internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b03 plr-116822-03 date date w x y b property agreement state dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling concerning the qualifying_income exception to the publicly_traded_partnership rules of sec_7704 of the internal_revenue_code plr-116822-03 facts w is a limited_liability_company organized under the laws of state x is a publicly_traded_partnership organized under the laws of state w is treated as a partnership for federal_income_tax purposes x owns a b interest in w w is engaged in the operation and leasing of property w receives payments with respect to property under the terms of agreement from y an unrelated corporation x requests a ruling that its distributive_share of income received from w attributable to payments received under agreement is qualifying_income under sec_7704 law and analysis sec_702 provides that in determining income_tax_liability each partner shall take into account separately the partner’s distributive_share of the partnership's items of income gain loss deduction and credit to the extent provided by regulations sec_1_702-1 of the income_tax regulations provides that each partner must take into account separately the partner’s distributive_share of any partnership_item that would result in an income_tax_liability for that partner different from that which would result if that partner did not take the item into account separately sec_702 provides that the character of any item_of_income gain loss deduction or credit included in a partner's_distributive_share under sec_702 through shall be determined as if the item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership sec_7704 provides that a publicly_traded_partnership shall be treated as a corporation sec_7704 provides that sec_7701 shall not apply to any publicly_traded_partnership for any taxable_year if such partnership met the gross_income requirements of sec_7704 for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 explains that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of such partnership for such taxable_year is qualifying_income plr-116822-03 sec_7704 generally defines the term qualifying_income for purposes of sec_7704 conclusion based solely on the facts submitted and representations made we conclude that x’s distributive_share of income from w attributable to payments received under agreement is qualifying_income as defined in sec_7704 except as specifically provided no opinion is expressed or implied as to the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement of sec_7704 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours james a quinn senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court merwin k sigale petitioner v commissioner of internal revenue respondent docket no 18669-11s l filed date merwin k sigale pro_se derek p richman for respondent summary opinion guy special_trial_judge this case was heard pursuant to the provisions of sec_7463 in effect when the petition was filed pursuant to sec_7463 sec_1 unless otherwise indicated all section references are to the internal_revenue_code as amended and in effect at all relevant times all monetary continued the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case this case is an appeal from a notice_of_determination in which the internal_revenue_service office of appeals appeals_office upheld a proposed levy action to collect petitioner’s unpaid federal_income_tax liabilities for and the sole issue for decision is whether respondent’s determination to proceed with the proposed levy was an abuse_of_discretion we hold that it was not background some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this reference petitioner resided in florida at the time the petition was filed i petitioner’s history of tax delinquency petitioner is a professor at miami dade college since he has routinely failed to pay the full amounts of tax reported as due on his federal_income_tax returns in date petitioner entered into an installment_agreement with the internal_revenue_service irs in respect of his unpaid tax continued amounts are rounded to the nearest dollar liabilities for to and the installment_agreement was not made part of the record and there is no indication whether petitioner actually made any payments pursuant to the agreement in date petitioner learned that the irs had previously terminated the installment_agreement after concluding that he was in default petitioner maintains that the irs failed to properly notify him that the installment_agreement had been terminated and of his right to appeal the matter between date and date petitioner made biweekly payments of dollar_figure which the irs credited to his account for and petitioner testified that he did not direct the irs to apply the payments for a particular taxable_year as of date petitioner had fully paid his tax_liabilities for and while he still owed dollar_figure for ii petitioner’s tax_return for on date petitioner filed a tax_return for reporting tax due of dollar_figure he was credited with withholding_tax of dollar_figure and a refundable_credit of dollar_figure and he remitted dollar_figure with the return leaving a balance due of dollar_figure on date respondent assessed the tax reported on the as of date petitioner also owed dollar_figure and dollar_figure for the taxable years and respectively return an addition_to_tax for failure to timely pay the tax and statutory interest on the same date respondent sent to petitioner a notice of the balance due on date petitioner made a payment of dollar_figure for iii petitioner’s tax_return for on date petitioner filed a tax_return for reporting tax due of dollar_figure he was credited with withholding_tax of dollar_figure a refundable_credit of dollar_figure and an earlier payment of dollar_figure leaving a balance due of dollar_figure on date respondent assessed the tax reported on the return additions to tax for failure to timely pay the tax and failure to pay estimated_tax and statutory interest on the same date respondent sent to petitioner a notice of the balance due on date respondent applied an overpayment credit of dollar_figure for the taxable_year against petitioner’s unpaid tax_liability for iv collection activity for and on date respondent sent to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing for and pursuant to sec_6330 the notice informed petitioner that he owed dollar_figure for comprising accrued interest of dollar_figure and a late payment addition_to_tax of dollar_figure and the amount due for represents the sum of additional interest and a late payment addition_to_tax that accrued in respect of the unpaid tax_liability of continued dollar_figure for comprising tax due of dollar_figure accrued interest of dollar_figure and a late payment addition_to_tax of dollar_figure petitioner’s attorney steven klitzner responded to the notice by making a timely request for an administrative hearing with the appeals_office indicating that petitioner intended to propose a collection alternative in the form of an installment_agreement and or an offer-in-compromise petitioner’s case was assigned to settlement officer sandra rose so rose in memphis tennessee on date mr klitzner submitted to so rose a form 433-a collection information statement for wage earners and self- employed individuals along with supporting documentation and a cover letter requesting that the case be transferred to a local appeals_office for a face-to-face hearing petitioner reported in the form 433-a that he did not have cash or other assets that could be liquidated to pay his outstanding tax_liabilities on the other hand he reported that his gross monthly income was dollar_figure comprising wages of dollar_figure and social_security pension benefits of dollar_figure and that his monthly living_expenses totaled dollar_figure the form 433-a included an itemized schedule of petitioner’s monthly living_expenses which included entries of dollar_figure for taxes continued dollar_figure during the period date the date respondent first entered assessments for those items to date the date petitioner paid dollar_figure in satisfaction of the amounts assessed on date income and fica and dollar_figure for other secured debts and a supplemental statement which indicated that the entry for other secured debts includes irs obligation levies of dollar_figure petitioner submitted an addendum to form 433-a explaining that he had recently paid approximately dollar_figure to private nurses who were providing care for carol miller the 86-year-old mother of florence paisey his fiancee domestic partner the addendum went on to explain that ms miller had transferred some of her funds to ms paisey who in turn had transferred the funds to petitioner finally the addendum indicated that petitioner was paying dollar_figure per month to rent an apartment for ms paisey in tallahassee florida while she pursued a doctorate at florida state university petitioner acknowledged at trial that he is not married to ms paisey so rose reviewed petitioner’s financial statement and supporting documents and determined that his gross monthly wages were dollar_figure as opposed to the dollar_figure reported in form 433-a increasing his gross monthly income to dollar_figure after making some small adjustments that reduced his monthly petitioner testified at trial that he frequently has difficultly making ends meet and has borrowed large sums of money from ms miller the record does not clearly reflect how so rose computed petitioner’s continued expenses to dollar_figure so rose determined that petitioner had monthly disposable income of dollar_figure she further determined that