department of the treasury - internal_revenue_service washington d c z2uvug384u1l tax_exempt_and_government_entities_division uniform issue list jun - epra t3 legend taxpayer a individual c company w company x company y division a plan x month month2 date date date date l i dear this is in response to your letter dated representative on your behalf requests a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code in which your authorized the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a had been an employee of company w for a number of years company w sponsors plan x which it is represented is qualified within the meaning of sec_401 of the code it has been represented that plan x does not permit employee contributions thereto on date division a of company w advised taxpayer a that he would be eligible to receive a diversification distribution from company w during calendar_year would be eligible to diversify up to of the shares in his employee stock ownership esop account in plan x and that he on or about date individual c of company x gave a presentation to taxpayer a and other similarly situated taxpayers regarding the diversification distribution option and associated federal tax consequences it has been represented that individual c is qualified as an investment_advisor in the area of retirement plans during his presentation individual c advised taxpayer a and other similarly situated taxpayers that net_unrealized_appreciation nua treatment described in sec_402 of the internal_revenue_code was available to them if they received partial distributions of their plan x esop account balances additionally it has been represented that a month summary_plan_description spd applicable to plan x provides that nua treatment would be available to any distribution of esop_stock made from plan x after the above referenced presentation during calendar_year partial_distribution of stock from his esop account under of plan x on the understanding said distribution would be eligible for nua tax treatment taxpayer a received a during month taxpayer a became aware that the information provided during taxpayer c’s presentation and in the plan x spd might be inaccurate on or about date company w e-mailed taxpayer a and other affected plan x participants advising them that individual c’s information concerning the availability of nua treatment was incorrect on or about date company w sent a letter to taxpayer a acknowledging errors made by individual c during his date presentation it has been represented that company y has issued forms 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc to taxpayer a and other affected plan x participants which forms in some cases were erroneous however errors in said forms have been corrected and taxpayer a as of the date of this ruling_request was aware that the plan x distribution he received during calendar_year _ _ was not eligible for nua treatment it has been represented that taxpayer a lacked the financial knowledge or experience to know the tax consequences associated with the distribution he received from plan x and for that _ reason relied upon individual c and on plan x’s spd as to the availability of nua treatment this request for letter_ruling was filed with the internal_revenue_service shortly after the occurrence of the last of the above-referenced actions based on the facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution taxpayer a received during calendar_year such requirement would be a hardship and against equity or good conscience and from plan x because the failure to waive that taxpayer a be granted a period a time not to exceed days as measured from the date of this ruling letter to either contribute the stock he received during calendar_year said stock into an ira set up and maintained in his name from plan x or in the alternative if applicable to roll over the proceeds of sale of with respect to your ruling requests sec_402 of the code provides that except as otherwise provided in sec_402 any amount distributed out of an employees' trust described in sec_401 that is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 of the code relating to annuities sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras code sec_402 provides that except as provided in subparagraph b paragraph whioch excludes rolled over amounts from gross_income shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed code sec_402 provides that the transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution code sec_402 provides that the excess of the fair_market_value of property on sale over its fair_market_value on distribution shall be treated as property received in the distribution code sec_402 provides that no gain_or_loss shall be recognized on any sale described in subparagraph a to the extent that an amount equal to the proceeds is transferred pursuant to paragraph sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_402 of the code provides that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 sec_401 of the code provides that a_trust shall not constitute a qualified_trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution- i elects to have such distribution paid directly to an eligible_retirement_plan and ii specifies the eligible_retirement_plan to which such distribution is to be paid in such form and at such time as the plan_administrator may prescribe such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible_retirement_plan so specified - sec_401 of the code provides that for purposes of code sec_401 a the term eligible_retirement_plan has the meaning given such term by sec_402 with an exception not pertinent to this ruling_request thus a direct transfer defined in code sec_401 may be made into an ira sec_1_401_a_31_-1 of the income_tax regulations question and answer-5 provides in relevant part that a direct_rollover described in code sec_401 is a distribution and rollover of the eligible_rollover_distribution and not a transfer of assets and liabilities thus for example the consent and requirements of code sec_401 sec_411 and sec_417 apply to transactions described in code sec_401 revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred taxpayer a submits that his failure to accomplish a timely rollover was caused both by his reliance on advice given him by individual c to the effect the company w stock he received from plan x was eligible for nua tax treatment and by his reliance on plan x’s spd which it has been asserted on his behalf contained similar information however in this case there was 200634u1 no intent to rollover nor was the erroneous advice given regarding a rollover transaction itself rather taxpayer a deliberately chose not to roll over his the portion of his plan x distribution which consisted of shares of company x stock on the mistaken belief that net_unrealized_appreciation was available we do not believe that congress intended to permit the service to retroactively correct_tax treatment choices which do not produce the expected benefits even though in this case these choices were the result of erroneous advice provided to taxpayer a by individual c and arguably also the result of incorrect information found in plan x’s spd thus based on the above pursuant to code sec_402 the service hereby declines to waive the 60-day rollover period found in code sec_402 with respect to the shares of company w stock distributed during calendar_year from plan x to taxpayer a _ furthermore the service concludes as follows with respect to your additional ruling_request that taxpayer a is not granted any period of time either to contribute either the stock he from plan x or in the alternative if applicable to received during calendar_year roll over