internal_revenue_service appeals_office release number release date date date certified mail dear department of the treasury employer_identification_number person to contact employee 1d number tel fax uil this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code’ it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code effective xxxxxx our revocation was made for the following reason s you are not operated exclusively for exempt purposes as specified in sec_501 of the code because you are not engaged primarily in activities which accomplish an exempt_purpose a substantial part of your activities serve commercial and private interests private interests served include direct benefits to the trustees and their for-profit companies contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of the adverse determination you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you ina separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice 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 for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours ae hg enclosure publication and or appeals team manager internal_revenue_service tax_exempt_and_government_entities_division department of the treasury date taxpayer_identification_number form_990 ez return tax_year s ended person to contact id number contact numbers telephone fax manager’s name id number manager's contact number response due_date certified mail - return receipt requested dear 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 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 what you need to do if you disagree with the proposed revocation letter rev catalog number 34809f 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 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 enclosures report of examination sincerely director eo examinations letter rev catalog number 34809f form_6018 publication publication letter rev catalog number 34809f form 886a department of the treasury - internal_revenue_service ein explanation of items year period ended name of taxpayer xxxxxxxxxaxxxaxxkkxxxxakkkkkkkxxx kkkkxxkkkkkkkkkxxaxkkkk xxxxxx xxxxxxxxxxxx xxxxxxxxxkxkk revised november xxx issue sec_1 is money given to the xxxxxxxxxxxxxxxxxxxxxxxxxkxxxxxxxkxkk by its officers loans or gross_income do contracts between x and its officers constitute substantial private benefit do purchases made with the organization’s credit card and payments to xxxxxxconstitute inurement should the tax-exempt status under internal_revenue_code sec_501 of xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx aforementioned code section be revoked for failing to operate as an organization exempt under the facts i organizational structure a articles of incorporation item of the articles of incorporations for the xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxx purposes within the meaning of sec_501 of the internal_revenue_code states its purpose as organized exclusively for charitable and educational item of the articles state no part of the net_earnings of the corporation shall inure to the benefit of or be distributable to its members trustees officers or other private persons except the corporation shall be authorized and empowered to pay reasonable_compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in item and article of this filing e item also states notwithstanding any other provision in this filing the corporation shall not carry on any other activities not permitted to be carried on a by a corporation exempt from federal_income_tax under sec_501 of the internal_revenue_code or the corresponding section of any future federal tax code or b by a corporation contributions to which are deductible under sec_170 of the internal_revenue_code or the corresponding section of any future federal tax code b by laws e the organization provided the lasted revision to its by laws dated xxxxxxxxxxxxx previous revisions were dated xxxxxxxxxxxx_ _ and xxxxxx e article sec_2 lists specific objectives and purposes as to identify entrepreneurial companies and bring them aid and support that they need targeted to their businesses to solicit the help and support of the large business community to assist entrepreneurial businesses in obtaining financial aid form 886-a rev department of the treasury - internal_revenue_service page -1- form 886a department of the treasury - internal_revenue_service ein explanation of items xxxxxx name of taxpayer xxxxxaxaxkxxkxxxxxxxxxkxxxxxxxxxxxxxkxkxkxxxkxxkxkxxkxkxak kk year period ended xxxxxxxxxkkxk xxxxxxxkxkxxxk to offer educational and training programs that aid the entrepreneurial community as well as those servicing them to partner with educators and educational institutions for the improvement of entrepreneurial skills and knowledge to partner with business executives and advisors to bring their business skills and acumen to the entrepreneurial community for the betterment of all article sec_1 states the officers of the corporation shall be a president vice- president a secretary and a treasurer the corporation may also have a chairperson of the board one or more vice-presidents assistant secretaries assistant treasurers and other such officers with such titles as may be determined from time to time by the board ii projected operations form_1023 e on part v of form_1023 lists the officers of the organization as p n w r u xxxxxxxxxxxx -president trustee xxxxxxxxxxxxxxxxkx- secretary trustee xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx - treasurer trustee - trustee - trustee in response to question 3b part v of form_1023 states the five trustees jointly own and operate several other companies each of the jointly owned companies are supporters of x which mean a portion of their fees earned are donated on behalf of their individual customers to jn support of mission and programs e in response to part iv of form_1023 lists its purpose as the following to identify entrepreneurial companies and bring them the aid and support that they need targeted to their businesses to solicit the help and support of the large business community eg fortune in supporting the entrepreneurial community to assist entrepreneurial businesses in obtaining financial aid to offer educational and training programs that aid the entrepreneurial community as well as those servicing them to partner with educators and educational institutions for the improvement of entrepreneurial skills and knowledge to partner with business executives and advisors to bring their business skills and acumen to the entrepreneurial community for the betterment of all e also in response to part iv of form_1023 lists its specific activities as follows xoxxcommunity time and effort xooox provides an online community for entrepreneurs and professionals who specialize in helping entrepreneurs the community provides a welcoming and collegial environment wherein entrepreneurs can find information guidance advice tools and access to financing and support services form 886-a rev department of the treasury - internal_revenue_service page -2- form 886a department of the treasury - internal_revenue_service ein name of taxpayer year period ended explanation of items xxxxxx xxxxxxxxxxxxkxaxxxxxxxkkkxxxxxkkkkkxxxxxxkkkkkkxxxxxakkk xxxkxxxxxkkk xxxxxxkxxxxxx outreach programs of time and effort a program where coordinates and sponsors outreach programs to enable such things as networking x seeks out local co-sponsors and experts who are willing to lead programs make presentations provide meeting facilities supply resource material and contribute time to assist in making the outreach programs a success recognition and grant programs time and effort a program that gives grants and awards to qualified entrepreneurs and entrepreneurial organizations in response to a letter from xxxxxx of irs determinations requesting more information states as the recognition and grant programs grow xxx will add a part-time administrator to manage the application and reporting processes and to coordinate award events e in reference to part v line 2b xmoxstates kxxxxxxxxxxxxxxxxxxxxxxxxxxxkx has business relationships with its officers trustees in that each trustee xxxxxx xxxxxxxxxxxxxxxxkxxxxkxxkxxxkkxxxkxakkkxkxkkkxkx dollar_figurexxxxxx loan to xox at oy interest to help fund as identified in part ixb page of form_1023 line and xxxxxx has made a startup and development costs e enclosure c provided by in response to a letter dated xxxxxxxxxxxx from xxxxxx -_ dated xxxxxxxxxxxxxxxx and xxxxxxxxxxxx___ e in response to inquiry from xxxxxx in response to inquiry from xxxxxx xxxxxxx provided five promissory notes for dollar_figurexxxxxx each all were dated xxxxxxxxxxxx and signed by each officer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxxxxxkxxxkxkk kkk xxxxxx requesting additional information for part v line 8e stated the following for agreement with any contractor vendor or supplier project cost quotes and or hourly rates are submitted in advance so that rates and costs can be checked against alternate quotes and market rate surveys to confirm that fair prices are being paid_by ox dated xxxxxxxxxxxx states the revenue listed in line is for membership and access fees to the community these fees are listed in line rather than line because membership is for the community and not for x itself each person will contribute dollar_figure for community membership and for access to the community services tools and information they list projected revenues as follows form 886-a rev year number of members fee member total line dollar_figure dollar_figure dollar_figure xxxxxxx dollar_figure xxxxxx dollar_figure xxxxxx dollar_figure breakdown for part ix line of form_1023 as follows department of the treasury - internal_revenue_service dated xxxxxxxxxxxx_ x provides a e in response to inquiry from xxxxxx soosk me _xxxxxx moog wee page -3- ct ser wooo peri xxxxxk xxxkkxk xxxxxx total s dollar_figure form 886a department of the treasury - internal_revenue_service ein name of taxpayer explanation of items xxxxxx xxxxkxxxxxxxxxxxkkxxkakkkakkkkkkkkkkkkakkkkakkk kk kx kkk year period ended xxxaxxxxxxxakk xxxxxxxxxxxx year application grants non-profit organization grants xxxxxx xxxxxx total xxxxxx xxxxxx xxxxxx dollar_figure xxxxxx dollar_figure xxxxxx dollar_figure xxxxxx xxxxxx xxxxxx xxxxxx dollar_figure dollar_figure dollar_figure xxxxxx dollar_figure dollar_figure dollar_figure iii actual operations a revenues xxxxxx operations