he could make monthly installment payments of dollar_figure--an amount that would allow him to pay off his tax_liabilities for and within three years and still remain in compliance with his current tax obligations petitioner responded to so rose by insisting that he could pay no more than dollar_figure per month at mr klitzner’s request so rose consulted with her manager who confirmed that petitioner was able to pay dollar_figure per month so rose’s case activity notes state that after she informed mr klitzner of her manager’s decision he told her that the appeals_office should issue a final notice_of_determination petitioner asserted at trial that mr klitzner’s statement regarding the issuance of a notice_of_determination was merely a rhetorical comment and that he in fact continued gross monthly income of dollar_figure we do note that petitioner’s biweekly gross wages of dollar_figure from miami dade college would be the equivalent of dollar_figure a month in addition to monthly retirement benefits of dollar_figure that petitioner reported on form 433-a it appears that so rose added monthly payments of dollar_figure and dollar_figure that he received from cox enterprises and knight ridder newspapers respectively so rose increased the monthly expense for taxes on income from dollar_figure to dollar_figure and eliminated the dollar_figure monthly expense petitioner reported for irs obligation levies requested and expected to be granted a face-to-face hearing before the conclusion of the administrative_proceeding on date the appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or sustaining the proposed levy action petitioner filed a timely petition for review with the court the petition includes allegations that the proposed levy would cause petitioner financial hardship that the appeals_office had improperly denied him a face-to-face hearing and that although the irs unilaterally terminated a previous payment agreement he continued to voluntarily pay dollar_figure per month discussion sec_6331 authorizes the commissioner to levy upon property and rights to property of a taxpayer who is liable for taxes and who fails to pay those taxes within days after notice_and_demand for payment is made sec_6330 provides that the levy authorized in sec_6331 may be made only if the secretary has notified such person in writing of the right to an administrative hearing before the levy is enforced upon timely request the person is entitled to an administrative hearing before the appeals_office sec_6330 in rendering an administrative determination in a collection review proceeding under sec_6330 the appeals_office must verify that the requirements of any applicable law and administrative procedure have been met in processing the taxpayer’s case sec_6330 a the appeals_office also must consider any issues raised by the taxpayer relating to the collection action including offers of collection alternatives such as an installment_agreement appropriate spousal defenses and challenges to the appropriateness of the collection action sec_6330 b a taxpayer may challenge the existence or amount of his or her underlying tax_liability if the taxpayer did not receive a notice_of_deficiency or did not otherwise have an earlier opportunity to dispute such tax_liability sec_6330 finally the appeals_office must consider whether the collection action balances the need for efficient collection against the taxpayer’s concern that collection be no more intrusive than necessary sec_6330 sec_6330 grants this court jurisdiction to review the administrative determination made by the appeals_office if the taxpayer’s underlying tax_liability is properly in dispute the court will review the determination de novo 114_tc_176 where the underlying tax_liability is not at issue as is the case here we review the determination for abuse_of_discretion id pincite see also 114_tc_604 an abuse_of_discretion occurs if the appeals_office exercises its discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 i validity of the final notice_of_intent_to_levy petitioner contends that respondent failed to properly notify him that the installment_agreement he entered into in had been terminated citing internal_revenue_manual irm pt date petitioner argues that so long as he was denied notice and the opportunity to appeal the termination of the installment_agreement the irs was barred from proceeding with any levy action for the years in issue and the notice_of_intent_to_levy dated date is invalid we disagree the record shows that petitioner entered into an installment_agreement with the irs during in respect of his unpaid tax_liabilities for to and and that the irs terminated the agreement sometime before date assuming for the sake of argument that petitioner was not properly notified that the installment_agreement had been terminated the provisions of irm pt e generally would have barred the irs from proceeding with a levy we make no finding whether petitioner was properly notified that the installment_agreement had been terminated action in respect of petitioner’s account for the years to and while an appeal of the termination of the installment_agreement was pending or unresolved be that as it may the provisions of irm pt c and the example that follows it make it very clear that the irs was free to serve notice of a proposed levy for petitioner’s balance due years not included in the disputed installment_agreement eg and accordingly we reject petitioner’s argument that the notice_of_intent_to_levy dated date is invalid ii whether the irs properly applied petitioner’s payments as petitioner sees it after the irs demanded that he pay the balances due for and all of the payments that he submitted should have been applied against his unpaid tax_liabilities for those years and no others consistent with this theory petitioner contends that he has fully paid his tax_liabilities for and through the biweekly payments that he made between and the record reflects that from date to date petitioner made biweekly payments of dollar_figure which the irs credited to his account for and petitioner testified at trial that he did not direct the irs to apply the payments to his account for and it is well established that in the absence of direction by the taxpayer the irs can apply a payment against any outstanding tax_liability of the taxpayer see eg 808_f2d_411 5th cir on this record we conclude that respondent properly credited the payments to petitioner’s account for and petitioner also contends that respondent’s records reflect that he has paid all amounts due for we disagree although the record includes a form_4340 certificate of assessments payments and other specified matters which shows that petitioner’s balance for is zero a closer review of that transcript of account alongside other transcripts in the record shows that petitioner owes additional interest and a failure to pay addition_to_tax attributable to accruals from date the date respondent first entered assessments for those items to date the date petitioner paid dollar_figure in satisfaction of the amounts assessed on date iii whether the appeals_office abused its discretion petitioner maintains that the appeals_office abused its discretion in rejecting his proposal to make monthly installment payments of dollar_figure specifically petitioner complains that the appeals_office failed to afford him a face-to-face hearing and properly consider whether the proposed levy would cause an economic hardship sec_6159 authorizes the commissioner to enter into a written_agreement allowing a taxpayer to pay a liability in installments if the agreement will facilitate full or partial collection of such liability the decision to accept or reject installment agreements lies within the discretion of the commissioner see 140_tc_173 citing kuretski v commissioner tcmemo_2012_262 at and sec_301_6159-1 c i proced admin regs a face-to-face hearing we note at the outset that so rose’s case activity notes state that mr klitzner consented to the issuance of the notice_of_determination without a face-to-face hearing mr klitzner did not appear as a witness at trial to testify as to his conversations with so rose and we are not inclined to accept petitioner’s secondhand account of what transpired but even if mr klitzner demanded a face-to-face meeting as petitioner asserts we conclude that the appeals_office did not abuse its discretion in proceeding without one in short petitioner’s gross monthly income was at least dollar_figure comprising wages of dollar_figure and social_security pension benefits of dollar_figure giving petitioner the benefit of the doubt and assuming that his monthly living_expenses totaled dollar_figure as he reported on form 433-a he was left with dollar_figure of disposable income each month that being the case so rose’s determination that petitioner could make monthly installment payments of dollar_figure without suffering economic hardship was completely reasonable and we see no reason to question her decision to issue a final_determination without holding a face-to-face hearing b additional expenditures petitioner contends that so rose abused her discretion by failing to take into account monthly expenditures that he made for the benefit of ms paisey his domestic partner and ms miller her mother the commissioner has issued financial analysis guidelines for settlement officers to follow in determining the terms of an installment_agreement see irm financial analysis handbook administration pt dollar_figure date in evaluating a taxpayer’s ability to pay tax the commissioner classifies a taxpayer’s expenses into necessary expenses and conditional expenses 123_tc_269 the total necessary