department of the treasury internal_revenue_service te_ge eo examinations fulton street room brooklyn ny tax_exempt_and_government_entities_division release number release date legend org organization name address address org address date xx date person to contact taxpayer_identification_number identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district of columbia april 20xx certified mail dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated april 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s you are not operating exclusively for any charitable purpose educational purpose or any other exempt_purpose our examination reveals that you are not engaged primarily in activities which accomplish charitable educational or other exempt purposes as required by sec_1_501_c_3_-1 your activities including your financial transactions more than insubstantially furthered non-exempt purposes moreover you failed to establish that you were not operated for the benefit of private interest of your chairman and private shareholders or individuals as required for continued recognition of exemption pursuant to sec_1_501_c_3_-1 your income inured to the benefit of private shareholders and individuals contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return you have filed taxable returns on form_1120 for the years ended december 20xx december 20xx december 20xx december 20xx december 20xx and december 20xx with us processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing acting director eo examinations enclosure publication tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service flair dr 2nd floor el monte ca date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication sec_892 report of examination form_6018 sincerely sunita b lough director eo examinations letter catalog number 34809f schedule number or exhibit rev date name of organization taxpayer tax identification_number year period ended explanation of item sec_12 20xx 20xx and 20xx planes org legend org organization name state president president director director secretary secretary xx date address - address city - city state sch-1 sch-2 bmp-9 co-5 co-6 co-7 28p 3rp school 5th qt emp-1 emp-2 emp-4 emp-4 6th 7th gt 6g sth employees gth g 6g 7th emp-5 co-1 companies co-8 2np 38d 4th emp-6 co-2 emp-7 emp-8 co-3 co-4 issue whether the activities conducted by org org throughout the years of its existence were in compliance with the rules and regulations under the internal_revenue_code the code sec_501 whether org’s net_earnings inure to the benefit of its officers and board members within the meanings of the income_tax regulations the regulation sec_1_501_c_3_-1 whether org complied with record keeping requirements as required under the code sec_6001 and sec_6033 organizational information facts org was incorporated on october 19xx in the state of state the specific purpose of the organization as stipulated by article ii of the articles of incorporation is to engage in the solicitation receipt and administration of property and from time to time to disburse such property and the income there from sic for activities related to the development of new housing for low to moderate income families or for other charitable purposes in accordance with sec_501 the internal_revenue_service the service received the form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code signed by president the president of org on february 19xx its intended purposes as described in the application were rehabilitation of dilapidated single family dwellings a the organization will purchase dilapidated single family dwellings from the department of housing and urban development hud the purchase of each unit will be financed through loans from hud approximately of the purchase_price and loans at market interest rates from private investors including president the president of the organization approximately of the purchase_price the organization will then rehabilitate each unit so that it meets all applicable building codes and is suitable for marketing all rehabilitation work will be done by local building contractors at prevailing rates the rehabilitation of each unit will be financed through loans from hud approximately of rehabilitation costs and loans at market interest rates from private investors including president the president of the organization approximately of rehabilitation costs this activity will consume about of the organization’s time this activity furthers the organization’s goal of form 886-a department of the treasury-internal revenue service page of schedule number or exhibit aoe eeree form 886-a explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx rehabilitating existing housing stock in depressed urban neighborhoods thereby helping to halt the deterioration of such neighborhoods and contributing to their revitalization b cc this activity will begin as soon as the organization locates a suitable property being offered for sale by hud and hud determines that the organization is eligible to participate in its sale and loan programs this activity will be conducted in depressed urban neighborhoods located within county the organization’s president president will handle all day to day tasks related to purchase rehabilitation and financing sale of rehabilitated dwellings to low and moderate income families a b c the organization will sell the units it rehabilitates to low and moderate income families at market prices the units will be marketed through periodicals and through local real_estate agents who specialize in home for low and middle income buyers the organization will provide education and advice to first-time homebuyers especially with regard to available sources of financing this activity will consume about of the organization’s time this activity furthers the organization’s goals of assisting low and moderate income families to achieve the goal of home ownership and contributing to the stability and revitalization of depressed urban neighborhoods by helping families become stakeholders in those neighborhoods this activity will begin as soon as the organization completes rehabilitation of its first property this activity will be conducted in depressed urban neighborhoods located within county the organization’s president president and volunteers who support the organization’s goals will handle all day to day tasks related to marketing and sales development and support of after-school tutoring and sports programs for at risk high school and junior high schoo students a all profits from the sales of rehabilitated units will be used to finance after-school tutoring and sports programs for at risk high school and junior high school students the organization will work with school district personnel and other non-profit organizations to strengthen existing programs and to develop new programs of this type it is anticipated that most programs will recruit and compensate credentialed teachers and physical education instructors to provide students with academic tutoring and sports instruction after school hours this activity will consume about of the organization’s time this activity furthers the organization’s goals of providing constructive activities for at risk youth which will encourage them to stay in school and which will counteract the negative influences which they encounter each day form 886-a department of the treasury-internal revenue service page of 886-a schedule number or exhibit form explanation of items form bbg name of organization taxpayersstss s tax identification_number year period ended org b c 20xx 20xx and 20xx this activity will begin as soon as the organization realizes a profit from the sale of rehabilitated units initially the organization will focus on developing and supporting programs at sch-1 located in city state and sch-2 located in city state the organization’s president president and volunteers who support the organization’s goals will handle all day to day tasks related to the development and support of these after-school programs in response to the service’s questioning about whether any contractors would be related in any way to the oflicers or directors org stated the contractors used in the rehabilitation of the dwellings will not be related to any of the officers or directors of the organization in response to the service’s requesting a list of steps taken to involve the community or the residents org stated that it would provide education and advice to local residents who would like to become home owners in response to the service’s questioning about what president would be doing for the estimated dollar_figure annual compensation org provided a list of matters president would be doing and stated the president will spend in excess of hours per unit conducting his duties the basis of setting the compensation will be to provide token compensation_for his services in response to the service’s request to adopt the safe_harbor guidelines with a statement signed by two officers under the penalties of perjury org made the following statement org is very familiar with the department of housing and urban developments requirements for low_income_housing providers we will comply with all safe_harbor guidelines described on page of your march letter three individuals president as the president director as the director and secretary as the secretary and the director signed the safe_harbor statement and the response letter without the penalty of perjury statement on april l9xxx a determination_letter was issued on april 19xx granting exemption status under the code dollar_figure c as an organization described under the code sec_509 with an advanced ruling period through december 20xx ina letter dated april 20xx the service reaffirmed the exempt status of org as a publicly_supported_organization issue - operational_test on april 20xx the service initiated a review of the forms return of organization exempt i'rom income_tax and activities of org for the years ending december 20xx through 20xx org was involved in two separate but related activities low-income-housing rental and rehabilitating and selling of old homes purchased from hud form 886-a page of - department of the treasury-internal revenue service form 886-a schedule number or exhibit fo bbo oo explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx org owned properties in the beginning of 20xx and rented of them out org stated the units were rented to low-income tenants and provided rental agreements a review of the rental agreements indicated of the tenants received section housing assistance from hud each tenant would pay the same amount of rent regardless of the section assistance for example if the rent was dollar_figure a month and the tenant received dollar_figure in section voucher than org would receive dollar_figure from the housing authority of the county of county and this tenant would pay org the difference of dollar_figure with his own money we visited the website of the housing authority of the county of county at website which provided information related to section program to become a participating owner all one need to do is to lease the rental unit to a section voucher-holder an exempt_organization nor does it have any special rules or regulations to follow there is no requirement that a participating owner landlord has to be org would not explain how this rental_activity constituted a charitable activity the other activity org involved in was the purchasing refurbishing and reselling hud properties ‘this activity began in 19xx and reached its peek in 20xx and tapered off by 20xx org was no longer purchasing properties from hud however org fixed-up and sold two of the properties in 20xx we searched the public records for property transactions by org the hud properties org sold to individuals are summarized in the table below year of prop total sale total cost total gross gain ioxx loxx ion 20xx_ 20xx 20xx 20xx potal the total gross gain was mathematically determined by subtracting total cost from total sale it doesn’t represent the actual gain since the cost of refurbishing and the cost of sale were not accounted for we understand that hud allows for a profit for these kinds of properties with that in mind we made a conservative estimate of a gain or dollar_figure gain over year period we reviewed forms for the years ending december 19xx through 20xx the sales of the properties were only in 19xx through 20xx and they were reported on forms as follows form 886-a department of the treasury-internal revenue service page of schedule number or exhibit form 886-a explanation of items rev date name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx account description 19xx12 20xx12 20xx12 20xx12 20xx12 llousing sales hud discount total income __tsttime home buyer gift _ acquisition costs broker commission _ buyer costs pd by seller costs _ carrying rehab costs _ sales closing closing costs at a development fees net gain loss of net gain loss total expenses costs even though it appeared that org made little or no profits from these transactions president received substantial compensations and benefits the follow table is a summary of the expenses reported on forms and displays how the funds earned from the two activities were utilized for the years 19xx through 20xx account description i9xx12 20xn12 20xx12 20nx12 20xn12 20nn12 20nx12 a comp to oltivers directors ete pension_plan contribution nt lleatth insurance payroll_taxes total pymt to for president fe interest n2 professional lees le related expenses after schoo program total office ad ministrative expenses 'v paid to for president office related expense sec_26 org was on cash_basis cotrect his ming difference the best we could since it was nota part of the office or administrative expenses the 20xx percentage computation did not include the dollar_figure interest therefore when these amounts were contributed to the pension account is not know we adjusted the expenses to reflect and n a a2 nl the table above indicates over of the net_revenues in 19xx through 20xx were paid to president in the forms of compensations and benefits which was substantially higher than the dollar_figure estimated annual compensation to him on form_1023 form 886-a department of the treasury-internal revenue service page of form 886-a rev date explanation of items schedule number or exhibit name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx in the form_1023 org indicated it would be operating after-school programs for at risk school students there was one expense named after school program our review of the financial records indicated for 20xx through 20xx the payments were for school personal related expenses of the office manager’s daughter issue - net_earnings inuring to the benefit of officers and directors issue category - office space and staffs utilized by related entities in order to determine whether there were net_earnings inuring to the benefit of its officers and board members we need to look at how day-to-day matters were handled for the rental properties org contracted a properly management company to rent out each unit collect rents maintain the property etc at the end of each month the property management company would produce a monthly statement that summarized the rent collected expenses_incurred including its management fees and paid the net amount to org this property management company was also the contact person for the section assistance in other words org’s work related to the rental activities were to record net rental income and pay some bills such as mortgages property taxes and utilities we wanted to review the exact responsibilities of the property management company but org would not provide a copy during 20xx org rebuilt constructed properties and made the following payments payee _ description purpose total paid in recorded in 20xx 20xx mp- emp-2 emp-3 did handy-man work for rental properties org paid it directly for the work it did through emp-3 did construction work for org ihe works related to rebuilding constructing were primarily if not entirely handled by emp-3 an entity wholly owned by the husband of a director of org org’s work for this activity was limited to issuing checks to mp-3 org had no written contracts with emp-3 nor did it receive bills and invoices see issue category for transactions with emp-3 for the amount of work described above org rented a space in city state that appeared to be a 2-room apartment converted into office for over dollar_figuredollar_figure per month org hired a full-time office manager with compensation and benefits exceeding dollar_figuredollar_figure per year since there were more works than the office manager could handle org hired a part-time helper and paid her dollar_figuredollar_figure in 20xx dollar_figuredollar_figure in 20xx and dollar_figuredollar_figure in 20xx the payment to the part-time helper included dollar_figuredollar_figure bonus each year including 20xx the year she was compensated by org for the first months only a search of public records indicated several other entities were using the same post office box and or the office addresses we asked org to identify its related entities and percentage of ownership by the officers and directors org provided the ownership of president for each of the entities the following table summarizes his ownership entity name president ownership form 886-a department of the treasury-internal revenue service page of form 886-a rev date explanation of items schedule number or exhibit name of organization taxpayer tax identification_number year period ended - org 20xx 20xx and 20xx_ address city address city -co-1 emp-3 inc co-3 co-4 co-5 co-6 owned in the past owned in the past co-2 currently own sec_50 currently owns currently own sec_50 currently own sec_50 we searched the records within the service and found that it confirmed the ownership stated above plus the ownership of emp-4 as follows entity name address city _ address city _co-i ee president owned owned emp-4 owned owned president of this eo co-2 own sec_50 own sec_50 emp-3 inc co-3 co-4 co-5 _ co-6 owns owns through his wife own sec_50 own sec_50 owns own sec_50 own sec_50 lhe ownership of emp-4 is significant for our consideration because his ownerships represent the ownerships of the org’s operating director emp-s we questioned whether org’s employees provided any services to these related entities and org responded by stating in 20xx emp-6 the office manager and emp-7 the part-time helper did handle general office work for some of the entities above we are unable to provide and accurate percentage of the time spent in the past the majority of their time was spent on org matters from 20xx to present the time spent on org matters has reduced and time spent on other companies’ matters has increased in 20xx and 20xx many of the office expenses paid_by org were phased out and these expenses are now paid_by other companies org no longer pays for health insurance for president payments to emp-7 cel phone bills telephone bills p o box rent office rent or office supplies this explains why the part-time_employee received dollar_figuredollar_figure bonus at the end of 20xx even thought she was not compensated by org for the last months she was doing the same thing she had been doing for the remaining months for the same group of entities but paid_by an entity other than org the people in charge of org allowed other entities to utilize org in this manner because they were benefiting from such usage form 886-a page of department of the treasury-internal revenue service schedule number or exhibit form 886-a explanation of items rev date name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx we reviewed phone bills from co-7 and observed that there were phone lines in response to our question of who were the individuals using the phones org stated president and emp-6 were two of the users we have to check the other two numbers org did not provide the names of the other users beginning in the year 20xx org borrowed funds from org to cover some of the office expenses by early 20xx the borrowed funds accumulated to over dollar_figure president agreed to apply this loan as corrections toward office expenses inuring to the benefits of co-5 co8 and co-3 during the years under examination totaling dollar_figure issue category - health insurance for emp-1’s family org had full-time employees president and the office manager since xx org provided health_insurance_coverage for the entire family of these employees however beginning on xx org also provided health insurance for emp-4’s family at dollar_figure per month we questioned why org was paying for emp- 1’s family and the response was it was agreed that org would pay the health insurance for emp-4 from xx his insurance was paid for until xx the coverage for emp-1’s family continued through october 20xx this represented a total benefit of dollar_figure in 20xx and around dollar_figure in 20xx emp-1 agreed and utilized the loan from co-5 to org as corrections for these excess_benefit transactions issue category - properties transferred out of org we observed several questionable property transactions from the public records org quitclaimed of the rental properties address property the address property and the address property to president back in 20xx and remained under his name throughout these years we questioned why this was the case org’s response was the properties were quitclaimed to president in order to obtain favorable financing terms from cq-8 the properties were supposed to be quitclaimed back to org on the same day as the closing of the loan this is what was done with address on xx the fact that this was not done on subsequent properties was an error president has signed quitclaim deeds back to org org has not recorded those deeds because it would trigger a reassessment of the property the property records indicated that org quit claimed the address property to president on xx who then quit claimed to co-5 ‘ co-5 on the same day org quit claimed the address property to president on xx who then quit claimed to co-5 on the same day org quit claimed the address property to president on xx who then quit claimed to co-5 on xx we questioned what org received in exchanged for these properties and the response was the properties were sold in 20xx for valuable consideration the sales were recorded on the 20xx tax returns we questioned why rental incomes from the address property and the address property were recorded on org’s general ledger in january 20xx and the response was rental income deposited in january 20xx would have been for november or december 20xx rents since org is on the cash accounting basis the income was recorded in 20xx when the checks were received this response did not match the records because one property was quitclaimed out of org in september 20xx and the other in october 20xx form 886-a department of the treasury-internal revenue service page of - schedule number or exhibit form 886-a ee ee cay explanation of items tax identification_number year period ended 20xx 20xx and 20xx name of organization taxpayer org org quit claimed the address property to president on xx who then quit claimed to co-5 on xx co-5 then sold it to an individual on xx for dollar_figure we questioned what org received in exchange for this property and the response was the property was sold in 20xx for valuable consideration the sale was recorded on the 20xx tax returns org quitclaimed the address property to co-5 on xx but did not record the quit claim until 17-nxnn co-5 then sold it to an individual on xx for dollar_figure we questioned what org received in exchange for this property and the response was the property was sold in 20xx for valuable consideration the sale was recorded on the 20xx tax returns we questioned why the recording of the quitclaim did not take place until and years later and the response was the property was sold on 20xx to co-5 if the deed was not recorded until later that was an error org quitclaimed the address property to president on xx president then sold it to an individual on xx tor dollar_figure we questioned what org received in exchange for this property and the response was the property was sold on 20xx for dollar_figure the sale was recorded on the 20xx tax returns he transactions related to the address property were unusual and we have to summarize it as follows dollar_figure xx -hud sold it to co-1 the 501_c_3_organization with emp-1 as its president for dollar_figure xx -co-1 sold it to president for dollar_figure xx - president quit claimed it to co-s e e e e e xx - co-1 quit claimed it back to co-5 e xx - co-5 quit claimed it to co-1 xx - co-5 quit claimed to org we questioned what org paid for in exchange for this property and the response was org purchased the property for valuable consideration we questioned how org was utilizing this property and the response was org is maintaining the property as low to moderate income housing the general ledger for 20xx indicated that the rental income was recorded starting in november 20xx the purchasing of the property was recorded on xx with a journal entry offsetting ‘ loans-mortgage account for dollar_figure org stated there were no appraisals for any of these properties when they were transferred out of org we requested documentations regarding discussions and approval of these transfers and org’s response was there were no written minutes memos or emails regarding these transfers we requested org’s general ledvers for 20xx and 20xx to understand how these property transactions were records org chose not to provide them in september 20xx president made corrections for these property transactions org quitclaimed three properties at address address and address to president for the purpose of getting a better mortgage rate president transferred these properties back to org we determined that the excess_benefit amounts for the remaining properties that went to him or co-s totaled to dollar_figure the remaining balance of co-5’s loan to org in the amount of dollar_figure was used to reduce these excess_benefit amounts the remaining excess_benefit amounts of dollar_figure plus applicable_interest were given to an unrelated organization exempt under the sec_501 form 886-a page of g department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx facts applicable to all issues board members section dollar_figure of the bylaws stated that the authorized number of directors shall be five the form_1023 listed the following individuals for officers directors trustees etc under of part ii president cfo i -mp-4 i mp-8 director president chairman director chief financial officer director secretary director director director address address city state address city state address city state address city state address city state an analysis of forms for the calendar years 19xx through 20xx indicated there were only officers or directors these officers and directors remained the same throughout the seven years in other words org failed to comply with its own bylaws since 19xx the table below indicated that president was the only one receiving compensations _ name title 19xx12 20xx12 20xx12 20xx12 20xx12_ 20xx12_ 20xx12 president president chairman comp pension total emp-5 ___ secretary oper dir none none none none none none none none none none none none none none none none none none none none none cfo emp-9 director z lo minutes of meetings in response to our request for the minutes of the meetings of the governing body including committee meetings org provided the minutes of annual meetings dated xx xx and xx all three niinutes have the following statements except as indicated minutes of annual meetings of both shareholders and directors of org we the undersigned being all of the shareholders directors and the secretary of the corporation hereby agree and consent that the annual meeting of the shareholders and the annual meeting of directors of the corporation be held on the date designated hereunder and do hereby waive all notice whatsoever of such meeting and of any adjournment thereof emphasis added form 886-a page of department of the treasury-internal revenue service form form 8b6-a schedule number 886-a explanation of items or exhibit name of organization taxpayer org a tax identification_number year period ended 20xx 20xx and 20xx we do further agree and consent that any and all lawful business may be transacted at such meetings or at any adjournment or adjournments thereof as may be deemed advisable by any shareholder or director present thereat any business transacted at such meetings or a any adjournment or adjournments thereof shall be a valid and legal and of the same force and effect as if such meeting or adjourned meetings we held after the notice the directors and shareholders of this company pursuant to statutory requirements of that law held its annual meeting of the shareholders and immediately thereafter held its annual meeting ol board_of directors as of the day set forth below ‘the undersigned constituting all the shareholders directors and the secretary of this company hereby acknowledge that by placing their signatures below they consent to the waiver notice of these meetings and consent to said meetings being held by said shareholders board_of directors and secretary upon motion duly noted and seconded and unanimously carried out the following was considered and voted upon by the undersigned the minutes listed some of the matters that look place during the year org has not paid dividends there being no further business to come before the meeting of the undersigned upon motion duly make and seconded and unanimously carried the meeting was adjourned date director secrelary a review of org’s bylaws indicate that section dollar_figure states directors shall be elected at each annual meeting of the board_of directors to hold office until the next annual meeting by plurality vote of the directors in office immediately preceding the election section dollar_figure of the bylaws states ‘annual meetings of the board_of directors shall be held for the purpose of organization election of directors and officers and the transaction of other business annual meetings shall be held on the first day of february of each year pincite a m section dollar_figure of the bylaws states a majority of the authorized number of directors shall constitute a quorum lor the transaction of business a meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors if any_action taken is approved by at lease a majority of the required quorum for that meeting we compared the minutes to the bylaws to see whether org complied with its own rules and observed the following inconsistencies rm 886-a page of department of the treasury-internal revenue service form bbg-a ev date explanation of items schedule number or exhibit name of organization taxpayer tax identification_number year period ended org - 20xx 20xx and 20xx e e e e e e e with the references to shareholders and dividends the minutes appeared to follow the format of a for- profit corporation none of the minutes mentioned which officers and board members were present and whether a quorum was met the minutes began with the statement we the undersigned being all of the shareholders directors and the secretary of the corporation hereby agree and consent it appeared to imply that director was the sole shareholder director secretary of org these annual meetings were held in december even though the bylaws required them to be held on or the nest working day after the first day of february ‘there were no elections of directors the property transfers from org to president and to residential investment were director related transactions however there were no discussions or approval by the board lhe use of office space and sharing office staffs by related entities were not addressed in may 20xx emp-4’s family was added into the health insurance_policy and was paid for by org in other words the board member cfo emp-1’s wife was receiving benefits from org without the board’s approval and without consideration of conflict of interest this transaction was not discussed or approved by the board law the code sec_501 states an organization described in subsection c shall be exempt from taxation under this subtitle the exempt_organization listed under the code sec_501 is described as corporations organized and operated exclusively for religious charitable no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual emphasis added the income_tax regulations the regulation sec_1_501_a_-1 states the words private_shareholder_or_individual in sec_501 refer to persons having a personal and private interest in the activities of the organization phe regulation sec_1_501_c_3_-1 states an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose the regulation sec_1_501_c_3_-1 states 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 emphasis added the regulation sec_1_501_c_3_-1 states an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals form 886-a page of department of the treasury-internal revenue service - schedule number or exhibit form b86-a form 886-a explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests the regulation sec_1_501_c_3_-1 although states in terms of the net_earnings of an organization the inurement doctrine applies to any of an organization's charitable assets see 75_tc_127 payment of excessive_compensation is a form of inurement for example in 203_f2d_872 cir the fifth circuit held that the organizaion’s payment of a full-time salary for part-time work was inurement the regulation sec_1_501_c_3_-1 states the term charitable includes relief of the poor and distressed or of the underprivileged or iv to combat community deterioration and juvenile delinquency in 326_us_279 the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes revrul_70_585 1970_2_cb_115 provides that nonprofit housing organizations created to aid low and moderate income families by lessening neighborhood tensions eliminating prejudice and discrimination and combating community deterioration may qualify for exemption under sec_501 of the code receipt by an exempt_organization of less than fair_market_value in a sale_or_exchange of property with an insider is also a form of inurement in 46_tc_519 two doctors transferred their private practice of medicine including the building in which the practice was housed to a non-profit hospital they controlled a portion of the building was occupied by a for-profit laboratory under a prior agreement with the two doctors the doctors caused the hospital to acquiesce in the arrangement with the laboratory the hospital received no consideration for the assignment of its space to the laboratory either as part of the sale or through a share of the laboratory’s gross revenues payments in consideration of the assignment that should have been paid to the hospital were paid directly to the two doctors lhe doctors performed no services for the laboratory the tax_court held that the arrangement resulted in an inurement of the hospital’s charitable assets to the two doctors in anclote psychiatric ctr v commissioner t c memo an organization’s board_of directors caused the organization to sell its largest asset - a hospital - to a for-profit entity formed by the directors the board_of directors obtained an independent appraisal of the hospital and hired independent counsel to represent the organization the closing however occurred almost two years after the appraisal the parties tailed to make adjustments to the values established in the appraisal the tax_court determined that the purchase_price received by the organization on the sale of the hospital was not within a reasonable range of what could be considered fair_market_value accordingly the tax_court held that the sale transaction resulted in inurement within the meaning of dollar_figure c the provision of inurement can be direct or indirect in anclote psychiatric ctr supra the sale transaction giving rise to the inurement was between an exempt_organization and a for-profit corporation formed by the organization’s directors although the for-profit corporation was the direct beneficiary of the below-market sale transaction the tax_court held that the transaction resulted in ‘ ‘an advantage to the form 886-a department of the treasury-internal revenue service page of form 886-a rev date schedule number or exhibit - explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx shareholders of the for-profit corporation and that this advantage constituted inurement of the organization’s charitable assets to the shareholders in 765_f2d_1387 cir the ninth circuit treated as in church by mail two inurement compensation paid_by a controlled_entity to the organization’s insiders individuals reverend ewing and reverend mcelrath ran a church that mailed printed sermons to several million homes they also owned a for-profit advertising agency which provided the church's printing and mailing services the ninth circuit found that the combined compensation paid to reverend ewing and reverend mcelrath by the church and the advertising agency was excessive the ninth circuit rejected the church's argument that the portion of the compensation paid_by the advertising agency should not be included in the determination of reasonableness and treated this portion as indirect inurement of the church’s earnings to the church’s insiders d the ninth circuit based its conclusion on the following legal principle w hen a second organization is created which serves to funnel income to the individual who controls the purportedly exempt_organization and the income exceeds a reasonable salary the income inures to the benefit of a private person within the meaning of sec_501 jd indirect inurement can occur even if the organization’s insiders are not formally in control of the intermediary used to funnel the funds from the organization to the insiders in 823_f2d_1310 cir the organization transferred in excess of dollar_figure million to a for-profit corporation incorporated by the organization’s founder and his wife the directors of the corporation were high-ranking members of the church of scientology at the time of the transfer the founder and his wife were not directors officers or employees of the corporation the founder was no longer serving as the head of the church but continued to exert significant control_over the church by making policy statements directives and orders f 2d pincite in particular his approval was required for all financial planning d he directors of the corporation approved the founder’s decision to transfer dollar_figure million from the corporation's account to the ship apollo_aboard which the founder and his family lived the ninth circuit held that the organization’s funds funneled through the corporation constituted inurement to the founder and his family 2d pincite the prohibition on inurement in the code sec_501 is absolute the service has the authority to revoke an organization’s exempt status for inurement regardless of the amount of inurement see 222_fsupp_151 e d wash the 412_f2d_1197 283_fsupp2d_58 moreover for purposes of establishing that inurement occurred it the transfer giving rise to inurement is not within a reasonable range of what could be considered fair_market_value see anclote psychiatric ctr v commissioner t c memo is not necessary to calculate the precise amount of inurement as long as it is shown that the value of record keeping requirement the code sec_6001 states every person liable for any_tax imposed by this title or for the collection thereol shall keep such records render such statements make such returns and comply with such rules and revulations as the secretary may from time to time prescribe whenever in the judgment of the secretary it 1s necessary he may require any person by notice served upon such person or by regulations to make such form 886-a department of the treasury-internal revenue service page of or ooo form 886-a explanation of items schedule number or exhibit - name of organization taxpayer tax identification_number year period ended _ org 20xx 20xx and 20xx returns render such statements or keep such records as the secretary deems sufficient to show whether or not such person is liable for tax under this title the code sec_6033 states in general every organization_exempt_from_taxation under sec_501 a shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purpose of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe the regulation sec_1_6001-1 states ‘ n general any person required to file a return of information with respect lo income shall keep such permanent books of account or records including inventories as are sufficient to establish the amount of gross_income deductions credits or other matters required to be shown by such person in any return of such tax or information the regulation sec_1_6001-1 states exempt_organizations -in addition to such permanent books_and_records as are required by paragraph a of this section with respect to the tax imposed by sec_511 on unrelated_business_income of certain exempt_organizations every organization exempt from tax under section s01 a shall keep such permanent books of account or records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall also keep such books_and_records as are required to substantiate the information required by sec_6033 the regulations sec_1_6001-1 states retention of records -the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law the revrul_59_95 1959_1_cb_627 jan states an organization previously held exempt trom federal_income_tax was requested to produce a financial statement as of the end of the year and a statement of its operations during such year however its records were so incomplete that it was unable to furnish such statements he d failure or inability to file the required information_return or otherwise to comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of an exempt status i ffective date of revocation the regulation sec_1_501_a_-1 states subject only to the commissioner's inherent power_to_revoke rulings because of a change in the law or regulations or for other good cause an organization that has been determined by the commissioner or the district_director to be exempt under sec_501 a or the corresponding provision of prior_law may rely upon such determination so long as there are no substantial changes in the organization's character purposes or methods of operation form 886-a department of the treasury-internal revenue service page of form 886-a rev date schedule number or exhibit explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx __ the regulation sec_601_201 states a ruling or determination_letter recognizing exemption may not be relied upon if there is a material_change inconsistent with exemption in the character the purpose or the method of operation of the organization the regulation sec_601_201 states a n exemption ruling or determination_letter may be revoked or modified by a ruling or determination_letter addressed to the organization the revocation or modification may be retroactive if the organization omitted or misstated a material fact operated in a manner materially different from that originally represented issue - operational_test government position in order for an organization to retain its exempt status it must demonstrate to the service that it meets both the organizational and the operational tests the facts stated above indicate that org failed the operational_test charitable purposes include relief of the poor and distressed the regulation sec_1_501_c_3_-1 org’s rental_activity and selling of real properties in the manner described above doesn’t address the needs of low-income people in fact the rental_activity and the selling of real properties were operated in a manner no different than other business entities that are engaging in such activities in a commercial manner lhe rental rate was the same regardless of whether a tenant receives rental assistance from government agencies in fact org required the tenant to pay the difference if the rental assistance amount was less than the rental rate the government agency did not require the landlord to be an exempt_organization in 20xx org also sold properties fixing and selling properties at market rate doesn’t constitute assisting low-income families therefore the activities as described above did not meet the operational_test as described under sec_1_501_c_3_-1 of the regulation org has bylaws but chooses not to comply with them it held the annual board member meetings in yecember instead of february it made no elections during the annual meetings it did not discuss and or approve many of the significant matters that took place during the years these actions represent org disregarding its own rules and regulations which in turn indicates that org did not meet the operational_test as described under dollar_figure1 c -1 c of the regulation issue - net_earnings inuring to the benefit of officers and directors president was an officer of org emp-4 was the spouse of emp-s the operating director of org more than insubstantial amount of each of the entities utilizing org’s street and po box addresses are were owned by president and emp-1 therefore president emp-1 and all entities they own owned are private shareholders or individuals within the meaning of the regulation dollar_figure1 a -1 c issue category - office space and staffs utilized by related entities form 886-a department of the treasury-internal revenue service page of schedule number or exhibit form 886-a rey date explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx - org allowed president emp-1 and entities they own owned to utilize its staffs supplies and office space without any reimbursements such usage was not approved by the org board members therefore such usave inured to the benefit of president emp-1 and entities they own owned and represented an act prohibited by the code dollar_figure c issue category - health insurance for the gooch family during the years 20xx and 20xx org paid for the health insurance of emp-1’s family which was not approved by the board_of directors therefore these payments constituted net_earnings inuring to the benelits of emp-1 and represented an act prohibited by the code sec_501 issue category - properties transferred out of org any transactions between an exempt_organization and another party should be at market rate or below market rate to the benefit of the exempt_organization ifa transaction is below market rate but the party being short-changed is the exempt_organization then the transaction constitutes misuse of exempt organization’s funds since 20xx org transferred several properties to president the monetary considerations were limited to the amount of outstanding loans these transfers were not approved by the board members of org ‘ herefore these transfers constituted net_earnings inuring to the benefits of president and represented an act prohibited by the code sec_501 issue overall the records indicate there were substantial net_earnings inuring to the benefits of private shareholders and individuals going as far back as 20xx year there was no oversight by a disinterested board the individuals in charge of org utilized org as if it was another for profit business under their control no segregation of duties funds or authorities observed accordingly the exemption status of org should be revoked due to its net_earnings inured to the benefit of these private shareholders and individuals within the meaning of the regulation sec_1_501_c_3_-1 issue - record keeping requirement through out the examination org was unwilling or unable to produce the records necessary to support and substantiate the financial information reported on the annual returns it filed the records it managed to provide did not match one another in several instances accordingly under the code dollar_figuredollar_figure and and the regulations thereunder failed to comply with requirements taxpayer position form 886-a department of the treasury-internal revenue service page of see a form 886-a schedule number or exhibit explanation of items name of organization taxpayer tax identification_number year period ended org 20xx 20xx and 20xx org agreed and terminated its operation in august 20xx org transferred the three properties at address address and address and the cash balance of dollar_figure to an unrelated organization exempt under sec_501 conclusion based on the information secured during the examination we conclude that org is not operated for exempt purposes under sec_501 of the code an organization can not be recognized as exempt under dollar_figure c unless it shows that it is operated exclusively for charitable education or other exempt purposes and its net_earnings does not inure to the benefit of any private_shareholder_or_individual among other things org’s activities must demonstrate conclusively that it meets the operational_test of sec_1_501_c_3_-1 of the regulation the activities show that the primary purpose is renting properties out to general_public that does hot exclusively serve a purpose described in sec_501 of the code it also engaged in many transactions enabling its net_revenues to benefit president and emp-1 the private shareholders or individuals of org therefore the exempt status granted to org should be revoked effective from january 20xx in accordance with the regulation sec_601_201 form 886-a department of the treasury-internal revenue service page of


o f f ic e o f c h ief c o u n sel number release date department of the treasury i n t e r n al r e v e n u e s e r v i c e w as h i n g t o n d c date uilc 25a cc ita tl-n-738-01 memorandum for area_counsel small_business self-employed area cc sb bos from heather maloy associate chief_counsel income_tax accounting subject this memorandum responds to your request for field_service_advice dated date concerning sec_25a sec_151 and sec_152 of the internal_revenue_code sec_25a pertains to the hope scholarship credit and the lifetime_learning_credit collectively the education tax_credit sec_151 and sec_152 relate to deductions for personal and dependency_exemptions issues if a dependency_exemption with respect to an individual taxpayer college student was allowable but not allowed on his parents’ federal_income_tax return for the tax_year in issue then -- what is the amount of the taxpayer student’s personal_exemption and is the student taxpayer entitled to claim a hope scholarship credit on his own return conclusions because a dependency_exemption was allowable to the parents of the taxpayer student during the year in issue the taxpayer’s personal_exemption amount is zero because the taxpayer student was not allowed claimed as a dependent by his parents the taxpayer is entitled to claim a hope scholarship credit on his own return for that year assuming he meets all other relevant eligibility requirements tl-n-738-01 facts the taxpayer is a college student who filed as a single_taxpayer in his parents who are married and filed a joint federal_income_tax return for were entitled to claim the taxpayer as a dependent on that return however the parents reported adjusted_gross_income agi sufficiently large that they could derive no tax_benefit either from claiming the taxpayer as a dependent or from claiming an education tax_credit with regard to any education-related expenditures they might have made on his behalf on his return the taxpayer reported an agi of dollar_figure a personal_exemption amount of zero and a hope scholarship credit of dollar_figure the service_center denied the education tax_credit but sent the taxpayer a letter stating that the taxpayer could claim the credit if he filed an amended_return claiming himself as a dependent the taxpayer responded that he could not claim himself as a dependent because his parents could have claimed him as a dependent on their return however the taxpayer continued to maintain that he is entitled to an education tax_credit for the year and requested assistance from the taxpayer_advocate in obtaining it your initial understanding of the facts when this matter was first referred to you was that the taxpayer’s parents had claimed him as a dependent on their federal_income_tax return based on that understanding your office recommended and this office informally concurred in denying an education tax_credit to the taxpayer however further investigation has revealed that the taxpayer’s parents did not in fact claim the taxpayer as a dependent in although they did claim a dependency_exemption with respect to another of their children your office then requested our office’s written views on whether the taxpayer was correct in claiming the education tax_credit on his return law and analysis this case involves the relationship between the personal and dependency_exemption rules found in sec_151 and sec_152 and the education tax_credit rules found in sec_25a the rules operate in tandem but a seemingly slight difference in the relevant statutory language -- sec_151 uses the word allowable whereas sec_25a uses the word allowed -- is crucial to our determination that the taxpayer was correct both in treating his personal_exemption amount as zero and in claiming the education tax_credit personal and dependency_exemptions sec_151 and sec_152 allowable as a deduction sec_151 and sec_152 pertain to personal and dependency_exemptions sec_151 provides that in the case of an individual the exemptions provided by sec_151 shall be allowed as deductions in computing taxable_income an individual and his or her tl-n-738-01 spouse may each claim a personal_exemption under sec_151 for the exemption_amount under sec_151 an individual may also deduct the exemption_amount for each of that individual’s dependents if the dependent either has gross_income for the relevant year of less than the exemption_amount or is a child of the taxpayer and is either under the age of or if a student under the age of sec_152 generally defines a dependent as being an individual who receives or is treated as receiving more than half of his or her support for the calendar_year from another taxpayer with whom the individual stands in a specified relationship the first such specified relationship is between a parent and his or her son or daughter see sec_152 the general exemption_amount for was dollar_figure see sec_151 and d and dollar_figure of revproc_98_61 1998_2_cb_811 however under a special rule found in sec_152 the exemption_amount applicable to an individual is zero if that individual is one with respect to whom a deduction is allowable to another taxpayer during the taxable_year at issue emphasis added in general a deduction is allowable if it is permissible regardless of whether the deduction is actually used or confers a tax_benefit see 14_f3d_583 - fed cir a dependency_exemption was allowable to the taxpayer’s parents for under sec_151 because all three conditions of sec_152 were satisfied i a specified relationship existed ii the parents supplied more than half their son’s support and iii the son was both a student and under the age of as a direct consequence of allowability under sec_151 however the taxpayer’s personal_exemption amount for was pegged by sec_151 at zero he was not entitled to the tax_benefit of a personal_exemption for himself because other taxpayers -- his parents -- were permitted to claim him on their return the effect of sec_151 and d when read together is both to ensure that only one exemption can properly be claimed per individual and to mandate on which of two possible returns the claim is proper once the conditions of sec_152 are met an individual will have the status of a dependent -- and the concomitant personal_exemption amount of zero -- even if the taxpayer on whose return the dependent can be claimed chooses to forego actually claiming the dependency_exemption moreover sec_151 and d d will operate to mandate a personal_exemption amount of zero for a dependent even if the phase out rule_of sec_151 results in a zero exemption_amount being available with respect to that dependent on another taxpayer’s return sec_151 requires a phase out or reduction of the exemption_amount for those high income taxpayers whose agi exceeds a specified threshold_amount in the threshold_amount for married taxpayers filing jointly began at an agi of dollar_figure of agi with the phaseout being complete once agi reached dollar_figure see dollar_figure of revproc_98_21 because the taxpayer’s parents reported an agi for that was substantially in excess of dollar_figure the parents' exemption_amount for both personal and dependency_exemptions for that year was reduced to zero although a zero exemption_amount meant that the parents would tl-n-738-01 have derived no tax_benefit from claiming their son as a dependent that lack of tax_benefit was statutorily irrelevant under sec_151 in sum because a dependency_exemption with respect to their son was allowable to the parents the taxpayer son's personal_exemption amount under sec_151 was zero thus the taxpayer correctly declined to amend his return the sec_25a education tax_credit allowed as a deduction sec_25a provides two credits -- the hope scholarship credit and the lifetime_learning_credit -- that may be claimed with respect to an individual's qualified_tuition_and_related_expenses for post-secondary education although the credits differ in some important respects the statutory rule relevant here -- sec_25a -- applies equally to both credits accordingly the hope scholarship credit and the lifetime_learning_credit are referred to collectively in this memorandum as the education tax_credit during the education tax_credit began being phased out when a taxpayer's modified agi reached dollar_figure and was completely phased out at a modified agi of dollar_figure sec_25a sec_25a defines qualified_tuition_and_related_expenses in general as tuition and fees required for the attendance or enrollment of i the taxpayer ii the taxpayer's spouse or iii any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under sec_151 emphasis added in general a deduction is allowed if it has been claimed on the return regardless of whether the deduction produced a tax_benefit see 319_us_523 as noted earlier although the taxpayer's parents were entitled to claim the taxpayer as a dependent on their tax_return they elected to forego that deduction the consequences of the parents' forbearance were twofold a sec_151 deduction was not allowed on their return and the parents were ineligible under sec_25a to claim an education tax_credit with respect to the taxpayer by not claiming the taxpayer as a dependent however the parents ensured that he -- who was the taxpayer the hope scholarship credit is allowed for a total of years for individuals who are at least half-time students who are enrolled in a degree or certificate program and who have not completed at the beginning of the taxable_year the first years of post-secondary education the maximum hope scholarship credit_amount for the expenses of an eligible_student in was dollar_figure the lifetime_learning_credit is allowed to any taxpayer for any taxable_year for who pays qualified_tuition_and_related_expenses to attend an eligible_educational_institution for the purpose of acquiring or improving job skills the maximum amount that could be claimed under the lifetime_learning_credit in was dollar_figure additional information about the credits can be found in the proposed_regulations under sec_25a and in pub tax benefits for higher education tl-n-738-01 referred to in sec_25a - became the only person eligible to claim an education tax_credit with respect to his qualified_tuition_and_related_expenses in see notice_97_60 1997_2_cb_310 q a moreover the taxpayer became entitled to the credit not only for any qualified_tuition_and_related_expenses he may have paid but also for any such amounts his parents may have paid on his behalf see prop_reg sec_1 25a- f ex congress deliberately chose the allowed standard for the education tax_credit because that standard permits more flexibility to a family than does the allowable standard found in sec_151 see h rep cong 1st sess 1997_4_cb_319 - that flexibility is illustrated by the facts of this case although neither the taxpayer nor his parents could derive any_tax benefit from the operation of the sec_151 rules his modified agi was low enough that he -- although not his parents -- could derive some tax_benefit from the education tax_credit the intra-family allocation of the credit to the taxpayer -- which the parents achieved by not claiming him as a dependent -- conferred a tax advantage upon the family as a whole in a manner consistent with congressional intent accordingly we conclude that the service_center erred in disallowing the taxpayer’s claim for the education tax_credit if we can be of further assistance please telephone our conclusion is based on our understanding that the only ground for disallowance was the confusion over the allowed versus allowable standard we thus are assuming that the amount of the credit claimed by the taxpayer accurately reflects the taxpayer’s and or his parents’ expenditures on qualified_tuition_and_related_expenses and that there are no other grounds upon which the credit should be denied


' internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc intl br1-plr-122644-97 date date date b country c year year year date d this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship expatriation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated april and date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-122644-97 a was born in the united_states on date b in year a moved to country c and became resident in country c european continent she was a resident of country c from year to year when she became a country c citizen a's expatriation her net_worth exceeded the net_worth required under sec_877 in year except for one year when she lived on the a renounced her u s citizenship on date d on the date of sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a b a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former citizen will not be presumed to have a principal purpose of tax_avoidance if that former citizen submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because she was present in the united_states for less than days during each of the ten years prior to her expatriation notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a submitted all of the information required by notice_97_19 including any additional information requested by the service after review of the submission plr-122644-97 accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_97_19 as modified by notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of tax_avoidance however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a's expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter taxable periods prior to or following her loss of citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 in addition no opinion is expressed as to a's u s tax_liability for a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely allen goldstein reviewer office of associate chief_counsel international cc 2b


internal_revenue_service number release date index number --------------------- -------------------------- ----------------------------------------------------- -------------------------------------- ------------------------- ---------------------------- in re ------------------------------- ------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc corp b02 plr-144057-13 date date parent ------------------------------- ------------------------------------------------------------------------------ --------------------------------------------------------------------- bank ------------------------------------------------------------------------------ --------------------------------------------------------------------- ------------------------ agency date date date date date x agency tax professional ----------------------------------------------------- --------------------------- ---------------------- --------------------------- ---------------------------- ------------------- -- ----------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------- plr-144057-13 dear ------------ this letter responds to a letter dated date submitted by agency as agent of the consolidated_group of which parent is the common parent the parent group requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular agency is requesting an extension of time for the parent group to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of the parent group of which bank is a member on date bank was closed and agency was appointed receiver on date pursuant to sec_301_6402-7 agency was authorized by the internal_revenue_service to act as an agent of the carryback_year group the loss_year group or any other group of which bank is a member for any matter pertaining to the determination of the refund or tentative_carryback_adjustment for the carryback and loss years of the parent group the parent group incurred a cnol in the taxable_year ending date the year cnol agency on behalf of the parent group seeks to carry back the year cnol x years to the parent group’s taxable_year ending on date under sec_172 of the internal_revenue_code the parent group was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date 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 was submitted under sec_301_9100-3 for an extension of time to file the election agency has represented that the parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer’s nol for a taxable_year ending after date and beginning before date plr-144057-13 sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group may elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in 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 plr-144057-13 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for the parent group to file the election provided the parent group establishes to the satisfaction of the commissioner 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 agency and agency tax professional 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 timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that the parent group acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for the parent group to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax the parent group may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if the parent group files form 1120x electronically the parent group may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-144057-13 of this letter_ruling plr-144057-13 the above extension of time is conditioned on the parent group’s tax_liability if any not being 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 we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether the parent group qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by agency and agency tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer 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 ken cohen acting chief branch office of associate chief_counsel corporate