are inconsistent with the information provided on form_1023 does not get income from the community as it stated in its application based on interview with xxxxxx treasurer xxxxxxxxxxxx and the examination findings the agent learned xxxxxx major operation is what they call an x certification and training program as part of this program charges prospective business advisors or consultants dollar_figurexxxxxx for what they call certification by the organization states this certification is important to ensure their advisors administer help to entrepreneurs in a manner consistent with their teachings however the agent learned this statement is false the advisors are paying for business leads in xox received the following payments for participants in the ox program name payment xxxxxx _xxxxxx xxxxxx xxxxxxxxxxxx xxxxxx xxxxxxxxxxxx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxxxxxxxx xxxxxxxxxxxx ixxxxxxxxxxxx dollar_figure dollar_figure dollar_figure xxxxxx xxxxxx dollar_figure dollar_figure xxxxxxx xxxxxx xxxxxx total 00x ig not receiving revenue from fees charged to the community as stated in form_1023 but instead is receiving of its revenue from this program b expenses cox contracted with businesses owned by current and former trustees or their spouses is a trustee of xxxxxx ooo jn 0ohkk the agent submitted idr and idr to specifically asking for president of xx xxxxxx is the wife of xxxxxx form 886-a rev department of the treasury - internal_revenue_service page -4- form 886a department of the treasury - internal_revenue_service ein name of taxpayer explanation of items xxxxxx xxxxxxxxxxxxxxxxxxxkkxxxxxxkkkkxxxxkkxxkkkxxkxkxxaxakkkkkk year period ended xxxkxkxxxxkkx xxxxxkxkxxkx their association with these businesses to which they refused to respond the agent secured documents from the secretary of state proving the following ownership xx xxxxxx business name xoxxxxxxxxxxxx xxxxxx xxxxxx xxxxxxxxxxxxxxxxkx xxxxxxxxxxxxxxxxxxxxxxxx xxxxkkxkxxxkxkxxkxxxxkxxkxxkxkkkkkk kk principal business type domestic limited_liability_company xxxxxx foreign profit corporations xxxxxx foreign profit corporations xxxxxx domestic limited_liability_company xxxxxxxxxxxx domestic limited_liability_company xxxxxxxxxxxxxxxxxx foreign profit corporations xxxxxxxxxxxxxxxxxk 0oxxx paid the following to the above businesses in ox and oo respectively payee xxxxxxxxxkxxxkxxkxkkk xxkxxkkxkxxxxxkxkxxk kkk xxxxxxkxkxkxxaxxxxkxaxxk xxxxxxkxxxxkxxxxaxxx xxxxxxxxxkxxkxxxkxxkk xxxkxxxakxkxkxxxxxxxxkk xxxkxkxkxxkkxkxakkkx kkk xkxxxxkxxxkxxxxxxxkk xxxxxxkxxxxxkxxxxxxkx xxxkxkxkkxxkkxkkxk kkk xxxxxxkxxxxxxxxxxkk xxxxxxkxkxxkxkxxxkxaxkkx xxxxxxkkkxmkkkkakkk xxxxkxxkxxxxxxkkaxkkk xxxxxxkxkxkxkxkkxxkxxxkx xxxxxxxkkxxxaxxaxkxxkk xxxxxxkxkkxxxkkxxaxxkk xxxxxxxxxxxxkxxxxxk xxxxxxxxxaxxxxxaxxxx xxxxxxkxxxkxxkxkxkxxkxkk xxxxxxkxkxxkxxxkxxkxxkk xxxxxxkxxxxkxxkxxaxxk payee xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx date xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxk xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx amount pooh xk kkkk prox xkkkxxk rook xkxxxxx yok xxxxxk rook xkkxxxk pxmohk xxxxxk poooak kx kxxkk roohx kxxxxk rook xkxxxx pooh kxxxkxk yhoo xkxxxk xxxxxx yooohk xkxxxk poook_ rokk kkxkxxx rook xxxxxk xhrook xxkxkxk pho xkxxxk ook kx kxkk pooh kxxxxk prox xxxxxx pax kxxxxx xxxxxx xxxxxx xxxxxx -_- xxkkxk xxxxxkx xxxxxx xxxxxx xxxxxx xxxxxx xxkxxxx xxxxxxk xxxxxx 600k amount date xxxxxx xxxxxx yoox xxxxxx secon xxxxxx rooox xxxxxx jooux xxxxxk xxxxxx moon xxxxxx xxxxxx rooox__ xxxxxx bnbbkxxxxx xxxxxx__ xxxxxx check number hook xxx koon xrookk mook xoockx xxxxxx xakkxk xoakkxk xxkkkk xxkkkx xxkxxk rxaxxx xokkkk xox xaaxkk xookkkx xokaxx kaxxxx kaxkkxx kxxaxx xxkxxx ‘ check number kaxxxk xxkkk xxxxxx xxxxxk xxxxxk xxxxxx form 886-a rev department of the treasury - internal_revenue_service page -5- form 886a department of the treasury - internal_revenue_service ein explanation of items name of taxpayer xxxxxxxxxxxxkxxxxxxxaxkakxkakkxkkkxkkkxkaxkkakxkkxkaxkak kk xxxxxx year period ended xxxxxxaxaxk xxxxxxxxxxxx payee xxxxxxxxxxxxxxxxxx amount sbxxkxxx __ xxxxxx jodo kx xx k date check number xo payee xxxxxxxxxxxkxxkxxxxk amount xxxxkk rook date xxxxxx check number xxxxxxxxxxxxxxxxxx xxxxxxxkxxkxxxxkxxxx xxxxxxxkxxkxxxxxaxxx xxxxxxxxxxaxxxxkaxkk xxxxxxxxxxxkxxkkxxkx xxxxxxaxkxxxkxxkxkxkk xxxkxxxkxaxxkxkxkxxkxkx xxxxxxkxkxkxxxxkxaxkxx xxxxxxxxxxxkxxaxx kkk xxkxxxxkxkxxkxxxkxxxxkx xxxxxxxxxxxkxkxkxxkx xxkxkxaxkkxxakkxkx kkk kkk xxxxxxxxxxxxaxkkxxk xkkxxxxakxxxxxkakk kkk xxxxxxxxxxxxkxkxkxxk xxxxxxxxxxxxxxxxkx xxxxxxxxxxxxxxx xxx xxxxxxkxxxxxakxxxxkk xxxxxxxxxxxxxxxxkx xxxxxxxxxxxxxkxxxx xxxxxxxxxxxxxxxxxx xxxxxkxxxxxkxkxxxaxkxkk xxxxxxxxxkxxxxxkxxkx xxxxxxkxxxxxxxxxxk xxxxxxxxxxxaxxxxaxxk yookk - xxxxxx xoookk xxkxxx xox rook xxxxxx xxxxkxx rw xxxxxk xox xxxxxk rokk wook xxxxkk xxxxxx rook xkxxkxxk rook xxkxkxx yok xxxxkk rook xxkxxx xoook xx xxxxk yookk xx kxxk rokk xxxxxx rokk xxxxxk ook xxxxxx xrook xxxxxk rooak - xxxxxx ook kxxakk fook ooooh xxxxaxk kxkxxxk hrokk - xxxxxx rook kkkakxk yoox xxxxxx xxxxxk xxxxxx xxxxxxk xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxxk xxxxxxk xxxxxx xxxxxx xxxxxx xxkxxx xxxxxx xxxxxxk xxxxxx xxxkxxk xxxxxxk xxxxxx xxxxxxk xxxxxk xxxxxx xxxxxxxxxxxxkxxkx xxx hookk kxxxxx xxxxxx xxxxxxkxaxkxxaxkxkxaxkkk ooook - xaxxxkk xxxxxx xxxxxxxxxxxxxxaxxkk xk xxxxxxk xxxxxxxxxxxkxxaxkxkxk xxxxxkxkxkxxxkkxxxkxkk xxxxxxxxxxxkxxaxk xxx xxxkkxkkxkkxk kkk kkk xxxxxxxxxxxkxxxkxxx xxxxxxxxxxxrxxxkkxx xxxxxxxxxxxxxkk kkk xrook kxxxxk rokk kxxxxk xrokk kx kxkaxk hook kxkxxxk hook xxxxxxk pooh xxxxxx wook kxxxxxk xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxxxxxxxkxxaxk kkk yok xxxxkx xxxxxx xox kx hkk ooo kookk yokkak mook xoooonk took xookk ook hook mook hrkxxk ook khkkk hook joookx xox rook hook xrkaxk xooxkxx xoookk yokxxk xxkkax xox xox xoookxk xorxakk mock hook yookak took yok oooo yxkxxx ooo rook form 886-a rev page -6- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein explanation of items xxxxxx name of taxpayer xxxxxxxxxxnxaxxxnxaxaakakaxakakakkkakxkaaxak ak axa akan year period ended xxxxkxaxkkak xxxxxxxkxxxxk payee xxxxxxxxxxxxxxxxxx xxxxxxxxxkxxxkkxkxxkxk amount re0k xxxxxkx ooo xxxxxx date xxxxxx xxxxxx check number xxx xxxxxx xxxxkxkxkkkkxxkkxakkxk xxxxxxkxxkxxkxxkxxkxkxkk bo s000 xxxxxx xxxxkxx xxxxxx xxxxxx xxxxxxkxxxkxxkkxkkkk foci xxxxxx xxxxxx xxxxxxxxkxkxxxxkxxkxkk evox xxxxxx xxxxxx xxxkxkxxkxkxkxxxkxkxkxkkk xxkxxxxxxxkxkxkxkkkkk xxxxxxxxkkxkkkkkxkkk xxxxxxkxkkkxxkxkxxkkk pene ooo poses ooo xxxxxxk xxxxxxk xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxkxx xxxxxxkxxkxxxxkxkxxkkk sooo xxxxxx xxxkxx xxxkxxkxxxkkxxkxkkkk pera xxxxxx xxxxxx xxxxxxxxkxxkxkxkkkkk xxxxxx pases boek xxxkxk xxxxxxk xxx ook xxxxxk xxxxxk xookkkx xxxxkk xoook ook xxkaxx pookxxk xxx check number payee xxxxxxkxxkxkxkxkxkkxkxx amount ek xxxxxx boek xxxxxx date xxxxxx check number xxxxxx payee xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxk xxxxxxxxxxxk xxxxxxxxxxxxk payee xxxxxkxxkxxxxx xxxxxkxkxxkxk xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxkx xxxxxxxxxxxx payee xxxxxx xxxxxx xxxxxx xxxxxx amount date xxxxxx xxxxxx xxxxxx xxxxxxk xxxxxx xxxxxx pepo yooooe sobk__xxxxxx wooo wore wep xxxxxx boor xxxxxx xxxxxx wooex wesox xxxxxx -- xxxxxx boece xxxxxx_ roo xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xoookk 000k xxx ook hook xxx xxkkkx ook ook xxaxxk amount xoo xxxxxx book xxkxxx orr xxxxxxk sox xxxxxk eoox xxxxxx orr xxxxxx woop xxxxxx boca xxxxxxk amount xxxxxx xxxxxx xxxxxx so sob jo000k epee xxxxxx date xxxxxxk xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx date xxxxxx xxxxxx xxxxxx check number xookx xxxxxx xxkxxx xxxxxx xxxxxk xxkkkx xxxkxx check number xxxxxx ook xxxxkk the percentage of xxxxxx expenses and revenues paid to these businesses are as follows form 886-a rev department of the treasury - internal_revenue_service page -7- form 886a department of the treasury - internal_revenue_service ein name of taxpayer explanation of items xxxxxx xxxxxxaxxxxkxxaxxkkxaxxkkkkxakxakkakkakk kakaxkkxkkkakkk year period ended xxkkaxaxkakk xxxxxkxxxxkakk payee xxxxxx payments xxxxxx of total expense- of total expense- payments xxxxxx xxx yo of total revenues- xxkakk yo of total revenues- xoookk xxxxxxkxxxxxxxxkak hook kxxkkxk xox xxxxxx xxxxxkxxkxkxkxkkxxkxkxkarkk kk xxxxxx xxxxxxxxxxxk xxxxxxxxxxxx xxxxxxxxxxxxxxxkkx xxxxxxxxxxxxkxxxaxxkx yokxx _ xkxxxxx xox xxxxxx xookx -_ xxxxxk kookkx_ xxxxkx wookx -_ xxxxxxk wookx --_-- xxxxxx xox hkokk xox xxxkkx kookk_ xxkxxk ook woot xxxxxx oooo ook xk xkxk yoox xkwok xoookx wook xxkkkx yoox ook xxock oooo xxxxxx hxkk kkxxkx ook oooo khookk cook hook xxokk xxxxxx x00 wook kok ikk look idx wskx wiscexx wsk axaxkk xxxxxk xookk xkkxkkk xxook 3or0k xxxxxx ook xxxxxx_- c loans the treasurer of ox states the organization received loans from its officers in the following amounts name xxxxxxxxxxax xxxxxxxxxxkk xxxxaxaxxxxxk dxxxxxxxxxxxx xxxxxxaxxxxk dxxxxxxxxxxxx xxxxxxxxaxxk xxxxxkxkakkk dx xaxkxaxxxkk xooxx loan value- additional_amount -_ end xxw00x value- oox additional loans xxxxxx thtetest accrued xxkxkk value-end xxx interest rate thvefest accured interest donated value-end xxxxkx xoorkxxkx hoorkxkkx xxoorkxxkx rook axkk kxooorkaxkk loans xroooiioo ook ook oooo kok ak xaoooor xix ook kkk iovoorooiok hook kkkk yodoqoorokik omx accured interest xxx 2ookk 000k ooo 000k ookkx 0k yok kkk yooookxk 20k ook ook 000k kkk ok ooo ik ooo ooookxxxxk -_ hocookxkxkk hook 0000okxkxk 000k xxxxx xxx wokokxxxkk -_ hoookx xk woococ0oocioxxxxk -_ oooo0kkxxxxxk ooo kikxkkkkkk -_ ocookxikkkx oooomakkkk - xkxok xxkkkk rooookaxkxk hk kxxkxk xkxookiookx oo okkxk -__xqooixxxx_oorioxk oi coiiookokxx_ foo ookkkk xooohkxxaxk -_ xxxirkxxx xoookkxxxx - hotkxkx hoodoo kxigriokkk xoirkkxk oocomdokxx xoooohdokxx - yookkk -_ xoonxxxkx xxoookaxaxk xi kxkkkkxaxk - ook xxxxx - hooohkxxxxxk oho ioaxx xhooookkxakkk xookk kiookxnxxkxkx xox xxaxk hook hokukxaxxk oooo hook kakkk xxxaxk xox hook xxxxxx wook xxx kxkxkk xoqoowxkax oooowxkxx yooopioxkxx oqcomokkx xxxxxx io jooiikxax ooihkk oodrhkkk zooorrioixx yok _yoogriokkk oiriokk __xxkkkk -_ouorrikxxk -___ooiiikxxk ll xxkkkx -__okkk ll kxkkxk __kkkxx oooh e xox filed int for interest that was not paid refused to provide additional documents about these loans as requested in idr and idr d third party contacts on xxxxxxxxxxxx _ the agent mailed third party contact letters to the ooo participants of the program