expenses establish the minimum a taxpayer and family needs to live irm pt date conditional expenses are those expenses that do not meet the necessary expense_test but which may be allowable if the tax_liability including projected accruals can be fully paid within five years schulman v commissioner tcmemo_2002_129 irm pt the guidelines state that generally when this court and other courts have held that a face-to-face hearing is not required under sec_6330 in all circumstances see eg jackson v commissioner tcmemo_2010_180 the commissioner is determining the ability to pay a taxpayer is allowed only expenses which he or she is required to pay and discretionary expenses attributable to a nonliable person are not taken into account irm pt g date we see no need to delve into the potentially murky question whether the expenditures that petitioner made on behalf of ms paisley and ms miller constitute necessary or conditional expenses as those terms are used in the irm provisions cited above assuming for the sake of argument that they qualify as one or the other we nevertheless conclude that the appeals_office did not abuse its discretion in this case as previously discussed petitioner had a substantial amount of disposable income we are convinced on this record that he had ample financial resources to make monthly installment payments of dollar_figure pay his own reasonable living_expenses and have enough funds left over to provide significant assistance to ms paisley and her mother iv conclusion consistent with the preceding discussion we hold that the appeals_office determination to proceed with the proposed levy action was not an abuse_of_discretion and the proposed levy is sustained to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uniform issue list numbers contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely holly o paz director rulings and agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person uniform issue list numbers identification_number contact number fax number employer_identification_number dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below facts you are organized as a nonprofit public benefit corporation under state law according to your articles of incorporation your purpose is to engage in any charitable purpose as that term is defined under sec_501 of the internal_revenue_code your application’s narrative description of activities states in its entirety that you will receive funds from donors and provide financial assistance to organizations that are exempt from federal_income_tax under sec_501 of the internal_revenue_code and listed in irs publication later in the application you answered no to the question of whether you will maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or distribution of funds yet later you revealed that donors will be given the option of specifying a category of charitable aid that their donations will be used for but will not be able to select any specific organization to receive their funds this statement was then contradicied a few lines later by the statement that some of the recipients will be chosen by the donors of funds to p a committee comprised of the board_of directors and unbiased advisors will select the other recipients you provided no documentation such as advertising handbooks written donor agreements to explain or illustrate the manner in which you would conduct these activities subsequent to submitting your application you sent us several letters in response to our requests for additional information in letter you discuss the purpose of your activities you say- at times individual donors may want to contribute funds toward a specific goal but may be uncertain as to what organization to contribute funds to p will undertake due diligence on specific c charitable organizations and will place such organizations into its list of approved charities donors will then specify the intended goal of their contribution and p will apply the donation to a c approved charity serving that purpose net of amounts required to meet p’s expenses for example a donor may want to contribute funds to assist homeless or battered women but may not know which organization to give to the donor could make a donation to p and request that the donation be applied to this cause p would in turn make a distribution to one of its approved c organizations serving the needs of battered or homeless women you were founded by b and c the stock of m a for-profit corporation that will operate a website which allows donors to donate to a variety of different charities including you in your application you state that b and c own the majority of in letter you explain that b and c intended originally to form just a for-profit entity m to promote charitable giving in two ways first m would reach out to the public and corporate america to provide education on the importance of charitable giving we are told that the personnel of p have experience working with charitable organizations and in the planned giving departments of corporations second m would make it easier for individuals and corporations to make charitable gifts m is establishing a website which will allow individuals and businesses to make charitable gifts to recognized c entities from a single website the goal is to establish relationships with charities which will allow donations to be made to the charities through the m website m would receive a fee inthe range of to of the amount_of_the_gift which encourages and facilitates charitable giving and furnishes funds to recognized c organizations at a cost lower than the cost they typically pay to raise funds in summary the goal of m is to operate a for profit corporation but upon further consideration b and c decided to form p to enhance the value of m- i f m has been successful in stimulating a person’s interest in charitable giving but the person is unsure who to give the funds to p will be offered as an entity which will pool the donations of multiple donors and contribute these funds to worthy organizations involved in causes selected by the donor for example i f the person wanted to support organizations helping to protect the coastline habitats endangered by the oil spill off louisiana he or she would be able to go to the m website he or she would be able to select p as the intended charity and designate the oil spill endangered habitat as the cause to which the funds are to be dedicated you explained the fee structure as follows- as indicated the fees charged to p by m will be no greater than the fees m charges to other unrelated c entities these are estimated to range from to of funds donated we believe that if unrelated c organizations are willing to pay these fees it demonstrates that the fees are reasonable and are lower than the cost to the unrelated organizations for obtaining donations from other sources we believe that funneling funds through p does serve a public rather than a private purpose because it furnishes funds to worthy organizations for a reasonable and most likely below average fundraising cost in letter you informed us that in addition to the activities described in your application letter and letter you would pursue activities related to two additional core functions-‘strategic philanthropic advising and nonprofit and philanthropy services you told us that your operating revenues would come from consulting fees charged for strategic philanthropic advising and from grants made directly to you perform the services you had previously included under the rubric of strategic philanthropic advising you described the activities encompassed by the rubric of nonprofit and philanthropy research training and awareness building as follows- in letter you said that you had decided not to p will conduct research provide training and webinars facilitate thought leaders roundtables and disseminate new thinking on the state of the nonprofit and philanthropic sectors best practices for maximizing social impact and emerging trends in the field particularly around technology and innovation that may enhance the impact of their giving and philanthropic programming target audiences include nonprofits foundations and corporate social responsibility programs interested in learning about innovations in technology and social giving activities will include webinars convenings and events designed to raise awareness on trends on the intersection of the nonprofit philanthropy and technology sectors to improve the effectiveness of those sectors overall p staff will gather information and convene experts in various fields to share their knowledge in the field with target audiences costs for such activities will be covered through conventional nonprofit grant writing and fundraising activities b and c were the sole members of your original board_of directors and your sole original officers and to remove such director and designate a replacement director in their original form your bylaws give b and c each a right to designate one director in letter you told us that you agreed to add three new members to your board_of directors who are unrelated to borc letter was accompanied by an action by unanimous written consent of board_of directors which action amended your bylaws to provide that at all times no more than of the members of the board_of directors shall have a direct or indirect financial interest in m in letter you informed us that b and c had resigned their positions as your directors and officers letter was accompanied by an action by unanimous written consent of board_of directors by which the board amended your bylaws to remove the powers of b and c each to appoint and replace a director accepted the resignations