department of the treasury internal_revenue_service commerce street dallas tx tax_exempt_and_government_entities_division number release date legend org - organization name xx - date address - address date date person to contact badge number contact telephone number contact address employer_identification_number org address certified mail dear this is a final notice of adverse determination that your exempt status under sec_501 of the internal_revenue_code is revoked recognition of your exemption under internal_revenue_code sec_501 is revoked effective january 20xx for the following reason s you are not operated exclusively for an exempt_purpose as required by internal_revenue_code sec_501 you are not and have not been engaged primarily in activities which accomplish one or more exempt purposes you are not a charitable_organization within the meaning of sec_1_501_c_3_-1 rather your activities further a substantial nonexempt commercial purpose and serve private rather than public interests you have failed to produce documents to establish that you are organized and operated exclusively for exempt purposes within the meaning of sec_501 and that no part of your net_earnings inures to the benefit of private shareholders or individuals failed to keep adequate books_and_records as required by sec_6001 and sec_6033 and the regulations there under also you have in our letters dated june 20xx and september 20xx we requested information necessary to conduct an examination of your forms for the years ending december 20xx and december 20xx respectively we have not received the requested information sec_1_6033-2 of the income_tax regulations provides in part that every organization that is exempt from tax shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt status contributions to your organization are no longer deductible you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for all years beginning on or after january all the tax years thereafter in accordance with instructions of the return and for it is further determined that your failure_to_file a written appeal constitutes a failure to exhaust your available administrative remedies however if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the ninety-first 91st day after the date that this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment to secure a petition form write to the following address please understand that filing a petition for a declaratory_judgment under sec_7428 will not delay the processing of subsequent income_tax returns and assessment of any taxes due you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access you tax information and can help you get answers you can call and ask for the taxpayer_advocate assistance or you can contact the advocate from the site where this issue was determined by writing to taxpayer_advocate assistance cannot be used as substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determination nor extend the time fixed by law that you have to file a petition in court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling this letter should be kept within your permanent records if you have any questions please contact the person whose name and telephone number are shown above sincerely nanette m downing director eo examinations enclosures publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations attn a c m s sw main street ste portland or department of the treasury date date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if we issue a determination_letter to you based on technical_advice no further you may also request that we refer this matter for technical_advice as explained in publication administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final letter rev catalog number 34809f revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the f you write please provide a telephone number and the most convenient heading of this letter time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f schedule number or exhibit form 886-a rev date name of taxpayer org december 2oxx december 20xx tax identification_number year period ended ein explanations of items legend org - organization name motto - motto president - through founder sec_5 companie sec_2 president ein - ein xx - date city - city state - state event-1 through event-4 - through events president - secretary - secretary vice-president - vice president president-2 secretary-2 - secretary ra-1 ra-2 ra founder-1 through founder-5 - c001 through co-5 - through issue whether org’ sec_501 status should be revoked on the grounds that its net_earnings inured to the benefit of its president president facts org org taxpayer_identification_number ein was recognized as an organization exempt under sec_501 on march 19xx on september 2oxx the organization was issued a letter that modified the letter dated march 19xx the organization remained exempt under sec_501 but the organization was determined to be a publicly_supported_organization described in sec_509 instead of sec_509 and sec_170 governance according to the articles of incorporation org was incorporated on july 19xx as the co-1 amended articles were filed on july 2oxx to change the name of the organization to org the officers listed on the state’s department of commerce consumer affairs website are president president vice-president vice-president treasurer and secretary secretary the organization's articles provide that the purpose of the organization is for the lawful purpose to provide education information and personal assistance to parents of minor's teachers public officials and approximately mottos of these more than are elementary and secondary school children that reside in the county of city at a minimum or no cost org filed form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code on november 19xx in part il of the form_1023 org described their intended activities as follows and seizure-prone children to exchange ideas to sponsor seminars and other educational events where the foundation can give lectures and conduct study sessions on listen to health care providers suggest solutions and implement strategies to protect children in public and private environments to maintain a neurological physician's referral listing containing patient evaluation of physicians practicing in city and the state of state to publish a monthly newsletter containing information on current research and motto health issues to establish a clinic in city specializing in neurological neurosurgery research to serve the ever-growing and existing children and the over three thousand adult mottos that currently reside in city county form 886-a catalog number 20810w page_4 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer org december 2oxx december 20xx tax identification_number year period ended ein explanations of item sec_5 to expand and re-define the foundation’s educational programs that deal with instructions to teachers parents and public officials on how to detect a child or adult who is having an motto seizure what action the teacher and or parent or public official should or should take or not take in order to save the person's life to maintain a 24-hour hotline available to everyone for emergency epilepsy treatment and advice and a 24-hour mobile unit for hands on counseling and care for parents loved ones teachers and public officials president co-founded org along with his mother founder-2 the organization provided that its board_of directors for 20xx consisted of president president-2 secretary secretary-2 founder-3 founder-4 founder-5 founder-2 president was listed as the ceo president also provided that director founder-2 passed away march 2oxx the organization held a board meeting on march 2oxx where it was decided to move forward with the production of a video video to be produced the next documented board meeting was held on july 2oxx the meeting discussed which bank the organization would be using and new board members no other business was discussed these are the only minutes provided by the organization form_990 for the tax_year ended december 20xx and december 20xx the organization filed form n electronic notice stating that their revenue was less than dollar_figure during the examination it was determined that the organization income was above dollar_figure and that the organization should have filed a form_990 or 990-ez for each year on october 2oxx org provided form 990-ez for the year ended december 2oxx to date org has not provided a form_990 or 990-ez for the tax period ended