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


o f f ic e o f c h ief c o u n sel department of the treasury internal_revenue_service washington d c date number info release date uil the honorable paul sarbanes united_states senate washington d c dear senator sarbanes this letter is in response to your date inquiry on behalf of your constituent questioned the tax consequences of a stock_distribution she and her husband received from the bought the in the stock in when the company owned a stock was split for according to interest in this split of the distributed all but stock they received is considered a dividend for u s citizens in the amount of resulted in reallocation of a portion of the original_basis to the new shares in may of the the value of the citizens would face different tax consequences be spread between the are being discriminated against because their tax consequences differ from that of stock is citizens she would like an explanation of why the spin-off of citizens’ stock basis would believes u s citizens stock on the date of the distribution stock to its shareholders also said canadian stock and the told the stock treated differently than the stock split of stock the distribution_of_property including cash from a corporation to its shareholders is taxable in the amount of cash or fair_market_value of other_property the shareholder received as a dividend in an amount no greater than the corporation’s earnings_and_profits sec_301 of the internal_revenue_code the code the term property includes a corporation’s stock if it is not the stock of the corporation making the distribution in this case be property and the distribution of it is a dividend to the stock would shareholders assuming stock would not be property thus the has sufficient earnings_and_profits if has insufficient earnings_and_profits the amount by which the distribution exceeds the earnings_and_profits accumulated as of the end of the taxable_year in which the distribution is made is applied against the adjusted_basis of the exchange of property the fact that treatment of the distribution as a dividend to its united_states_shareholders stock any excess is treated as gain from the sale or company does not change the is a the most significant exception to this rule is in sec_355 which governs tax-free spin- offs if a transaction qualifies as a tax-free spin-off there is no immediate tax payable by the shareholders they would spread the basis in the shares they previously held between those shares and the shares of the distributed company received in the spin- off there are many complicated requirements which must be satisfied to qualify under sec_355 the most important requirement for the the distribution must distribute at least of its subsidiary’s stock because owned only tax-free spin-off under sec_355 no other provision in the code or the income_tax shares as a dividend regulations exempts the ’s stock before the distribution the distribution cannot qualify as a from tax on the receipt of the is the corporation making of the tax consequences of the distribution of the stock are different from those of the stock the tax consequences of a stock stock split by split are governed by sec_305 which generally says stock of a corporation issued to its shareholders is not included in the shareholders’ gross_income the basis of the old shares is spread between those shares and the new shares before the distribution of i hope this information is helpful if you have any questions please call me or paula hu-pitzer identification_number at sincerely _________________ debra carlisle chief branch cc corp


department of the treasury internal_revenue_service washington d c apr number release date cc tege eoeg et1 - cor-102948-01 uilc memorandum for from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-102948-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became a rail carrier employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became a rail carrier employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


internal_revenue_service number release date index number --------------------------- ------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no --------------- telephone number --------------------- refer reply to cc ita b04 plr-127938-05 date august ---------------------- ---------------------------- ------------- ------------- legend x y z dollar_figurea year ------- date --------------------------- date ------------------------- year ------- dear --------------- this letter is in response to a request for a letter_ruling on the proper treatment of a payment received by x specifically x has requested a ruling that under the community_property_laws of state z only percent of the payment is includible in x’s gross_income facts x and y were married individuals residing in state z a community_property_state x and y divorced on date at the time of the divorce x and y were and continue to be cash_basis taxpayers on date a stipulated judgment on reserved issues was rendered completing x and y’s property settlement there were no other agreements prenuptial or otherwise regarding community and separate_property in effect at that time or at any time during x and y’s marriage x practiced law for many years while in practice x was a shareholder and employee of a closely-held corporation firm which reported income on the cash_basis x’s stock in firm was a community asset firm often referred large contingency fee personal injury cases to another law firm firm per the agreement with firm firm was entitled to a portion of the contingency fee if the suit was successful once plr-127938-05 referred neither x nor firm was required to engage in any further functions relating to the law suits in year when x and y were married and living together firm referred a number of law suits to firm in year the cases settled with a significant contingency fee of which dollar_figurea was payable to x through firm subsequent to the law suits being filed and before any settlements on the cases had been reached x and y were divorced the stipulated judgment on reserved issues dictates that any settlement from these cases should be split evenly between x and y using one of two methods x reports all of the income and then splits the remainder with y after all taxes are paid or x and y each report one half of the income on their respective returns and each pay tax on one half of the income law and analysis sec_61 of the internal_revenue_code provides that except as otherwise provided by law gross_income means all income from whatever source derived under 281_us_111 income is ordinarily taxed to the person who earned it and tax_liability may not be shifted by an anticipatory_assignment_of_income in that case mr earl tried to avoid tax_liability by executing a contract whereby half of his earnings were to become the property of his wife the court held that income is taxable to the person who earns it and thus despite the contract all of mr earl’s earnings were taxable to him in 403_us_190 the issue of compensation_for the exchange of services in a community_property_state was addressed mitchell the taxpayer was assessed a tax_deficiency for the years during which she was married and community_income was earned by both spouses mitchell was not involved in the family finances as her spouse handled everything and for the years in question no tax returns were filed pursuant to her divorce in mitchell renounced the community to relieve herself of the community’s debts and thus did not receive a property distribution or a property settlement despite the lack of control_over finances and the renunciation of the community_property altogether the court held that mitchell had an immediately vested ownership_interest in half the community_property income and was personally responsible for the tax on her share which was not affected by her renunciation id pincite the court reasoned that with respect to community_income as with respect to other income federal_income_tax liability follows ownership in the determination of ownership state law controls id pincite see also 282_us_101 which provides that where compensation rights are earned through the performance of services by one spouse in a community_property_state the portion of the compensation treated as owned by the non-earning spouse under state law is treated as the gross_income of the non-earning spouse for