of b and c and elected a fourth member to the board in letter you told us that as ceo s of m b and c will provide services to p only insofar as p decides to contract with m for use of their technological platform in which case the fee will follow the fee scale produced above as it would for any other user of the platform earlier in the letter you said that donors giving to p through the m online or mobile tool will be charged transaction fees from depending on the size of the donation donations made to p through other mechanisms will not be charged any fee you did not explain what those other mechanisms might be to law sec_501 of the code exempts from federal income_taxation organizations described in sec_501 sec_501 describes organizations that are organized and operated exclusively for religious charitable and other specified exempt purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations states that in order to qualify under sec_501 an organization must be both organized and operated exclusively for one or more exempt purposes sec_1_501_c_3_-1 states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 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 states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirements of sec_501 it is necessary for an organization to establish that it is not 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 sec_1_501_c_3_-1 provides that the term charitable is used in sec_501 in its generally accepted legal sense and includes the relief of the poor and distressed and promotion of social welfare through charitable activities sec_508 provides that a sponsoring_organization as defined in sec_4966 shall give notice to the secretary in such manner as the secretary may provide whether such organization maintains or intends to maintain donor advised funds as defined in sec_4966 and the manner in which such organization plans to operate such funds information regarding the operation of donor advised funds is to include a description of procedures the organization intends to use to communicate to donors and donor advisors that assets held in donor advised funds are the property of the sponsoring_organization and ensure that distributions from donor advised funds do not result in more than an incidental benefit to any person see joint_committee on taxation technical explanation of h_r the pension_protection_act of pincite sec_4966 defines the term sponsoring_organization as any organization which- a is described in sec_170 other than in paragraph thereof and without regard to paragraph a thereof is not a private_foundation as defined in sec_509 and b c maintain sec_1 or more donor advised funds sec_4966 defines the term donor_advised_fund as a fund or account- which is separately identified by reference to contributions of a donor or donors i ii which is owned and controlled by a sponsoring_organization and iii with respect to which a donor or any person appointed or designated by such donor has or reasonably expects to have advisory privileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor's status as a donor revrul_67_149 1967_1_cb_133 concerns an organization formed for the purpose of providing financial assistance to several different types of organizations which are exempt under sec_501 it carries on no operations other than to receive contributions and incidental investment_income and to make distributions of income to such exempt_organizations at periodic intervals the ruling holds that the organization is exempt under sec_501 revrul_76_442 1976_2_cb_148 concerns an organization the purpose of which is to encourage individuals to donate funds to charitable organizations the primary activity of the organization is the offering of free legal services for personal tax and estate_planning to individuals who wish to make current and deferred gifts to charity as part of their overall tax and estate_planning the organization is not affiliated with any particular charitable_organization but rather encourages the client to provide for charities of personal_interest although clients are generally not indigent the organization does not require any payment for its services the ruling states that the activity of aiding individuals in their tax and estate_planning is not a charitable activity in the generally accepted legal sense the organization is providing commercially available services to those who can afford them the fact that gifts to charity are contemplated in the plans drawn up does not convert the assistance into a charitable activity or one that promotes social welfare within the meaning of sec_1_501_c_3_-1 in 326_us_279 the supreme court in considering a provision of the social_security act that exempts from the payment of social_security_taxes organizations organized and operated exclusively for educational and other exempt purposes said 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 in church by mail inc v comm’r t c memo the tax_court considered whether the petitioner was entitled to exemption under sec_501 petitioner was organized and is run by two ministers the ministers who function as petitioner's president and vice-president petitioner’s principal activity consists of mailing its literature which focuses on the ministry of one of the ministers to individuals throughout the united_states the literature is procured through an advertising agency advertising of which the ministers are the sole shareholders in addressing the question of whether the petitioner was operated to a substantial degree for the nonexempt purpose of benefiting the ministers the court rejected petitioner's argument that the reasonableness of the petitioner’s payments to advertising rather than the financial rewards to the ministers was the critical element the court countered that the element of reasonableness becomes subordinated if not irrelevant to the overriding impact of the pervasive control of those arrangements and the entities involved by the ministers and the benefits accruing to them the court concluded that petitioner had not carried its burden_of_proof that it was entitled to exempt status under sec_501 the court said that even though petitioner's avowed purpose may ultimately be exempt considering the totality of the facts - including the extent of the integration between petitioner's activities and those of its related entities and the control of those entities by the ministers - petitioner had failed to convince the court that a substantial if not principal purpose of its operations was not to generate income for the private benefit of the ministers on appeal petitioner argued in 765_f2d_1387 9th cir that its business provides only a portion of advertising’s income and that the contractual arrangements between the two demonstrate that advertising is not attempting to profit at petitioner's expense the court rejected the argument saying that the critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the petitioner in int'l postgraduate med found v comm’ t c memo the tax_court considered the question of whether the petitioner an organization that sponsors seminars and symposia in the medical field was entitled to exemption under sec_501 petitioner's program is to take physicians on tours throughout the world petitioner’s daily operations are under the control of a mr helin who is one of petitioner’s three trustees mr helin is a shareholder and the president of a for-profit travel agency h c tours petitioner used h c tours exclusively for all travel arrangements there is no evidence that petitioner solicited competitive bids from any entity other than h c tours citing church by mail v comm’r f 2d pincite for the proposition that when a for-profit organization benefits substantially from the manner in which the activities of a related_organization are carried on the later organization is not operated exclusively for exempt purposes within the meaning of sec_501 even if it furthers other exempt purposes the court concluded that the petitioner was not entitled to exemption under sec_501 the court found that a substantial purpose of petitioner's operations was to increase the income of h c tours section dollar_figure of revproc_2012_9 r b provides that exempt status may be recognized in advance of the organization's operations if the proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed a mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe all of the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures where the organization cannot demonstrate to the satisfaction of the internal_revenue_service that it qualifies for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed the service will generally issue a proposed adverse determination_letter or ruling analysis before thie service will recognize you as an organization described in sec_501 you must provide satisfactory evidence that you will be organized and operated exclusively for one or more exempt purposes sec_1_501_c_3_-1 the service will not regard you as operated exclusively for exempt purposes if it appears that more than an insubstantial part of your activities will be in furtherance of a purpose that is not an exempt_purpose sec_1_501_c_3_-1 see also better business bureau u s pincite furthermore you will not be regarded as organized and operated exclusively for exempt purposes unless you can establish that you are not organized and operated for the benefit of private interests sec_501 -1 d ii under the standards set forth in section dollar_figure of revproc_2012_9 the service will recognize your status as an exempt_organization in advance of operations only if your proposed activities are described in sufficient detail to allow us to conclude that you