asking the following questions how did you hear about this organization and what did they offer you upon the first solicitation what services did the organization provide you did the organization provide you with the names of businesses to offer your consultation services to if so did these businesses pay you please provide the names and addresses of the business they provided you with how much did you pay the organization e the agent received the following responses om xxxxxxxxxxxx __ the agent received an e-mailed letter from xxxxxxx xxxxxx stating the following she received marketing literature from xxx p xxxxxx wok asks applicants to take a test to make it look like they are selective but she later found out everyone is selected she stated form 886-a rev department of the treasury - internal_revenue_service page -8- form 886a name of taxpayer department of the treasury - internal_revenue_service explanation of items xxxxxx ein xxxxxxxxxxxxxxxxxxxxxxkkkkkkkkkkkakakkkkkkakkk hakan akan year period ended xxxxxxxkxkxkk xxxxxxxxxkxk xox held seminars representing how they help consultants get work and showed her examples of such had consulting positions open and stated applicants can earn from dollar_figure to dollar_figurexooox annually but her focus was on the lead sourcing she participated in a three-day training program where they provided her a binder with materials they went through after the course she was to receive letters sent on her behalf as an entrepreneur to targeted organizations and meetings were set up with business owners in her area who they described as having a need for business consulting after attending at least three meetings which resulted in no business the businesses made it clear that they had no understanding for the reason of the meeting in addition when attending some meetings the companies told her that they never agreed to an appointment with an advisor lastly she states the funds spent were a waste of money and the program should be investigated for its validity she paid dollar_figurexxxxxx on xxxxxxxxxxxx the agent received the following response mailed from xxxxxxxxxxxx she signed up in xxxxxxxxxxxx and participated in a three-day training course the organization developed a mailing list of additional client prospects and sent introductory letters to them over several months the protocol begins with a pro-bono introductory meeting she paid the organization xxxxxx continues to be an active member of xox and continues to have interaction with the leadership certified business advisors of the organization xxxxxx provided the list of businesses that set up appointments with and the list of business contacts provided to her by oxx on xxxxxxxxxxxx _ the agent received the following mailed response from xxxxxxxxxxxx he came across the organization on the internet while looking for a job they offered training and business leads that would facilitate starting a small business-consulting firm they provided him with a three-day training course and at least six business leads with face-to-face meetings with potential clients he paid xxxxxx dollar_figurexxxxxx on xxxxxx xxxxxx the agent received the following mailed response she answered online to become a small_business from xxxxxx consultant and was invited to attend an informational session about the program she attended a three-day training program where they provided her with the names of small_business owners that would meet with her for a free consultation mailed out letters under her name to potential clients for follow up she paid the organization dollar_figurexxxxxx om xxxxxxxxxxxx _ the agent received the following mailed response he heard about the organization from the from xxxxxxxxxxxx employment section of craig’s list describing an opportunity to leverage extensive business experience with small companies into a consulting business he attended a three-day training session and received a binder to review during training sent solicitation form 886-a rev department of the treasury - internal_revenue_service page -9- form 886a department of the treasury - internal_revenue_service ein name of taxpayer explanation of items xxxxxx xxxxxxxakkxxxxxkrxxxxxkrkxkkaxxkkx kk kkk kkkaxkakxkakkakkx kkk kkk kk year period ended xxxxxxaxkkak xxxxxxxxxxxk letters to entrepreneurs and made six appointments with businesses looking for help he paid the organization dollar_figurexxxxxx om xxxxxxxxxxxx the agent received a mailed response from stating the following he is unsure of how he found out xxxxxxxxxxxx about but initially they led him to believe they had clients he stated x did not present things in a clear manner finally he figured it out and felt scammed provided him with a training course to teach him how to present himself to prospective clients he x had no clients and provided him a database for potential states clients they also provided a marketing campaign where sent jetters and made calls on his behalf to arrange appointments with potential clients the clients were not aware that the consulting had a cost as they were told it was a pro bono consultation from a not for profit organization he paid the organization dollar_figurex0xxx om xxxxxxxxxxxx the agent received the following mailed he found x on monster com he had a response from xxxxxxx phone interview where they offered him training in starting a consulting business they also scheduled his initial appointments the calls were worthless and did not result in any income to him the leads were unqualified and did not meet the company profile requirement of having at least three employees the prospective clients had no business_interest he feels preys on unemployed businesspersons trying to generate income he never understood how they achieved approval as a non-profit corporation he paid dollar_figurexxxxxx on xxxxxxxxxxxx the agent received an e-mailed letter from stating the following he heard about through a xxxxxx posting on linkedin he participated in a three-day training program designed to teach him how to become a consultant set up eight meetings under their local business assistance program he paid dollar_figurexxxxxx e credit card purchases om xxxxxxxxxxxx the agent received xxxxxx ooox and credit card statements the signature card and credit application summoned from td bank review of the statements revealed the organization made purchases that constitute inurement department of the treasury - internal_revenue_service page -10- form 886-a rev department of the treasury - internal_revenue_service ein form 886a explanation of items xxxxxx name of taxpayer xxxxxxxxxxxxxxxxxkxkkkkkkx ak xx kkkkkkakakxkkkkkkxkxx kkk year period ended xxxaxxxxxaak xxxxxxxxxxxx i td bank credit card statements ir xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxaxxxakx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxxxaxxxxx xxxxxxaxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xixxxxxxxkkx xkxxxxkxxkkx xxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxaxk xxxaxxxxxxxxxxxxxxxxkaxaxxxxxx xxxxxxxxaxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxaxkx xxxxaxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxaaxxxakakk xxxxxxxxxxxaaxxxxaxxaaxk xxxxxxxxxaxxxxxxxxx xxxxaxxxxxxxaxxxxxxxxxakkx xxxxaxxxxxxxxkxxxxx xxxxxaxaxxxxxxaxxxk xoqoocookk rxr xxkkookrxr xxxxxxxrrxk xxxoookkkxk xxxxiot xxxkxx xxxknx xkxxkk xxxxkk xox xxkxkk xxxxxk7 yorxkkarx rat xkxxkxxkkxkk xxxxxxxxxxxx xxxxxxxxkakk xxxxxxxxxxxxxaxxakaxxxxxk xxxxxxxxxxxxxxxxkxxxaxxxaxxxxkxk xxxxxxxxxxxxxxxxxk xxxxxxxxxxxxxxxaxxx xxxxaxxxxaxxxxxaxxakx xxxxxx xxxxxxxxxkkx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxaxxxaxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxkaxxxaxxxkkk xxxxxxxxxxxxxxxxxxxxxxaxakxxkkak xxxxxxxxxxxxxxxxxx xxxxxxxxxxkxxxxxxkxxxxxkkxkxkkkk amount yok xxxxax oooo xxxxkx yooook - xxxxxx ook xxxxxx yooouk -_ xxxxxx hook xxxxkx yhoo xxxxkx yoox xaxxxk hook xxxxxk rook xxxxxx yoox xxxxkx yok xxkxxx xxkkkk yhoo xxx yoox xxxxxk yr mook xkxkkx xkxhkk kxxkxx yhoo hook axkxxx xkxkkx - xxkakk mook xxxxxx yoook - xxkakk -_axxkxk yrook xxx yooook -_xxxkxk yooookk xxxkxx prhiok--_ wow kkk -xxxxxx yookk yok xxx yoox xxx xxkkrk rokk ts law sec_1_501_c_3_-1 describes the requirements to be exempt under sec_501 sec_1_501_c_3_-1 organizational and operational tests 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 operational test-- primary activities an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 exempt purposes-- in general i an organization may be exempt as an organization described in sec_501 if it is organized and operated exclusively for one or more of the following purposes a religious b charitable form 886-a rev page -11- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein year period ended name of taxpayer explanation of items xxxxxx xxxxxxxxxkxkxk xxxxxxxxxxkk xxxxxxxxxxxxxxxxxxkxkkxxxxkxkkakkkkkaxakkxxkkkkxxxxxxxxkkkk c scientific d testing for public safety e literary f educational or g prevention of cruelty to children or animals sec_1_501_c_3_-1 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 r business bureau of washington d c v u s in the court case b supreme court heid that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university u s the in american institute for economic research v united_states f 2d ct_cl although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non- exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt ioner tcmemo_2011_123 aff'd wl appeals the u s court_of_appeals for the fifth circuit has held that whether a transaction constitutes a loan for income_tax purposes is a factual question involving several considerations and a distinguishing characteristic of a loan is the intention of the parties that the money advanced be repaid important factors considered by courts in finding a bona_fide debt are whether the promise to repay was evidenced by a note or other instrument interest was charged a fixed schedule for repayments was established collateral was given to secure payment repayments were made the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan and the parties conducted themselves as if the transaction was a loan in revrul_67_5 1967_1_cb_123 it was held that a foundation controlled by the creator's family was operated to enable the creator and his family to engage in financial activities which were beneficial to them but detrimental to the foundation it was further held that the foundation was operated for a substantial