december 2oxx the following revenues and expenditures were reported on the 2oxx return revenue contributions gifts grants and similar amounts received gross amount from sale of assets other than inventory total revenue expenses professional fees and other_payments to independent contractors occupancy rent utilities and maintenance printing publication postage and shipping travel meals and entertainment conferences conventions and meetings depreciation depletion etc supplies telephone auto expenses bank charge charitable_contributions form 886-a catalog number 20810w page _2 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items name of taxpayer december 20xx december 20xx tax identification_number org ein year period ended form 886-a rev date cleaning internet expense liability insurance office supply repairs service charge student shelter fee subscriptions training training materials total expenses the following items were reported on the balance_sheet of the form 990-ez for 2oxx beginning of year end of year assets cash savings and investments computer printer desk office furniture owners capital automobile total assets total liabilities net assets or fund balances bank records the records from the organization’s checking account were obtained from co-2 for the 2oxx tax period the following provides a summary by month of the deposits and withdrawals from the account co-2 business checking 2oxx deposits interest checks fees balance bank name account number account title year ending beginning balance january 2oxx february 2oxx march 20xx april 2oxx form 886-a catalog number 20810w - page_3 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended december 2oxx december 2oxx org ein may 20xx june 2o0xx july 20xx august 20xx september 2o0xx october 2oxx november 2oxx december 20xx totals ending balance exhibit a provides a list of transaction that were present in the co-2 records but that the organization exhibit b provides a list of transactions did not include on the form_990 or in the profit and loss detail per revenue and expense category as provided by org org did not provide any documentation to show whether the expenses were business related or personal expenses of the president for the 2oxx tax period bank records were obtained from co-2 and co-3 the organization's bank records only show transactions between july 2oxx through december 2oxx no further bank records were available from the two banks used by the organization the only transactions provided by co-2 were the banks closing of the organization's account in january 2oxx there were no transactions made by the organization during the period the following provides a summary by month of the deposits and withdrawals from the accounts bank name account title year ending co-3 checking 2oxx deposits interest checks fees balance beginning balance january 2oxx february 2oxx march 20xx april 2oxx may 2o0xx june 20xx july 2oxx august 20xx september 20xx october 2oxx november 20xx december 20xx totals bank name co-3 form 886-a catalog number 20810w page_ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer december 2oxx december 2oxx tax identification_number year period ended org ein explanations of items account title year ending saving sec_12 2oxx deposits interest checks fees balance beginning balance january 2oxx february 20xx march 2oxx april 2oxx may 20xx june 2oxx july 20xx august 20xx september 20xx october 2oxx november 20xx december 20xx totals below shows the deposits and withdrawals less the transfers between the checking and savings accounts during the 2oxx year deposits interest withdrawals fees checking savings total less transfers total less transfers between accounts exhibit c provides a list of transactions from co-3 as summarized above org did not provide any documentation to show whether the expenses were business related or personal expenses of the president activities the organization was operated out of the home of president and his mother founder-2 the form_990 reported dollar_figure compensation to president and no forms w-2 or 1099-misc were issued to president for compensation according to president the activities of the organization consist of providing free and first aid training to government agencies schools and corporations on the island of city the organization only provided documentation for the following events during the period beginning january 2oxx through december 2oxx awareness form 886-a catalog number 20810w page _5 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer december 2oxx december 2o0xx tax identification_number year period ended org ein explanations of items date june 20xx february 20xx february 20xx january 20xx correspondence event event-1 event-2 event-3 event-4 location city state city state location not provided city state in correspondence received on october 20xx president provided that he did not maintain a separate bank account between all org business and his personal financial activities he also provided that some deposits were from his social_security checks and his mother's pension checks and that they both withdrew and deposited money for personal_use additional information was requested from the organization on march 2oxx president provided partial responses in two separate correspondences response to the march 2oxx request for information which provided the following on march 2oxx president provided the first a b c d e f g h i the organization has a checking account at co-4 the bank statements deposit items and cancelled checks were not provided as requested assets sold by the organization during the 2oxx tax period were furniture items donated by co-5 the organization only had one debit card issued for their account at co-2 the name on the card was org and president was the only authorized user of the card the discrepancy between the ending balance on the bank statements pincite 2oxx and the organization’s balance_sheet for the same period was due to the organization closing their account at co-2 and transferring the funds to a new bank for the balance_sheet account owner withdrawal was meant to depict the authorized signer’ president the organization did not provide details of the transactions in the account as requested the organization provided that the automobile owned by the organization during 2oxx was used exclusively for organization business by the staff the automobile was a 19xx toyota which was junked due to non-function no other information was available about the automobile due to records being lost because of a computer crash president provided that all checks written to ra-1 were for rent and security deposit of living facility including temporary office space with his home he also provided that check which was for dollar_figure included dollar_figure to replace lost keys payments made to ra-2 to escort an motto student to classes at the university of state city campus because the instructor would not let the individual attend classes without an escort president provided that no personal income or expenses was incorporated or utilized with the form 886-a catalog number 20810w page _6 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended december 2oxx december 20xx org ein org account he provided the founder-2 was a contributor and signer on the bank account and that she donated a portion of her retirement checks on march 2oxx president provided additional information in response to the request dated march 2oxx the following information was provided a b president provided that he was sending information relating to a bank account at co-4 but there was no records attached or included with the response president also provided bank records for transfers between the organization bank account and his personal account this included records from president’s personal savings account at co-2 from february 2oxx through december 2oxx additional requests for information were sent to the organization on may 2oxx and september 2oxx to date no information has been provided by the organization in response to the letters law internal_revenue_code sec_501 of the code exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_6043 of the code provides that every organization which for any of its last taxable years preceding its liquidation dissolution termination or substantial_contraction was exempt from taxation under sec_501 shall file such return and other information with respect to such liquidation dissolution termination or substantial_contraction as the secretary shall by forms or regulations