will be operated exclusively for exempt purposes to that end you must fully describe your activities including the standards criteria procedures and other means adopted or planned for carrying out your activities although you have been afforded several opportunities to fully describe your activities you have presented only generalities that fail to convince us that you would be operated exclusively for exempt purposes rather the information on hand while replete with contradictions tends to show that you lack an exempt_purpose and that you have a substantial non-exempt purpose of operating for the benefit of private interests lack of an exempt_purpose your application states merely that you intend to accept contributions and to distribute such contributions to charitable organizations that serve the goals of the donor while at first glance such activities bear a passing resemblance to the activity undertaken by the organization described in revrul_67_149 a closer look reveals an important distinction there the organization did nothing more than receive contributions as income and make distributions out of its income to charity there is nothing in the ruling to indicate that donors could direct the use of their contributions you on the other hand intend to make distributions at the behest of and to satisfy the personal interests of the donors of the contributions to fall within the scope of revrul_67_149 you must acquire complete control and discretion over the use of the contributions you receive such that the distributions you make to exempt_organizations are considered distributions out of your income the information you have provided is confusing and contradictory and leaves us in doubt as to how much control the donor has over the choice of the ultimate beneficiary thus you have not assured us that you do anything more than funneling funds your words from donor to charitable_organization unless you can show that you take dominion and control_over the contributions and that such funds are distributed at your complete discretion you would be similar to the organization described in revrul_76_442 which assists non-indigent donors to make charitable_contributions like that organization you would be engaged in the activity of aiding individuals in their tax planning a commercially available service that does not further charitable purposes if on the other hand you intended to imply that you exercise full dominion and control_over the contributions you have not shown how such a claim is consistent with the donor's ability to specify the intended goal of their contribution for although such an ability bears a passing resemblance to the advisory privileges accorded to donors by sec_501 organizations that sponsor donor advised funds your scant explanations of how you will conduct your activities does not show that in handling contributions you would operate in the manner of a sponsoring_organization see sec_508 whereas the sponsoring_organization of donor advised funds is required to maintain funds or accounts that are separately identified by reference to contributions of a donor or donors see sec_4966 you have not provided us with any information on how you will account for a donor's contribution you have neither provided to us nor do you appear to have any literature that describes to potential donors precisely how their contributions will be tracked and accounted for furthermore whereas the sponsoring_organization of donor advised funds is required to own and control the fund or account see sec_4966 leaving the donor with only precatory advisory privileges that are nonbinding on the sponsoring_organization see sec_4966 you have not described any procedures you intend to use to communicate to donors that their contributions are your property in the absence of a detailed description of your procedures and written documentation such as operations manuals donor handbooks and donor agreements you have not convinced us that donors do not retain control_over distributions or that you would be able to ensure that distributions would not result in more than an incidental benefit to any private person as to your other core function - nonprofit and philanthropy research training and awareness building - you have not sufficiently described the activities to be conducted thereunder - including the standards procedures and means for carrying out the activities - to allow us to conclude that such activities will be conducted in a manner that furthers an exempt_purpose on their face such activities would appear to be similar to those conducted by m and their owners therefore we are unable to conclude that you engage primarily in activities that accomplish exempt purposes presence of a substantial non-exempt purpose the information at hand leads us to believe that you function as an integral part of the business operations of m m was set up to operate a business website whereby individuals could make donations to various charitable organizations for a fee you in turn were established by m’s founders b and c to enhance the usefulness of m's website by giving visitors to the site the additional opportunity to contribute through the website to charitable organizations based on the donor's particular interest that you were created to function as an adjunct to m’s commercial fundraising activities is shown by your statement that if m has been successful in stimulating a person’s interest in charitable giving but the person is unsure who to give the funds to p will be offered furthermore your argument that you serve a public purpose is based on the premise that by funneling funds through p m will be able to furnish funds to worthy organizations for a reasonable and most likely below average fundraising cost such an argument is but another indication that you and m are parts of a joint business_enterprise your argument that conducting your activities through m serves a public purpose insofar as fundraising costs would be reasonable or below average has no basis in law mail inc t c memo the tax_court rejected a similar argument in a case involving the payment of fees by a nonprofit entity to a for-profit entity owned by the same persons who controlled the nonprofit there the court said that the element of reasonableness becomes subordinated if not irrelevant to the overriding impact of the pervasive control of the conflicted officers and the benefits accruing to them the court concluded that such facts as the extent of the integration between the nonprofit’s activities and those of the for-profit entity controlled by the same persons indicate that a substantial purpose of the nonprofit’s operations is to generate income for the private benefit of its officers in church by your activities - conceived by the owners of m with the intention that they be conducted through m's website - would result in increased revenue for m thus it would appear that you and m are engaged in an enterprise that is carried on in such a manner that m will benefit substantially from your operations see church by mail inc f 2d pincite thus like the petitioner in int'l postgraduate med found t c memo you are not entitled to exemption under sec_501 because you have a substantial non-exempt purpose of benefitting a for-profit business m although b and c have resigned from your board_of directors and you have amended your bylaws to divest them of the power to appoint directors we are unconvinced that you would not still be operated through m’s website for the private benefit of band c you and m continue to share aname in common your present directors were selected by b and c so it is unlikely in letter which was they would take any actions that are not in the interests of b and c written after b and c resigned from the board you state that as ceo s of m b and c will provide services to p only insofar as p decides to contract with m for use of their technological platform in which case the fee will follow the fee scale as it would for any other user of the platform but insofar as you were created for the purpose of complementing m’s website offerings and thereby generating additional fees for m and insofar as you make no mention of any plaiis or efforts to function independently of m we can only conclude that it is almost certain that you will contract with m conclusion you have failed to establish that you are operated exclusively for exempt purposes as required under sec_1_501_c_3_-1 or that you are not operated for the benefit of private interests as required under sec_1_501_c_3_-1 consequently you do not qualify as an organization described in sec_501 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications for more information about representation see publication practice_before_the_irs if you if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs please send your protest statement form_2848 and any supporting documents to this address if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax constitution ave n w washington dc internal_revenue_service te_ge se t eo ra t if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely holly o paz director rulings and agreements