non-exempt purpose and served the private interests of the creator and his family therefore the foundation was not entitled to exemption from federal_income_tax under sec_501 in 165_f3d_1173 7th cir holds that the inurement prohibition requires an organization not to siphon its earnings to its founder or the members of its board or their families or anyone else fairly to be described as an insider that is as form 886-a rev page -12- department of the treasury - internal_revenue_service department of the treasury - internal_revenue_service _ ein x39 form 886a explanation of items year period ended name of taxpayer xxxxxxaxxxxxkkxxxxxkakkxxaxxkkaxxxxxaxxxkkxxxxaxxxxxxkkkk xxxxxx xxxxxxxxxkkxk xxxxxxxxxxxx the equivalent of an owner or manager the test is functional it looks to the reality of control rather than to the insider's place in a formal organizational chart of an organization the insider could be a mere employee or even a nominal outsider such as a physician with hospital privileges in a charitable hospital in 75_tc_127 the prohibition on inurement denies exempt status to an organization whose founders or controlling members have a personal stake in that organization's receipts in founding church of scientology supra ct_cl pincite f 2d pincite 318_f2d_632 7th cir and labrenz foundation inc v commissioner 33_tcm_1374 the payment of personal automobile expenses for private individuals was held to be prohibited inurement of earnings in order to take entertainment related expenses such as meals etc the individual must provide specific substantiation sec_274 no deduction or credit shall be allowed-- under sec_162 or sec_212 for any traveling expense including meals_and_lodging while away from home for any item with respect to an activity which is of a type generally considered to constitute entertainment amusement or recreation or with respect to a facility used in connection with such an activity for any expense for gifts or with respect to any listed_property as defined in sec_280f unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer's own statement a the amount of such expense or other item b the time and place of the travel entertainment amusement recreation or use of the facility or property or the date and description of the gift c the business_purpose of the expense or other item and d the business relationship to the taxpayer of persons entertained using the facility or property or receiving the gift the secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations this subsection shall not apply to any qualified non-personal use vehicle as defined in subsection i sec_1_162-1 business_expenses a in general business_expenses deductible from gross_income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer's trade_or_business except items which are used as the basis for a deduction or a credit under provisions of law other than sec_162 governments position is money given to the xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxxxxx income by its officers loans or gross as stated on the application_for exemption part v line 8c each of the trustees during that year gave a loan to ox for dollar_figurexxxxxxat interest the organization continued to receive loans from current prior and prospective officers as follows form 886-a rev page -13- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein explanation of items xxxxxx name of taxpayer xxxxxxxxxxxxaxaxaxxakkakaakxkkxkakakakk kkk kk kk axakxakkk year period ended xxxxxxxxxaxk xxxxxxxxxxxx nooo loan amount value- end xxxxxx additional loans aceurea interest xxxxxk value-end xxxaxx additional loans xox name interest accrued xxkxak value-end interest xxxaxk rate interest accured 2ooooc interest donated value-end xxxxxx xxkxkxxxxxkxx xxxxxxxxxkxx xxxxxxxaxxkxk xxxxxxxkxxkk xxxxxxxxxxxx xxxkxxxxxxxxx xxxxxxxxxkkk xkxxaxxxxaxakk xxxkxxaxxxxk pooorekx kkk xo k kx xqdociiokk kok kix xooocmhxkkkk xxook kkk xk hroorkxaxxk ook ooo kx kk yoocqciiooukx xoocoriooook xoocorkxxxk krxkxiookokkk ook xk xoochkx kkk xdd kxxkxx ook xxxxkk xookkk ooo ooo kkxkkx ooo xxooxkk hkxkxk xk ook foo poo ook oooo oooo xookxk hook xxxxax xxxxxk xxxxxk xxxxxx xxxxxx xxxxxx xrookxxxkk - xxxxxx xroookxaxxkk -_ xxxxxx xoookxxaxkx - xxxkxxx kaxxkk__xhokkak xxxxxxk xxxxxx ee wook akookx xxx - wocookkxxxk -- xaxxkakxkxxk xkkhkkk kxoamx kkk yoox xxxxxkx ocook kkk hxkrkx oooo xxx xxxkxk ook kkkk - hook xxxkk kk xk wook poo ak xxx wocoook hrkkxkkx ako xxxxxx yokkakkkakk - hokkk xxxxak oooo x xxx wook nok xxhok xrook - xxxkxx xxxxxx kxokk xkxxxx --_- xxkxxxx _ohkkakk_xhooo akxakk ik xxxkxx xxxxxx xxxkxx yoooorkxxxx xxx kookkxxkxx xoorrkaxk xxxxxx _xxxkxx xxxxxx rookkxxkak hocokxkxxk xox kkxkx ako xxxxk - axakaxkx kk xx xrooxkkxxakk xoqooxkkaxakk xoookaxaxkkk oourkxxxk x ak oooo hxoomkxxkk xxxkkx xrorkkxkx xrocopoookkk ook kkk xxxxxx toorak it is the government’s contention that these are not bona_fide loans although there is the existence of a promissory note there is no repayment schedule and no evidence that the organization made any attempts at collection as stated in todd v commissioner tcmemo_2011_123 aff'd wl 5th cir important factors considered by courts in finding a bona_fide debt are a fixed schedule for repayments was established repayments were whether interest was charged made the borrower had a reasonable prospect of repaying the loan and whether the parties conducted themselves as if the transaction was a loan each year reports a net_loss on form_990 showing its inability to repay the loans yet the officers continue to give the organization money the promissory note to each lender does not establish consequences to the borrower for non-payment in addition is not receiving donations from the businesses owned by its officers as stated on form_1023 instead the officers are lending money to xxxxxx the officers willingly give money each year to funnel back to their respective corporations and eventually receive interest_income the money given to by its officers is gross_income whether the contracts between and its officers constitute substantial private benefit xxx has contracts with several companies owned by its officers based on the canceled checks paid the following percentages to insider companies payee payments payments of total expense- of total expense- revenues- revenues- ot total otf total the above corporations refused to provide price lists except addition the officers of did not secure project cost quotes and or hourly rates as stated in their application_for exemption therefore fair prices for the services rendered could not be ascertained xn0x jg serving the private interests of its officers which is a credit card in form 886-a rev department of the treasury - internal_revenue_service page -14- department of the treasury - internal_revenue_service ein explanation of items xxxxxx form 886a name of taxpayer xxxxxxxxxxxxxkxaxxkxxxxkaxkkxkxxxkkxkkkkkxkxakkkkkkakkkkakkxkakakkkk year period ended xxxxxxxxxxxk xxxxxxxxxxxx do purchases made with th inurement organization’s credit card and payments to xxxxxx constitute on xxxxxxxxxxxx the agent summoned 's credit card statement from lists the following expenses that represent inurement ' the statement ’ credit card statements transaction date _ payee xxxxxx xxxxxxxxxaxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxkxxkxkxxkxx xxxxxxxxxxkx xxxxxxxxxxxx xxxxxx xxxxxx xxxxxxxxxxxx xxxxxx xxxxxxxxxxxk xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxkxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxax xxxxxxxxxxxxxxxxxxxxaxxxkkxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxkxxxxkxxk xxxxxxxxxxxxxxxxaxk xxxxxxxxxxxxxxxxkx xxxxxxxxxxxxkxxxaxxkxxaxkxkakaxk xxxxxxxxxkxxxxxxxxxxxxxkx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxkaxk xxxxxxxxxxxxkxxkxk xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxkxkxxxxxkxxxkx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxk xkxxxxxxkxxkkkxkxrxkkk xxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxkx xxxxxxxxxxxxxxxxkk xxxxxxxxxxxxaxxxxxx xxxxxxaxxxxxxxxxxxk xxxxxxxxxxxxxxxkxx xxxxxxxxxxxxkkxxkxkxxxxkxxxkxxxkx xxxxxxxxxxxxxxxxxkxkaxxxkxakakxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxkxxxxxxkkxxxakxxakk amount 700k kaxxxx foookk - xhxxxxx xxxxxx xxxxxx xox 200k xxxxxk xxxxxx xh xxxxxk axxxxx xxxxxx xxxxxx xxxxxx poor ook xxaxkk nok ricoh xxxxxk 2hook-xxxkkx 000k xkxkkx xxxkkk xxxxkx rook hoox xkxxkx --_yokkxk hook xkxkkk hook 500k kxxkkk 2k00x-xkxxxx xxxkkk mio poookk - xakxxx hook xxkkxk 2icook-xxxxxx -xxxkkk yawok 2000k -__xxxkak xxxxxx _ pook kk xxx during the initial interview the treasurer xxxxxxxxxxxx stated the organization does not own a vehicle however credit statements show gas purchases from exxonmobil and sunoco the organization did not provide any documents to show business use of any vehicle in sec_274 the organization must provide business mileage commuting mileage and other personal_use mileage as well as the total mileage for the year the organization must also specify the percentage of business use the date the vehicle was placed_in_service the use of other vehicles and after-work use the payment of personal automobile expenses for private individuals was held to be prohibited inurement of earnings in founding church of scientology supra ct_cl pincite f 2d pincite 318_f2d_632 7th cir and labrenz foundation inc v commissioner 33_tcm_1374 form 886-a rev page -15- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein explanation of items xxxxxx name of taxpayer xxxxxxxxxxxkxxxxxxxkkxxkkxkxxkxkxkkkkxkkkakxkxkkkxkxkkkkkx ikk year period ended xxxkkkxxxkkak xxxxxxxxxxxx the credit card statements also show several entertainment_expenses such as meals and hotel stays in sec_274 no deduction otherwise allowable is permitted for an item considered to be entertainment amusement or recreation unless the taxpayer establishes that the item is directly related to or associated with the active_conduct of the taxpayer's trade_or_business furthermore in sec_274 - no deduction or credit is allowed for any expense constituting entertainment unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer's own statement a the amount of such expense or other item b the time and place of the travel entertainment amusement recreation or use of the facility or property or the date and description of the gift c the business_purpose of the expense or other item and d the business relationship to the taxpayer of persons entertained using the facility or property or receiving the gift hn marshall law school and john marshall university v united_states ct_cl 81-2u s t c the court sustained the services revocation of the colleges exempt status based on inurement for such things as payment of non-business entertainment xxxxxxxxxxxx the treasurer stated the president of 00x xxxxxx purchase from sears roebuck using the wrong credit card he claimed the president reimbursed the organization again did not provide any documents to substantiate the reimbursement or the business use required under sec_162 it too constitutes inurement inadvertently made the xxxxxxk amount all current is a for-profit check number v comm'r 75_tc_127 dollar_figure ebx xxxxxx xxxxxxxxxxxx and xxxxxxxxxxxx date xxxxxx_-_xxxxxx payee xxxxxxxxxxxxxxxxxx lastly xxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxkkxxxkxxxxkxxxxxxxaxxxaxxxxx organization previously owned by xxxxxx past or previous officers or trustees of xxxxxx made a payment to xxxxxx which they would not verify as stated previously in people of god community the prohibition on inurement denies exempt status to an organization whose founders or controlling members have a personal stake in that organization's receipts should the tax-exempt status under internal_revenue_code sec_501 of xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx be revoked for failing to operate as an organization exempt under the aforementioned code section xox js not conducting the activities it stated in its original application_for exemption solicits prospective customers through advertisements and online forums such as meetup com linkedin and craig’s list these individuals pay the organization dollar_figurexxxxxx although most participants claim dollar_figurexxxxxx for leads the members attend a three-day training program to aid them in their consulting businesses members also receive several leads to prospective businesses x makes appointments with businesses for the consultants in hopes that they will retain the consultant’s services for a fee form 886-a rev page -16- in xxxxxx ooxx had the following participants in the program department of the treasury - internal_revenue_service xxxxxxxxxxxx xxxxxxxxxxxx e form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service xxxxxx ein year period ended xxxxxxkkkkiok xxxxxxxxxxxx kkxkkkxxkxxxkaxkxaxxxkakxakkkkkkkkkkkkkkkkkkkkkakkkakkkakkkkxkk w a u a n o w xxxxxx xxxxxxxxxkxxx xxxxxxxxxxxx xxxxxxxxxxxxk xxxxxx xxxxxx xxxxxxxxxxxxk all of xxxxxx participants responded to the third party request except xxxxxxxxxxxx eon provided each respondent that participated in the training program with leads to obtain prospective business in addition as stated previously ists the following in its articles of incorporation item of the articles of incorporations for the xxxxxxxxxxxxxxxxxxxxxaxx xxxxxx purposes within the meaning of sec_501 of the internal_revenue_code states its purpose as organized exclusively for charitable and educational e item of the articles state no part of the net_earnings of the corporation shall inure to the benefit of or be distributable to its members trustees officers or other private persons except the corporation shall be authorized and empowered to pay reasonable_compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in item and article of this filing e item also states notwithstanding any other provision in this filing the corporation the agent received xxxxxx written response to form 886-a sent to x on xxxxxx taxpayers position om xxxxxxxx xxxxxx the folowing is a rebuttal to xxxxxx response to form 886-a shall not carry on any other activities not permitted to be carried on a by a corporation exempt from federal_income_tax under sec_501 of the internal_revenue_code or the corresponding section of any future federal tax code or b by a corporation contributions to which are deductible under sec_170 of the internal_revenue_code or the corresponding section of any future federal tax code the organization does not operate exclusively for charitable purposes but operates in a commercial manner by conducting business as a referral service where consultants pay for leads to potential clients the net earning of jnure to the officers whose businesses receive payments for services that were not proven arm’s length transactions does carry on activities not permitted under section sec_501 and therefore its exempt status should be revoked xcox was not cooperative during this examination during field visits the treasurer xxxxxx xxxxxx_ initially refused to give the agent copies of invoices and other documents he prolonged the process by repeatedly calling the manager for what the agent feels are frivolous reasons he required the agent to complete and sign an idr each time she would request copies of documents although the agent previously issued these idr’s xxxxxx refusal to provide documents prolonged the examination process requiring the agent to visit their field location on four different occasions form 886-a rev page -17- the agent would like to state for the record department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein name of taxpayer explanation of items xxxxxx xxxxxxxxxxxxxxxxxxkkkkkkakkkkkkkkkkkkkkkakakakkkkk aaa year period ended xxxkxxxxxxxxx xxxkxxxxxxkx xox did not respond to idr’s number six and seven nor did they provide price comparisons or detailed analysis as they state xxxxxx refusal to respond to the idr’s required the agent to secure the information from the state of xxxxxx and td bank xxxxxxxxxxxx is a related_entity as the president’s wife xxxxxxx owns it xxx states the 886a inaccurately claims that loans from trustees should be considered taxable gross_income the agent is not confused about the characterization of loans revenue and accrued interest as ox states perhaps x is confused the agent has always contended that the money given to js not loans but constitutes gross_income in the form of program service revenue not contributions in todd v commissioner tcmemo_2011_123 aff'd wl 5th cir appeals the u s court_of_appeals for the fifth circuit has held that whether a transaction constitutes a loan for income_tax purposes is a factual question involving several considerations and a distinguishing characteristic of a loan is the intention of the parties that the money advanced be repaid important factors considered by courts in finding a bona_fide debt are whether the promise to repay was evidenced by a note or other instrument interest was charged a fixed schedule for repayments was established collateral was given to secure payment repayments were made the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan and the parties conducted themselves as if the transaction was a loan does not satisfy any of these factors once the agent converts xxxxxx return to a for-profit corporation and files form_1120 this money becomes taxable revenue and not paid-in-capital furthermore was not following the applicable rules as they state when they filed forms for accrued interest did not pay this interest to the trustees additionally did not provide an account showing details of payments canceled checks or wire transfers js a cash_basis taxpayer and should report interest_expense when it is paid not accrued as they did on their form_990 the agent believes xxxxxx reference to a personal detriment is the language of sec_7872 which refers to imputed_interest for below_market_loans which does not apply in this case conclusion xxxxxx ig confused e the money given to x from its trustees is not loans but gross_income xoxoxox states the 886a inaccurately claims officers received substantial private benefit by using revenue to pay expenses and by funneling loan money back to businesses owned by its officers the agent asserts o received substantial private benefit by paying corporations owned by current and former officers trustees and their spouses sec_1_501_c_3_-1 states 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 form 886-a rev page -18- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein explanation of items xxxxxx name of taxpayer xxxxkxxxxxkkkkrxxkxakaxkkkkk kkk kkk kkk kkk kk kkk kaki kk year period ended xxxxxxoookx xxxxxxxxxxxk 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 xxxx contracted with the following business owned by current and former officers trustees and their spouses business name xxxxxxxxxxxxxxxxxk xxxxxxxxxxxx xxxxxx xxxkxxxxxxxkxxxxxxkk xxxxxxxxxxxxxxxxxxxxxxkk xxxxxxaxxxxxxkaxxkxxkxxkxkxkxkxkxkkkxk business type domestic limited_liability_company foreign profit corporations foreign profit corporations domestic limited_liability_company domestic limited_liability_company foreign profit corporations principal xxxxxx xxxxxx xxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxk xox made the following payments to these corporations in xxx and xcoox respectively payee xxxxxxxxxxxxxxxxxx xxxxxkxxxxxxkxkxkxxkk xxxxxxxxkxxxxxkxxxkxx xxxxxxxxxxxxxxxkax xxxxxxxxxxxxxxxxxx xxxxxxkxxkxkxxxxxkxkxkk xxxxxxxxxxxxxxxxxx xxxxxxxkxxxxxkxkxxxxk xxxxxkxkxxkxxxkxxxkxkkk xxxxxxxxxkxkxkxkxxxkkxxk xxxxxxxkxkxkxkxkxxxkxkk amount sooner xxxxxx spogoe xxxxkx sooges xxxxxx bux axxxxx wok xxxxxx rogge xxxkxx xxxxkx poppe xxxxxk rego xxxxxx wepoe xxxxxx soya xkxxxxx date xxxxxx xxxxxxk xxxxxxk xxxxxx -- xxxxxx xxxxxxk xxxxxx xxxxxx xxxxxxk xxxxxx xxxxxxk xxkxxkxxxxxxkkxkkkkk rego xxxxxk xxxxxxk xxxxxkxxxxxxxxkxkxxxx rove xxxxxx xxxxxx xxxxxkxxxxxxkxkxkxkxk repo xxxxxx xxxxxx xxxxxkxxkxkxkxxkxxkxxkxxk oro xxxxxx xxxxxxk xxxxxkkxxkxkxkxkxxxkxk reo xxxxxx xxxxxx xxxxxxxxxxxkxxxxxxk rub xk xxxx xxxxxxk xxxxxkxxxxkxkxxkxxkk xxxxxxxxxxxxxxkxxkk mxxxxxkxxxkxxkxxkxxkxkk xxxxxxxxxxxxxxxxxx bo xxxkxk sone xxxxxx reger xxxxxx y000 xx xxxx xxxxxxk xxxxxx xxxxxx xxxxxx xxxxxxxxxxkxxxkxxkxkk ooo xxxxxx xxxxxx xxxxxxk check number pokkax axxaxk xaxxxk xokkkx hook xraxk yxxkkx xkxxkk xxxxxx xookxx xxkkxk xkxkkx axkaxkk ook xxxxax took xkxaxx yrxkkk xxxaxk xxxaxk ooo xox form 886-a rev department of the treasury - internal_revenue_service page -19- department of the treasury - internal_revenue_service form 886a ein explanation of items xxxxxx name of taxpayer xxxxxxxxxxxxxxaxxkxakkkkkkakakkxkxkkx kaka kkk ak akkkkakkxxxxxkkak year period ended xxxxxxxkkakk xxxxxxxxxxxx check amount payee date number payee amount date check number payee check number amount date form 886-a rev page -20- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service xxxxxxxxxxkkkkkkkkkkxxxxxkkkakkkkkk xk