prescribe income_tax regulations regulations form 886-a catalog number 20810w page _7 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date december 20xx december 2oxx explanations of items tax identification_number year period ended name of taxpayer org ein sec_1_501_c_3_-1 of the regulations provide that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized however an organization does not meet the organizational_test if its articles or the law of the state in which it was created provide that its assets would upon dissolution be distributed to its members or shareholders sec_1_6001-1 of the regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 of the code and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 of the regulations states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 section sec_1_6033-2 of the regulations provides that an organization which is exempt from taxation under sec_501 and is not required to file annually an information_return required by this section shall immediately notify in writing the district_director for the internal_revenue_district in which its principal office is located of any changes in its character operations or purpose for which it was originally created section sec_1_6033-2 of the regulations provides that every organization which is exempt from tax whether or not it is required to file an annual information_return shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt status and administering the provisions of subchapter_f sec_501 and following chapter of subtitle a of the code sec_6033 and chapter of subtitle d of the code section sec_1_6033-2 of the regulations provides that an organization which has established its exemption from taxation under sec_501 including an organization which is relieved under sec_6033 and this section from filing annual returns of information is not relieved of the duty_of filing other returns of information sec_501 of the code exempts from federal_income_tax organizations organized and operated exclusively for charitable educational and other exempt purposes provided that no part of the department of the treasury-internal revenue service form 886-a catalog number 20810w -_publish no irs gov page_8 schedule number or exhibit name of taxpayer form 886-a rev date december 20xx december 2oxx org organization's net_earnings inures to the benefit of any private_shareholder_or_individual explanations of items tax identification_number year period ended ein sec_1_501_a_-1 of the regulations defines the words private_shareholder_or_individual in sec_501 refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section sec_1_501_c_3_-1 of the regulations provides that an organization will not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes the promotion of education the presence of a single substantial nonexempt purpose can destroy the exemption regardless of the number or importance of exempt purposes 326_us_279 90_led_67 66_sct_112 am campaign acad v commissioner 92_tc_1053 see also old dominion box co inc v united_states f2d cir cert_denied 413_us_910 operating for the benefit of private parties who are not members of a charitable_class constitutes a substantial nonexempt purpose when an organization operates for the benefit of private interests such as designated individuals the creator or his family or persons directly or indirectly controlled by such private interests the organization by definition does not operate exclusively for exempt purposes am campaign acad v commissioner supra pincite6 in revrul_81_94 1981_1_cb_330 provided that a church that was formed by a professional nurse who is also the church’s minister director and principal officer and that is used primarily as a vehicle for handling the nurse’s personal financial transactions is not exempt from tax under sec_501 of the code in revrul_69_266 1969_1_cb_151 an organization formed and controlled by a doctor of medicine hired to conduct research programs consisting of examining and treating patients who are charged the prevailing fees for services rendered is not exempt under sec_501 of the code in revrul_71_395 1971_2_cb_228 a cooperative art gallery was formed by a group of artists to exhibit and sell their works additional artists were admitted to membership only on approval of existing members all works displayed at the gallery could be purchased by the public and many could also be rented the gallery retained a commission from the sales and rentals to cover its cost of operation in concluding that the art gallery was not entitled to recognition of exempt status the ruling emphasized that the gallery was a vehicle for advancing the careers of its members and for promoting the sale of their work as such it form 886-a catalog number 20810w page_q publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended org serves the private purposes of its members even though the exhibition and sale of paintings may be an educational activity in other respects ein december 20xx december 2oxx in revrul_76_152 1976_1_cb_151 a group of art patrons formed an organization to promote community understanding of modern art trends its sole activity was the selection of modern art works of local artists for exhibition and for possible sale at its gallery which was open to the public a modern art work of any local artist was eligible for consideration for exhibition and if selected the artist's work was displayed on a consignment basis with the artist setting the selling_price the artists had no control_over the organization or its selection process the organization kept a ten percent commission on sales on these facts the service ruled as in revrul_71_395 that the artists were being directly benefited by the exhibition and sale of their works with the result that a major activity of the organization was serving the private interests of those artists whose works were displayed court cases in john marshall law school v the united_states wl it was held that the organization was not exempt under sec_501 of the code on the grounds that a portion of their net earning had inured to the benefit of theo fenster martin fenster and their families payments had been made on behalf of or for the benefit of the fenster families payment included items for automobile educational and travel_expenses insurance policies basketball and hockey tickets membership in a private eating establishment membership in a health spa interest-free loans home repairs personal household furnishings and appliances and golfing equipment in 670_f2d_104 the organization was denied exempt status under sec_501 because it could not show that no part of its net_income inured to the benefit of private individuals the organization was controlled by members of the harbert’s family and a substantial amount of the organization’s net_income was paid for the benefit of the harbert family the organization did not provide evidence which showed that the income did not inure to the benefit of the harbert family in kenner v c i r tcmemo_1961_37 and affirmed by 318_f2d_632 it was determined that kenner charitable hospital was not exempt from corporate income taxes under sec_501 because it could not show that no part of its net_earnings inured to the benefit of private individuals the organization was founded and controlled by william kenner and members of his family and private uses not related to the operation of the organization although testimony given by mr kenner provided that money paid on his behalf was repayment for loans the court determined that the testimony was not adequate to refute the argument and evidence that the payments inured to the benefit of mr kenner it was shown that substantial amounts were paid to or on the behalf of mr kenner for personal taxpayer’s position the agent has tried to make contact with the taxpayer to determine their position but has not been able to reach the taxpayer since april 2oxx government’s position form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number org as provided in sec_501 of the code for an organization to be tax exempt no part of its net_earnings may inure to the benefit of any private_shareholder_or_individual sec_1_501_a_-1 of the regulations provides that the words ‘private shareholder or individual’ in sec_501 of the irc refer to persons having a personal and private interest in the activities of the organization ein year period ended december 2oxx december 2oxx president being the executive director president and the dominant individual controlling the affairs of org is a ‘private shareholder or individual’ within the intent of those terms the following is a discussion of items determined to be inuring to the benefit of president and or members of his family payments were made from the organization’s checking account directly to president as well as for expenses that were not documented as being business related expenses president provided in a letter received by the irs on october 2oxx that personal expenses were paid out of the organization's bank account also in correspondence dated march 2oxx president provided that he was the only individual that used and had access to the organization’s debit card connected to their checking account attached in exhibit c are a list of checks made out to president as well as atm withdrawals and other personal expenses paid using the organization debit card or by check below is a total of the funds provided to or on behalf of president tax_year ended checks to president payments on behalf of president total 20xx 20xx since president provided that he was the only individual with use of the organization’s debit card all transactions that appear to be personal in nature or withdrawn from an atm using the card are considered attributable to him additionally all withdrawals from co-3 are considered attributable to president because he was the only signer on the account during the period beginning july 2oxx through december 2oxx when the transactions occurred neither president nor the organization has provided sufficient documentation to show that any of the funds were used for business purposes of the organization for the tax period ended december 2oxx the organization had revenues of dollar_figure based on the analysis of the organization’s bank records this amount is more that the dollar_figure reported on the form_990 filed by the organization it is determined that dollar_figure was paid to president or for the benefit of president the amount of funds benefitting president during the period was of the total revenues received by the organization for the tax period ended december 2oxx the organization had revenues of dollar_figure based on the analysis of the organization’s bank records the organization filed form 990-n for this period reporting it is determined that dollar_figure was paid to president or for the benefit that their gross_income was less than dollar_figure of president the amount of funds benefitting president during the period was of the total revenues received by the organization substantially_all of the revenues received in the name of org during the period of january 2oxx through december 2oxx inured to the benefit of president no documentation has been received to show that the funds furthered the organization’s exempt purposes sec_501 requires that for an organization to be tax exempt no part of its net_earnings may inure to the benefit of any form 886-a catalog number 20810w page__11 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit name of taxpayer explanations of items form 886-a rev date december 20xx december 2oxx org private_shareholder_or_individual org does not meet the requirements for exempt status under that code section tax identification_number year period ended ein conclusion to be an exempt_organization under sec_501 no part of the organization’s net_earnings may inure to the benefit of any private_shareholder_or_individual since it is clearly evident that a substantial part of org’ revenues inured to the benefit of president org does not meet the requirements under sec_501 and the corresponding regulations based on the above analysis the tax-exempt status of org should be revoked effective january 2oxx forms should be filed for all tax periods ending after january 2oxx form 886-a catalog number 20810w page _publish no irs gov department of the treasury-internal revenue service


internal_revenue_service index number number release date cc dom p si plr-106840-99 legend x dear this responds to your date letter on behalf of your client x in which you request a ruling whether x is liable for the tax imposed by sec_4081 of the internal_revenue_code on the sale or removal of racing fuels or from x’s blending facility x operates a facility where it produces fuel that is used in race vehicles at race tracks throughout the world the facility is not within the bulk_transfer_terminal_system ingredients in x’s fuels include finished gasoline gasoline_blendstocks and other liquids that are not taxable_fuel racing fuels are fuels that have an octane rating of or higher and that contain between gram of lead per gallon to grams of lead per gallon these fuels do not have detergent additives that the environmental protection agency epa requires for gasoline also these fuels do not meet the astm specification d for gasoline the vehicles in which these fuels are used generally are not eligible to be registered for highway use in any state these fuels are not diesel_fuel kerosene or a gasoline blendstock racing fuels are fuels that are unleaded and meet the astm specification d for gasoline as well epa requirements for gasoline although most of racing fuels are sold for use in race vehicles that are not registered for highway use the fuels are available for consumer use in registered highway vehicles racing fuels contain greater than percent methanol this methanol is produced from natural_gas these fuels do not meet the astm specification d for gasoline sec_4081 imposes a tax on certain removals entries and sales of taxable_fuel under sec_48_4081-3 of the manufacturers and retailers excise_tax regulations tax is imposed on the removal or sale of blended taxable_fuel by the blender thereof the blender is liable for this tax sec_48_4081-1 provides that blended taxable_fuel generally means any taxable_fuel that is produced outside the bulk_transfer_terminal_system by mixing taxable_fuel with respect to which tax has been imposed under sec_4081 and any other liquid on which tax has not been imposed under sec_4081 sec_4083 provides that taxable_fuel means gasoline diesel_fuel and kerosene sec_48_4081-1 provides that gasoline means finished gasoline and gasoline_blendstocks sec_48_4081-1 provides that finished gasoline means all products that are commonly or commercially known or sold as gasoline and are suitable for use as a motor fuel other than products that have an astm octane number of less than as determined by the motor method sec_48_4081-1 lists the products that are considered gasoline_blendstocks sec_4041 imposes a tax on any liquid other than gas oil fuel oil or any product taxable under sec_4081 that is sold for use or used as a fuel in a motor_vehicle or motorboat sec_4041 provides a special rate_of_tax under sec_4041 for partially exempt methanol or ethanol fuels these fuels are liquids at least percent of which consists of methanol ethanol or other alcohol produced from natural_gas under sec_48_4041-5 the seller is liable for the tax imposed by sec_4041 if the seller delivers the fuel into the fuel supply tank of a motor_vehicle or motorboat or delivers the fuel into a bulk supply tank and the buyer furnishes the seller by the time of sale a written_statement that the entire quantity of fuel will be used for a taxable purpose u s c prohibits the sale of gasoline for use as fuel in a motor_vehicle if the gasoline does not contain additives to prevent the accumulation of deposits in engines or if the gasoline contains lead subsection l or contains lead or lead additives subsection n for this purpose motor_vehicle means any self-propelled vehicle designed for transporting persons or property on a street or highway in 911_f2d_1036 5th cir the court held that particular petroleum products were commonly or commercially known or sold as gasoline for purposes of a regulation of the environmental protection agency the court based its holding on the fact that the products met the astm specification for gasoline however the court also noted that as the specification itself admits the specification does not necessarily include all types of gasoline that are satisfactory for automotive engines nor does it necessarily exclude gasolines that may perform unsatisfactorily racing fuels do not meet the astm specification for gasoline in addition these fuels contain lead and do not meet other prescribed standards for gasoline that is commercially sold for use in registered highway vehicles thus racing fuels are not gasoline racing fuels meet the astm specification for gasoline in addition they are used as a fuel in registered highway vehicles thus racing fuels are gasoline racing fuels do not meet the astm specification for gasoline also they are described as a special_motor_fuel in sec_4041 thus racing fuels are not gasoline accordingly x is not liable for the tax imposed by sec_4081 on the sale or removal of racing fuels or because the products are not gasoline diesel_fuel or kerosene x would be liable for the tax imposed by sec_4041 on its sale of the fuels only if it delivered the fuels into the fuel supply tank of a motor_vehicle or motorboat or if it delivered the fuels into its buyer’s bulk tanks and its buyer furnishes x by the time of sale a written_statement that the entire quantity of fuel will be used for a taxable purpose because racing fuels are gasoline x is liable for the tax imposed by sec_4081 on its sale or removal of the fuel this ruling is directed only to the taxpayer who requested it sec_6110 provides that it shall not be used or cited as precedent sincerely assistant chief_counsel passthroughs and special industries by _________________________ richard a kocak chief branch enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------ --------------------- ------------------------------- re ------------------------------- 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 b04 plr-127647-15 date date legend decedent date spouse date ---------------------------------------------------------- --------------------------- ----------------------------------- ---------------------------- dear ----------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime plr-127647-15 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-127647-15 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may 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 taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-127647-15 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-127647-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service number release date index number --------------------------- ---------------------------------------------- --------------------------------------------------- ------------------ ----------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc ita b07 plr-129969-08 date date request for private letter regarding proper treatment of nuclear decommissioning liability in sale of electric cooperative’s nuclear generating facility ownership_interest and proper allocation between member and nonmember of electric cooperative’s sec_1245 depreciation_recapture legend ---------------------------------------------------- taxpayer ------------------------------------------------------ state a b c d e f g h i j k l dollar_figurem n dollar_figureo dollar_figurep q r dollar_figures t -------------------- ------- ------- ---------------------------------------------------------------------- ------- -------- --------------------------------- -------- ------- --- ---------------------------------------------------- ------ ------- -------------------- ------- ------------------ ----------------- ---------------------------------------- -------------------------------------- ---------------- ------- plr-129969-08 ---------------- ------- ------- --------------------------- ------------------------------- --------------------------- --------------------------------------------------------------------------------------- dollar_figureu v w x y z aa ----------------------------------------------------------------------------------------------------------- bb dollar_figurecc dd ee ff ------------------ ----------------- --------------------------- ------- -------- dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting a letter_ruling on the proper treatment of taxpayer’s nuclear decommissioning liability in the computation of taxable_income resulting from a sale of its undivided ownership_interest in a nuclear generating facility and the proper allocation of depreciation_recapture under sec_1245 of the internal_revenue_code between members and nonmembers of taxpayer facts taxpayer represents that the facts are as follows taxpayer a member-owned k electric cooperative was formed in a and first granted income_tax exemption under sec_501 of the code shortly thereafter taxpayer remained tax exempt until b when taxpayer failed to satisfy the percent member sales income test requirement of sec_501 in b and all subsequent years taxpayer failed to satisfy the income test because of nonmember revenue received from c taxpayer uses the accrual_method of accounting and files its federal_income_tax returns on a calendar_year basis in d taxpayer entered into an agreement with c for the purchase of an e percent undivided ownership_interest in unit and unit of the f a nuclear power plant and a g percent ownership_interest in other supporting facilities the f and the other supporting facilities all collectively referred hereinafter as the station are located in state beginning in b for unit of the station and in h for unit of the station there was a power sales agreement with c to purchase taxpayer’s station output on a i percent declining basis each year for i years plr-129969-08 the lead owner and operator of the station c commissioned periodic studies to be performed to determine the future costs to decommission the station c submitted the results of the studies to the j to fulfill the j’s requirement that licensees provide financial assurance for the decommissioning of a nuclear power plant and obtained the j’s approval based on the results of the studies c has also obtained from the internal_revenue_service irs with respect to the decommissioning of its interest in the station a schedule of ruling amounts for a nuclear decommissioning fund qualifying under sec_468a for each unit of the station as an owner of a nuclear power plant taxpayer is also required by j to recover from current ratepayers and maintain an external trust fund to provide for the decommissioning of the station to include the dismantlement clean up and final disposal of the station’s components taxpayer’s nuclear decommissioning fund does not qualify under sec_468a taxpayer fulfills its obligation under its j license to decommission the station and makes contributions to its nonqualified nuclear decommissioning fund based on its proportionate share of the station’s total decommissioning costs as determined by c’s decommissioning studies of the station on which c received a schedule of ruling amounts from the irs under sec_468a taxpayer’s nonqualified nuclear decommissioning fund has been treated as a grantor_trust under sec_677 based on a l updated study commissioned by c taxpayer’s station’s decommissioning cost was estimated to be dollar_figurem assuming decommissioning in n with a present_value of approximately dollar_figureo taxpayer’s nuclear decommissioning fund is presently valued at dollar_figurep financial history of taxpayer’s station taxpayer’s interest in the station was financed by the q and guaranteed by the r in amount of dollar_figures r as first lien holder had the right to take possession of the property in the event of any future default in t taxpayer refinanced dollar_figureu of its q obligation with other lenders in v taxpayer reached an agreement with the r for the restructuring of its then-outstanding debt into three separate notes after experiencing continuing losses in the years subsequent to the debt restructuring taxpayer reached an agreement with the r in w in which the sale of taxpayer’s interest in the station would occur on or before x or y would take possession of taxpayer’s assets a request for proposal was issued by the r in w on z taxpayer entered into an asset purchase agreement with c and aa collectively referred hereinafter as the buyers for the sale of taxpayer’s interest in the station under the agreement taxpayer is obligated to transfer to buyers the station plus the assets in its nonqualified nuclear decommissioning fund with a fair_market_value as of bb of dollar_figurecc in exchange buyers will pay the purchase_price and plr-129969-08 assume taxpayer’s nuclear decommissioning liability at a present_value of dollar_figureo this sales transaction will occur by dd taxpayer will be a nonexempt k electric cooperative for ee the year of the sales transaction all gross_receipts from the sale of taxpayer’s interest in the station will be derived from nonmembers all of taxpayer’s net_income from this sales transaction will be ordinary_income pursuant to the provisions of sec_1245 taxpayer has made nonmember electric power sales on a kilowatt kw basis and allocated depreciation expense between members and nonmembers based on their percentage usage of the station through their purchase of electricity measured on kilowatt hours kwh basis at taxpayer’s conference of right taxpayer’s representatives submitted and discussed information relating to the historic usage of the station’s depreciable_property by the members and nonmembers based on their respective usage percentages of the electricity generated by the station based on taxpayer’s representations and the submission during taxpayer’s period of ownership of station member usage of the station has been ff percent on weighted basis of the total kwh of electricity generated by the station for members and nonmembers use rulings requested taxpayer requests that the internal_revenue_service issue the following rulings as a result of buyers’ express assumption of taxpayer’s nuclear decommissioning liability the amount of such liability will be included in the amount_realized by taxpayer and is incurred in the year_of_sale and is capitalized to the cost of the property produced electricity under sec_263a during the year_of_sale and is deductible through cost_of_goods_sold in the year_of_sale and for purposes of sec_1245 income_recognition taxpayer will allocate the amount of income between member and nonmember activity based on its historic use of depreciable_property law and analysis ruling_request sec_1_446-1 of the income_tax regulations provides that under an accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability plr-129969-08 sec_461 provides that the all_events_test is not treated as having been met any earlier than the taxable_year in which economic_performance has occurred with respect to a liability see also sec_1 a sec_461 provides that in the case of a liability that requires the taxpayer to provide services economic_performance occurs as the taxpayer provides the services sec_1_461-4 provides that economic_performance occurs with respect to such service liabilities as the taxpayer incurs costs in connection with the satisfaction of the liability sec_1_461-4 provides an exception to the general economic_performance rule for services where the taxpayer sells a trade_or_business where the purchaser expressly assumes a liability arising out of the taxpayer’s trade_or_business that the taxpayer but for the economic_performance requirement would have been entitled to incur as of the date of the sale economic_performance with respect to that liability occurs as the amount of the liability is properly included in the amount_realized on the sale by the taxpayer the first prong of the all_events_test requires that the fact of the liability be established at the time of the deduction this prong of the all_events_test is satisfied in the instant case here taxpayer clearly has the obligation to decommission the station the fact of the obligation arose at the time taxpayer obtained its ownership_interest in the station and became subject_to the decommissioning requirements associated with the station’s license see c f_r section dollar_figure and sec_72 requiring the operator of a nuclear power plant to decommission it moreover congress recognized the existence of the decommissioning liability when in it enacted sec_461 and sec_468a noting that generally under federal and state laws utilities that operate nuclear power plants are obligated to decommission the plants at the end of their useful lives h_r conf_rep no see also s prt no vol 98th cong 2d sess the second prong of the all_events_test requires the amount of the liability to be reasonably determinable see sec_1_461-1 this prong is also satisfied in the instant case the amount of taxpayer’s decommissioning liability has been determined by experts in the nuclear decommissioning industry their calculations have been reviewed and accepted by the j which is charged with ensuring that sufficient funds are available to decommission the nuclear power plants in addition there is also support in the internal_revenue_code for finding that the amount of the decommissioning liability is reasonably determinable at the time of sale sec_468a generally permits a current deduction for a ruling_amount based on estimated future decommissioning expenses to the extent the decommissioning costs are sufficiently determinable to entitle a utility to a deduction under sec_468a it is reasonable to conclude that the costs must also be sufficiently determinable to satisfy the second prong of the all_events_test plr-129969-08 given that the two prongs of the all_events_test are satisfied in the instant case economic_performance with respect to the decommissioning liability occurs as of the date of the sale to the extent the liability is included in taxpayer’s amount_realized sec_1001 provides that a seller’s amount_realized from the sale of property is the sum of any money received plus the fair_market_value of the property other than money received sec_1_1001-2 provides that a seller’s amount_realized from the sale of property includes the amount of liabilities from which the seller is discharged as a result of the sale this amount may include debt and non-debt liabilities see 84_tc_1319 assumption of lessee’s repair liability was part of amount_realized on sale of leasehold the decommissioning liabilities from which taxpayer will be relieved are fixed and determinable as an owner and operator of nuclear plants taxpayer is required_by_law to provide for eventual decommissioning see c f_r sections dollar_figure and accordingly the amount of taxpayer’s nuclear decommissioning liability that is assumed by c and aa will be included in taxpayer’s amount_realized and taken into account in computing taxable_income in the year of the sale of the station as a result the amount of taxpayer’s nuclear decommissioning liability is incurred in the year of the sale of the station sec_263a provides that the direct costs and indirect_costs properly allocable to property that is inventory in the hands of the taxpayer shall be included in inventory costs sec_1_263a-1 provides that taxpayers subject_to sec_263a must capitalize all direct costs and certain indirect_costs properly allocable to real_property and tangible_personal_property produced_by_the_taxpayer sec_1_263a-1 provides that taxpayers producing real_property and tangible_personal_property producers must capitalize all the direct costs of producing the property and the property’s properly allocable share of indirect_costs regardless of whether the property is sold or used in the taxpayer’s trade_or_business sec_1_263a-1 provides that under sec_263a taxpayers must capitalize their direct costs and a properly allocable share of their indirect_costs to property produced or property acquired or acquired for resale in order to determine these capitalizable costs taxpayers must allocate or apportion costs to various activities including production or resale activities after sec_263a costs are allocated to the appropriate production or resale activities these costs are generally allocated to the items of property produced or property acquired for resale during the taxable_year plr-129969-08 sec_1 263a -1 c provides that costs that are capitalized under sec_263a are recovered through depreciation amortization cost_of_goods_sold or by an adjustment to basis at the time the property is used sold placed_in_service or otherwise_disposed_of by the taxpayer sec_1_263a-1 provides in part that taxpayers subject_to sec_263a must capitalize all indirect_costs properly allocable to property produced and that indirect_costs are properly allocable to property produced when the costs directly benefit or are incurred by reason of the performance of production activities in the instant case the nuclear decommissioning liability incurred by taxpayer in the year of the sale of the station is clearly related to the production of electricity by taxpayer at the station accordingly taxpayer’s nuclear decommissioning liability incurred in the year of the sale of the station will be capitalized to the cost of the electricity produced by taxpayer during such year under sec_263a and sec_1_263a-1 and will be recoverable by taxpayer through cost_of_goods_sold under sec_1_263a-1 in the year of the sale of the station ruling_request in the event a k electric cooperative such as taxpayer loses its tax-exempt status sec_501 no longer applies until such time as the cooperative again satisfies the requirements for exemption during any taxable_period the rules applicable to the electric cooperative depend on the reasons why it failed its exemption test if exemption was lost because the company failed to operate on a cooperative basis then it will be taxed under the same rules applicable to for-profit corporations alternatively if the cooperative becomes taxable because it failed the so-called percent-income test imposed by sec_501 then the organization will be taxed as a nonexempt_cooperative while the requirements of subchapter_c regarding corporate_distributions and adjustments and other provisions are generally applicable to nonexempt cooperatives these entities are distinguished from other types of corporations by a specific body of tax law the scheme of taxation for nonexempt cooperatives was developed from the administrative pronouncements of the service and decisions of the judiciary over a fifty- year period these rules for tax treatment of most nonexempt cooperatives and their patrons were finally codified with the enactment subchapter_t as part of the revenue act of pub_l_no h_r with passage of subchapter_t the rules for deduction of patronage_dividends and the treatment of patronage_dividends in the hands of a cooperative’s patrons were defined however sec_1381 states that subchapter_t is not applicable to organizations engaged in furnishing electric energy or providing telephone service to persons in rural areas according to the senate_finance_committee report plr-129969-08 accompanying the act the intent of congress was that nonexempt rural electric and telephone cooperatives would continue to be treated as under present law in its report accompanying the legislation the senate_finance_committee described present law as follows under present law patronage_dividends paid_by taxable cooperatives result in a reduction in the cooperative’s taxable_income only if they are paid during the taxable_year in which the patronage occurred or within the period in the next year elapsing before the prior year’s income_tax return is required to be filed including any extensions of time granted s rep no 87th cong 1st sess under this earlier body of tax law applicable to nonexempt electric cooperatives a cooperative may reduce its taxable_income by any qualifying patronage_dividends paid to its members patrons further under pre-1962 cooperative rules the term paid means paid in cash or paid_by notice of allocation see also revrul_83_135 1983_2_cb_149 a taxable cooperative not subject_to the provisions of subchapter_t may exclude from gross_income the patronage_dividends paid or allocated to its patrons in accordance with its by-laws while subchapter_t does not control the taxation of nonexempt electric cooperatives its foundations rest upon pre-1962 cooperative tax law as a result there are certain basic parallels between the tax treatment of nonexempt utility cooperatives and treatment of other cooperative organizations under subchapter_t therefore to extent that subchapter_t reflects cooperative taxation as it existed prior to it is instructive in resolving certain issues facing rural_electric_cooperatives this is because congress stated that in enacting subchapter_t it was merely codifying the long common_law history of cooperative taxation with the exception of ensuring at least one annual level of tax at the cooperative or patron level see s rep no 87th cong 1st sess and arguably the case law post-enactment is merely a continuation and refinement of the pre-enactment common_law this is particularly true with respect to defining certain terms such as operating_on_a_cooperative_basis and patronage income perhaps the most succinct definition of the term cooperative for federal_income_tax purposes was provided by the u s tax_court in 44_tc_305 acq 1966_1_cb_3 the tax_court said under the cooperative association form of organization on the other hand the worker- members of the association supply their own capital at their own risk select their own management and supply their own direction for the enterprise through worker meetings conducted on a democratic basis and then themselves plr-129969-08 receive the fruits of their cooperative endeavors through allocations of the same among themselves as co-owners in proportion to the amounts of their active_participation in the cooperative undertaking the tax_court went on to describe three guiding principles at the core of economic cooperative theory as subordination of capital both as regards control_over the cooperative undertaking and as regards the ownership of the pecuniary benefits arising therefrom democratic control by the worker-members themselves and the vesting in and allocation among the worker-members of all fruits and increases arising from their cooperative endeavor ie the excess of operating revenues over the costs incurred in generating those revenues in proportion to the worker-members active_participation in the cooperative endeavor t c pincite although the code does not provide specific guidance as to what constitutes patronage-sourced income for a nonexempt electric cooperative regulations and rulings address the issues for cooperatives governed by subchapter_t while not directly applicable to taxable utility cooperatives per se arguably they reflect the correct analysis with respect to patronage income of cooperatives subject_to pre-1962 law the senate committee report accompanying the cooperative provisions in the revenue act of indicated that the congress intended to tax ordinary ie non- farmer cooperatives for non-operating income not derived from patronage as for example in the case of interest or rental income even if distributed to patrons on a pro_rata basis s rep no 82d cong 1st sess in response to that guidance of congress the service promulgated regulations distinguishing nonpatronage income from that which is patronage derived sec_1388 specifies that a patronage_dividend must be determined by reference to the net_earnings of the organization from business done with or for its patrons that section further provides that the term patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out of earnings other than from business done with or for patrons further it does not include earnings from business done with or for other customers to whom no amounts are paid or to whom smaller amounts are paid with respect to substantially identical transactions plr-129969-08 in revrul_69_576 1969_2_cb_166 a nonexempt farmers’ cooperative borrowed money from a bank for cooperatives itself a cooperative to finance the acquisition of agricultural supplies for resale to its members the bank for cooperatives allocated and paid interest from its net_earnings to the nonexempt farmers’ cooperative which it in turn allocated to its members in determining whether the allocation was from patronage sources the ruling states the classification of an item_of_income as from either patronage or nonpatronage sources is dependent on the relationship of the activity generating the income to the marketing purchasing or service activities of the cooperative if the income is produced by a transaction which actually facilitates the accomplishment of the cooperative's marketing purchasing or service activities the income is from patronage sources however if the transaction producing the income does not actually facilitate the accomplishment of these activities but merely enhances the overall profitability of the cooperative being merely incidental to the association's cooperative operation the income is from nonpatronage sources revrul_69_576 pincite the ruling concluded that in as much as the income received by the nonexempt_cooperative from the bank for cooperatives resulted from a transaction that financed the acquisition of agricultural supplies which were sold to its members thereby directly facilitating the accomplishment of the cooperative’s marketing purchasing or service activities the income was patronage sourced sec_1_1382-3 defines income from sources other than patronage nonpatronage income to mean incidental income derived from sources not directly related to the marketing purchasing or service activities of the cooperative association such as income derived from lease of premises from investment in securities or from the sale_or_exchange of capital assets sec_1245 and sec_1_1245-1 provide that upon a disposition of sec_1245 property the amount by which the lower_of i the recomputed_basis of the property or ii the amount_realized on a sale exchange or involuntary_conversion or the fair_market_value of the property on any other_disposition exceeds the adjusted_basis of the property shall be treated as ordinary_income that is gain from the sale_or_exchange of property which is neither a capital_asset nor property described in sec_1231 such gain shall be recognized notwithstanding any other provision of subtitle a of the code sec_1245 provides that sec_1245 property means any property which is or has been property of a character subject_to allowance for depreciation plr-129969-08 provided in sec_167 and is described in one of the categories of property listed in subparagraphs a - f of sec_1245 revrul_74_84 1974_1_cb_244 provides that the ordinary_income_portion of gain recognized from the sale of sec_1245 property by a nonexempt_cooperative is patronage sourced income to be allocated between member and nonmember workers in accordance with the applicable method of allocation either quantity or value utilized in those prior years in which depreciation_deductions were taken on the property sold and to the extent allocated to member workers qualifies as a patronage_dividend in the instant case taxpayer is disposing of its interest in the station which is used in taxpayer’s business thus the amounts at issue are realized in a transaction that is directly related to the cooperative enterprise taxpayer represents that it has allocated depreciation expense between members and nonmembers based on their percentage usage of the electricity generated by the station as measured on a kilowatt hours kwh basis accordingly in order to determine the amount allocable as patronage_dividends for members the gain recognized by taxpayer under sec_1245 from the sale of the station must be allocated between the members and nonmembers in accordance with their respective usage percentages of the electricity generated by the station conclusion based on the facts and representations submitted and the relevant law and analysis as set forth above we conclude as a result of buyers’ express assumption of taxpayer’s nuclear decommissioning liability the amount of such liability will be included in the amount_realized by taxpayer and is incurred in the year_of_sale and is capitalized to cost of the property produced electricity under sec_263a during the year_of_sale and is deductible through cost_of_goods_sold in the year_of_sale for purposes of sec_1245 income_recognition taxpayer will allocate the amount of income between member and nonmember activity based on its historic use of depreciable_property except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether taxpayer’s nonqualified nuclear decommissioning fund is a grantor_trust or on the federal_income_tax consequences to buyers resulting from their purchase of the station including the assets of taxpayer’s nonqualified nuclear decommissioning fund and assumption of taxpayer’s nuclear decommissioning liability plr-129969-08 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are sending a copy of this letter to the appropriate operating division director this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely kathleen reed kathleen reed chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------- ---------------------------- ------------------------------ in re ----------------------------------------- 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 b04 plr-104523-12 date date legend legend decedent dear ------------- ----------------------------- this responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a form_8939 allocation of increase in basis for property_acquired_from_a_decedent and thereby make a timely election under sec_1022 the facts and representations submitted are as follows decedent died in the executrix for decedent’s estate retained a qualified_tax professional to prepare the form_8939 executrix of decedent’s estate is requesting an extension of time to file the form_8939 to make a timely election under sec_1022 pursuant to sec_301_9100-3 law and analysis sec_1022 provides that property_acquired_from_a_decedent who died after date is treated as transferred by gift and the basis of the person acquiring the property from such a decedent is the lesser_of the adjusted_basis of the decedent or the fair_market_value of the property at the date of the decedent's death sec_1022 provides in general that the basis_of_property under sec_1022 is increased by basis increase that is allocated to the property sec_1022 provides in general that basis increase is the portion of the aggregate basis increase that is allocated to the property sec_1022 and c provide that the aggregate basis increase is dollar_figure and that the aggregate basis increase is increased by-- i the sum of the plr-104523-12 amount of any capital_loss_carryover under sec_1212 and the amount of any net_operating_loss_carryover under sec_172 that would but for the decedent's death be carried from the decedent's last taxable_year to a later taxable_year of the decedent plus ii the sum of the amount of any losses that would have been allowable under sec_165 if the property acquired from the decedent had been sold at fair_market_value immediately before the decedent's death sec_1022 provides that in the case of property that is qualified spousal property the basis of such property under sec_1022 as increased under sec_1022 is increased by spousal property basis increase allocated to the property sec_1022 provides in general that spousal property basis increase is the portion of the aggregate spousal property basis increase which is allocated to the property sec_1022 provides that the aggregate spousal property basis increase is dollar_figure sec_1022 provides in general that the basis_of_property acquired from a decedent may be increased under sec_1022 or c only if the property was owned by the decedent at the time of death sec_1022 describes property that is considered to be owned by the decedent at the time of death sec_1022 provides that the basis adjustments under sec_1022 and c shall not increase the basis of any interest in property above its fair_market_value in the hands of the decedent as of the date of the decedent's death sec_1022 provides in general that the executor is to allocate the basis adjustments under sec_1022 and c on the return required by sec_6018 and that any allocation made may be changed only as provided by the secretary sec_1022 describes property that is considered to be acquired from the decedent for purposes of sec_1022 notice_2011_66 2011_35_irb_184 section i a provides that the executor of the estate of a decedent who died in makes the election under sec_1022 by filing a form_8939 on or before date notice 2011_40_irb_479 extended the due_date of the form_8939 and thus the election from date to date notice_2011_66 section i d provides that the internal_revenue_service will not grant extensions of time to file a form_8939 except in four limited circumstances provided in section i d under this section of notice_2011_66 an executor may apply for relief under sec_301_9100-3 plr-104523-12 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the executrix of decedent’s estate is granted an extension of time of days from the date of this letter to file the form_8939 for decedent’s estate thereby making a timely election under sec_1022 a copy of this letter should be attached to the form_8939 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely curt g wilson associate chief_counsel passthroughs special industries james f hogan by _____________________________ james f hogan office of associate chief_counsel chief branch passthroughs special industries


third party communication date of communication month dd yyyy cca_2015060308384201 id uilc number release date from sent wednesday june am to cc bcc subject re claim_for_abatement form_8804 sec_1446 withholding is a partnership_item subject_to the aar procedures the partnership’s claim should have been filed on a form_8082 or 1065x under sec_6227 if they followed this procedure the abatement forms they used likely did not substantially comply with the required procedure sec_6227 would allow the service to issue a refund open a tefra proceeding or take no action this last action may be appropriate since it does not appear that a refund is warranted on the merits but it appears that the foreign partners may be entitled to refunds depending on their individual tax postures they would need to file their own separate refund claims based on these separate partner-level considerations --------------------------------------------------------------------------------------------------------------------- -------------