------------------------- ---------------------------------------------------- --------------------------------------------------------------- ----- ----------------------- ---------------------- -------------------------------------- ------ --------------------- -------------------------------- -------------------------------- ---------------------------------------- ---------------------------------------- plr-158395-04 k ----- this letter responds to your request dated date for a revised dear ------------- schedule of ruling amounts under 468a-3 i of the income_tax regulations for the taxpayer's nuclear decommissioning fund fund with respect to the plant the required information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1_468a-3 the taxpayer has represented the following facts and information relating to the ruling_request taxpayer is through entities that taxpayer represents are disregarded for tax purposes a wholly-owned subsidiary of intermediate intermediate is a wholly- owned subsidiary of intermediate formerly known as former name electric company is also a wholly-owned subsidiary of intermediate intermediate is a partnership for federal tax purposes and files a partnership return on which are contained the activities of taxpayer parent files a consolidated tax_return which includes electric company and reflects the activities of intermediate and all of its constituent parts including taxpayer under the audit jurisdiction of the director the plant is situated in location the collection of decommissioning costs for the plant with respect to taxpayer’s a percent interest in the plant is subject_to the sole regulatory jurisdiction of the commission the operating license for the plant is scheduled to expire in b the method for decommissioning the plant is the method on c parent underwent a corporate restructuring that resulted in the current organization of parent and its subsidiaries as part of this restructuring intermediate transferred the plant along with all related assets and liabilities including the nuclear decommissioning funds maintained with respect to the plant and the liability for decommissioning the plant to taxpayer and transferred its retail electric distribution operations to electric company beginning on c in accordance with order electric company collects the decommissioning amounts under a non-bypassable charge imposed on its retail customers pursuant to order and to parent’s business separation plan as approved by commission all nuclear decommissioning amounts collected by electric company must be paid to taxpayer on -------------------------- intermediate contributed a percent interest in intermediate to a newly-formed corporate subsidiary this contribution caused intermediate to be treated as a partnership for federal tax purposes on ----------------- ------------ intermediate issued exchangeable subordinated notes treated as an equity_interest in intermediate to certain investors not members of the affiliated_group including parent the notes held by investors not members of the consolidated_group were purchased by parent on ------------------- intermediate continues to be a plr-158395-04 partnership at all times the ownership share of taxpayer and intermediate held by parent and other members of the affiliated_group was never less than eighty percent in determining the decommissioning costs for the plant the commission used an estimated base cost of d this base cost escalated annually at a rate of e percent results in a future decommissioning cost of f taxpayer represents that under the sec_468a regulations the defined level_funding limitation period extends g and the defined funding_period extends h the estimated period for which the fund will be in effect is i and the estimated_useful_life of the plant is j therefore the qualifying percentage is k percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year and is made within ½ months after the close of the tax_year additionally a taxpayer that files for a schedule of ruling amounts and receives such schedule of ruling amounts after the ½ month deadline for making a payment to a nuclear decommissioning fund must make such payment to the fund within days after the date that the taxpayer receives the schedule of ruling amounts for the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant plr-158395-04 sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that in general the ruling_amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total plr-158395-04 estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a tax_year in response to a request for a schedule of ruling amounts that is filed after the deemed deadline date for such tax_year sec_1_468a-6 provides rules for the determination of a schedule of ruling amounts for a transferee of a nuclear power plant we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions the taxpayer has a qualifying interest in the plant and will be treated as an eligible_taxpayer under sec_1_468a-1 of the regulations only during such period as electric company is authorized by commission to collect decommissioning costs from customers and is obligated to pay the amounts collected to taxpayer the commission has permitted the amount of decommissioning costs to be included in the electric company's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations for the period covered by this letter_ruling the taxpayer has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the taxpayer has determined that k percent is the qualifying percentage as calculated under sec_1_468a-3 of the regulations plr-158395-04 based on the above determinations and subject_to the conditions outlined below we conclude that the taxpayer's proposed schedule of ruling amounts with regard to the commission satisfies the requirements of sec_468a of the code approved schedule of ruling amounts tax years ------- through ------- year ------------------------------------------------------------ --------------------------------------------- dollar_figure approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective the rulings expressed herein are specifically conditioned on the continued application of the requirements stated in order including both the requirement that electric company remit to taxpayer all decommissioning costs collected from ratepayers under the non-bypassable charge and the requirement that taxpayer deposit any such amounts in the appropriate trust funds in addition the rulings expressed herein are specifically conditioned on the taxpayer and electric company being under direct or indirect ownership and control by the same consolidated_group except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular no opinion is expressed or implied concerning whether the non-bypassable charge is includible in the gross_income of and deductible by any entity other than taxpayer the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the plr-158395-04 power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely cc peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries