internal_revenue_service department of the treasury number release date index number 2702-dollar_figure washington dc person to contact telephone number refer reply to cc psi 4-plr-115276-00 date date re legend settlor a settlor b property state x dear this is in response to your letter dated date and prior correspondence requesting several rulings concerning the application of sec_2702 of the internal_revenue_code the facts and representations submitted are summarized as follows settlor a and settlor b husband and wife own property as tenants in common property is located in state property consists of one parcel on the local_tax map and is assessed as one parcel for property_tax purposes property consists of x acres and is improved by a residence a small shed and a small caretaker’s facility property is similar in size to nearby properties used for residential purposes it is represented that property and the residence situated on property qualifies as a residence of settlor a and settlor b under sec_280a without regard to sec_280a each settlor proposes to convey his or her one-half interest in property to a separate qualified_personal_residence_trust qprt trust a will hold settlor a’s one-half interest in property and trust b will hold settlor b’s one-half interest during the term of trust a and trust b the respective settlor will be entitled to the exclusive use possession and enjoyment of the interest in property held by the trustee and all the trust income must be distributed to the settlor annually each trust document prohibits distribution of corpus to anyone other than the settlor other than property each trust will hold no assets other than amounts permitted under sec_25_2702-5 of the gift_tax regulations the trusts provide that the settlor’s interest in the trust may not be commuted in addition the trustee of each trust plr-115276-00 is prohibited from selling or otherwise transferring any interest in property held in the trust directly or indirectly to the settlor the settlor’s spouse or any entity controlled by the settlor or the settlor’s spouse in any transaction that would result in disqualification of the trust as a qualified_personal_residence_trust under sec_25_2702-5 of the gift_tax regulations each trust will terminate at the earliest of the expiration of years from the date it is established or the date of the respective settlor’s death or the date the trust ceases to be a qprt if a_trust terminates at the end of the 20-year term the trustee shall distribute the trust property equally to the respective living children of the settlor if the settlor dies before the 20-year term expires the assets of the trust are to be paid to the settlor’s estate if the trust ceases to be a qprt with respect to any assets held in trust the trustee must hold those assets as a qualified_annuity_interest payable to the settlor the trust as converted must function as a qualified annuity_trust from the conversion date until the termination of trust as specified in sec_25 c ii of the gift_tax regulations you represent that settlor a and settlor b each previously established a separate qprt to which each transferred his or her interest in their principal_residence you have requested the following rulings property to be transferred to trust a and trust b is a personal_residence within the meaning of sec_25_2702-5 trust a and trust b will constitute qualified personal_residence trusts within the meaning of sec_25_2702-5 sec_2702 a provides that solely for purposes of determining whether a transfer of an interest in trust to or for the benefit of a member_of_the_transferor's_family is a gift and the value of such transfer the value of any interest in such trust retained by the transferor or any applicable_family_member as defined in sec_2701 shall be determined as provided in sec_2702 sec_2702 provides that the value of any retained_interest that is not a qualified_interest is treated as being zero the value of any retained_interest that is a qualified_interest is determined under sec_7520 sec_2702 provides that sec_2702 shall not apply to any transfer of an interest in trust all the property in which consists of a residence to be used as a personal_residence by persons holding term interests in such trust plr-115276-00 sec_25_2702-5 provides in part that sec_2702 does not apply to a transfer in trust meeting the requirements of that section a transfer in trust meets the requirements of the section only if the trust is a personal_residence_trust as defined in sec_25_2702-5 sec_25_2702-5 provides that a personal_residence_trust is a_trust the governing instrument of which prohibits the trust from holding any asset other than one residence to be used as the personal_residence of the term holder a_trust meeting the requirements of a qualified_personal_residence_trust as defined in sec_25_2702-5 is treated as a personal_residence_trust a_trust of which the term holder is the grantor that otherwise meets the requirements of a personal_residence_trust or a qualified_personal_residence_trust is not a personal_residence_trust or a qualified_personal_residence_trust if at the time of the transfer the term holder already holds term interests in two trusts that are personal_residence trusts or qualified personal_residence trusts of which the term holder was the grantor sec_25_2702-5 provides that for purposes of sec_2702 a qualified_personal_residence_trust is a_trust meeting all the requirements of the section these requirements must be met by provisions in the governing instrument and these governing instrument provisions must by their terms continue in effect during the existence of any term_interest in the trust sec_25_2702-5 provides that a personal_residence of a term holder is either the principal_residence of the term holder within the meaning of sec_1034 one other residence of the term holder within the meaning of sec_280a but without regard to sec_280a or an undivided fractional interest in either sec_25_2702-5 provides that a personal_residence may include appurtenant_structures used by the term holder for residential purposes and adjacent land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence's size and location the fact that a residence is subject_to a mortgage does not affect its status as a personal_residence the term personal_residence does not include any personal_property eg household furnishings sec_25_2702-5 provides that the principal_residence of the term holder will not fail to meet this requirement merely because a portion of the residence is used in an activity meeting the requirements of sec_280a or relating to the deductibility of expenses related to certain uses in a trade_or_business of the taxpayer provided that such use is secondary to use of the residence as a residence a residence is not used primarily as a residence if it is used to provide transient lodging and substantial services in connection with the provision of lodging eg a hotel or a bed and breakfast in this case property is comparable in size to other adjoining and nearby residential properties based on the facts submitted and the representations made we conclude that property is not in excess of that which is reasonably appropriate for plr-115276-00 residential purposes within the meaning of c ii and that property including improvements is a personal_residence within the meaning of sec_25 c we further conclude that trust a and trust b satisfy the requirements of sec_25_2702-5 and constitute qualified personal_residence trusts except as we have specifically ruled herein we express no opinion under the cited provisions or under any other provision of the code this ruling is based on the facts and applicable law in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in the ruling take effect the ruling will have no force or effect if the taxpayer is in doubt whether there has been a change in material fact or law a request for reconsideration of this ruling should be submitted to this office this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours associate chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


department of the treasury washington dc tax_exempt_and_government_entities_division uics ‘ly c41 legend taxpayer a taxpayer b taxpayer c taxpayer d taxpayer e date date date date date date date date month state v ira x trust w page trust x trust y subtrust z dear this is in response to the request for private_letter_ruling submitted on your behalf by your authorized representative as supplemented in which you through your representative request several letter rulings the following facts dnd representations support your ruling_request taxpayer a whose date of birth was date died on date having reached his required_beginning_date as that term is defined and applied in sec_401gi id of the internal_revenue_code as of his death of death taxpayer a owned ira x taxpayer a was survived by a son taxpayer b whose date of birth was date a daughter taxpayer c whose date of birth was date and another daughter taxpayer d whose date of birth was date eldest of taxpayers b c and d ruling_request taxpayers b c and d thus taxpayer c is the are alive as of the date of this on date taxpayer a named trust w as the beneficiary of his ira x on date on date thus at taxpayer a’s death trust y was the beneficiary of taxpayer a’s ira x taxpayer a executed trust x which restated and superceded trust w taxpayer a executed trust y which restated and superceded trust x article vi of trust y provides for a subtrust z article vi-a of subtrust z provides that upon the death of taxpayer a the trustee of trust y will transfer and deliver to taxpayer e outright and free of trust trust assets equal in value to of the value of the trust fund as of the date of taxpayer a’s death article vib of subtrust z provides in short that the remaining portion of the trust estate is to be divided into equal separate shares for the benefit of taxpayer a’s surviving children article vi b part a a of subtrust z provides that all of the net_income of the share allocated to a particular child of taxpayer a shall be distributed currently to such child page ’ article vii part a of trust y provides that the trustee of trust y may invade the principal of the share allocated to the particular child of taxpayer a if necessary to provide for the health education maintenance and support of a beneficiary of said share article vi b part a b provides that at the death of such child all of the then remaining amount of principal shall be distributed as he or she shall have effectively appointed by the last instrument in writing which such child shall have delivered to trustee during such child’s lifetime or by such child’s probated will provided that such appointment is not exercised in favor of such child such child’s estate such child’s creditors the creditors of such child’s estate or any disqualified appointee - article xv j of trust y defines disqualified appointee as any individual born in a calendar_year prior to the calendar_year of birth of my oldest living issue at the time of my death any person other than a_trust or an individual or any trust that may have as a beneficiary an individual born in a calendar_year prior to the calendar_year of birth of my oldest living issue at the time of my death article viii f of trust y provides in relevant part that the trustee shall not charge any debts administrative expenses or taxes of the estate against property coming from an ira of which the trust is a beneficiary article of trust y provides that trust y was revocable by taxpayer a during his lifetime thus at the death of taxpayer a_trust y became irrevocable your authorized representative has asserted on your behalf that trust y is valid under the laws of state v the state of taxpayer a’s domicile at his death furthermore the identity of the beneficiaries of trust y was provided to the administrator of ira x during calendar_year during month ‘ taxpayer b taxpayer c taxpayer d and taxpayer e created four sub-accounts within ira x each separate_account constitutes a portion of taxpayer a’s account balance under ira x which reflects the appropriate beneficiary’s interest in taxpayer a’s ira x using separate_accounting that allocates investment gains and losses and contributions and forfeitures on a pro_rata basis in a consistent manner between such portion and any other benefit each of the four separate_accounts was established for the benefit of a particular beneficiary in the name of the deceased taxpayer a each beneficiary has the right to direct investment of his her separate_account as well as withdraw funds with regard to his or her account the beneficiary of a distinct account has access solely to his or her sub- account page based on the above facts and representations you through your authorized representative request the following letter rulings trust y is a valid see-through trust within the meaning of sec_1_401_a_9_-4 of the final income_tax regulations question and answer taxpayer d may calculate code sec_401 minimum required distributions from her share of ira x based on the life expectancy of taxpayer c the eldest of taxpayers b c and d the creation of the separate sub-accounts referenced above did not affect the tax deferred status of the funds held in ira x and will not be treated as a taxable_distribution or distributions with respect to your ruling requests sec_401 of the internal_revenue_code in general sets down the rules governing minimum required distributions from retirement plans qualified within the meaning of code sec_401 code sec_401 provides in short that distributions to a qualified_plan participant must begin no later than april of the calendar_year following the later of- the calendar_year in which the employee attains age '4 or ii the calendar_year in which the employee retires subclause id of clause i does not apply to a 5-percent_owner as that term is defined in code sec_416 or for purposes of sec_408 or b code sec_408 provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the trust is maintained code sec_401 provides that with respect to an employee plan participant who dies after distributions have begun in accordance with subparagraph a ii after his required_beginning_date as that term is defined in code sec_401 distributions of the remaining portion that employee’s interest under a plan must be made at least as rapidly as under the method of distribution being used under subparagraph a ii as of the date of his death sec_401 of the code defines the term designated_beneficiary as any individual designated as a beneficiary by the employee final income_tax regulations under sec_401 and sec_408 were published in the federal_register pincite federal_register date page the preamble to the final regulations provides in relevant part final regulations that the final regulations apply for determining required minimum distributions for calendar years beginning on or after date for determining required distributions for calendar_year taxpayers may rely on either the proposed_regulations or the final regulations proposed_regulations under sec_401 were revised during calendar_year and published in the internal_revenue_bulletin pincite i-r b date new proposed_regulations the preamble to the new proposed_regulations provides in relevant part that they are applicable for determining required minimum distributions for calendar years beginning on or after date furthermore taxpayers may rely upon them for determining minimum required distributions for calendar_year sec_1_401_a_9_-2 of the final regulations question and answer-5 provides in relevant part that in order to satisfy the ‘at least as rapidly rule_of code sec_401 under an individual_account_plan the rules of sec_1_401_a_9_-5 apply sec_1_401_a_9_-2 of the new proposed_regulations question and answer-s contains similar language sec_1_401_a_9_-5 of the final regulations q a-5 a provides in general that if an employee dies on or after his required_beginning_date in order to satisfy the requirements of code sec_401 the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee’s date of death if the employee has a designated_beneficiary as of the date determined under a-4 of sec_1_401_a_9_-4 the longer of i the remaining life expectancy of the employee’s designated_beneficiary determined in accordance with either paragraph c or paragraph c of this a-s or ii the remaining life expectancy of the employee determined in accordance with paragraph c of this a-5 the new proposed_regulations provide at sec_1_401_a_9_-5 q a-5 a that if an employee ira holder dies on or after his required_beginning_date in order to satisfy sec_401g if the employee or ira holder has a designated_beneficiary that is not his spouse as of the date determined under a-4 of sec_1_401_a_9_-4 the applicable distribution period is the remaining life expectancy of the designated_beneficiary determined in accordance with paragraph c of a-5 sec_1_401_a_9_-5 of the final regulations q a-5 c provides in general that with respect to a non-spouse beneficiary the applicable distribution period measured by the beneficiary’s remaining life expectancy is determined using the beneficiary’s age as of the beneficiary’s birthday in the calendar_year immediately following the calendar_year page of the employee’s death is reduced by one for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee’s death in subsequent calendar years the applicable distribution period the new proposed_regulations contain similar language at sec_1_401_a_9_-5 q a-s c sec_1_401_a_9_-4 of the final regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee’s or ira holder’s death generally an employee’s designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death sec_1_401_a_9_-4 of the new proposed_regulations q a-4 provides in relevant part that an employee’s