internal_revenue_service number release date index numbers ---------------------------------------------------- ------------------------- ----------------------------------------------- ------------------------------------ ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc psi plr-121001-17 date date legend x ------------------------------------------------------------- ---------------------------------------------------- shareholders --------------------------------------------------------------- -------------------- ------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- ------------------ --------------------------------------------------------------- ------------------- --------------------------------------------------------------- ------------------ --------------------------------------------------------------- --------------------- --------------------------------------------------------------- ----------------------- -------------------------- --------------------------------------------------------------- i ------------------ plr-121001-17 agreement new agreement --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------- state date date date -------------- -------------------------- -------------------------- -------------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code code facts the information submitted states that x was incorporated under the laws of state on date and elected to be an s_corporation effective date on date x and i entered into an agreement granting equity in x to i although i received equity in x i was not entitled to the same rights to distribution and liquidation proceeds as x’s shareholders because under the agreement i would only receive proceeds upon a sale of x’s assets x represents that the equity granted to i created a second class of stock and as a result x’s s_corporation_election terminated on date once x learned that it had a second class of stock x and i cancelled the agreement and entered into a new agreement on date x represents that it intended to be an s_corporation effective date and continuously thereafter and filed all returns consistent with being an s_corporation since date in addition x and shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the commissioner with respect to the period specified by sec_1362 plr-121001-17 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 further provides that the termination shall be effective on and after the date of cessation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary sec_1_1361-1 of the income_tax regulations provides in part that a corporation is generally treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made plr-121001-17 based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively governing provisions conclusion based on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date because x had more than one class of stock as a result of its agreement with i we also conclude that such termination was inadvertent within the meaning of sec_1362 thus x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code in particular we express or imply no opinion regarding whether the new agreement creates a second class of stock this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely _mary beth carchia______________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc corp b01 postf-137227-11 uilc date date to ------------------------ senior counsel large business international from mark s jennings branch chief branch corporate third party communication none date of communication not applicable subject whether notice_2008_83 operates to exclude certain bank loans from the computation of nubig nubil for purposes of sec_382 and sec_56 this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent this chief_counsel_advice reflects our further consideration of and our current views on the issues addressed in the chief_counsel_advice dated date and date legend taxpayer target date date a b ------------------------- ------------------------------- --------------------------- --------------------------- ------------- ------------ postf-137227-11 c d issue ---------------- ---------------- whether --------------------------------------------------------------------- excludes ---------- from the computation of net_unrealized_built-in_gains nubigs and net unrealized built-in losses nubils for purposes of sec_382 and sec_56 conclusion ---------------------- does not alter the nubig nubil computation for purposes of either section but rather serves only to allow ----------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------ with regard to sec_382 taxpayer must include the -------- -------- in its nubig nubil computation with regard to sec_56 taxpayer must reduce the basis of target’s assets for purposes of the adjusted_current_earnings computation facts taxpayer is a ---------------- and the parent of a consolidated_group of corporations effective after the close of business on date taxpayer acquired target the acquisition and target became a member of taxpayer’s consolidated_group beginning with the taxable_year ending date for purposes of sec_382 taxpayer determined that target had a nubig of approximately dollar_figurea by comparing the fair_market_value of target’s assets immediately before the acquisition with the assets’ aggregate adjusted_basis at such time see sec_382 as discussed below however taxpayer computed target’s nubig based on the assumption that assets giving rise to --------------------------------------- ----------------------------------------- are to be excluded from the nubig nubil computation if such assets were included in target’s nubig nubil computation target would have a nubil in excess of dollar_figureb instead for the taxable_year ending date taxpayer determined that it had a tentative_minimum_tax of dollar_figurec which was less than its computed regular_tax_liability of dollar_figured in determining its adjusted_current_earnings ace for purposes of calculating its alternative_minimum_taxable_income amti taxpayer did not step down the basis of target’s assets pursuant to sec_56 law and analysis computation of nubig nubil for purposes of sec_382 postf-137227-11 sec_382 limits the extent to which a loss_corporation that has undergone an ownership_change may use pre-change losses to offset post-change taxable_income sec_382 governs the treatment of certain built-in gains and losses recognized with respect to assets that were held by a loss_corporation at the time of an ownership_change subparagraph h a provides that if a loss_corporation had a nubig at the time of the ownership_change the sec_382 limitation for any recognition_period_taxable_year will be increased by any recognized built-in gains rbigs for such year to the extent of nubig less rbigs for prior taxable years ending in the recognition_period conversely subparagraph h b provides that if a loss_corporation had a nubil at the time of the ownership_change the rbils for any recognition_period_taxable_year will be subject_to limitation under sec_382 in the same manner as if they were pre-change losses to the extent of nubil less rbils for prior taxable years ending in the recognition_period for these purposes the terms nubig and nubil mean with respect to any old_loss_corporation the amount by which i the fair_market_value of the assets of such corporation immediately before an ownership_change is more or less respectively than ii the aggregate adjusted_basis of such assets at such time sec_382 target was a loss_corporation that underwent an ownership_change in the acquisition thus taxpayer only may utilize target’s pre-change losses to the extent of the annual limitation calculated under sec_382 additionally if target had a nubil at the time of the acquisition then rbils for any recognition_period_taxable_year are subject_to limitation under sec_382 in the same manner as if they were pre-change losses on the other hand if target had a nubig at the time of the acquisition then the sec_382 limitation for any recognition_period_taxable_year is increased by any rbigs for such year in computing target’s nubig nubil taxpayer wholly excluded certain assets held by target at the time of the ownership_change hereafter the ---------------- that were of a type that would give rise to -------------------------------------------------------- taxpayer thus determined that target had a nubig of approximately dollar_figurea had taxpayer included the - ----------------- in the nubig nubil computation target would have had a nubil of approximately dollar_figureb instead although nothing in sec_382 or the regulations thereunder permits the ---------- to be excluded from the nubig nubil computation taxpayer takes the position that ---------------- requires nubig nubil to be computed in this manner sec_1 of ---------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- postf-137227-11 in turn sec_2 of ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- taxpayer makes two primary arguments in support of its position that ----- permits the -- ---------------- to be excluded from target’s nubig nubil computation first taxpayer contends that its position is supported by the plain language of ---------------- taxpayer observes that by its terms -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- taxpayer further notes that ---------------- is not expressly inapplicable to nubils taxpayer thus contends that ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------- requires that ----------------- not be treated as built-in or pre-change losses for any purpose under sec_382 including for purposes of computing nubig nubil taxpayer’s first argument is incorrect ---------------- does not concern the application of sec_382 in general rather as reflected in sec_1 the subject of ---------------- is ---------------------------------------------------- more specifically as stated in -------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- emphasis added a nubil is not an item of deduction or loss moreover --------------- applies to items of -------------------------- ----------------------------------------------------- whereas nubig and nubil are computed based on a hypothetical asset sale immediately before an ownership_change on its face then --------------- has no bearing on the nubig nubil computation in this vein ----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- was not meant to apply to both nubils and rbils rather this phrase was intended to ensure that ------------------------- --------------------------------------------------------------------------------------------------------------------- -------------- ---------------------------------------------------------------------------------------------------- postf-137227-11 --------------------------------------------------------------------------------------------------------------------- --------- similarly -------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ taxpayer’s argument appears to be predicated on the assumption that losses generally must be treated the same way for purposes of determining rbils and computing nubil yet such is not the case as illustrated by notice_2003_65 2003_2_cb_747 the rbil determination and the nubil computation are separate and distinct matters notice_2003_65 provides two alternative safe harbors regarding the identification of built- in items under sec_382 h -the approach and the approach loss corporations with a nubil usually apply the approach for as indicated below this approach generally yields fewer rbils than the approach the approach generally incorporates the rules of sec_1374 and sec_1 and in calculating nubig nubil and identifying rbig rbil sec_1_1374-3 generally defines nubig as the amount that would be the amount_realized if at the beginning of the first day of the recognition_period the corporation had remained a c_corporation and had sold all its assets at fair_market_value to an unrelated party that assumed all its liabilities subject_to certain adjustments in turn items of income_or_deduction generally are treated as rbigs or rbils under sec_1_1374-4 if the item would have been properly included in gross_income or properly allowed as a deduction against gross_income before the beginning of the recognition_period by an accrual-method taxpayer this difference in methods of computing nubig nubil and rbig rbil is acknowledged in the preamble to the final regulations under sec_1374 where the irs and the treasury_department declined to extend the nubig nubil hypothetical sale approach to the computation of net_recognized_built-in_gain the irs and the treasury_department reached this conclusion because the nubig nubil computation is made in the aggregate whereas the net_recognized_built-in_gain calculation involves the determination whether and to what extent an individual item is an rbig or rbil thus with respect to the latter requiring taxpayers to posit a hypothetical sale in each instance would be unduly burdensome both for taxpayers and for the irs t d 1995_1_cb_170 under notice_2003_65 both the approach and the approach utilize the hypothetical sale approach to calculating nubig or nubil-this figure is the net amount of gain_or_loss that would be recognized in a hypothetical sale of the loss corporation’s assets to a third party for fair_market_value immediately before the ownership_change but these two approaches handle rbig rbil determinations differently the approach generally identifies rbig or rbil by comparing the loss postf-137227-11 corporation’s actual items of income gain deduction and loss with those items that would result if a sec_338 election had been made for the hypothetical purchase in contrast in cases other than sales and exchanges the approach generally relies on the accrual_method of accounting to identify income_or_deduction items as rbigs or rbils respectively in other words an item properly included in income or allowed as a deduction during the recognition_period generally is considered attributable to periods before the change_date under sec_382 and thus is treated as an rbig or rbil respectively if an accrual-method taxpayer would have included the item in income or been allowed a deduction for the item before the change_date the fact that nubig and nubil are computed in the same manner under both approaches but that rbigs and rbils are identified using different methodologies reveals that these determinations are separate and distinct in applying the accrual_method the approach generally does not treat income from a built-in_gain asset during the recognition_period as rbig because such income did not accrue before the change_date for example say that lossco has a dollar_figure nubig that is attributable in part to a patent with a fair_market_value of dollar_figure and an adjusted_basis of dollar_figure in year of the recognition_period lossco has dollar_figure of gross_income attributable to royalties collected in connection with the license of the patent this income item is not treated as an rbig because the income would not have been properly taken into account before the change_date by an accrual-method taxpayer see notice_2003_65 example as this example demonstrates an asset may be included in the nubig nubil computation even if income therefrom is not treated as an rbig the approach also deviates from the accrual_method in certain respects for example the approach generally treats cancellation-of-indebtedness income cod income as an rbig if the income arises from a debt owed by the loss_corporation at the beginning of the recognition_period but only if such item_of_income is properly taken into account during the first months of the recognition_period notice_2003_65 treats any reduction of tax basis under sec_108 and sec_1017 that occurs as a result of cod income realized within this 12-month_period as having occurred immediately before the ownership_change for purposes of the sec_382 rbig rbil determination but any such basis_reduction does not affect the loss corporation's nubig or nubil under sec_382 the rbig rbil determination and the nubig nugil computation are thus separate an item_of_income or deduction may be included in or excluded from the former without affecting the latter similarly the approach under notice_2003_65 generally treats a bad_debt deduction under sec_166 as an rbil if the deduction arises from a debt owed to the loss_corporation at the beginning of the recognition_period but only if such deduction is properly taken into account during the first months of the recognition_period consequently a debt_instrument may be treated as an asset for nubig nubil purposes even though a bad_debt deduction with respect thereto will not be treated as an rbil if it properly arises after the first year of the recognition_period postf-137227-11 if taxpayer were to apply the approach to calculate target’s rbils then target’s bad_debt deductions taken into account under sec_166 more than months after the acquisition would not be treated as rbils under notice_2003_65 ------------------------ effectively extends this not rbil treatment to target’s bad_debt deductions taken into account within_12_months after the acquisition and to all sales or exchanges of target’s ---------------- as noted above the loans’ value and basis would continue to be included in target’s nubig nubil computation under the approach second taxpayer argues that the purpose of ---------------- was to ----------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------- and that excluding ------------------ from the nubig nubil computation furthers that purpose as support for its argument taxpayer cites ----------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ---------------------- based upon such language taxpayer concludes that ------------------ should be excluded from the application of sec_382 including for purposes of the nubig nubil computation because ------------------ were not readily ascertainable at the time of the acquisition yet ----------------------------- does not constitute official guidance upon which taxpayers are entitled to rely furthermore -------------- does not broadly state that ------------------ should be excluded from the nubig nubil computation under the notice instead it describes --------------- as providing on a temporary basis that --------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------ emphasis added --------------------- reference to ------------------------------------ makes clear that ------------------ --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- nothing in --------------------------------- addresses the nubig nubil computation or suggests that ---------------- altered the postf-137227-11 operation thereof thus even if excluding ------------------ from the nubig nubil computation would further the goal of --------------------------------------------- nothing in ------ ----------------------- suggests that --------------- was intended to go that far moreover whether or not ------------------ were readily ascertainable at the time of the acquisition is irrelevant to target’s nubig nubil calculation for the acquisition is governed by sec_382 sec_382 provides that i f percent or more in value of the stock of a corporation is acquired in transaction or in a series of related transactions during any 12-month_period for purposes of determining the net_unrealized_built-in_loss the fair_market_value of the assets of such corporation shall not exceed the grossed up amount_paid for such stock properly adjusted for indebtedness of the corporation and other relevant items in other words for purposes of the pertinent nubil calculation taxpayer simply needed to use the stock price for target subject_to certain adjustments nothing in ---- --------- suggests that ------------ was intended to trump or alter the application of sec_382 finally taxpayer’s approach would affect the tax treatment of items of gain and loss other than ------------------------------------------------------------------------------- in other words if a taxpayer were able to exclude ------------- from the nubig nubil computation then the taxpayer could end up with a nubig rather than a nubil such a result would be very likely in the case of financially distressed banks undergoing ownership changes as a consequence none of the taxpayer’s built-in losses-whether losses on -------------- -------- or otherwise-would be subject_to the sec_382 limitation moreover the taxpayer’s rbigs would increase the sec_382 limitation such results go well beyond --------------------------------------------- in sum -------------------- has no impact on the nubig nubil computation for purposes of sec_382 but rather ------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------- this result is consistent with the approach as applied to bad_debt deductions taken into account more than months after an ownership_change computation of nubig nubil for purposes of sec_56 for purposes of determining a corporation’s alternative_minimum_tax amt the corporation’s alternative_minimum_taxable_income amti is increased by percent of the excess if any of the corporation’s adjusted_current_earnings ace over the corporation’s amti determined without the ace_adjustment and without regard to the alternative_tax nol deduction sec_56 a corporation’s ace is equal to its amti with certain adjustments under one such adjustment a loss_corporation with a nubil that undergoes an ownership_change must reduce the basis of the corporation’s postf-137227-11 assets to their fair market values as of the date of the ownership_change more specifically sec_56 provides that if i there is an ownership_change within the meaning of sec_382 in a taxable_year beginning after with respect to any corporation and ii there is a net_unrealized_built-in_loss within the meaning of sec_382 with respect to such corporation then the adjusted_basis of each asset of such corporation immediately after the ownership_change shall be its proportionate share determined on the basis of respective fair market values of the fair_market_value of the assets of such corporation determined under sec_382 immediately before the ownership_change in calculating its ace for the taxable_year ending date taxpayer did not reduce the basis of target’s assets pursuant to sec_56 because taxpayer treated target as having a nubig rather than a nubil at the time of the ownership_change for reasons discussed above target’s ----------------- should have been included in its nubig nubil computation for regular_tax purposes and target should have been treated as having a nubil rather than a nubig on the date of the acquisition according to sec_1_56_g_-1 e xcept as otherwise provided by regulations or other guidance issued by the internal_revenue_service all internal_revenue_code provisions that apply in determining the regular taxable_income of a taxpayer also apply in determining adjusted_current_earnings moreover sec_56 quoted above explicitly follows sec_382 for purposes of determining whether there is a nubil consequently pursuant to sec_56 the basis of target’s assets should have been reduced for purposes of the ace computation case development hazards and other considerations --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- please call --------------------- if you have any further questions


internal_revenue_service number release date index number -------------------- --------------- --------------------------- -------------------------------- department of the treasury washington dc person to contact -------------------------- ---------------------- telephone number --------------------- refer reply to cc psi b05 - plr-170413-03 date apr legend legend taxpayer project date a director year -------------------------------- ----------------------------- -------------- ------------------------ ------------------------- ----------------- --------------------------- -------------------------- ----------- ------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------- ------- ------- this letter responds to your letter dated date and subsequent year dear --------- correspondence submitted on behalf of taxpayer requesting an extension of time to make an election under sec_42 of the internal_revenue_code pursuant to of the procedure and administration regulations election for project under sec_42 for the taxable_year ending on date taxpayer through the error of its external tax advisor did not make a proper section 301-9100-7t b of the temporary procedure and administration sec_42 provides that generally a new_building shall be treated as plr-170413-03 federally_subsidized for any taxable_year if at any time during such taxable_year or and prior taxable_year there is or was outstanding and obligation the interest on which is exempt from tax under sec_103 or any below market federal loan the proceeds of which are or were used directly or indirectly with respect to such building or the operation thereof sec_42 provides that a loan or tax-exempt_obligation shall not be taken into account under subparagraph a if the taxpayer elects to exclude from the eligible_basis of the building the principal_amount of any such loan and the proceeds of any such tax-exempt_obligation regulations provides that the election under sec_42 must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to by filed pursuant to sec_42 section 301-9100-7t a i provides that the election under sec_42 is irrevocable sec_42 provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes such information as the secretary may require complete the form_8609 low_income_housing_credit allocation certification and submit a copy of such form_8609 with its federal_income_tax return for each of the years in the compliance_period commissioner will use to determine whether to grant an extension of time to make an election election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-2 provides automatic extensions of time for making certain section b defines the term regulatory election as including an under sec_1_42-1 of the income_tax regulations a taxpayer is required to sections through provide the standards the no opinion is expressed or implied regarding the application of any other requests for relief under sec_301_9100-3 will be granted when the taxpayer plr-170413-03 provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted an extension of time to make the election under sec_42 for project by filing within days from the date of this letter for all affected taxable years an amended form_8609 that includes the intended election the amended form_8609 is to be filed with the service_center where taxpayer’s return is filed in addition a copy of this letter along with a copy of the form_8609 should be sent to director a copy of this letter is enclosed for this purpose by making the election for the project under sec_42 taxpayer is electing to reduce its eligible_basis by dollar_figurea accordingly taxpayer must amend its year and year federal_income_tax returns including the schedule k-1s of its partners as is necessary to reflect the proper amount of sec_42 credits provisions of the code or regulations specifically we express no opinion on whether the taxpayer’s low-income_housing project otherwise qualifies for the low-income_housing tax_credit under sec_42 provides that it may not be used or cited as precedent to taxpayer and to taxpayer’s second authorized representative enclosures cc heather c maloy associate chief_counsel passthroughs and special industries in accordance with the power_of_attorney on file a copy of this letter is being sent this ruling is directed only to the taxpayer who requested it sec_6110 copy of this letter copy for sec_6110 purposes sincerely


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-119875-01 date date number release date index number partnership a dear this letter responds to your letter dated date submitted on behalf of partnership requesting an extension of time for partnership to elect under sec_301 c of the procedure and administration regulations to be treated as an association_taxable_as_a_corporation partnership represents the following facts the partners of partnership intended that partnership be treated as a corporation effective a however due to inadvertence partnership did not file form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity may elect its classification for federal tax purposes as provided in this section an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides in general that unless it elects otherwise a domestic eligible_entity with two or more members is a partnership sec_301_7701-3 provides in general that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the applicable service_center sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of plr-119875-01 time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based on the information submitted and representations made partnership has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently partnership is granted an extension of days from the date of this letter for electing under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation effective a partnership must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election in accordance with the power_of_attorney on file with this office we are sending you the original of this letter and a copy to the taxpayer this ruling is directed only to the taxpayer on whose behalf it was requested according to sec_6110 this ruling may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely paul f kugler associate chief_counsel passthroughs and special industries