the proceeds of sale of said stock into an ira set up and maintained in his name no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with the service the original of this letter_ruling is being sent to you and a copy to your authorized representative if you wish to inquire about this ruling please contact - please address all correspondence to se t ep ra t3 uid at - sincerely yours rances v sloan vv mandger employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-130539-01 date date g b_trust corp d1 d2 d3 d4 d5 d6 d7 d8 dear this is in reply to your letter dated date and subsequent correspondence submitted on behalf of trust requesting rulings under sec_678 and sec_1361 of the internal_revenue_code the information submitted states that trust is an irrevocable_trust created by g on d1 b is the sole beneficiary of trust and is over thirty-five years old g contributed corp stock to trust on d2 d3 d4 d5 d6 and d7 corp elected to be an s_corporation effective d8 trust elected to be treated as an electing small_business plr-130539-01 trust esbt effective d8 article ii paragraph a of the trust agreement provides that if an addition is made to the trust in a calendar_year the beneficiary of the trust shall have the power in his sole discretion commencing with the date of the addition and ending days after notification from the trustee to withdraw property belonging to the principal of the trust including property constituting the addition having a value equal at the time of the withdrawal to the value of the addition at the time of the addition article ii paragraph a i provides that while the beneficiary is under the age of twenty-one years the trustee may use for the beneficiary’s benefit so much or all of the net_income of the trust as the trustee in the trustee’s sole and absolute discretion determines to be required or desirable for the beneficiary’s support welfare education and best interests adding to principal any income not so used after the beneficiary reaches the age of twenty-one years the trustee shall pay all the net_income of the trust to the beneficiary in convenient installments at least quarter-annually article ii paragraph a i also provides that after the beneficiary has reached the age of twenty-five years the trustee shall distribute to the beneficiary such portion or all of the principal of the trust other than corp stock as the beneficiary from time to time requests in writing not exceeding in the aggregate however one-third in value of such assets other than corp stock before the beneficiary has reached the age of thirty years nor two-thirds in value after the beneficiary has reached the age of thirty-five years article ii paragraph a ii provides that the trustee may pay to the beneficiary or use for the beneficiary’s benefit so much or all of the principal of the trust other than corp stock as the trustee from time to time in the trustee’s sole and absolute discretion determines to be required or desirable for the beneficiary’s support welfare education and best interests article ii paragraph b provides that if the trust has not yet terminated upon the death of b the trust as then constituted shall be distributed to such appointee or appointees including b’s own estate upon such conditions and estates in trust or otherwise with such powers in such manner and at such times as b appoints and directs by will specifically referring to the power_of_appointment sec_671 of the code provides that when the grantor or another person is treated as the owner of any portion of a_trust there shall be included in computing the taxable_income and credits of the grantor or the other person those items of income deduction and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter of the code in computing the taxable_income or credits against tax of an individual plr-130539-01 sec_673 through specify the circumstances under which the grantor or another person will be treated as the owner of a portion of a_trust sec_674 provides that the grantor is treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor a nonadverse_party or both without the approval or consent of an adverse_party sec_674 provides that sec_674 does not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_677 provides that the grantor will be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse or held or accumulated for future distribution to the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or the person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would cause a grantor to be treated as the owner of such a portion of the trust within the principles of sec_671 to inclusive sec_1361 c a i provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder b had the right to withdraw the stock of corp on the first day of its contribution to trust under article ii paragraph a of the trust if b received notice of the contribution on the day of the contribution assuming that b received notice of the contributions on the day of each contribution b will be treated as having a power to vest the stock in herself within the meaning of sec_678 because b failed to exercise the withdrawal power while retaining a testamentary general_power_of_appointment over all the assets held by trust at b’s death including corp stock and gains allocable to corpus not otherwise distributed to b and the right to have all the income of trust including corpus other than corp stock and gains allocable to corpus in the discretion of the trustee distributed to her or accumulated for future distributions to her b will be treated as having released the withdrawal power while retaining such control as would cause a plr-130539-01 grantor to be treated as the owner of trust under sec_674 and sec_677 therefore b will be treated as the owner of trust under sec_678 because b will be considered the owner of the entire trust for purposes of sec_671 trust is a permitted s_corporation shareholder as described in sec_1361 except as specifically ruled upon above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code moreover if the trust instrument is amended this ruling may not remain in effect 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 trust sincerely yours j thomas hines chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


g department of the treasury internal_revenue_service appeals_office irs capitol street fresno ca number release date a b certified mail dear pate feb person to contact name employee id number telephone fax employer id number uil this is a final adverse determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in sec_501 of the code we made the adverse determination for the following reasons you are not organized or operated exclusively for exempt purposes as set forth in sec_501 of the code by providing vendors with an opportunity and a venue to sell their products you are operated for the substantial purpose of private benefit to vendors at your farmers' market your operations are not exclusively charitable or educational and resemble those of a commercial enterprise you're required to file federal_income_tax returns on forms mail your form to the appropriate internal_revenue_service center per the form's instructions you can get forms and instructions by visiting our website at www irs gov forms-pubs or by calling 800-tax-form we'll make this letter and the proposed adverse determination_letter available for public inspection under sec_6110 of the code after deleting certain identifying information we provided to you in a separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you decide to contest this determination you can file an action for declaratory_judgment under the provisions of sec_7428 of the code in either