federal_income_tax purposes plr-127938-05 community_property_laws in state z provide that each spouse should include in gross_income half of the community_income attributable to services rendered by either spouse whether compensation_for past earnings is separate_property or community_property depends on when the income was earned if the absolute right to receive the income is fixed while the community is intact the earnings are community_property and each spouse has an undivided_interest in half of that income even if the income is not received before dissolution of the marriage see foosh v commissioner f2d 9th cir 81_tc_652 as noted above in mitchell state ownership laws determine federal tax_liability since state z is a community_property_state x and y each have immediately vested ownership interests in an undivided half of all community assets that were acquired during the marriage in this case x had earned the absolute right to the contingency fee prior to the divorce x was no longer involved in producing the income after the divorce thus under community_property_laws of state z this contingency fee is considered a community asset additionally per the stipulated judgment on reserved issues both x and y recognized that this was a community asset capable of being divided therefore prior to dissolution of the marriage x and y each had an undivided one-half interest in the contingency fee furthermore because it is a community asset x’s transfer of half of the contingency fee to y prior to paying tax on it is not an assignment_of_income as was the case in lucas v earl supra conclusion based strictly on the information submitted we conclude that x must include in gross_income percent of the dollar_figurea contingency fees caveats the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 the power_of_attorney and declaration of representative on file in this office a copy of this letter is being sent to your representative plr-127938-05 a copy of this letter should be attached to any_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 enclosures michael j montemurro acting branch chief office_of_chief_counsel income_tax accounting sincerely


t c memo united_states tax_court sylvester h cain petitioner v commissioner of internal revenue respondent docket no filed date sylvester h cain pro_se charles m berlau for respondent memorandum opinion thornton judge respondent determined a dollar_figure deficiency in petitioner’ sec_2001 federal_income_tax and a dollar_figure accuracy- related penalty under sec_6662 the only bona_fide issue unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue all monetary amounts have been rounded to the nearest dollar for decision is whether a penalty should be imposed on petitioner under sec_6673 background the parties have stipulated some facts which we incorporate herein when he filed his petition petitioner resided in saint marys kansas until his retirement in petitioner was employed by the u s department of education the parties have stipulated that during petitioner received the following payments pension annuity payments of dollar_figure from the u s office of personnel management medical payments from monumental life_insurance_company of dollar_figure and social_security payments of dollar_figure on hi sec_2001 form_1040 u s individual_income_tax_return petitioner reported zero gross_income and claimed a dollar_figure refund attached to his form_1040 was a statement of annuity paid from the office of personnel management reporting dollar_figure gross annuity payments to petitioner in and zero federal_income_tax withheld also attached to petitioner’s form_1040 was form_4852 substitute for form_w-2 wage and tax statement or form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc on which petitioner claimed dollar_figure of federal_income_tax withheld by the office of personnel management for which petitioner claimed a refund attached to the form_4852 was form_8275 disclosure statement in which petitioner claimed that the office of personnel management had improperly reported annuities paid to him as gross_income because this remuneration was not from any of the foreign sources listed in sec_861 and the regulations thereunder by letter dated date respondent’s appeals_office provided petitioner a document entitled the truth about frivolous tax arguments which contained among other things a discussion with citations to relevant authority of the frivolous nature of the contention that only foreign-source income under sec_861 is taxable this document also described penalties including the sec_6673 penalty for pursuing frivolous tax arguments in the notice_of_deficiency issued date respondent determined that the dollar_figure that petitioner had received from the office of personnel management in represented taxable_income under sec_61 respondent also determined that petitioner had dollar_figure unreported self-employment_income as shown on form 1099-misc miscellaneous income from monumental life_insurance_company and that petitioner’ sec_2001 social_security_benefits were taxable in the amount of dollar_figure respondent determined that petitioner was liable for a sec_6662 accuracy-related_penalty of dollar_figure in his petition petitioner contended without elaboration that respondent had erred in determining that he had gross and taxable_income that he was entitled to personal exemptions deductions and possibly business_expenses and that the notice_of_deficiency was invalid because the internal_revenue_service failed to execute an involuntary return as required by the ir code by order dated date the court directed petitioner by date to file a response to respondent’s motion to compel production of documents in which respondent requested documentary_evidence to substantiate petitioner’s claimed entitlement to deductions or exemptions petitioner having filed no response on date the court granted respondent’s motion to compel production of documents on date petitioner untimely filed his response to respondent’s motion to compel production of documents petitioner’s response was not fairly directed to the substance of respondent’s request for production of documents but instead asserted that by failing to produce form 23c assessment certificate--summary record of assessments form 23c respondent was proceeding illegally and prematurely to collection activities on date this court entered summary_judgment for respondent in the case at docket no 22706-04l a collection case involving petitioner’s income taxes in its order the court rejected as meritless petitioner’s contention that respondent did not properly assess his tax_liability because petitioner did not receive copies of form 23c in its order the court cautioned petitioner that if he raised similar frivolous arguments in this court in the future the court might impose penalties of up to dollar_figure pursuant to sec_6673 in his pretrial memorandum submitted to the court and served on petitioner date respondent indicated that a sec_6673 penalty might be sought if petitioner continued to assert frivolous contentions on date this case was called for trial in kansas city missouri petitioner appeared and renewed his frivolous contentions regarding sec_861 and form 23c petitioner responded to questions from respondent’s counsel confirming petitioner’s employment and retirement in but otherwise declined to offer any evidence or testimony on the ground i don’t have an assessment discussion petitioner has stipulated the items of unreported income upon which the notice_of_deficiency is based petitioner has raised no bona_fide dispute as to the inclusion of these items in his taxable_income as petitioner was advised by respondent during pretrial preparations petitioner’s contentions that only foreign-source income is taxable have been repeatedly rejected as frivolous see eg 119_tc_285 114_tc_136 petitioner’s notion that the notice_of_deficiency is somehow defective because respondent has not provided him a form 23c is misguided respondent may not assess petitioner’ sec_2001 taxes and hence would have no occasion to prepare any record of assessment such as form 23c until after the tax court’s decision has become final in this proceeding to redetermine petitioner’s deficiency see sec_6213 even then as we advised petitioner in our date order granting respondent’s motion for summary_judgment against petitioner in his collection case at docket no 22706-04l the commissioner is not required to use form 23c in making an assessment see eg 118_tc_365 affd 329_f3d_1224 11th cir all other arguments raised by petitioner are similarly groundless petitioner had the burden of identifying and proving any deductions to which he might be entitled see eg 512_f2d_882 9th cir affg tcmemo_1972_133 petitioner failed to do so and has not shown that respondent’s determination is in any way erroneous petitioner has not challenged respondent’s assertion of the accuracy-related_penalty pursuant to sec_6662 we deem continued sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless the various arguments that petitioner has made in this case have long been discredited and patently were asserted for purposes of delay petitioner has ignored warnings from respondent and this court that his antics could result in the imposition of sanctions under sec_6673 petitioner has unreasonably protracted these proceedings and wasted the resources of respondent and this court pursuant to sec_6673 we require petitioner to pay to the united_states a penalty of dollar_figure to reflect the foregoing an appropriate order and decision will be entered continued petitioner to have conceded this issue in any event the stipulated facts satisfy respondent’s burden of production with respect to this penalty see sec_7491


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c uniform issue list sep tep kacts attention legend union a association b association c plan x fund y dear l i this is in response to your request dated date for a private_letter_ruling submitted by your authorized representative concerning a method of funding elective_deferrals into plan x correspondence dated date supplemented the request a conference was held with your authorized representative on date your authorized representative has submitted the following facts and representations plan x is an employee_benefit_plan formed pursuant to a collective bargaining agreement entered into by union a association b and association c and is intended to be qualified under sec_401 a of the internal_revenue_code and contains a cash_or_deferred_arrangement coda described under sec_401 of the code most of the employees eligible to participate in plan x also are participants in fund y a vacation and holiday fund which is a voluntary employees’ beneficiary association described in sec_501 of the code fund y was created pursuant to the collective bargaining agreement between union a association b and association c employer contributions to fund y are withheld from page the employees’ wages and contributed to fund y ona monthly basis as required by the collective bargaining agreement fund y accumulates and invests those funds and distributes the resulting funds in cash to the employees every six months you propose to allow the participants in plan x to redirect their contributions to fund y into plan x’s coda as elective_deferrals an amendment to the collective bargaining agreement would provide that elective_deferrals into plan x’s coda shall be made first from amounts which otherwise would be contributed to fund y to the extent thereof and second from cash compensation based on the foregoing you request a ruling that the proposed amendment will not affect the status of plan x’s coda as a qualified coda under sec_401 of the code sec_401 of the code states in part that a qualified coda is any arrangement which is part of a profit-sharing or stock_bonus_plan a pre-erisa_money_purchase_plan or a rural_cooperative_plan which meets the requirements of sec_401 under which a covered_employee may elect to have the employer make payments as contributions to a_trust under the plan on behalf of the employee or to the employee directly in cash sec_1_401_k_-1 of the income_tax regulations states in part that an arrangement is a qualified coda only if the arrangement provides that the amount that each eligible_employee may defer as an elective contribution is available to the employee in cash it has been represented that amounts which would otherwise be deferred into plan x’s coda are not distributed from fund y until six months after they are contributed to fund y thus the requirements of the regulations concerning cash availability are not met under the proposed amendment accordingly we conclude that plan x’s coda will not be qualified under sec_401 of the code if the proposed amendment is put into effect also sec_401 of the code provides that benefits other than matching_contributions must not be contingent on an employee's election to defer a coda of any employer shall not be treated as a qualified coda if any other benefit is conditioned directly or indirectly on the employee electing to have the employer make or not make contributions under the arrangement in lieu of receiving cash sec_1_401_k_-1 of the regulations states in relevant part that a coda will be qualified only if no other benefit is conditioned directly or indirectly upon the employee’s electing to make or not to make elective contributions under the arrangement the term other benefit is defined in part in sec_1_401_k_-1 e ii of the regulations to include vacations or vacation pay and certain nonqualified_deferred_compensation arrangements are also considered benefits when provided to employees as vacation pay from fund y will be considered an other benefit which is conditioned directly or indirectly on the employee electing to have the employer make or not make elective_deferrals under plan x’s coda within the meaning of sec_401 k a of the code and sec_1_401_k_-1 of the page regulations because the benefit available under fund y depends on the elective_deferrals made under plan x the right to participate in fund y is a contingent benefit for purposes of sec_401 of the code and sec_1 k -1 e of the regulations no opinion is expressed as to the federal tax consequences of the transaction described above under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office private_letter_ruling please contact tr rrher free number if you have any questions concerning this p tern af th hee inhi not a toll- sincerely yours frances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures notice of intention to disclose deleted copy of ruling cc


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 employer_identification_number fax number contact person contact number identification_number number release date date uil legend x dear ------------ we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code you initially applied for recognition of exemption under sec_501 in a letter dated date you requested that we consider you for exemption as an organization described in sec_501 in a letter dated date you state that you are seeking exemption based on satisfying the requirements of sec_501 based on the information submitted we have concluded that you do not qualify for exemption under sec_501 nor do you qualify for exemption under sec_501 the bases for our conclusions are set forth below your organizing instrument is a_trust agreement executed and effective date by and between the participating members and the trustees to enable the participating members to fund the costs of workers’ compensation insurance coverage through a self-insurance program four individuals as trustees and the same four individuals as participating members representing four separate organizations signed the trust agreement the trust agreement states that each participating member shall contribute a proportionate share of funds to be held in trust for the payment of workers’ compensation insurance coverage and that the participating members shall also place on deposit with the chairman of the workers’ compensation board such securities as that individual deems necessary of the kind prescribed by your state banking law your trust agreement as amended date states that you shall be managed by four trustees all of whom shall be officers partners members or employees of members the trustees shall be elected by ballot at the annual meeting of the members or at a special meeting of the members which may be called by the trustees the four individuals receiving the greatest number of votes shall be elected trustees in the case of death resignation refusal or inability to act by any trustee a successor trustee may be appointed by the remaining trustees such successor to serve until the next election of trustees by the members in your letter dated date you state that the workers’ compensation board’s adopted rules regulations groups self insurance which are the rules and regulations promulgated by the workers’ compensation board and under which you operate provide that members of the trusts appoint the trustees and the names of the trustees are forwarded to the state workers’ compensation board the state retains the right to make sure that elections are pursuant to the rules and regulations and the state requires notice of election within ten days of election in your application with regard to your membership you state that each member must be a state x facility the sic code standard industrial classification code division structure as published in the united_states department of commerce’s standard industrial classification code manual for any new member must be in one of two particular groups and the governing ncci codes must be from a select list you explain that the sic_codes referred to include ten specific types of x facilities and that the ncci class codes referred to include fourteen specific types of x facilities you state that your primary activity is providing a cost-effective market for your state x facilities to obtain workers’ compensation coverage and that you have developed methods to mitigate costs and enable members to achieve a stable required_contribution your secondary area of importance is your ongoing compliance with your state’s workers’ compensation laws as a n example of this area your application to accept a new member is a form that has been approved by the state your third area of importance is your ongoing development of new members your last activity of importance is your allocation of investments although your state articulates what investments can be made your administrator must ensure the compliance with these rules you state that your only sources of financial support are the contributions of premiums from your members and investment_income in your letter dated date in order to show that you were established by your state you submitted a document from the state workers’ compensation board entitled notice of qualification as group self-insurer under the workers’ compensation law the document states that you in the x industry having executed and filed the agreement and undertaking deposited a surety bond and complied with all other conditions provided for in the decision of the chairman workers’ compensation board dated concurrent the status of a group self-insurer under the workers’ compensation law became effective as of date provided that at least six employers generating in the aggregate no less than five hundred thousand dollars in pure premium at current rates become participating employers on or before date the document states it was given the 1st day of july under the hand of the chairman and seal of the workers’ compensation board in response to the service’s request for you to provide documents that show you provide workmen’s compensation insurance to any employer in the state you provided a copy of the adopted rules regulations groups self insurance you stated that you provide workers’ compensation insurance to any employee in the x industry which meets the classification codes established by the workers’ compensation board as noted in the rules and regulations the rules and regulations provide among other matters that all group members in a group self-insurer must be classified within the same or a related sic code operating as self-insurers and that all group members must be members in good standing in an industry-specific trade_association the rules and regulations also provide that a group self insurer that fails to satisfy the requirements set forth in the rules and regulations to maintain authorization to operate as a group may be subject_to dissolution at the direction of the chair you state that the state extends financial support to organizations under the workers’ compensation board and that in the event of the dissolution of one of these organizations should the organization not be able to pay employee claims the state would not be relieved from the financial liability of making the payments as the final guarantor of these claim payments the state’s financial support is established sec_501 of the code provides for the exemption from federal_income_tax of business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_501 of the code provides for the exemption of any membership_organization if- i such organization is established before date by a state exclusively to reimburse its members for losses arising under workmen’s compensation acts ii such state requires that the membership of such organization consist of- such state and ii all persons and governmental entities who self-insure against such losses i all persons who issue insurance coveri ng workmen’s compensation losses i such organization is created by state law and is organized and operated under iii such organization operates as a non-profit organization by- ii reducing initial premiums in anticipation of investment_income i returning surplus income to its members or workmen’s compensation policyholders on a periodic basis and in and sec_501 of the code provides for the exemption of any organization including a mutual_insurance_company if- state or with is not employer in seeks either by or by periods such insurance and meets other reasonable requirements relating thereto purchased by an employer and ii such organization must provide workmen’s compensation insurance to any providing the initial operating capital of such organization and ii in the case of ii provide related coverage which is incidental to workmen’s compensation insurance the state for employees in the state or temporarily assigned out-of-state which iii i the state makes a financial commitment with respect to such organization respect to which state law provides significant disincentives if such insurance extending the full faith and credit of the state to the initial debt of such organization i provide workmen’s compensation insurance which is required by state law law exclusively to- the state legislature or by both after the date of enactment of this subparagraph the assets of such organization the state upon dissolution or state law does not permit the dissolution of such organization and iv the majority of the board_of directors or oversight body of such organization are appointed by the chief_executive_officer or other executive branch official of the revert to state by sec_1_501_c_6_-1 of the income_tax regulations provides that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons an organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining is not a business league an association engaged in furnishing information to prospective investors to enable them to make sound investments is not a business league since its activities do not further any common business_interest even though all of its income is devoted to the purpose stated revproc_74_81 1974_1_cb_135 holds that a nonprofit organization formed to promote the business welfare and interest of persons engaged in the contracting trade and related industries and whose principal activity is to provide its members with group workmen’s compensation insurance is not entitled to exemption under sec_501 of the code the revenue_ruling cites rev ruls 1968_1_cb_264 and 1968_1_cb_265 which hold that an activity that serves as a convenience or economy to members in the operation of their businesses is a particular service of the type proscribed under sec_501 the revenue_ruling concludes that by providing group workmen’s compensation insurance for its members the organization relieves the members of obtaining this insurance on an individual basis resulting in a convenience in the conduct of their businesses therefore the organization is rendering particular services for individual persons as distinguished from the improvement of business conditions in the contracting and related ind ustries generally although you were formed in accordance with certain state laws pertaining to workers’ compensation law and were accepted by the state workers’ compensation board effective date as a group self-insurer and you are subject_to its rules and regulations you have not provided any documentation showing that you were specifically created or established by the state you were created as the result of a_trust agreement executed and effective date by and between the participating members and the trustees for this reason you do not meet the requirements provided in sec_501 of the code each of your members for which you provide workers’ compensation insurance as your primary activity must be a state x facility and be described as an organization listed as one of ten specific types under a particular standard industrial classification code or described as one of fourteen specific types under a particular ncci class code you provide workers’ compensation insurance to any employee in the x industry which meets these classification codes which you state are established by the workers’ compensation board as noted in the rules and regulations which you are required to follow these rules however do not coincide with the requirements under sec_501 of the code which provides that organizations must provide workmen’s compensation insurance to any employer in the state which seeks such insurance and meets other reasonable requirements for this reason you do not meet the requirements provided in sec_501 your trust agreement as amended states that you shall be managed by four trustees all of whom shall be officers partners members or employees of members the trustees shall be elected by ballot at the annual meeting of the members or at a special meeting of the members which may be called by the trustees and a successor trustee may be appointed by the remaining trustees the workers’ compensation board’s adopted rules regulations groups self insurance under which you operate provide that members of the trusts appoint the trustees and the names of the trustees are forwarded to the state workers’ compensation board the state retains the right to make sure that elections are pursuant to the rules and regulations sec_501 of the code requires that the majority of the board_of directors or oversight body of the organization be appointed by the chief_executive_officer or other executive branch official of the state by the state legislature or by both the legislative_history of this code section indicates that congress intended the oversight body to be comparable to a board_of directors see h_r rep no 105th cong 1st sess - a board_of directors traditionally has the authority to select direct monitor compensate and fire the officers of the organization and make decisions on extraordinary matters in your operation your trustees carry out these activities your state’s workmen’s compensation bureau possesses only monitoring power and performs none of the traditional activities of a board_of directors for this reason you do not meet the requirements provided in sec_501 your primary activity the provision of a cost-effective market for your state x facilities to obtain workers’ compensation coverage and your development of methods to mitigate costs and enable members to achieve a stable required_contribution is described in revrul_74_81 supra as rendering particular services for individual persons as distinguished from the improvement of business conditions in an industry generally since this activity of rendering particular services for individual persons is your primary activity you are not described in sec_501 of the code pursuant to sec_1_501_c_6_-1 of the regulations accordingly for these reasons you do not qualify for exemption as an organization described in sec_501 or as an organization described in sec_501 of the code and you must file federal_income_tax returns you have the right to protest this ruling if you believe it is incorrect to protest you should 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 in the event this ruling becomes final it will be made available for public inspection under 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 you should follow the instructions in notice if you decide to protest this ruling your protest statement should be sent to the address shown below if it is convenient you may fax your reply using the fax number shown in the heading of this letter if you fax your reply please contact the person identified in the heading of this letter by telephone to confirm that your fax was received internal_revenue_service te_ge constitution ave n w pe-3n3 washington d c if you do not intend to protest this ruling and if you agree with our proposed deletions as shown in the letter attached to notice you do not need to take any further action if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice lois g lerner director exempt_organizations rulings agreements sincerely yours


t c memo united_states tax_court vernon w hartman jr and virginia m hartman petitioners v commissioner of internal revenue respondent docket no filed date kenneth ef ahl for petitioners keith l gorman and michael d baker for respondent memorandum opinion whalen judge respondent determined the following deficiencies additions and penalty with respect to petitioners' federal_income_tax penalty and additions to tax_year deficiency sec_665l1l a sec_6661 a sec_6662 a dollar_figure dollar_figure dollar_figure -- big_number big_number big_number -- big_number -- -- big_number -- -- big_number big_number -- dollar_figure unless stated otherwise all section references are to the internal_revenue_code as in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the parties have stipulated some of the facts the stipulation of facts filed by the parties and the accompanying exhibits are incorporated herein by this reference petitioners resided in the commonwealth of pennsylvania at the time they filed the instant petition petitioners did not file income_tax returns for the years in issue through until at the time of trial petitioners had not filed returns for the years through and including respondent concedes that petitioners are not liable for a small portion of the above deficiencies determined in the notice_of_deficiency for and the issue for decision is whether petitioners are liable for the subject tax deficiencies penalty and additions to tax other than the portion of the deficiencies for and conceded by respondent resolution of this issue requires a detailed review of the pleadings and other papers filed by the parties in determining the above deficiencies in petitioners’ tax respondent disallowed the following deductions claimed on the subject returns schedule c travel and entertainment dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure depreciation expense big_number -0- -o- -o- -o- meals and entertainment -o- big_number big_number big_number big_number bad_debts -o- -o- -o- big_number -o- advertising -0- -0- -0- commissions big_number big_number big_number big_number big_number insurance big_number big_number big_number big_number employee_business_expense big_number -o- big_number -o- -o- itemized_deductions big_number big_number big_number big_number miscellaneous deductions -0- big_number -0- -0- big_number total adjustments big_number big_number big_number big_number respondent disallowed the above deductions principally because petitioners had failed to substantiate their eligibility for the deductions the initial petition in this case was in the form of a typed letter to the court which states as follows to whom it may concern in re my telephone conversation with your office today please accept this letter as my petition for redetermination of the deficiency shown on the attached copy of notice please send me the pertinent petition forms as well as available information to the address shown below since i have been traveling pursuant to my occupation continuously from mid-june until this week i have been unable to procure the necessary forms thank you for your kind assistance in this matter after the court informed petitioners that the above petition did not comply with the tax_court rules_of_practice and procedure as to form and content the court received an amended petition which states as follows i disagree with all the changes in the notice_of_deficiency due to the recurring scheduling difficulties with the local examiner i was unable to properly establish the validity of the disputed deductions this was partly due to the examiner's unavailability and partly to my extensive travel schedule as a professional singer thus the findings were arbitrary and incorrect by notice dated date the court set this case for trial on date a few weeks before trial petitioners sent a letter to the court in which they requested continuance of the case because of mr hartman's travel schedule and the fact that mr hartman was working with representatives of the appeals_office with the aim of reaching a settlement in this case the court granted the continuance with no objection by respondent by notice dated date the court set the case for trial on date when the case was called for trial on date respondent and mr hartman appeared before the court and represented that they were going to meet with a revenue_agent to review mr hartman's records mr hartman represented to the court that he had all of his documentation in response the court directed as follows all right i'll recall the case on thursday date and at that point i expect everything to be taken care of if not we'll be ready to go to trial when the parties appeared before the court on date respondent's attorney advised the court that the parties had made progress but they had not finished reviewing petitioners' documentation respondent's attorney further represented that they needed or days to complete their review on the basis of these representations the court continued the case and directed the parties to file a joint status report in days with the expectation that the case would be resolved in that period the court made the following comment to mr hartman the court x x t t's also your responsibility mr hartman to have---have all that documentation readily avail-able and i don't want long delays in terms of providing the respondent with the necessary information because we've already delayed long enough mr hartman it's all sitting in my car your honor so we're going through it subsequently an attorney entered his appearance on behalf of mr hartman inexplicably the attorney did not enter his appearance on behalf of mrs hartman the parties filed status reports pursuant to the court's order in which they stated that little progress had been made mr hartman's attorney filed petitioners' status report in which he detailed mr hartman's professional engage- ments that required cancellation of an appointment with respondent and would make mr hartman unavailable for approximately days shortly thereafter respondent filed a motion to dismiss for lack of prosecution respondent's motion sets forth the following summary of petitioners' failure to prosecute this case from the time of the first continuance a subseguent branerton_letter informal request for information to petitioners sent certified mail was returned with the hand-written notation out of country for the next three months----will be back date in august the aforementioned letter was resent again certified mail with three suggested dates to meet and go over documents and prepare a stipulation for trial the letter was not returned but no one called or appeared on any of the three dates on date respondent mailed a proposed joint stipulation of facts to petitioners by certified mail including copies of all the tax returns and the statutory_notice_of_deficiency this mailing was received in a conference call with the court on date petitioner vernon w hartman was ordered to meet with respondent and a revenue_agent with his documents on friday date petitioner and respondent met for the first time on that date but mr hartman did not produce any documentation he stated that his diaries were being sent to pennsylvania mrs hartman did not appear for this conference r espondent and the revenue_agent have offered and been scheduled to meet with petitioner on nine separate occasions petitioner has cancelled every one of these dates often with less than hours' notice petitioners still have not provided any of the documentation for and needed to verify the expenses deducted this court has given petitioners more than adequate time to complete this process in response mr hartman's attorney stated as follows once the undersigned has an understanding as to what is included in petitioner vernon w hartman jr 's documents he will then proceed to meet with respondent's counsel whenever necessary to fully and timely prosecute petitioner's case while petitioner vernon w hartman jr regrets not being able to spend as much time as he would wish on this matter he has now retained the services of the undersigned who is familiar with the united_states tax_court rules and will assist petitioner in diligently prosecuting this case and or attempting to settle same the undersigned believes that the time table represented in petitioners’ status report submitted to the court will allow the parties to hopefully settle this case and or prepare it for trial within to days from today's date mrs hartman did not file a response on the basis of the representations of mr hartman's attorney the court denied respondent's motion to dismiss for lack of prosecution by notice dated date the court set the case for trial on date on date mr hartman's attorney asked the court for leave to withdraw the attorney's motion states as follows based upon mr hartman's representations i requested the court to continue this matter and also filed a reply to the government's motion to dismiss his case for failure to properly prosecute based upon petitioner vernon w hartman jr 's representations i scheduled several meetings with respondent's counsel joellyn r cattell esquire on each occasion i was forced to cancel such meetings because of my inability to get any information from petitioner vernon w hartman jr i have made myself available at all times both day and night to meet with petitioner vernon w hartman jr including offering to meet him at my home because of his busy schedule notwithstanding my flexibility and willing- ness to meet i have been unable to have any meaningful meetings and or discussions with petitioner vernon w hartman jr to properly prosecute his case after granting the motion of mr hartman's attorney to withdraw the court issued an order directing petitioners to file a status report setting forth a each and every issue presented in the case b as to each such issue what efforts peti-tioners have made to meet with respondent's counsel and to exchange documents and other information necessary to agree upon and submit the comprehensive stipulations for trial required by rule tax_court rules_of_practice and procedure and c whether petitioners intend to retain a new attorney the order further states as follows the court calls petitioners' attention to the standing pre-trial order dated date especially to the following policy of the court continuances will be granted only in exceptional circumstances see rule tax_court rules_of_practice and procedure even joint motions for continuance will not be routinely granted in this connection petitioners should be warned that the court will not normally grant a con- tinuance in order to allow a party to retain a new attorney contrary to the above order mr hartman filed a status report in which he failed to provide any of the information requested by the court and he requested a continuance to allow time to retain new counsel mrs hartman did not file a status report the court denied mr hartman's request for a contin- uance in the order denying the continuance request dated date the court notes that mr hartman's status report fails to set forth each and every issue pre- sented in the case mr hartman's response also fails to detail as to each such issue what efforts petitioners have made to meet with respondent's counsel and to exchange documents and other information necessary to agree upon and submit the comprehensive stipulations required by rule tax_court rules_of_practice and procedure the order further provides as follows ordered that on or before date each petitioner shall file a separate statement setting forth each and every issue presented in this case for decision petitioners are warned that the court may refuse to consider any issue that is not identified in their statements neither petitioner responded to the court's order of date and both petitioners again failed to pro- vide the court with a statement of the issues for decision subsegquently when this case was called for trial a new attorney entered his appearance on behalf of both petitioners respondent also filed a second motion to dismiss for lack of prosecution the motion states as follows due to petitioner's lack of cooperation with his counsel petitioner's counsel cancelled several scheduled meetings with respondent that he had promised to attend in his status report and response to respondent's motion to dismiss on or about date petitioner's counsel sought to withdraw from this case due to petitioner's lack of cooperation with him by order dated date the court directed petitioners to file a status report with the court by date stating each issue in the case and the steps they had taken to exchange information on date petitioner filed a status report that was generally non-responsive to the court's order petitioner's report inferred sic he wanted a continuance by order dated date sic the court directed petitioners to file a list of every issue in dispute by date warning petitioner that the court might refuse to consider any issues not raised therein the court denied the regquest for a continuance the court directed the parties to file a com- prehensive stipulation of facts by date warning that sanctions may result to an uncooperative party both parties were directed to identify proposed witnesses and a summary of their anticipated testimony by date respondent sent petitioners a letter on date asking that they call to schedule a meeting on or before date so that there would be sufficient time to prepare the stipulation on date mr hartman called respondent and stated that he was unavailable until date respondent advised petitioner that this was not enough time to ensure that a stipulation of facts could be filed in accordance with the court's order on date mr hartman advised respondent that he could not meet until date mr hartman appeared on date pincite p m but was totally unprepared to discuss the stipulation and did not present any additional records due to petitioners’ lack of coopera- tion the parties could not file a stipulation of facts as directed by the court petitioners never responded to the stipulation sent by respondent on date and date because both petitioners appeared for trial through their attorney the court denied respondent's motion to dismiss for lack of prosecution and the case went to trial petitioners failed to submit a trial memorandum as directed by the court's standing_pretrial_order issued in this case and petitioners' attorney made no opening statement at trial mr hartman was the only witness called to testify petitioners submitted a handwritten summary of mr hartman's travel schedule during the years in issue two contracts with the metropolitan opera association inc met and a letter from the met itemizing mr hartman's performance and coverage schedule for the season mr hartman's testimony and the other evidence presented by petitioners failed to substantiate any of the deductions disallowed in the notice_of_deficiency at the conclusion of the trial the court directed the parties to file simultaneous posttrial opening and reply briefs this was to allow the parties the opportunity to explain their positions regarding the documents and the testimony presented at trial petitioners failed to file a posttrial brief the issue for decision is whether respondent properly determined the subject tax deficiencies penalties and additions to tax petitioners bear the burden_of_proof as to this issue see rule a 292_us_435 although petitioners bear the burden_of_proof they have failed or refused to provide the court with a state- ment of the issues for decision in this case or their position regarding any such issues for decision in fact as mentioned above on two occasions prior to trial the court ordered petitioners to submit a statement of each and every issue presented in this case for decision and on both occasions petitioners failed to respond petitioners also disregarded orders of the court to file a trial memorandum and posttrial briefs the only basis for petitioners' disagreement with the adjustments in the notice_of_deficiency that is contained in the record of this case is the statement in the amended petition that mr hartman had scheduling difficulties with the local examiner and was not able to properly establish the validity of the disputed deductions that statement is legally insufficient to overturn respondent's determination in the notice_of_deficiency in this case we could hold petitioners in default pursuant to rule a and dismiss the case for their failure to respond to orders of the court and for their failure_to_file briefs under rule see 84_tc_693 affd without published opinion 789_f2d_917 4th cir we could also assume that after trial petitioners concluded that their petition was not meritorious and they abandoned their claims see 84_tc_716 in that event we would not dismiss the case by reason of petitioners' failure to comply with the court's orders and rules but we would decide the case against petitioners by reason of their failure to satisfy their burden_of_proof see id on either theory the result is the same we must sustain the adjustments determined in the notice_of_deficiency on the basis of the history of this case including petitioners' failure or refusal to provide the court with a statement of the issues for decision we find that the proceedings have been instituted or maintained by petitioners primarily for delay and that petitioners’ position in the proceeding is frivolous or groundless accordingly we will require petitioners to pay to the -- - united_states a penalty pursuant to sec_6673 in the amount of dollar_figure to reflect the foregoing decision will be entered under rule


tcmemo_2008_43 united_states tax_court gary c winslow petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in norwich vermont during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date employer_identification_number uniform issue list contact person identification_number telephone number egend e m i c a i t e z o d o i d l o a l c i i s x i o o p a n o d t n u p a t g n t a o t t r i this is in response to g’s request for a ruling that certain proposed contractual relationships will ‘not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code ef is exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 f has structurally and financially controlled colleges and schools and controlled charitable arms identified above as h - x referred to hereafter as f and its controlled entities h through x are all exempt under sec_501 and are not private_foundations ef is the trustee of a number of charitable_remainder trusts collectively the trusts and as trustee f is the owner of the trusts’ assets f and its controlled entities have the sole remainder_interest in each of the trusts g is one such charitable_remainder_trust in which f is trustee and remainder beneficiary p manages the endowment and other long term investments for f and its controlled entities as well as for all trusts for which f serves as trustee p assesses an administrative charge against trust assets which is calculated to offset direct management costs and is generally paid_by each charitable_remainder_trust on a quarterly basis as a result of the relationship with the trusts as both trustee and remainder beneficiary f and its controlled entities have a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that f and its controlled entities benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment e’s endowment is invested in traditionally publicly traded assets and private investments f’s private investments include real_estate and certain other venture investments undertaken primarily through partnership structures much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income e proposes to create a contractual obligation pursuant to which it working through p would issue a contract right for a proportionate share of f’s endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various restricted and unrestricted funds of f’s institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment f determines a spending rate on the endowment each year based in part on the endowment's investment performance f calculates the market_value of each endowment share on a monthly basis based on the underlying asset value of the endowment each restricted or unrestricted fund is entitled to a payment in an amount equal to the spending rate times the number of shares it holds f seeks to enable the trusts to invest in the endowment in a manner similar to its restricted and unrestricted funds a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that f uses for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the spending rate f establishes for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts up to the spending rate as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the spending rate as generating long- or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review f’s business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares f is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by f or for which ef is liable or responsible relating to the endowment or the underlying endowment assets and consistent with f’s status as a fiduciary f will not allow the trusts to suffer any liability arising out of any_action or inaction by f with respect to the endowment or the underlying endowment assets as stated above f’s investments are managed by one of its tax-exempt controlled entities p investment managers typically charge a fee and receive reimbursement of expenses in the process of managing the endowment p assesses an administrative charge against endowment assets as it will against trust assets to offset direct management costs these fees and expenses directly or indirectly reduce f’s total return on its endowment consequently those fees will be reflected indirectly in the spending rate payments to be made to the trusts ina letter dated date f represented that it places representatives on the respective boards of directors of each controlled_entity and f controls each such entity each of the named controlled entities has a purpose that is functionally related to f’s educational purpose you have requested the following ruling the issuance of shares by f to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to g law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if is reguiarly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions it is income from a trade_or_business such trade_or_business sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit if the services were regularly provided by one tax-exempt_organization for other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations analysis e proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which f and the controlled entities have a beneficial_interest and f serves as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the spending rate f establishes for its endowment with payouts made as determined by f each trust would acquire shares from the endowment which would give the trusts a contractual right against f but no interest whatsoever in the underlying investment_assets of the endowment the contract between f and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that f uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with f the trusts would have a right to the payout declared by f plus the right to redeem the shares at the value that e uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1 c thus if f charged a fee for investment management services provided to organizations unrelated to ef or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however f working through p recovers an amount sufficient to offset the actual cost of management of the endowment including management of the trusts but is not charging a fee for its services f does not otherwise receive income from the services provided to the trusts thus under these circumstances f will not receive unrelated_business_taxable_income under sec_512 the fact that f working through p will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit and the controlled entities as the remainder beneficiary or beneficiaries limits the scope of the service provided to others and distinguishes it from a commercial venture as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review f’s business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares f is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by f or for which f is liable or responsible relating to the endowment or the underlying endowment assets and consistent with f's status as a fiduciary f will not allow the trusts to suffer any liability arising out of any_action or inaction by f with respect to the endowment or the underlying endowment assets the trusts do not have a position of ownership in the underlying assets of f's endowment since the contractual relationship between f and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout f establishes for the endowment reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income f would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts in view of the foregoing and based on your representations we rule as follows the issuance of units from f to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to g this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives a copy of this letter should be kept in your permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division nov tf ra a re substitute mortality_table ruling taxpayer plan ein plan no plan plan plan ein ein plan no plan no ein plan no plan - ein plan pian plan ein ein ein plan no plan no plan no plan no populations for which substitute mortality tables are requested included group aggregated_plan sec_1 through - male annuitants aggregated_plan sec_1 through - female annuitants dear this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code’ for the ' included group has been granted with respect to the populations specified in this letter effective for a period of plan years beginning with the plan_year commencing january ' your request has been granted in accordance with sec_430 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 specifically this approval applies to the following populations e e plan sec_1 through combined - male annuitants including disabled participants plan sec_1 through combined - female annuitants including disabled participants based on the information provided the following populations do not have credible mortality experience and therefore the standard mortality tables will be used for calculations under sec_430 of the code e e plan sec_1 through combined - male nonannuitants plan sec_1 through combined - female nonannuitants in granting this approval we have only considered whether the substitute mortality rates were developed correctly in accordance with sec_1_430_h_3_-2 of the treasury ‘regulations regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request permission is hereby granted to use the substitute mortality rates shown in the table below for the included group approved for use beginning with the plan_year commencing january substitute mortality tables base_year male female annuitants annuitants a n o r d december or plan 201906u23 male female annuitants annuitants 201906u male female annuitants annuitants age male female age annuitants annuitants through december the above rates were developed based on an experience study period from december were calculated by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations indicated in the table below using the mortality ratio and credibility weighting factor determined by aggregating male and female experience as shown in the table below with a base_year of the rates male and female annuitants mortality ratio credibility weighting factor the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were correctly developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of paragraph h -2 c of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in section -1 h -2 c iii of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under sec_430 of the code and sec_1_430_h_3_-1 of the regulations other than annual updates to the static mortality tables issued pursuant to sec_1_430_h_3_-1 of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations we draw your attention to the fact that the combined nonannuitant male and nonannuitant female population experienced period note that this population will have credible mortality experience if it experiences ‘deaths during the experience study 201906vu23 at least deaths during a 5-year period corresponding to the length of the experience study used to construct the substitute mortality tables for the other populations it will be important to monitor this population to ensure that appropriate action is taken if this occurs to avoid violating paragraph above this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have sent a copy of this letter to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you require further assistance in this matter please contact id at sincerely david m ziegler manager employee_plans actuarial group cc manager ep classification columbus ohio manager ep compliance unit chicago illinois