designated_beneficiary will be determined based on the beneficiaries designated as of the last day of the calendar_year following the calendar_year of the employee’s death sec_1_401_a_9_-4 of the final regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements are met the trust is valid under state law or would be but for the fact that there is no corpus the trust is irrevocable or the trust contains language to the effect it becomes irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of a-1 of this section from the trust instrument the documentation described in a-6 of this section has been provided to the plan_administrator the new proposed_regulations contain similar language at sec_1_401_a_9_-4 q a-s page sec_1_401_a_9_-4 of the final regulations q a-6 b provides generally with respect to required minimum distributions after the death of the employee that documentation described therein must be provided by the trustee of the trust_beneficiary to the plan_administrator by october of the calendar_year following the calendar_year in which the employee died the new proposed_regulations at sec_1_401_a_9_-4 q a-6 b provide generally with respect to required minimum distributions after the death of the employee that documentation described therein must be provided by the trustee of the trust_beneficiary to the plan_administrator by the last day of the calendar_year following the calendar_year in which the employee died sec_1_401_a_9_-5 of the final regulations q a-7 provides in general that if an employee has designated more than one beneficiary as of the applicable_date for determining the designated_beneficiary the beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period sec_1_401_a_9_-4 of the final regulations q a-5 c provides in relevant part that the rules of a-7 of sec_1_401_a_9_-5 above apply with respect to payments to a_trust having more than one beneficiary the new proposed_regulations contain similar language at sec_1 a - q a-7 and a -4 q a-5 c sec_1_401_a_9_-8 of the final regulations qs as-2 and provide the rules governing the establishment of separate_accounts for purposes of computing code sec_401 minimum required distributions q a-3 a provides in relevant part that a separate_account is a portion of an employee’s benefit determined by an acceptable separate_accounting including allocating investment gains and losses and contributions and forfeitures on a pro_rata basis in a reasonable and consistent manner between such portion and any other_benefits q a-2 a provides in relevant part that with respect to defined contribution plans a separate_account must be established no later than the last day of the year following the calendar_year of the employee’s death sec_1_401_a_9_-8 of the new proposed_regulations contains similar language at qs as-2 and code sec_408 provides that except as provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 paes code sec_408 provides generally that amounts from an inherited ira cannot be rolled over into another ira in general an inherited ira is an ira maintained by an individual who acquired said ira by reason of the death of another if the acquiring individual is not the surviving_spouse of said other individual revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ra trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in code sec_408 furthermore such a transfer does not constitute a rollover_distribution finally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary in this case trust y is the beneficiary of taxpayer a’s ira x trust y became irrevocable at the death of taxpayer a furthermore it has been represented that trust y is valid under the laws of state v additionally the identities of the beneficiaries of trust y and of subtrust z a subtrust created under the terms of trust y are ascertainable from the language of trust y finally said identities have been provided to the administrator of ira x thus based on the above the service concludes with respect to your first ruling_request as follows is a valid see-through trust within the meaning of sec_1_401_a_9_-4 trust y of the final income_tax regulations question and answer with respect to your second ruling_request as noted above trust y is a valid see-through trust as that term is used for code sec_401 purposes thus the life expectancies of the beneficiaries must be scrutinized in order to determine which beneficiary is the designated_beneficiary whose life expectancy will be used to determine the payout period with respect to taxpayer d’s share in ira x taxpayer d is a beneficiary of the share of ira x that has been allocated to her additional beneficiaries include individuals who cannot be older than taxpayer c thus any potential beneficiary of taxpayer d’s interest in ira x must be no older than taxpayer c therefore as the oldest potential beneficiary taxpayer c has a life expectancy that is shorter than that of any other potential beneficiary thus taxpayer c’s life expectancy must be used to determine the code sec_401 distribution period with respect to taxpayer d’s share of ira x page thus with respect to your second ruling_request the service concludes as follows taxpayer d may calculate code sec_401 minimum required distributions from her share of ira x based on the life expectancy of taxpayer c the eldest of taxpayers b c and d with respect to your third ruling_request code sec_408 sets down the rules governing distributions from iras and the taxation thereof furthermore as noted above revrul_78_406 provides for transfers of amounts between iras that do not constitute taxable_distributions even if the transfer is accomplished at the behest of the ira holder or ira beneficiary in this case taxpayer a’s ira x was divided into four accounts each account was maintained in the name of taxpayer a for the benefit of a distinct beneficiary thereof said division was accomplished by the creation of separate sub-accounts under ira x each sub-account bore its own identification_number none of the beneficiaries of ira x including taxpayer d received a distribution of any amount from ira x at the time ira x was subdivided thus based on the above the service concludes as follows with respect to your third ruling_request the creation of the separate sub-accounts referenced above did not affect the tax deferred status of the funds held in ira x and will not be treated as a taxable_distribution or distributions this letter_ruling is based on the facts and representations contained herein furthermore it assumes that ira x and the sub-accounts created there under either have met meet or will meet the requirements of code sec_408 at all times relevant thereto pursuant to a power_of_attorney on file with this office the original of this letter_ruling is being sent to your authorized representative page this letter is directed only to the taxpayer that requested it and is based solely on the representations made with respect thereto sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours ave ll plo frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp b06 - plr-130962-01 date date legend purchaser a_trust a target target target sub sub sub plr-130962-01 sub country g country h state j state k m n o p q r month e year f date a date b date c company official this letter responds to a letter dated date submitted by target and target on behalf of itself and as common parent of a consolidated_group target and target are requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations for target to file an election under sec_1_382-8 the election as a result of the election the target group will restore value under sec_1_382-8 to target this value had been reduced under sec_1_382-8 as a result of the ownership_change of target that occurred on date a additional information was received in letters dated july and date the material information is summarized below prior to the acquisition described below individual a and trust a owned of the stock of target target owned q less than of the stock of target plr-130962-01 trust a owned the remaining n of the stock of target target owned r at least of the stock of target sub an unrelated individual owned the remaining m target sub owned all of the stock of sub p of the stock of sub a country g corporation and o of the stock of sub a country h corporation the remaining stock of sub and sub was and continues to be owned by unrelated parties target was the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return the other members of the target group were target sub and sub purchaser was formed in month e of year f for the purpose of acquiring target target and target on date a purchaser acquired all of the target stock from individual a and trust a n of the target stock from trust a and m of the stock of target sub from the unrelated owner of such stock as of date a only target was a loss_corporation within the meaning of sec_382 target target sub sub sub and sub were not loss corporations thus on date a target underwent an ownership_change as defined in sec_382 on date b target distributed to target all ie r of its stock of target sub1 and target distributed to purchaser the target sub stock it received from target on date c target target target sub and sub reincorporated from state j to state k in addition target and target changed their names sec_382 provides that the amount of the taxable_income of any new_loss_corporation for any post-change_year which may be offset by pre-change losses shall not exceed the sec_382 limitation for such year under sec_382 the sec_382 limitation is determined by multiplying the value of the old_loss_corporation by the applicable long- term tax-exempt rate a special rule designed to prevent double counting by controlled groups is set forth in sec_1_382-8 target and the target consolidated group1 are component members of a controlled_group under sec_1_382-8 sec_1_382-8 requires the value of the stock of each member of a controlled_group be reduced by the value of stock owned by that component_member in any other component_member after the value of the stock of each component_member of a controlled_group is reduced under sec_1_382-8 that member can elect under sec_1_382-8 to restore some or all of its value to another component_member the election to restore value is made following the procedures set forth in sec_1_382-8 target intended to file the election the election was required to be filed with the income_tax return for target for the tax_year that included date a but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request wa sec_1 pursuant to sec_1_382-8 the target consolidated_group is treated as one taxpayer plr-130962-01 submitted under sec_301_9100-1 for an extension of time to file the election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of 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 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 in this case the time for filing the election is fixed by the regulations ie sec_1_382-8 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for target to file the election provided it shows that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser target target and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that target has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for target to file the election with respect to the acquisition of the stock of target and the target group as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' purchaser's consolidated group’s target 1’s separate and target 2's consolidated group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax plr-130962-01 liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion with respect to whether an ownership_change occurred whether target and the target group are members of a controlled_group the amount of value if any that may be restored or as to values or amounts of the net operating losses of target in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by purchaser target the target group and company official however the director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-1 to file the election any penalties and interest that would otherwise be applicable still apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index number 468a -------------------------- ----------------------------------- ------------------------------------------------- ---------------------------------- --------------------- ---------------------------------- - in re revised schedule of ruling amounts department of the treasury washington dc person to contact ---------------------------------------------- telephone number --------------------- refer reply to cc psi b06 - plr-114890-04 date date --------------------------------------- legend plant taxpayer parent --------------------------------------- -------------------------------------------------- ------------------------- ----------------------------------- ------------------------- -------------------------- ------------------------------------------------ ----------------------------------------- ----------------------------------------------------- --------------------------------------------------------------------------------- commission a commission b commission c commission d order a ---------------------------------------------------------------------------------------------------------- order b ------------------------------------------------------------------------------------------------------------------ state a state b method a b c d e f g ------ -------------- ------------------------------------------------------------ ---------------------- ----------------------- ---- -------- ------ ------ ------ --------------------------------------------------------------------------------- plr-114890-04 dear ------------------- this letter responds to a request for private_letter_ruling dated date and supplemental information dated date and date filed on behalf of the above taxpayer pursuant to the elective provisions of sec_1_468a-3 of the income_tax regulations requesting a revised schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund afund taxpayer is requesting this schedule because commission b in order b determined the amount of decommissioning costs that taxpayer would be permitted to collect from ratepayers in state b as part of the cost of service for plant in addition commission a in order a determined the amount of decommissioning costs that taxpayer would be permitted to collect from ratepayers in state a taxpayer previously received a schedule of ruling amounts pertaining to plant on a and b information was submitted pursuant to sec_1_468a-3 taxpayer a regulated_public_utility is a wholly owned subsidiary of parent taxpayer directly owns a c percent interest in the plant commission a commission b commission c and commission d have regulatory jurisdiction over the rates charged by taxpayer with respect to plant allocated d percent e percent f percent and g percent respectively these percentages may vary from year to year taxpayer is seeking a ruling_amount only for the portion of taxpayer s operations allocable to the jurisdiction of commission a and commission b proceedings regarding final rates are currently pending before commission a taxpayer joins parent in filing a consolidated tax_return and both are under the audit jurisdiction of the industry director natural_resources and construction lm nrc commission a the estimated cost of decommissioning the plant is dollar_figure------------------in --------- dollars of which taxpayer s share for ratemaking purposes is dollar_figure-----------------in ------- dollars the total estimated future cost of decommissioning plant as adjusted is dollar_figure------ ------------------ escalated to the year incurred of which taxpayer’s share is dollar_figure--------------- ------------------- commission a allowed escalation only through -------- taxpayer’s share of the total estimated decommissioning costs through ------- is dollar_figure----------------- commission a in order a provided for decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes for ratepayers in state a the level_funding limitation period and the funding_period are -------------------------- ---------------------------------------------------------------------------------------------------------------- through -------------------------- the assumed after-tax rate of return to be earned by the assets of the fund is -------percent the rate of escalation to determine the future cost of decommissioning the plant is -------percent escalated only to ------- as allowed by plr-114890-04 commission a consequently the schedule of ruling amounts with respect to commission a extends only through ------- the proposed method for decommissioning the plant is method taxpayer has determined the estimated period for which the fund is to be in effect is --- years ------- through ------- and the estimated_useful_life of the plant is --- years ------- through ------- therefore the qualifying percentage is --------percent commission b the estimated cost of decommissioning the plant is dollar_figure------------------in --------- dollars of which taxpayer s share for ratemaking purposes is dollar_figure----------------- the total estimated future cost of decommissioning plant as adjusted is dollar_figure------------------- escalated to the year incurred of which taxpayer’s share is dollar_figure----------------- commission b in order b provided for decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes for ratepayers in state b commission b had previously issued an interim order providing for amounts in excess of those listed above to be included in the cost of service for ratepayers in state b taxpayer will retroactively reduce the amount of decommissioning costs included in the cost of service and the revised schedule of ruling amounts requested is consistent with this retroactive reduction the taxpayer will withdraw any excess_contributions made to the decommissioning fund as a result of the reductions made by order b and the earnings thereon the level_funding limitation period and the funding_period are -------------------------- ---------------------------------------------------------------------------------------------------------------- through -------------------------- the assumed after-tax rate of return to be earned by the assets of the fund is -------percent the rate of escalation to determine the future cost of decommissioning the plant is -------percent for non-waste related activities and -------- percent for waste related activities for a weighted average of -------percent calculated to the year of expenditure at the rates above the proposed method for decommissioning the plant is method taxpayer has determined the estimated period for which the fund is to be in effect is --- years --------through ------- and the estimated_useful_life of the plant is --- years ------- through ------- therefore the qualifying percentage is --------percent sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year plr-114890-04 sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-2 of the regulations provides that if a retroactive adjustment to an interim rate order that reduces the amount of decommissioning costs included in the cost of service for a taxable_year occurs on or before the date prescribed by law including extensions for filing the return of the nuclear decommissioning fund for such taxable_year the taxpayer may elect the application of this paragraph by including in the amount of decommissioning costs included in cost of service for such taxable_year only the amount of decommissioning costs authorized under the retroactive adjustment and withdrawing any excess_contribution that results from such treatment in accordance with the rules of sec_1_468a-5 sec_1_468a-5 provides that the amount of the excess_contribution must be withdrawn by the taxpayer on or before the later of the plr-114890-04 date prescribed by law including extensions for filing the return of the nuclear decommissioning fund for the taxable_year to which the excess_contribution relates or the date that i sec_30 days after the date that the taxpayer receives the ruling_amount for such taxable_year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes plr-114890-04 sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount plr-114890-04 we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer had a qualifying interest in the plant and was therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a and commission b have determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and commission b and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage is --------percent for commission a and --------percent for commission b the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to commission a and commission b satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows plr-114890-04 approved schedule of ruling amounts allocable to the taxpayer comm a ----------------- -- ----------------- -- ----------------- -- ----------------- -- ----------------- -- - - - - - - - comm b ---------------- ------- ---------------- ------- ---------------- ------------ ---------------- -------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- - - - - - - - - total ----------------- -------- ----------------- ------ ----------------- -------- ----------------- -------- ----------------- -- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- year --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year in order to avoid disqualification of the fund under sec_1_468a-5 as a result of the modification of taxpayer’s requested schedule of ruling amounts with respect to commission b any amounts contributed by the taxpayer to the fund with respect to commission b for the ------- tax_year in excess of the amounts in the above-approved schedule as well as any earnings with respect to such excess amounts must be immediately withdrawn from the fund see generally sec_1_468a-3 in order to put taxpayer in the position as if no excess_contributions were made plr-114890-04 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the powers of attorney we are sending a copy of this ruling to your authorized representatives we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries ---------------------------- ---------------------------------- ------------------------- --------------------------------------- ----------------- ---------------------------------- ------------------------- --------------------------------------- --------------------------------------------------------------------------------------- ------------------------------------------ -------------------------- cc


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code dollar_figure us- date date employer id number contact person id number customer service contact telephone number leph form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements we'll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code 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 the notice on how to notify us if you agree with our deletions you don’t need to take any further action letter rev catalog number 47632s _ if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service irs p o box cincinnati h legend state o p date r county s for-profit association dear date date employer id number contact person id number contact telephone number contact fax number category vil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons described below do you meet the requirements under sec_501 of the code no for the reasons described below facts you were incorporated in the state of o on p as a mutual benefit corporation your articles of incorporation state the specific purpose of this corporation is to benefit racers promoters and spectators of motorsports in r you stated that you have amended your organizing document to change to a public benefit corporation which promotes and provides amateur sporting events that benefits the entire community in allowing amateur racers a venue to learn and practice the sport and providing the community at large family entertainment of watching the sport however you did not provide a filed copy of this amendment letter rev catalog number 47630w you provide a racing venue for stock car drivers to participate and the community to attend you also sponsor the fireworks display on the july at the conclusion of the evening race the gates are open and the community is welcome to enjoy the fireworks display at no charge you conduct approximately seventeen stock car races per year from april through september charged for each car and driver competing in the races spectators pay a fee to attend the races advertising in race programs airtime during race events and on displayed banners are sold to area businesses the advertising brochure you submitted indicates that advertising purchases are tax deductible and support from their business will help make the best family entertainment possible donations are also accepted from local businesses and individuals to support the local july fireworks display entry fees are your revenues include contributions membership dues back gate receipts front gate receipts concession stand receipts and other miscellaneous receipts drivers pay entry fees to compete for trophies and cash prizes membership in the organization is open to the general_public for a fee the racetrack is owned by the county fairgrounds and is provided to you for rent cash prizes for first place finishers can range from a few dollars to up to dollar_figure for the sanctioned races your expenses include e e e disbursements for members - payouts trophies s fees and points payouts occupancy - rent utilities and operating_expenses and operating_expenses - advertising insurance maintenance fuel taxes and licenses for the through years disbursements for member represented about of your expenses occupancy costs were and operating expense less the cost fireworks was about of your total expenses your activities are primarily conducted by volunteers however you have stated that three independent contractors are paid from dollar_figure to dollar_figure per event for work performed persons age thirteen and up are welcome to race in the beginner class novice racers are coached in all aspects of racing you give them a rule book which they are expected to learn the young drivers are taught sportsmanship mechanics of a racing vehicle and are encouraged to attend sessions where drivers spend time on the track in practice situations to improve their skills individualized training is performed either by a parent or another racer who is willing to share knowledge with the beginners beginners may attend five training days where experienced drivers are on hand to provide any help the new drivers may need your event schedule does not list any specific educational events or training classes on your website you have listed your schedule of events rankings and point totals race payout schedule ticket information and back gate fees running rules and a list of sponsors upon further review of your website there are no formal educational events or training classes listed or offered you are a member of s a national organization that sanctions national and international motor sports events according to the website you provided s is owned by an individual and has experienced remarkable growth in the last decade you stated that you attempt to prepare participants to compete in these national and international events by supporting not only a beginner class where they can learn the art and mechanics of stock car racing but also providing a place where they can practice and hone their skills in order to compete on a national or international level the only requirement to participate in your activities is to meet the age requirements of each class of racing you stated that you do not solely devote yourselves to improving the letter rev catalog number 47630w performance of a small_group of elite athletes nor are you organized for the sole purpose of improving the health of the general_public instead you provide affordable family entertainment law sec_501 of the internal_revenue_code 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 e 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 i and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office sec_501 of the code defines the term qualified_amateur_sports_organization to means any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports sec_1_501_c_3_-1 of the tax regulations provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the tax regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization limit its purposes to one or more exempt purposes and do not expressly empower it to engage otherwise than as an insubstantial part in activities which in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the tax regulations provides that an organization operates exclusively for exempt purposes if it engages primarily in activities that accomplish exempt purposes specified in sec_501 of the code an organization must not engage in substantial actives that fail to further an exempt_purpose sec_1_501_c_3_-1 of the tax regulations provides an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals letter rev catalog number 47630w sec_1_501_c_3_-1 of the tax regulations provides that an exempt_organization must serve a public rather than a private interest the organization must demonstrate that it is not organized or operated to benefit private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interest thus if an organization is operated to benefit private interests rather than for public purposes or is operated so there is prohibited inurement of earning to the benefit of private shareholders or individuals it may not retain its exempt status revrul_56_475 1956_2_cb_308 provides that an organization formed for the purpose of promoting and fostering the appreciation and techniques of the operation of stock cars and which con ducts stock car racing events sponsored by community organizations under agreements whereby a certain portion of the profits is received by the organization for payment of expenses and prizes to members who participate in the races does not qualify for exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code of revrul_70_4 1970_1_cb_126 provides that an organization whose activities consisted primarily of the promotion and regulation of a sport for amateurs is not exempt as a sec_501 educational_organization because the promotion and regulation of a sport for amateurs as described neither improve nor develop the capabilities of the individual nor instruct the public on subjects useful to the individual and beneficial to the community 70_tc_352 describes an organization whose sole activity was to provide consulting services for a fee to nonprofit_organizations it provided qualified persons to perform research projects for its clients the fees charged by the organization were set at or close to cost but were not less than the organization’s full cost of providing its service the organization was denied exemption because it operated in a commercial nonexempt manner the provision of managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the court held that the organization was not operated exclusively for charitable educational or scientific purposes within the meaning of sec_501 of the code in hutchinson baseball enterprises v commissioner t c pincite u s tax ct lexi sec_30 affd 696_f2d_757 10th cir the organization funded and operated an amateur baseball team leased and maintained baseball fields for_the_use_of little league american legion teams and a baseball camp and provided coaches for little league teams the court held and the tenth circuit affirmed that the promotion sponsorship and advancement of amateur sports is a charitable purpose within the meaning of sec_501 in better business bureau v united_states 326_us_278 the court held that an organization is not operated exclusively for charitable purposes and thus will not qualify for exemption under sec_501 if it has a single non-charitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes application of law based on the facts presented in your application we have concluded that you are neither organized nor operated for exempt purposes as required in sec_1_501_c_3_-1 of the tax regulations accordingly you do not qualify for exemption as an organization described in sec_501 of the code your organizing document states the specific purpose of this corporation is to benefit racers promoters and letter rev catalog number 47630w spectators of motorsports in r this is not an exempt_purpose described under sec_501 of the code contrary to the limits imposed by sec_1_501_c_3_-1 and sec_1_501_c_3_-1 of the regulations you are empowered to engage substantially in activities not in furtherance of exempt purposes therefore you do not meet the organizational_test according to sec_1_501_c_3_-1 you must demonstrate that you are not operated to benefit private interests unfortunately you have not met your burden of proving you are operated primarily to serve public rather than private interests in reaching this conclusion we considered e e whether you are a qualified educational charitable or amateur sports organization and whether your focus on providing a venue to for motor sport races results in private benefit like the organizations that failed to qualify for exempt status in revrul_56_475 and revrul_70_4 you promote sports by conducting races and by inviting people to learn the rules and participate in your race events you enforce standards for the equipment to be used and the official rules of the games you do not have a regular program of instruction in fact your primary activity is devoted to providing a facility and scheduling events for racers who can earn substantial cash prizes based on the driver’s place when the race is finished you use your revenues to defray expenses and to pay prizes to drivers who take part in the racing events you are engaged in business with the public and are not operated exclusively for educational or charitable purposes you are unlike the organization in hutchinson baseball enterprises v commissioner t c pincite u s tax ct lexi sec_30 affd 696_f2d_757 10th cir in that case the organization's primary activities resulted in the furtherance of amateur athletics the organization provided coaching and instruction for children and recruited only top amateur baseball players to play on the team it sponsored the organization also hired a coach general manager and trainer to work with the team the players were not paid for participation on the team and they did not share gate receipts in contrast you provide no formal or ongoing instruction to your members and you pay cash prizes to the top finishers nearly a third of your expenses from to involved fees paid for and prizes awarded to top race finishers while the paying public derives some benefit a substantial benefit is provided to the racers who participate in your events compensating the winners of your events is not a characteristics of an organization operated in the furtherance of amateur athletics e like b s w group inc v commissioner you operate in a commercial manner you derive your income from selling advertising ticket sales participation fees and concessions you advertise conduct and market your races in a commercial manner your fees are not set on a scale that takes into account the attendee or participant’s ability to pay the only event that is open to the non-paying public is your of july event the remaining issue is whether you are a qualified_amateur_sports_organization described in sec_501 of the code unlike organizations which operate exclusively to foster national or international amateur sports competition the only prerequisite to participation in your program is that the athlete must meet a minimum age requirement you do not provide formal instruction beyond giving the participant the rule book individualized training is provided only if a parent or another racer is willing to share their knowledge with the beginner racer you are not devoted to improving the performance of a small_group of elite athletes catalog number 47630w letter rev e e e e e your participants are not required to have a certain level of talent and achievement in order to receive support you do not provide intensive daily training to prepare you participants for national or international completion instead you provide weekend events that are open to and attract a broad range of competitor’s you charge the public to attend and pay cash awards to the winning drivers therefore you are not an amateur sports organization under sec_501 of the code like better business bureau v united_states your non-charitable purposes are substantial in nature accordingly we find you do not qualify for exemption under sec_501 conclusion based on the facts and information submitted you are not organized and operated exclusively for exempt purposes you do not meet the organizational_test because your organizing document does not properly limit your purposes to those described in sec_501 likewise you do not meet the operational_test because you benefit racers and promotors you do not serve a charitable_class and any educational activities are insubstantial in comparison to you motor sporting activities and finally after consideration of all the facts and circumstances we concluded that you do not support development of amateur athletes for participation in national or international competition and conduct your activities in a commercial manner accordingly you do not qualify for exemption under sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with an explanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization letter rev catalog number 47630w under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n fax number contact person contact number identification_number employer_identification_number number release date date uniform issue list legend m n o x dear ------------ under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below facts state of m on june ------ article iii of your articles of organization states that you are formed for the purpose of purchasing and owning as tenants in common an n aircraft registration number o and operating the aircraft for the co-owners’ business training and pleasure or any use the co-owners may agree upon by majority vote of the co-owners all aircraft operations must be in strict accordance with faa regulations article iv sets forth the names and addresses of your initial four members and organizers agreement oa dated june ------- the oa serves as your internal governance document article of the oa reiterates the purposes stated in article iii of the articles of organization article of the oa provides that each member shall make a capital_contribution the same ----- persons identified in your articles of organization entered in an operating you were formed as a limited_liability_company llc hereinafter under the laws of the we have considered your application_for recognition of exemption from federal_income_tax article of the oa provides that decisions regarding the sale of the llc assets and the article of the oa provides that membership meetings shall be held at least four times of dollar_figure--x to the llc upon its formation this will constitute the beginning balance of each member’s capital_account members shall contribute a monthly sum to cover regular fixed costs including but not limited to tie-downs or hangar rent required inspections taxes and insurance upon mutual consent special_assessments may be made against the members for such uses as the llc may decide each year once every three months or more often as agreed to by the members special meetings may be called by the accounting member the member who maintains the books_and_records of the llc operation of the aircraft shall be made by mutual consent article of the oa states that individual capital accounts shall be maintained for each member and shall represent the entire value of his her interest the capital_account shall consist of his her capital_contribution increased or decreased as the case may be on any valuation_date due to an increase or decrease in the net value of the llc assets the net value shall be determined annually as of june 30th of each year article of the oa provides in part that no member shall without the consent of the others contract or obligate the llc to the payment of any sum of money in excess of dollar_figure--x accordance with all applicable federal air regulations and requirements of duly constituted_authority any deficiencies which cause any civil penalties to be levied shall be borne by the person responsible for the violation written consent of all members is required before additional persons can purchase any share of the assets priority pilots in weekly rotation the change occurring at midnight thursdays the priority pilot may fly any time during his assigned period without checking with the other members article sets forth the rules for priority time trades among the members remaining members have the right of first option to purchase the withdrawing member’s capital_account value if the member s do not exercise the option to purchase created by these events the llc shall be terminated and then liquidated in accordance with the provisions of article of this operating_agreement member shall offer his her interest to the llc at the lesser_of the value of his her capital_account or any amount tendered by a third party offeror for that member’s interest the capital_account is the agreed value established by actual asset acquisition_cost and add-ons article of the oa entitled right_of_first_refusal states in part that the withdrawing article of the oa states that the llc shall be limited to four members mutual and article of the oa provides that the aircraft shall at all times be flown and maintained in article of the oa entitled scheduling priorities states that members shall serve as article of the oa provides that upon the voluntary withdrawal of a member the in response to part ii of form_1024 exemption application you described your under part ii of form_1024 relating to qualifications for membership and classes of in your letter dated date you provided the following additional information you article of the oa entitled liquidation of assets provides that the llc may be liquidated and dissolved upon mutual consent of the members upon the dissolution and termination the members shall promptly liquidate the assets and affairs of the llc by satisfying all debts and obligations of the llc and by distribution of all remaining property to the surviving members in the proportion of their equity accounts as of the date of the liquidation activities as follows ownership maintenance and operation of a single engine aircraft place general aviation n o by members since ------ the percentage of time for this activity is stated to be membership you respond as follows must be licensed pilots no classes of membership each member has one vote no solicitation material or certificates new members must be unanimously approved organized as an llc because this format was perceived as a quick convenient way for ----- individuals to purchase an airplane and provide a formal liability limiting way to do so you were not aware that forming as an m nonprofit corporation was an option further concerning meetings of members and any social commingling you state that the members meet regularly both formally and informally at least once or twice per month to socialize and to discuss the affairs of our ownership such as maintenance schedule repair and etc in the final part of your response you state you have no current plans to solicit additional members unless one or more members decide to leave the llc law sec_501 of the code provides for the exemption from federal_income_tax of clubs organized and operated for pleasure recreation and other nonprofitable purposes substantially_all the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_1_501_a_-1 of the income_tax regulations provides that the term private shareholders or individuals refers to persons having a personal and private interest in the activities of the organization sec_1_501_c_7_-1 of the regulations essentially repeats the language of sec_501 of the code but also states that in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities exemption under sec_501 of the code in order to establish that a club is organized revrul_58_589 1958_2_cb_266 discusses the various criteria for recognition of revrul_70_32 1970_1_cb_132 describes a club organized to own and operate aircraft and operated for pleasure recreation and other nonprofitable purposes there must be an established membership of individuals personal contacts and fellowship a commingling of the members must play a material part in the life of the organization suitable for business or personal_use by its members to enable its members to improve their flying abilities and through the ownership and maintenance of flying equipment to provide economic flying facilities for its members membership is open to all persons who are interested in flying the revenue_ruling cites sec_501 of the code and states that in order for a club to qualify for exemption under this section there must be an established membership of individuals personal contacts and fellowship furthermore a commingling of members must play a material part in the activities of the organization the revenue_ruling concluded by stating the club does not qualify for exemption under sec_501 of the code because its sole activity is rendering flying services to its members and there is no significant commingling among its members revrul_74_30 1974_1_cb_137 describes a club that owns and operates several small aircraft which only members of the club may fly applicants for membership must be interested in flying as a hobby and must be approved by two-thirds of the membership members do the work required to maintain and operate the aircraft but occasionally hire outside experts for certain repairs officers earn two hours of flying time per month members earn one hour of flying time for each three hours of manual work on the aircraft such as washing polishing changing tires etc the club’s income is derived from membership fees dues and the sale of flying time to its members all of the club’s expenditures relate to the ownership operation and maintenance of its aircraft members are constantly in personal contact with each other by formal meetings of the board and the general membership and by informal meetings to schedule the use of aircraft further many are in contact to assist in training to wash the planes to inspect the aircraft and to make maintenance decisions regarding work to be done and who will be hired to do it to ferry aircraft to service shops to admit new members to review and pay bills to review financial reports to handle delinquent accounts to purchase or sell aircraft to comply with faa directives etc in addition small groups of members also fly together in the club’s aircraft effect that for a club to qualify under this section a commingling of members must play a material part in the activities of the organization in holding the club qualifies for exemption under sec_501 of the code revrul_74_30 points to the facts the club’s work is shared among the membership and there is frequent personal contact among the members thus the club members are jointly participating in the hobby of flying for pleasure and recreation within the meaning of sec_501 rul supra that was held not to be exempt under sec_501 of the code in that case the club was open to all persons who were interested in flying the members did not join to participate as a group in the hobby revrul_74_30 distinguishes it operations and activities from the club described in rev revrul_74_30 cites sec_501 of the code and revrul_58_589 supra to the the purpose stated in your articles of organization - purchasing and owning as tenants in of flying for recreation but to obtain economic flying facilities suitable for their individual business or personal_use the members had no expectation of personal relationship with the other members the facts in the revenue_ruling show that the club was operated primarily as a service to members rather than for the pleasure and recreation of the members analysis common an n aircraft and operating the aircraft for the co-owners’ business training and pleasure or any use the co-owners may agree upon - is with the exception of the word pleasure completely outside the scope of sec_501 of the code your purposes and operations are primarily of a business nature this business_purpose is evident from your formation under the llc statute of m instead of under m’s nonprofit statute the overriding business_purpose is further evidenced by the language in your oa which spells out at considerable length the financial interests and responsibilities of your four members many of these responsibilities focus on the operation and maintenance of the n aircraft that you purchased the oa also sets forth the rules for_the_use_of the aircraft by your members including scheduling priorities your members who are considered to be private shareholders under sec_1_501_a_-1 of the regulations article of the oa provides each of your members has a capital_account in club assets article sec_45 and sec_46 of the oa deal with the disposition of these capital accounts upon the withdrawal of a member article of the oa provides that upon the dissolution of the club remaining property is to be distributed to ‘ surviving members in the proportion of their equity accounts as of the date of liquidation the above provisions in the oa as well as others are inconsistent with the concept of a social_club formed for the pleasure and recreation of its members as required under sec_501 of the code the fact that each of your members upon withdrawing from the club is entitled to a defined share of club assets based on his her capital_account value contravenes the requirements of sec_501 of the code club members do not have the right to take operational assets upon leaving the club this can occur only when a club dissolves further your formation as an llc is inconsistent with sec_501 of the code you in essence are functioning as a for-profit business or partnership where your members instead of the club itself directly control all club assets this is apparent because each of your four members has a capital_account in the llc which gives them direct control_over your assets operational_test under sec_501 of the code because there is no evidence of regular meeting facilities or the required significant commingling among your membership see the holdings in rev ruls and supra your response to part ii of form_1024 makes no mention of any social or recreational activities instead all the evidence in the administrative file points to a time-sharing arrangement for_the_use_of the n aircraft this is many of the provisions in your oa as cited above point to a business arrangement among aside from the organizational defects noted above we also conclude you do not meet the accordingly you do not qualify for exemption as an organization described in section you have the right to protest this ruling if you believe it is incorrect to protest you should reflected in the provisions of the oa relating to the allocation of usage among your members and the information provided in form_1024 as noted above we take into account your statement in response of your letter dated date that your members meet on a regular monthly basis to socialize and to discuss the affairs of our ownership such as maintenance schedule repair nevertheless the available evidence shows there is very little commingling among your members in the context of the llc operation basically each of your members uses the n aircraft pursuant to rules set forth in the oa during his or her scheduled time and ordinarily no other members are present conclusion c of the code and you must file federal_income_tax returns submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions and do not intend to protest our denial of exempt status you should follow the instructions in notice in the event this ruling becomes final it will be made available for public inspection under if you decide to protest this ruling your protest statement should be sent to the address if you do not intend to protest this ruling and if you agree with our proposed deletions as internal_revenue_service te_ge se t eo ra t ------------------------------ constitution ave n w washington d c shown below if you also disagree with our proposed deletions you should send your comments on the deletions with your protest statement and not to the address shown in notice if it is convenient you may fax your reply using the fax number shown in the heading of this letter please call the contact person shown in the heading of the letter about the pending fax before transmission shown in the letter attached to notice you do not need to take any further action are shown in the heading of this letter enclosure notice if you have any questions please contact the person whose name and telephone number lois g lerner director exempt_organizations rulings agreements sincerely