the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia letter rev catalog number 40683r -you niust file a petition or complaint in one of these three courts within days from the date we mailed this determination_letter to you contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment you can write to the courts at the following addresses united_states tax_court us court of federal claims us district_court for the district of columbia second street nw washington dc madison place nw washington dc constitution avenue nw washington dc note we will not delay processing income_tax returns and assessing any taxes due even if you file a petition for declaratory_judgment under sec_7428 of the code please refer to the enclosed publication how to appeal an irs determination on tax-exempt status for more information about the appeals process you also have the right to contact the taxpayer_advocate_service tas tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call tas assistance is not a substitute for established irs procedures such as the formal appeals process tas 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 if you have questions contact the person at the top of this letter sincerely appeals team manager enclosures publication ce letter rev catalog number 40683r department of the treasury internal_revenue_service cincinnati oh legend b date c date d state county f j item x dollars dollar amount y dollars dollar amount z dollars dollar amount dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you meet the organizational_test under sec_501 of the code no for the reasons stated below do you meet the operational_test under sec_501 of the code no for the reasons stated below facts you were incorporated on b in the state of d your articles of incorporation indicate that you are an association of farmers and gardeners whose purpose it is to promote agriculture through the provision of a retail_outlet and to provide residents of the area with the freshest and most nutritious produce possible and to engage in any other activity which may be legally carried out by a non-profit corporation you filed articles of amendment on c the amendment states that you are organized exclusively for educational agricultural nutritional and scientific purposes within the meaning of sec_501 of the code your specific purpose is to coordinate a farmers market which will enable local agricultural growers the opportunity to provide a healthy local food source to the community you also seek to raise consciousness about sustainable food production on a local level and to provide education about local food production and nutrition in an atmosphere that promotes healthy eating a strong community connection and consumer participation particularly low-income families per your bylaws you have no members all decisions and voting rights rest with the board_of directors or persons to whom authority has been designated by the board the board will fix policies employ and discharge necessary staff authorize expenditures and take all necessary steps to carry out the purposes of the corporation the board will also elect all officers of the organization your board_of directors is composed of five individuals these five individuals also serve as your officers four out of the five directors are listed on your website as vendors at the market you describe yourself as a community resource to educate the public on the health and environmental benefits of locally grown and produced foods your focus is on promoting sustainability and teaching the nutritional benefits of locally sourced foods to growers producers and consumers at large you call yourself a small local grass-roots effort and an organizer that handles the logistics of the operation of the farmers market the local community has requested you oversee the operations of the weekly market your website describes you as a tourist attraction you request community support including visiting your market frequently sharing information about your market and your website buying from advertisers buying ad space and providing feedback you also provide information about your vendors vendor forms contacts pictures and entertainment at the market advertisements for your market describe vendors and their products available that week along with the time and location of the market you welcome all vendors but you require all of your growers to produce goods within the county f to ensure support of the local economy vendors set their own prices for goods your market is located on land which is donated to you for use free of charge you recently hired a manager who assists in the overall operation of the market and staffs the information table where customers are presented with free literature about nutrition and the local food movement you accept ebt snap in addition to wic and senior wic coupons you have a system where you issue j to those using ebt and wic benefits customers purchase j from the market manager then use j to purchase items from vendors the vendors then return the j to the manager and once a month vendors will receive payment for redeemed j this system helps you to collect data on the use of these programs to show the benefit to the community you offer these individuals an additional x dollars to spend when purchases totaling x dollars are made when asked if you are operated in a deteriorated or blighted_area you provided the charter of f which describes how the county is governed there is no reference contained describing f as being deteriorated or blighted for the last five tax years your income is all from gross_receipts more than of your income is from vendor fees for space and grower fees you state grower fees are the redemption of the j the vendor fees for summer and fall are set at y dollars and the fees for winter and spring are set at z dollars with lesser amounts for occasional vendors the only funds you receive from vendors are the application fee letter rev catalog number 47630w vendor fees offset the cost of salaries advertising brochures insurance replacement tents and donations to a local school on your financial information your primary expense is grower payments other expenses listed include equipment advertising salaries insurance and other miscellaneous expenses associated with running the market in addition to the market you have partnered with wic and your local county extension to provide free cooking demonstrations and recipes focused on the health benefits of locally and organically sourced fresh fruits and vegetables you also support other local endeavors by providing space to local schools to sell produce from their school gardens and to local food pantries to both gather and distribute product to their clients on occasion you provide space for local non-profits to connect with the greater community and for local musicians to play their music you plan to establish a scholarship fund for students that demonstrate an interest in sustainable agricultural systems you also plan to expand assistance to local community nutrition programs law sec_501 of the code provides that corporations may be exempted from tax if they are organized and operated exclusively for charitable educational or other enumerated purposes and no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 provides that in no case shall an organization be considered to be organized exclusively for one or more exempt purposes if by the terms of its articles the purposes for which such organization is created are broader than the purposes specified in sec_501 sec_1 c -1 c provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 d ii provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests sec_1_501_c_3_-1 provides the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relieving the poor and distressed or the underprivileged letter rev catalog number 47630w combating community deterioration lessening neighborhood tensions and eliminating prejudice and discrimination sec_1 c -1 d i provides that the term educational as used in sec_501 of the code relates to the instruction of the public on subjects useful to the individual and beneficial to the community revrul_67_216 1967_2_cb_180 established that a nonprofit organization formed and operated exclusively to instruct the public on agricultural matters by conducting annual public fairs and exhibitions of livestock poultry and farm products may be exempt from tax under sec_501 of the code revrul_69_175 1969_1_cb_149 describes an organization created to provide bus transportation for school children to a tax-exempt private school the organization was formed by the parents of pupils attending the school the organization provided transportation to and from the school for those children whose parents belonged to the organization parents were required to pay an initial family fee and an additional annual charge for each child the service determined that when a group of individuals associate to provide a cooperative service for themselves they are serving a private interest in revrul_71_395 1971_2_cb_228 a cooperative art gallery was formed and operated by a group of artists for the purpose of exhibiting and selling their works and did not qualify for exemption under sec_501 c of the code it served the private purposes of its members even though the exhibition and sale of paintings may be an educational activity in other respects in revrul_73_127 1973_1_cb_221 the service held that an organization that operated a cut-price retail grocery outlet and allocated a small portion of its earnings to provide on-the-job training to the hard-core unemployed did not qualify for exemption the organization's purpose of providing job training for the hardcore unemployed was charitable and educational within the meaning of the common_law concept of charity however the organization's purpose of operating a retail grocery store was not the ruling concluded that the operation of the store and the operation of the training program were two distinct purposes since the former purpose was not a recognized charitable purpose the organization was not organized and operated exclusively for charitable purposes revrul_77_111 1977_1_cb_144 in situation held that an organization formed to increase business patronage in a deteriorated area by providing information on the area's shopping opportunities local transportation and accommodations is not operated exclusively for charitable purposes and does not qualify for exemption under sec_501 of the code the overall thrust is to promote business rather than to accomplish sec_501 objectives exclusively in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes the petitioner's activities were largely animated by non-exempt purposes directed fundamentally to ends other than that of education in 302_f2d_934 ct_cl the court considered the status of an organization that provided analysis of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed that the organization had letter rev catalog number 47630w an educational purpose the court concluded however that the totality of the organization's activities which included the sale of many publications as well as the sale of advice for a fee to individuals was more indicative of a business than that of an educational_organization the court held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and that the organization was not entitled to be regarded as exempt in 46_tc_47 the court considered a collective organization created to dredge waterways the majority of the funds for this activity came from owners of property adjacent to the waterways the court found that the primary beneficiaries were the adjacent property owners any benefit to the general_public because these dredged waterways would be a safe_harbor for boats during a storm was secondary therefore the organization was not exempt because of the significant private benefit provided in 950_f2d_365 7th cir the court_of_appeals upheld a tax_court decision tcmemo_1990_484 that an organization operating restaurants and health food stores in a manner consistent with the doctrines of the seventh day adventist church did not qualify under sec_501 of the code the court found substantial evidence to support a conclusion that the organization's activities furthered a substantial nonexempt purpose including that the operations were presumptively commercial the organization competed with restaurants and food stores used profit-making pricing formulas consistent with the food industry and incurred significant advertising costs application of law sec_501 of the code and sec_1_501_c_3_-1 set forth two main tests for an organization to be recognized as exempt an organization must be both organized and operated exclusively for purposes described in sec_501 based on the information you provided in your application and supporting documentation we conclude that you fail both tests your articles of incorporation and subsequent amendments do not include a purpose clause that limits your purposes to one or more exempt purposes the purposes for which you were created are broader than the purposes specified in sec_501 of the code including agricultural and nutritional purposes accordingly you do not satisfy the organizational_test required by sec_1_501_c_3_-1 and c -1 b iv and you are not organized for exclusively exempt purposes you are also not described in sec_501 of the code because you fail the operational_test specifically you are not operated exclusively for an exempt_purpose as described in sec_1_501_c_3_-1 the facts show you are not operated exclusively for charitable and educational_purposes but for the purpose of facilitating sales for the benefit of growers and producers at your farmers' market for a fee you provide space at which vendors sell their goods directly to the public you also advertise promote and inform buyers about your market you operate an open market for vendors to sell goods including the majority of your governing body your operations result in substantial private benefit to vendors of products at your market sec_1_501_c_3_-1 requires an organization show that it is not organized or operated for private interests although the market includes educational events more than an insubstantial part of your activities are in furtherance of the non-exempt purpose of being a profitable outlet for your vendors to increase their sales you not only provide the outlet for them to sell their products you provide marketing and cover overhead expenses that the vendors would otherwise have to expend in addition you have set up a system that allows ebt and wic beneficiaries make purchases from vendors at the farmers market your redemption service allows eligible customers to purchase j which are used by ebt and wic beneficiaries to transact letter rev catalog number 47630w business with the farmers’ market vendors the j are later redeemed by your participating vendors from you for their cash_equivalent face value this arrangement enables your farmers’ market vendors to access another class of customers to grow their sales because your governing body members are also vendors the private benefit associated with all of these services and subsidies constitutes inurement therefore you do not qualify for exemption under sec_501 you are like the organization described in revrul_69_175 because you were formed by a group of farmers joining together to sell their products farmers and growers pay a vendor fee to participate in the market by associating together and providing a cooperative service amongst themselves your vendors are serving a private rather than a public interest similar to the cooperative art gallery described in revrul_71_395 you provide a venue for selling items that advance private interests as explained in this ruling an organization that operates for the purpose of exhibiting and promoting the sales of products for the benefit of private individuals does not qualify for exemption under sec_501 of the code similar to the organization described in the ruling you are not operated exclusively for educational_purposes even though providing information on healthy foods may be educational in other respects it is not your primary purpose you are similar to the organization described in ginsberg v commissioner the primary beneficiaries of the activities of your market are your members who are selling their products any benefit the consumers of the goods receive through education on the food's production preparation and growing practices is secondary to the sale_of_goods sec_1_501_c_3_-1 provides the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relieving the poor and distressed or the underprivileged combating community deterioration lessening neighborhood tensions and eliminating prejudice and discrimination you did not provide evidence that you limit your services to the poor and distressed or that your operations are in a deteriorated or blighted_area while you do plan to offer some charitable services such as giving space to local schools and donating products to food pantries this is incidental to your operation of a market for the sale_of_goods sec_1_501_c_3_-1 provides in part that the term educational as used in sec_501 of the code relates to the instruction of the public on subjects useful to the individual and beneficial to the community while you will provide some educational_services such as cooking classes and scholarships there is no evidence these are substantial activities any education you provide is incidental to the sale of members' products and promotion of their businesses for these reasons you are not serving exclusively educational or charitable purposes you are not like the organization in revrul_67_216 because your principle purpose is to facilitate sales and pair buyers with sellers you devote a majority of your resources and time to this purpose you utilize resources to help local and regional farmers gain visibility to potential buyers through the vehicle of your farmer's market you maintain a vendor list and distribute marketing materials to buyers in the effort to encourage the public to support farmers at your market you are similar to the organization described in revrul_73_127 because the operation of the farmers' market and the provision of education on healthy foods are two distinct purposes because the operation of your market is not an exclusively charitable or educational purpose you are not operated exclusively for exempt purposes letter rev catalog number 47630w your activities are similar to the management and marketing activities conducted by the organization described in revrul_77_111 supra like the organization described in revrul_77_111 by conducting advertising and marketing as well as managing the market facility you are engaged in activities which promote business in the market place generally rather than accomplish exclusively charitable purposes described in sec_501 of the code as held in better business bureau of washington d c inc v united_states a single non-exempt purpose if substantial will preclude tax exemption under sec_501 of the code the operation of your farmers' market a substantial part of your activities is a non-exempt purpose you are similar to the organizations described in the american institute for economic research v united_states and living faith inc v commissioner you are operating a farmers' market in competition with other commercial markets your sale of products is indicative of a business your sources of revenues are mainly from vendor fees and your expenses are primarily for grower payments equipment advertising salaries and insurance your market is a significant non-exempt commercial activity that is not incidental to the achievement of other educational_purposes your position you assert that you are operated for the benefit of the community first the land where you operate is owned by a private individual who does not get paid and allows use of the property free of charge second the market is an organizer conduit that handles the logistics of the operation only it has no affiliation with the farmers growers other than receiving vendors’ fees from farmers growers those fees are used to offset the costs of running and managing the market third you state that the market undertakes no commercial operations and is urged by the local community to sponsor and police the weekly market finally you intend to expand the snap and wic programs that benefit children and the needy our response to your position by providing an outlet for local farmers and vendors you are primarily serving the private interests of the businesses and individuals who come to your market to sell their products your financial information supports that you are a conduit handling logistics of a farmers market only you financials show no substantial expenditures_for charitable or educational programs even considering you provide an extra x dollars to those using ebt or wic that program is primarily a pass-thru service allowing vendors to accept payment via ebt or wic increasing their sales you also provided no evidence that the area you serve is a depressed or blighted_area even though you do describe some charitable and educational programs like scholarships and working with other community charities there is no evidence these are a substantial activities the facts show your primary purpose is operating a local market for commercial purposes which results in private benefit to your vendors conclusion based on the facts and circumstances presented you do not qualify for exemption from federal_income_tax as an organization described in sec_501 of the code you are not organized or operated exclusively for exempt purposes as set forth in sec_501 of the code by providing members with an opportunity and venue to sell their products you are operated for the substantial purpose of private benefit to members at your market your operations are not exclusively charitable or educational and resemble those of an ordinary commercial enterprise letter rev catalog number 47630w if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address letter rev catalog number 47630w u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely stephen a martin director exempt_organizations rulings and agreements enclosure publication cc letter rev catalog number 47630w


internal_revenue_service number release date index number 468a ---------------------------------------- ---------------------------------- -------------------------------------- ------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-117427-06 date date re revised schedule of ruling amounts re revised schedule of ruling amounts -------------------------------------------------- ------------------------------------ ------------------------------------------------- ---------------------------------- --------------------------------- --------------------------------- industry director natural_resources and construction ------------------------------ ------------------------------------------------ ----------------------------------------------------- ----------- ---------------------- ---------------------------------------------------------------- nuclear decommissioning fund legend taxpayer plant parent director location commission a commission b state method order fund dear ------------- this letter responds to your request dated date for a revised schedule of ruling amounts pursuant to ' 468a-3 i of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on ------------------ information was submitted pursuant to ' 468a-3 h as set forth more fully below taxpayer now seeks a revised schedule of ruling amounts because commission a has increased the amount of decommissioning costs authorized to be included in taxpayer’s cost of service for ratemaking purposes plr-117427-06 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is wholly owned by parent which is incorporated under the laws of state parent files a consolidated_return that includes taxpayer taxpayer has a joint and undivided ownership_interest of -------percent in the plant the plant is situated at location plant s operating license expires in ------- the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a ----------percent and commission b ------percent both commission a and commission b have authorized decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes there have been no new proceedings by commission b since those discussed in the prior schedule dated ------------------ and deductions for decommissioning expenses associated with the portion of the plant dedicated to wholesale jurisdictions ie other than commission a are not included in taxpayer’s proposed schedule of ruling amounts commission a increases in order the amount of decommissioning costs to be included in cost of service for ratemaking purposes with respect to taxpayer’s interest in plant commission a determined that the amount of decommissioning costs to be included in cost of service for ratemaking purposes would be dollar_figure--------------for ------- through ------ and dollar_figure----------for ------- commission a estimated an after-tax rate of return on the fund assets of -------percent commission a estimated taxpayer’s share of the total cost of decommissioning plant to be dollar_figure------------------in ------- dollars this base cost of decommissioning plant is escalated by commission at a -------percent yearly rate resulting in a total future cost to taxpayer of decommissioning taxpayer’s interest in the plant of dollar_figure------------------in --------dollars for purposes of commission a the funding_period for the plant extends from ----- ------- through ------- and the level_funding limitation period for the plant extends from ---- ------- through ------- the estimated period for which the fund will be in effect is ----- years ------- through ------ the estimated_useful_life of the plant is ----years ------- through ------- thus the taxpayer has calculated its qualifying percentage to be ----- percent commission a considered the changes made to sec_468a by section of the energy policy act of into account when estimating these costs sec_468a provides that a taxpayer may elect to deduct the amount of plr-117427-06 payments made to a qualified decommissioning fund however former ' 468a b limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under ' 468a-1 b of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund plr-117427-06 sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under ' 468a-3 a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under ' 468a-3 b the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under ' 468a-3 d the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the plr-117427-06 applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3 h the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year plr-117427-06 we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in ' 468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under ' 468a-1 b of the regulations commission has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by ' 468a-3 g of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under ' 468a-3 d of the regulations taxpayer has determined that pursuant to ' 468a-3 d of the regulations the qualifying percentage is ----- percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of 468a-3 a and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling applicable to the fund as set forth under ' 468a- b of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs as required by ' 468a- f of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of ' 468a of the code plr-117427-06 approved schedule of ruling amounts commission a year ----------- ---------------------------------------- ----------- amount --------------------- --------------------- --------------------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in ' 468a-3 i iii occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of ' 468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year effective date amendments were made to sec_468a by the energy tax incentives act of publaw_109_58 119_stat_594 regulations based on these amendments are being developed but have not yet been proposed because the period to which the schedule of ruling amounts above relates began prior to the effective date of these amendments the discussion above is based on the law in effect prior to date however this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2006_1 2006_1_irb_1 however when the criteria in section dollar_figure of revproc_2006_1 2006_1_irb_49 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances plr-117427-06 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer we are also sending a copy of this letter_ruling to the director pursuant to ' 468a-7 a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries enclosure copy for purposes 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 corp b03 plr-109889-11 date date legend parent ----------------------------------------------------------------------------------- ---------------------------------------------------------------------- -------------------------------------------- date date -------------------------- --------------------------- company official -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- ------------------------- tax professionals ------------------------------------------------------------- --------------------------------------------------------------------------------------- ------------------ --------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------------- ----------------------------------- dear --------------- this is in response to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent to file an election under sec_1_1502-21 to relinquish the entire plr-109889-11 carryback period for the parent consolidated group’s consolidated net operating losses cnols for the tax_year ending date the election additional information was submitted in a facsimile dated date the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group parent group parent group incurred a cnol for the tax_year ending date parent has represented that parent group has not and will not carry any portion of the cnol to a prior consolidated_return_year of parent group additional representations were also submitted by the appropriate parties that no portion of the cnol has been carried back nor will be carried back to a prior tax_year of another taxpayer parent intended to file the election the election was required to be filed by date but for various reasons parent failed to file a valid election the period of limitations on assessment under sec_6501 has not expired for parent group’s tax_year ending date or any subsequent taxable_year sec_1_1502-21 provides that a consolidated_group may make an irrevocable election to relinquish the entire carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21 also provides that the statement must be filed with the group's income_tax return for the consolidated_return_year in which the loss arises under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish 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 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-21 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided plr-109889-11 parent shows 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 parent company official and tax professionals explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and 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 representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on the taxpayers’ parent’s and the members of its consolidated_group tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved parent should file the election in accordance with sec_1_1502-21 parent group’s returns must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter should be attached to the election statement alternatively if parent group files its returns electronically parent may satisfy this latter requirement by attaching a statement to its return that provides the date and control number of this letter_ruling 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 code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by parent company official and tax professionals however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any still apply plr-109889-11 this ruling is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _ken cohen________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division feb i a2 tep fa t i in re this letter is in response to a request by your authorized representative dated date for rulings on the tax treatment of lump sum distribution from the plan your conference of right was held in our offices on date and was attended by your authorized representative pursuant to correspondence from your authorized representative dated date requests for three of the five rulings were withdrawn the employer is a which is intended to be a qualified_plan under sec_401 of the internal_revenue_code the subdivision of the state the employer maintains the plan plan is a governmental_plan as described in sec_414 the plan is a defined_benefit_plan and has received its most recent favorable determination_letter on date the plan covers both collectively bargained employees and non-collectively bargained employees the plan operates on an april 1-march plan_year basis as mentioned above the employer originally requested five rulings as referred to above ruling_request sec_2 and have been withdrawn accordingly we are ruling on ruling_request sec_1 and e e ruling_request - whether a lump sum distribution of the accumulated retroactive deferred retirement option program the total drop or lump sum drop from the plan to a plan participant constitutes an eligible rollover within the meaning of sec_402 of the code and thus may be directly transferred trustee- to-trustee into an eligible_retirement_plan pursuant to sec_401 ruling_request - whether the lump sum drop benefit is a benefit that must be converted to an actuarially equivalent annual_benefit and included in the participant's annual_benefit when determining the plan’s compliance with sec_415 o the plan provides for an optional form of benefit known as the back drop benefit this option is available to participants that elect to retire after date the participant must elect to receive the back drop benefit this benefit is a two-part benefit the lump sum drop benefit and an early or normal as applicable retirement monthly annuity calculated as of the back drop date to receive the back drop benefit the participant needs to select a date in the past the back drop date such date is used to calculate the both parts of the back drop benefit such date cannot be earlier than when the participant was first eligible for retirement and no later than one year prior to when the participant leaves active_service such participant benefits are calculated as of the back drop date final average salary and years_of_service are frozen as of that date the lump sum drop benefit part of the back drop benefit is equal to the total of the monthly drop benefit payments the participant would have received from the back drop date to the actual retirement date these monthly drop payments include colas as if the benefits had commenced on the back drop date the lump sum drop benefit also includes compounded monthly interest at the plan's rate that would have accrued on a hypothetical account had the participant commenced monthly benefits on the back drop date the participant can receive the lump sum drop benefit in a direct lump sum payment however if the service approves the employer would like to have the plan provide that such amounts may be rolled over to an ira or other eligible_retirement_plan the pian provides that the lump sum drop benefit is considered to be an annual_benefit for purposes of sec_415 of the code this lump sum is converted to an actuarially equivalent straight life_annuity sec_402 of the code provides that rollovers from exempt trusts are excluded from gross_income sec_402 defines eligible_rollover_distribution as any distribution to an employee of all or a portion of the balance_to_the_credit of the employee in a qualified_trust except a any distribution of a series of substantially equal payments over the life lives of the employee and the designated_beneficiary or over a period equal to at least years b any distribution required under sec_401 and c any hardship_distribution under sec_401 pf sec_1_402_c_-2 q a-6 of the regulations provides that a payment will generally be treated as independent of and not part of a series of substantially equal payments if the payment is substantially larger or smaller than the other_payments in the series also such independent payment must not otherwise be excepted from the definition of eligible_rollover_distribution this treatment is regardless of whether the independent payment is made before with or after the other series payments the employer states that a participant's iump sum drop benefit will be significantly larger than the amount of the monthly annuity thus with regard to ruling_request because the lump sum drop benefit will be significantly larger than the amount of the monthly annuity such lump sum is considered independent of the other_payments in the series accordingly such lump sum is eligible for rollover treatment pursuant to sec_402 of the code sec_415 of the code provides that a qualified defined_benefit_plan may not pay benefits in excess of the limitations of sec_415 sec_415 b provides that a participant's annual_benefit may not exceed the lesser_of the specified dollar amount currently dollar_figure or of the participant’s final_average_compensation sec_415 provides that the of compensation limit does not apply to governmental plans sec_415 provides that if a benefit is payable in a form other than a straight life_annuity then the benefit must be converted to an actuarially equivalent straight life_annuity sec_415 provides that for purposes of adjusting any benefit under sec_415 for any benefit form subject_to sec_417 the interest rate used must be the greater of the applicable sec_417 rate or the rate specified in the plan that section also provides that for purposes of adjusting any benefit under sec_415 the mortality_table used shall be the table that is based on the prevailing commissioners’ standard table see sec_807 used to determine reserves for group annuity_contracts issued on the date the adjustment is being made sec_417 of the code provides rules for determining the present_value of benefits this section