kkkkkak kk kkkkkk kkk year period ended xxxxxkakxxxk xxxxxxxxkkxx explanation of items name of taxpayer xxxxxx ein u check number payee amount date check number payee amount date check number payee amount date check number payee amount date payee check number amount date form 886-a rev page -21- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein year period ended name of taxpayer explanation of items xxxxxx xxxxxxxxxxxxxxxxxxxkxkkxxxxxkxakxxxxkkkkxxxxxxxxkakkkkx xxxxxxxkxxkkk xxxxxxxxxxxx the fact that xxxxxx officers never jointly owned businesses or received remuneration for services is irrelevant in this case the fact remains that paid its trustees corporation sec_111 of its revenues in xxxxxx and of its revenues in xx in fact documents secured from the state show that xxxxxx xxxxxx consecutive years ‘status was revoked effective xxxxxxxxxxxx for not filing its annual reports for two in revrul_67_5 1967_1_cb_123 it was held that a foundation controlled by the creator's family was operated to enable the creator and his family to engage in financial activities which were beneficial to them but detrimental to the foundation it was further held that the foundation was operated for a substantial non-exempt purpose and served the private interests of the creator and his family therefore the foundation was not entitled to exemption from federal_income_tax under sec_501 sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization must be organized and operated to serve a public rather than a private interest and specifically 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 conclusion e e the officers and related parties who contracted with received substantial private benefit from coo their personal corporations were able to use xxxxxx revenue and charge for services that were not arms length transactions as stated previously the insiders give money to because it will eventually go back to their organization for services they can also obtain interest_income xxx states the 886a inaccurately claims activities are not tax-exempt although xx received tax-exempt status in cox determination’s agent xxxxxxxx decision on forecasted information reported its exempt_activities as follows based her xx0xk community time and effort outreach programs of time and effort recognition and grant programs time and effort although states they described these programs in detail to the irs during the application process they failed to mention their major revenue producing x program on its application had they mentioned this program a for-profit endeavor the service would not have approved it conclusion e determinations agent xxxxxx based her decision on forecasted information provided by x00xx the agent based her information on facts from a full scope examination of financial data and activities form -a rev department of the treasury - internal_revenue_service page -22- department of the treasury - internal_revenue_service ein form 886a explanation of items xxxxxx name of taxpayer xxxxxxxxxxxkkxakkaxxkkaakaakkakkkakakaxxkkakakkkkkakkxkiak year period ended xaxxxxxxxaxk xxxxxxxxxxxx e and read all the agent interviewed the treasurer xxxxxxxxxxxx the president xxxxxxx documents brochures and pamphlets related to the organization therefore the agent had a thorough understanding of xxxxxx operations and based her decision on such the agent has not mistaken shifts in available program funding to mean the organization’s tax-exempt status has changed the agent is asserting xxxxxx activities are not consistent with the activities they state in their application and are not exempt xox states the 886a inaccurately claims operations are inconsistent from those presented in the application_for tax exemption primarily related to xxxxxx 00x program as stated previously the agent conducted a thorough review and examination of and its activities to understand its operations xxxxxx reported the following on form cox community time and effort xeoox provides an online community for entrepreneurs and professionals who specialize in helping entrepreneurs the community provides a welcoming and collegial environment wherein entrepreneurs can find information guidance advice tools and access to financing and support services outreach programs of time and effort a program where coordinates and sponsors outreach programs to enable such things as networking seeks out local co-sponsors and experts who are willing to lead programs make presentations provide meeting facilities supply resource material and contribute time to assist in making the outreach programs a success recognition and grant programs time and effort a program that gives grants and awards to qualified entrepreneurs and entrepreneurial organizations the percentages above are incorrect spends its time operating their ox program which is a referral service advertises on linkedin monster com craig’s list etc to businesses with the notion that they will receive help however simply uses them to compile a list of potential customers to give to consultants in the ox program to use as business leads uses this same avenue to lure consultants into its ox program for economic research v united_states in american instit although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non- exempt commercial purpose that was not incidental to the educational purpose and was not entitled to ‘be regarded as exempt 302_f_2 ct_cl conclusion xxx activities and operations are inconsistent with what they state on their application_for exemption form 886-a rev page -23- department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service xxxxxx ein xxxxxxxxxxxxxxxxkxxxxxkkkkxxxxkkxkxkk kkk kkkkrk kkk kkk akan year period ended xxxxxxkxxxkxxk xxxxxxxxxxxk vox states the 886a inaccurately claims that o operates a lead referral service based on questions she posed to x advisors xox states the agent posed leading questions to certified advisors instead of asking about xxxxxx purpose non-profit mission or tax-exempt status however the agent had a very clear understanding of the organization’s operations before contacting the program participants the treasurer insists the consultants were volunteers however the consultant never stated they were volunteers for the organization instead they say they paid the organization approximately dollar_figurexxxxxx for business leads the participants state the following on xxxxxxxxxxxx _ the agent received an e-mailed letter from xxxxxx on xxxxxxxxxxxx stating the following she received marketing literature from oo in xxxxxx xxxxxx xxx asks applicants to take a test to make it look like they are selective but she later found out everyone is selected she stated held seminars representing how they help consultants get work and showed her examples of such xx had consulting positions open and stated applicants can earn from dollar_figurexx to xxxxxx annually but her focus was on the lead sourcing she participated in a three-day training program where they provided her a binder with materials they went through after the course she was to receive letters sent on her behalf as an entrepreneur to targeted organizations and meetings were set up with business owners in her area who they described as having a need for business consulting after attending at least three meetings which resulted in no business she learned that target customers had no understanding for the reason of the meeting in addition when attending some meetings the companies told her that they never agreed to an appointment with an advisor lastly she states the funds spent were a waste of money and the program should be investigated for its validity she paid dollar_figurexxxxxx _ the agent received the following response mailed from xxxxxx xxxxxx she signed up in xxxxxxxxxxxx and participated in a three-day training course the organization developed a mailing list of additional client prospects and sent introductory letters to them over several months the protocol begins with a pro-bono introductory meeting she paid the organization xxxxxx continues to be an active member of xox and continues to have interaction with the leadership certified business advisors of the organization xxxxxx provided the list of businesses set up appointments and the list of business contacts provided to her by xox on xxxxxxxxxxxx xxxxxxxxxxkx looking for a job they offered training and business leads that would facilitate starting a small business-consulting firm they provided him with a three-day training course and at least six business leads with face-to-face meetings with potential clients he paid dollar_figurexxxxxx on xxxxxxxxxxxx xxxxxx they invited her to attend an informational session about the program she attended a three-day training program and provided her with the names of small _ the agent received the following mailed response from he came across the organization on the internet while she answered online to become a small_business consultant and _ the agent received the following mailed response from department of the treasury - internal_revenue_service form 886-a rev page -24- form 886a department of the treasury - internal_revenue_service ein year period ended name of taxpayer explanation of items xxxxxx xxxxxxxxxxxxxxxkxxxkxxxkxxxkkxxkkkxkkkxkxkakkxkkakkkkk xxxkxxxxxaxxk xxxxxxxkxxxkk business owners that would meet with her for a free consultation mailed out letters under her name to potential clients for follow up she paid the organization xxxxxx on xxxxxxxxxxxx _ the agent received the following mailed response from he heard about the organization from craig’s list in the xxxxxxxxxxxx employment offering section describing an opportunity to leverage extensive business experience with small companies into consulting business he attended a three-day training session and received a binder to review during training xxx sent solicitation letters to entrepreneurs and made six appointments with businesses looking for help he paid the organization xxxxxx on xxxxxxxxxxxx the agent received the following mailed response from stating the following he is unsure of how he found out about xxxxxxxxxxxx ooox but initially they led him to believe they had clients because they did not present things in a clear manner finally he figured it out and felt scammed xxx provided him with a training course to teach him how to present himself to prospective clients he states had no clients and provided him a database for potential clients they also provided a marketing campaign where the sent letters and calls made on his behalf to arrange appointments with potential clients the clients were not aware that the consulting had a cost as they were told it was a pro bono consultation from a not for profit organization he paid the organization xxxxxx om xxxxxxxxxxxx the agent received the following mailed response from xxxxxx he found x on monster com he had a phone interview where they offered him training in starting a consulting business and scheduling of his initial appointments by the calls were worthless and did not result in any income to him the leads were unqualified and did not meet the company profile requirement of having at least employees the prospective clients had no business_interest he feels o preys on unemployed businesspersons trying to generate income he never understood how they achieved approval as a non-profit corporation he paid ox xxxxxxx om xxxxxxxxxxxx the agent received an e-mailed letter from xxxxxx stating the following he heard about through a posting on linkedin he participated in a three-day training program designed to teach him how to become a consultant set up eight meetings under their local business assistance program he paid x xxxxxx xmox uses the guise that because the consultants offer a free consultation they are providing charitable services to businesses instead the consultants provide free consultations in hopes to gain the organizations business as stated by the above participants in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes x has an underlying commercial motive conclusion form 886-a rev department of the treasury - internal_revenue_service page -25- department of the treasury - internal_revenue_service ein form 886a explanation of items name of taxpayer xxxxxxkxkxaxxxkxkkxkxxkkxxxkxxxxkxkx xx kk kkakkkkkkkakxakxaxkkkkkk xxxxxx year period ended xxxxxxxxxxxx xxxxxxkxxxxx e the agent asked the program participants pertinent questions to ascertain the reason for the payment to and to determine their dealings with the organization the agent never asked if x0xx gave the consultants business leads to prospective clients the participants freely provided this information ex0xxx operates a lead referral service xxx states the 886a inaccurately claims has provided less support to businesses than projected xxx clearly states in its application that they will dedicate of its activities to help businesses including time and effort to recognition and grants form_1023 states recognition and grant programs time and effort they list grant projections as follows year application grants non-profit organization grants total xox continues to reiterate that providing grants to businesses helps the entrepreneurial community the agent agrees that giving money to newly started or struggling businesses is a charitable endeavor however in 00x ooo gave a dollar_figurexxxxxxx grant to xxxxxxxxxxxx xxxxxx because it was giving the money to the officer’s related_organizations these payouts are insignificant compared to the revenue earned kx did not give out the grant projections and xxxxxxxxxxxxxxxxxxaxxxxkx and in ox gave xxx each to in relation to the pro-bono advice given to businesses by professionals it is merely incidental to the professional's real cause x connected the consultants with the businesses as part of their referral service program conclusion xxxxxx business support is insignificant compared to its for profit activity as a referral service selling leads xnoox’_ states the 886a inaccurately claims revenue and expenses are not as projected on form form_1023 is an application_for exemption a projection of operations activities and their associated costs therefore being over zealous in your predictions is understandable however the agent contends it was never xxxxxx intention to give grants to businesses but to use as a conduit to divert funds back to the related parties corporations owned by officers their wives and former trustees although x states they hold online forums seminars and meetings they did not provide any evidence to substantiate their claims if does conduct such activities it is insubstantial compared form 886-a rev page -26- department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service xxxxxx ein xxxxxxxxxxxxxxxkxkkkxkkkxkakkkkkkkk ak kkk kk kkxxakkkknkkxkkkkkk year period ended xxxxxxxxxxkk xxxxxxxxxxxx to their major activity of conducting a lead referral service xxxxxx main reason for luring new businesses to their forum is to add these businesses to their list of potential leads conclusion vx jg not conducting the activities consistent with its statements on form_1023 oxox states the 886a inaccurately claims has been adversarial and that refused to provide requested information xxx has been adversarial and uncooperative beginning with the first telephone call to the organization when the agent called oox xxxxxxxxxxxxxxxx stating he was the treasurer greeted her ek xxxxxx being audited he thought not for profit organizations could not be audited was this really the irs what was i looking for was belligerent and combative he made statements such as why was the organization xxxxxx to the manager who would assure him of the need for these items xxxxxxxx subsequently during the field_examination xxxxxx requested and would not accept the agent’s explanation for its need consequently the agent would direct would continually go back and forth with refusal to provide documents and calling the manager hence prolonging the exam if _xxxxxx his behavior xxxxxx the exam ultimately xxxxxx created an idr and signed for them although the agent previously issued these idr’s actions caused the agent to visit the organization a fourth time to complete provided the agent with the documents requested only if the agent feels the agent was running behind clearly this was because of refused to give the agent documents she during the xcoox exam the agent requested the organization’s credit card statement from xxxxxx xxx gave the agent a one-page sheet that was incomplete in addition crossed out some of the purchases when the agent asked for a better copy xxxxxx replied this is all i have and all you will get because of x refusal to provide the statements the agent had to summons these statements from xxxxxxx -review of these statements revealed inurement by 00x made the following purchases constituting inurement using their xxxxxx credit card form 886-a rev page -27- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service ein -explanation of items name of taxpayer xxxxxxxkxnxxkxxxkxxkkxxkxkkxxkkxkxkkxkxkakxkxkakkxaxxakxkxxkxkn xxxxxx year period ended xxxxxxxxxkak xxxxxxxxxxxx td bank credit card statements jransaction date payee amo on xxxxxxxxxxxx the agent mailed idr to requesting explanation and source documents to verify thexxxxxx reported as paid to xxxxxx and xxxxxx reported as paid for xxxxxx ox refused to provide any information about these payments subsequently after review of the canceled checks the agent learned x paid the xxxxxx to xxxxxxxxxxxx xxxxxx currently has not accounted for the payee amount date check number a on xxxxxxxxxxxx association with the businesses they contract with and their corresponding articles of incorporation the agent also requested canceled checks verifying loan payments refused the agent secured status reports from the state of xxxxxx to verify the relationship between officers and these businesses the agent mailed idr number requesting om xxxxxxxxxxxx also the person who signed the xxxxxxxxxxxx the agent mailed idr number requesting the same information above but contract xxx refused form 886-a rev page -28- department of the treasury - internal_revenue_service department of the treasury - internal_revenue_service ein form 886a name of taxpayer explanation of items xxxxxxxxaxxxkxkxxkkkkkkkkkxxxxkxkkkkkakxxkkkkkxxxxxkkkkkx xxxxxx year period ended xxxxxxxxakak xxxxxxxxxxxx during the organization’s xx examination refused to provide a list of xox program participants and payments the agent was never running behind as stated in fact xxxxxx i were insufficient to conduct the examination because they did not cross-reference checks invoices and payments rather than have xxxxxx recreate his spreadsheet to facilitate the exam and ease sax xxxxxx to provide check numbers and invoices that the agent could verify the agent understands that feels personal attacks will bolster their cause however the agent would like to stick to the relevant facts of the case burden the agent chose samples for xxxxxx homemade spreadsheets finally the agent has never nor will ever make bullying remarks to any taxpayer conclusion e xxx substantially serves the private interest of its officers ex0oxx is not a charitable_organization under sec_501 because it conducts its activities as a trade_or_business under sec_162 xxxxxx use of its credit card for personal purchases constitutes inurement and is prohibited by an organization exempt under sec_501 xxxxxx exempt status should be revoked and the monies received from the officers should be added to revenue as gross_income xxx owes the following taxable_income for the ooox and coax tax years respectively the agent disallowed all expenses paid to the corporations owned by the officers because they are not ordinary and necessary expenses under sec_162 from 1120-tax year xxxxxx yarkik _xxxxxx _xxxxxx dollar_figure xxxxxx total income dollar_figure xxxxxx dollar_figure dollar_figure dollar_figure _xxxxxx dollar_figure xxxxxx dollar_figure gross_receipts interest erom 1120-tax year xxxxxx gross_receipts interest total expenses taxable_income charitable_contributions other deductions department of the treasury - internal_revenue_service page -29- charitable_contributions other deductions total expenses taxable_income form 886-a rev dollar_figure dollar_figure xxxxxx dollar_figure xxxxxx dollar_figure dollar_figure xxxxxx dollar_figure xxxxxx total income dollar_figure xxxxxx - xxxxxx xxoxoxxk


significant index number department of the treasury internal_revenue_service washington d c soterenannt a jun tep raz re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code section d a of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours david m ziegler manager ep actuarial group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01 plr-122179-00 date date legend x state d1 this responds to the letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law x’s shareholders intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election under sec_1362 was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made cc psi b01 plr-122179-00 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year x did not timely file an election under sec_1362 to be treated as an s_corporation effective d1 x however has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this ruling is being sent to the taxpayer’s authorized representative sincerely s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter


internal_revenue_service number release date index number -------------------- ------------------------------------ ----------------------------- ------------------------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ---------------- telephone number -------------------- refer reply to cc corp b02 plr-119105-15 date december parent ----------------------------- ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- holdco ---------------------------------------------------------------------------- ---------------------------------- sub ---------------------------------------------------------------------------- ----------------------------------------------- sub ---------------------------------------------------------------------------- ------------------------ sub ---------------------------------------------------------------------------- ----------------------------------- sub ---------------------------------------------------------------------------- ------------------------------------------------ sub ---------------------------------------------------------------------------- -------------------------------------------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------- sub ------------------------------------------------------------------------------------------------- --------------------- --------------------------------------------------------------------------------- employees ---------------------- plr-119105-15 ------------------------- ---------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------- -------------------- state a year date date date date date date a b c ------------ ------ -------------------------- -------------------------- ----------------------- ------------------------ ------------------- ------------------- -------------- ------ ---- intercompany_transaction --------------------------------------------------------------- --------------------------------------------- dear ----------- this letter responds to your request dated june submitted by your authorized representatives on behalf of parent for a ruling on certain federal_income_tax consequences of a restructuring transaction the transaction the information submitted in that request and in later correspondence is summarized below summary of facts plr-119105-15 parent is a state a corporation publicly traded and the common parent of an affiliated_group of includible corporations which join in the filing of a consolidated federal_income_tax return the parent consolidated_group holdco is a holding_company organized on date under the laws of state a and has been a member of the parent consolidated_group since inception holdco was initially formed to acquire sub since its inception holdco has had no separate business operation or assets aside from its stock in subsidiary corporations on date holdco acquired sub the sub acquisition beginning of date sub filed as part of the parent consolidated_group on date holdco acquired sub the sub acquisition sub directly owned of the issued and outstanding_stock of sub which owned of the issued and outstanding_stock of sub and of the membership interest in sub a limited_liability_company treated as a disregarded_entity for federal_income_tax purposes sub owned of the issued and outstanding_stock of sub which in turn owned of the issued and outstanding_stock of sub beginning on date sub sub sub and sub filed as part of the parent’s consolidated_group subsequent to the sub acquisition production and quality issues were identified for both sub and sub resulting in lost customers and damage to the sub and sub brands as a result value declined significantly and projections were revised downward during all tax periods including and subsequent to date holdco had no separate business operations or assets including cash aside from its stock in sub and sub and served solely as a holding_company for these subsidiaries which were engaged in certain businesses immediately prior to the restructuring defined below holdco had both voting and non-voting common_stock issued and outstanding additionally holdco had two classes of convertible preferred_stock issued and outstanding series a convertible preferred_stock and series b convertible preferred_stock immediately prior to the restructuring parent owned in the aggregate b of the vote and value of holdco the remaining c of the vote and value of holdco was owned by holdco’s management the employees who had rolled over interests as part of the sub and sub acquisitions in addition immediately prior to the restructuring sub sub and sub as co-obligors owed parent a cumulative amount approximately equal to a with holdco as a guarantor the intercompany loan agreements because holdco did not have separate cash account certain expenses_incurred by holdco were paid directly by sub and sub included in these expenses were the plr-119105-15 amounts owed by holdco to its managers employees the amounts owed by holdco and paid_by sub1 and sub were characterized and treated by holdco as dividends_paid in each of these instances the expenses were incurred by holdco sub or sub disbursed the necessary funds to holdco’s creditors in satisfaction of holdco’s liability parent submitted financial information indicating that the businesses conducted by sub sub sub and sub each has had gross_receipts and operating_expenses representative of the active trade_or_business for each of the past five years parent provided the following description of the transaction restructuring i on date holdco contributed the stock of sub to sub in exchange for no consideration on date holdco converted to a limited_liability_company pursuant to state law on date parent converted a portion of the debt owed by holdco and its subsidiaries in exchange for newly issued membership interest of holdco holdco then capitalized the debt to sub sub and sub ii iii discussion sec_165 provides taxpayers that are domestic corporations with an ordinary_loss on the worthlessness of stock in an affiliated subsidiary sec_165 sets forth two requirements a subsidiary must satisfy in order to be considered affiliated with the taxpayer paragraph a requires that stock meeting the requirements of sec_1504 be owned directly by the taxpayer paragraph b requires that more than percent of the aggregate of the subsidiary’s gross_receipts for all taxable years be from sources other than the listed passive sources which are royalties certain rents dividends interest except interest received on deferred purchase_price of operating_assets sold annuities and gains from sales or exchanges of stocks and securities revrul_88_65 1988_2_cb_32 concludes that the rents received from short term vehicle leases are not rents for purposes of sec_165 due to the significant services provided by the lessor the ruling reasons that guidance interpreting similar statutory language in sec_1244 regarding sec_1244 stock and sec_1362 regarding the passive_income limitation of s_corporations with c_corporation earnings_and_profits is relevant in construing sec_165 sec_1_1362-2 provides that royalties does not include royalties derived in the ordinary course of a trade_or_business of franchising or licensing property royalties received by a corporation are derived in the ordinary course of a trade_or_business of franchising or licensing property only if based on all the facts and circumstances the corporation -- i created the property or ii performed significant services or incurred substantial costs with respect to the development or marketing of the property plr-119105-15 representations i parent has owned more than of the vote and value of holdco within the meaning of sec_1504 since its formation on date ii holdco’s adjusted_basis in its sub shares transferred to sub pursuant to the sub contribution were greater than the fair_market_value of such property iii the intercompany loan agreements are debt instruments for u s federal iv v vi income_tax purposes immediately before the restructuring holdco’s stock was worthless within the meaning of sec_165 and sec_1_1502-80 sub and sub have historically had greater than of its gross_receipts from active sources within the meaning of sec_165 parent will claim a worthless_stock loss with respect to the stock of holdco only to the extent permitted by sec_1_1502-36 relevant to the sub contributions and each loss transfer pursuant to the holdco conversion rulings based solely on the information provided we rule as follows for purposes of the sec_165 gross_receipts_test holdco will include in its aggregate gross_receipts all amounts of gross_receipts received in intercompany_transactions that are described in sec_1_1502-13 as effective applicable on or after date intercompany_transactions and such amounts from intercompany_transactions will be treated as gross_receipts from passive sources only to the extent they are attributable to the intercompany transactions’ counterparty’s gross_receipts from passive sources look-through approach see sec_1 a b and c as effective applicable on or after date for purposes of these rulings gross_receipts from passive sources is defined as royalties other than the franchise fees described in ruling certain rents dividends other than dividends received from affiliates interest annuities and gains from sales of stock and securities as defined in sec_165 and the regulations thereunder caveats the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process plr-119105-15 except at otherwise provided herein no opinion is expressed or implied regarding the appropriate adjustments to basis under sec_1_1502-36 or the application of sec_382 to any transaction or item referenced in this letter except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion whether the taxpayer otherwise meets the requirements of sec_165 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely isaac w zimbalist senior technician reviewer branch office of the associate chief_counsel corporate cc