defines applicable_mortality_table as the table that is based on the prevailing commissioners’ standard table see sec_807 used to determine reserves for group annuity_contracts issued on the date the adjustment is being made in general this section defines applicable_interest_rate as the annual rate on 30-year treasury securities for the month before the date of distribution bs for purposes of the application of sec_415 of the code the lump sum drop benefit is merely part of a participant's accrued_benefit because the drop benefit is made in the form of a lump sum distribution sec_415 provides that such distribution must be converted to an actuarially equivalent straight life_annuity using the rules of sec_417 once the lump sum drop benefit is actuarially converted such benefit must be counted as applying to a participant's benefit limitation under sec_415 therefore with regard to ruling_request as stated above the lump sum drop benefit is part of a participant's accrued_benefit thus the equivalent straight life_annuity is added to the annuity benefit for purposes of determining whether a participant's benefit complies with the benefit limitation under sec_415 of the code this ruling letter is directed only to the taxpayer that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent these rulings are based on the assumptions that the plan is qualified under sec_401 of the code and that its related trust is tax-exempt under sec_501 at all times relevant to this ruling we have sent a copy of this letter to your authorized representative pursuant to a form_2848 power_of_attorney on file with our office me or you may contact if you have any questions please contact sincerely paw t lillur p ames e holland jr acting manager employee_plans technical


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b06 kfisher postf-113056-08 uilc 263a 263a date date to steven r guest associate area_counsel large mid-size business from roy a hirschhorn senior technician reviewer branch income_tax accounting third party communication none date of communication not applicable subject application of notice_2007_29 2007_1_cb_881 this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer products materials year year year x year y ------------------------------------------ --------------------------------- ----------------------- ------- ------- ------- ------- postf-113056-08 issue does notice_2007_29 2007_1_cb_881 preclude the internal_revenue_service service from examining whether or not costs removed from inventory are required to be capitalized to inventory under sec_263a of the internal_revenue_code conclusion no notice_2007_29 does not preclude the service from examining whether or not costs removed from inventory are required to be capitalized to inventory under sec_263a facts taxpayer manufactures and wholesales products taxpayer is under examination for years x through y taxpayer filed a form_3115 application_for change in accounting_method pursuant to revproc_97_27 1997_1_cb_680 in year seeking permission to discontinue capitalizing certain costs associated with materials under sec_263a and to elect to use the simplified_production_method under sec_1_263a-2 to determine additional sec_263a costs allocable to its ending inventory in year taxpayer received consent to expense currently certain costs associated with materials and use the simplified_production_method to allocate additional sec_263a costs to its ending inventory to currently expense certain costs associated with materials taxpayer removed the costs from inventory by including negative amounts in the numerator of the ratio of the simplified_production_method see sec_1_263a-2 the service is seeking to examine whether the removed costs from inventory were required to be capitalized and thus should not have been removed at all law and analysis sec_446 and sec_1_446-1 provide that if a taxpayer does not regularly employ a method_of_accounting that clearly reflects its income the computation of taxable_income must be made in the manner that in the opinion of the commissioner does clearly reflect income sec_1_446-1 provides that the commissioner may prescribe administrative procedures under which taxpayers will be permitted to change their methods_of_accounting sec_263a provides that the direct costs and indirect_costs properly allocable to property that is inventory in the hands of the taxpayer must be included in inventory costs sec_1_263a-1 provides in part that taxpayers that produce tangible_personal_property must capitalize all direct costs of producing the property and the property's properly allocable share of indirect_costs postf-113056-08 notice_2007_29 was issued to address the controversy that has arisen regarding the means of removing costs from inventory that are not required to be capitalized to inventory under sec_263a and specifically the removal of these costs from inventory by including negative amounts as additional sec_263a costs in the numerator of the ratio of the simplified_production_method the service and treasury requested public comments in notice_2007_29 exploring options of how to resolve the controversy notice_2007_29 provides that pending the issuance of additional published guidance the service will not challenge the inclusion of negative amounts in computing additional costs under sec_263a or the permissibility of aggregate negative additional sec_263a costs notice_2007_29 further provides that the issues of including negative amounts in computing additional costs under sec_263a and the permissibility of aggregate negative additional sec_263a costs will not be raised in any taxable_year ending on or before publication of the additional guidance and if already raised as an issue in examination or before appeals or the tax_court in a taxable_year ending on or before date the issue will not be pursued by the service notice_2007_29 provides examples of costs such as the excess of book depreciation over tax depreciation that are not properly capitalized under sec_263a and addresses the means by which a taxpayer may remove such costs from inventory the notice does not change the rules under sec_263a and the regulations as to which costs are required to be capitalized to inventory in this case the service is not challenging taxpayer’s means of removing costs from inventory that is the inclusion of negative amounts in the numerator of the ratio of the simplified_production_method the service is instead challenging whether or not the costs in question may be appropriately removed from inventory at all that is whether or not these costs are required to be capitalized to inventory under sec_263a if the costs are required to be capitalized to inventory notice_2007_29 does not transform such costs to currently deductible costs simply because taxpayer is using negative amounts in the numerator of the ratio of the simplified_production_method as its means of removing the costs from inventory consequently notice_2007_29 does not preclude the service from examining the issue of whether or not costs removed from inventory are required to be capitalized to inventory under sec_263a nor does it preclude the service from making adjustments if it determines that taxpayer did not capitalize costs to inventory which are required to be capitalized however we express no opinion as to whether the specific costs in question are in fact required to be capitalized under sec_263a and the regulations or if the costs may be properly removed from inventory and treated as currently deductible our opinion is directed solely at the question of whether or not the service is precluded from examining the issue postf-113056-08 case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions