intemal revenus service appeals_office south pine island road sulte ptantation fl number release felease date date date date uil certified mail dear department of the treasury parson to contact - employee id number tel ran reply to ‘ap area team gp in re eo revecation form required to be filed tax perlod s ended reply fer to june last day to file a petition with the united_states tax_court gay it is determined that you de not qualify ae exempt this is a final adverse determination as to your exempt status under sectlon ck3 of the intemal revenue code irc from federal_income_tax under sec_501 c effective date our adverse determination was made for the following reason s a substantia part of your activities consists of providing down payment assistarica to home buyers to finance the assistance you rely on home sellers and other real-estate related businesses that stand to benefit from these down payment assistance transactions your receipl of a payment from the home seller corresponds to the amount of the down payment assistance provided in substantially_all of your down payment eesistance transactions the manner in which you operate demonstrates you are operated primarily to further your insiders’ business interests therefore you are operated for a substantial nonexempt purpose in addition your operations further the private interests of the persons that finance your activities accordingly you are not operated exclusively for exempt purposes dascribed in sec_601 cx3 contributions to your organization are not deductible under code saction you are required fo file federal_income_tax retums on the form indicated above you should file these retume within days from the date of this letter unless a request for an extension of time is granted file the retums in aecordanes with their instructione and do not send them to this office processing of income_tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory_judgment under gode sec_7428 if you decide to contest this determination under the declaratory_judgment provisions of code eection petition to the united_states tax_court the united_states court of claims or the district_court of the united statas for the district of columbia muet be filed within days from the date this determination was mailed to you contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c we wil notify the appropriate state officials of this action a8 raquited by code section c you should contact your state officials if you have any questions about how this determination may affect your stata responsibilities and requirements hf you heve any questions please contact the person whose name and telephone number ate shown in the heading of this letter sincerely charles fisher team manager oveenenetar entries org nama department of the treasury inlemal revenue service thige examinations commerce straat dakas tx texpayer identification_number form_990 tax_year s ended tune x person to contact number contact numbers telephone fax certified mail - return receipt requested your protest should include a statement of the facts the oear we have enclosed copy of our report of examination explaining why we belleve sevoeation of your exempt status under sec_501 of the internal_revenue_code code is necessary ifyou accept our findings take no further action we will issue a final revocation letter ifyou do not agree with aur proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this lettar to protest our decision applicable law and arguments in support of your position ‘an appeals officer will review your case the appeals offics is independent of the director eo examinations the appeais office resolves most disputes informally and promptly the enclosed fublicetion the examination process and publication exempt orgenizations appeal procedures for unagreed issues explain how to appeal an intemal revenue service irs decision publication also includes information on your rights as taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a delermination letter to you based on technical_advice no further administialive appeal is available to you within the irs regarding the issue that was the subjeci of the technical_advice latter catalog nur mwe do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determinatin within days from the date of this fetter tha irs wilt consider it to be a faliure to exhaust your avallable administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax cour the claims_court or the district_court of the united_states for the district of columbia determines that the organization invalved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropiate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance js not substitute for established irs procedures euch as the format appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at w peachtree st room stop 202-d atlania ga you have any questions please call the contact person at the telephone number shown in the heading of this letter the mest convenient time to cail if we need to contact you thank you'for your cooperation if you write please provide a telaphone number and sinceraly marsha a rameriz director eo examinations enclosures publication publication report af examination letiar ‘gotalog number fam 886a name of taxpayer teprnon of we fray reve se explanation of items org schedule no or exhibit ‘yeat period ended 20xx organization name agent agent board members companies xx date founder founder co-1 co-2 xyz state by-1 bm-2 co-3 co-4 city city bm-3 bm-d 4th 3a g 2h news-1 news-2 news-3 newspapers issue whether org operated exclusively for exempt purposes within meaning of internal_revenue_code sec_501 facts org org a xyz not-for-profit corporation incorporated on october 20xx the stated purposes of the organization are to make distributions to organizations that are designated as charitable organizations under sec_501 c of the internal_revenue_code_of_1986 as amended to provide down payment assistance to individuals of low to moderate income levels first time homebuyers displaced spouses single parents and such other persons in need of down payment assistance and to provide education to first time homebuyers regarding home ownership and mortgage requirements leasing purchasing and selling any and all kinds of property in furtherance of the corporation on february 20xx the org applied for recognition as a tax-exempt_organization under sec_501 on form_1023 application_for recognition of tax-exempt status dated july 20kx based on the information that the org provided in its form_1023 and on the assumption that it would operate in the manner represented in its application the org was recognized as a tax-exempt_organization as described in sec_501 c by letter since 20xx the org has promoted and operated a down payment assistance dpa program in which it provides funds to home buyers to use as their down payments and collects the same amounts plus additional fees from the home sellers as nuore fully described below under the org’s dpa program down payment assistance is provided for all types of housing loan programs including federally insured mortgages to buyers with no income or asset limitations except those imposed by the lenders the organization did not provide documentation showing they provided seminars to educate the public regarding mortgages personal finance credit reporting and predetory lending as described in the application the form_1023 application_for recognition of tax-exempt status filed by org with the irs described its activity as follows the primary activity of org the corporation is to assist those individuals who form 886-agosa depastment ofthe tzeasury -intemal revenue service page -- deparinont ofthe treasury tnvenal revere sonica fom 886a schedule no or exhibit name of taxpayer ‘year period haded explanation of items org have a reasonable credit history but are unable to save enough money to serve as a down payment and also provide assistance to those who have poor ctedit history and are unable to ‘obiain financing through conventional lenders org has developed several programs that it believes to be appropriate to accomplish the above referenced objectives these include the following down payment assistance the org believes that quality and affordable housing is essential to the development of strong communities and recognizes that the lack of funds sufficient to serve as a down payment inhibits community development the federal government through various agencies including the department of housing and urban development has expressly recognized these beliefs and adopted numerous programs to assist america’s citizens including home loan programs through the federal housing administration and the veterans’ administration te provide additional assistance the org has developed a program to make funds for down payments available to qualified participants which shall primarily include low-income and very low-income individuals the org will give an amount sufficient to serve as a down payment to qualified participants to be qualified a participant must otherwise qualify for an fha va or conventional loan the org will cause its activities to comply with the internal_revenue_service revproc_96_32 and the org and has signed a declaration of compliance with revenue_procedure which is attached hereto education and counseling the org strongly believes that predatory lending largely occurs because borrowers simply are uneducated as to the lending process in addition the credit histories of many low-income and very low-income individuals reflect inaccuracies about which the individuals are not aware or are without the resources to resolve as such many individuals borrow money at exorbitant interest rates or from finance companies that engage in undesirable lending practices these ending practices result in the fracturing of developing communities and the inhibition of community redevelopment efforts to combat this the org will conduct seminars throughout the communities in which it operates to educate the public regarding mortgages personal finance credit reporting and predatory lending these programs will be sponsored by the org in conjunetion with local community groups and other charitable organizations at the org’s sole cost and expense to teach these seminars the org will request the assistance of experienced debt counselors financial planners and advisors certified public accountants altomeys mortgage brokers bankers and college and university professors educational seminars conducted by the org will address various information necessary or helpful in the home-buying process the org’s goal is for each of its participants as well as the general_public to understand the mortgage lending process and form 886-arenesn department of te treasury -tntcenal revenue service pag fom 886a departaent of the treasury interal revenus serice explanation of items ‘name of taxpayer org ‘schedule no or exhibit ‘year period ended 20kx to know how to find appropriate and affordable housing provide information about credit reporting agencies including general instructions on how to correct inaccuracies on credit reports and the rights and remedies of individuals under the fair credit reporting act from time to time the org in addition to conducting various seminars will provide individual credit counseling in addition the org will finally the org intends further to develop its existing website to provide online seminars guidelines articles and advice designed to educate the public regarding the dangers of high interest loans community reinvestment the org firmly believes that strong communities promote a strong society and a strong nation in addition the org believes that strong communities are created by the active_participation of each communities’ residents unfortunately many communities have encountered substantial challenges that have left community members unable successfully to build or rebuild desirable communities as such itis the tesponsibility of caring individuals and charitable organizations to assist in the rebuilding of our nation’s communities accordingly the org will donate money to variou sec_501 organizations including community organizations religious associations and other charities that demonstrate the ability positively to impact our communities to qualify for funding from the org applicants must demonstrate a well-conceived and thorough plan to better their community the org anticipates the recipients of its gifts will include such organizations as co-1 the co-2 the co-3 the co-4 and various other community teinvestment coalitions and associations the org from time to time anticipates contributing money to renovate buildings build public parks and community centers and otherwise assist in areas traumatized by urban blight for this work the org may partner will local community organizations cities townships states and development authorities to identify areas where the community may be best served and to implement a plan capable of promoting positive community development fund raising the org will raise money for its programs by soliciting contributions from community organizations and charitable organizations requesting contributions from individuals selling homes to participants in the org’s homebuyer assistance program and conducting fundraising drives the org anticipates that many sellers may contribute to the org's charitable purpose but no seller will be required to contribute in order for a participant to receive down payment assistance according to its form_1023 the sources of financiat support for org will be as follows in order of size form 886-a rer department of the treasury - interaal revenue service page - form 886a depaciesnr of tho trenvry internal_revenue_service explanation of items ‘name of taxpayer org schedule no or exhibit ‘yeat period baded 20xx - - - the organization believes it primary sources of financial support shall come in the form of contributions from individuals grants ftom various governmental agencies and grants from other organizations as more fully set forth in the organization’s pro forma budget attached hereto and in the attached schedule ii-1 additional information requested additional information was requested from the org during the application process the additional information requested and the responses provided during the processing of the form_1023 were as follows requested information you have indicated in your application_for exemption that your organization’s research demonstrates that communities of homeowners are safer cleaner and healthier than communities of renters please describe in detail your research activities and submit copies of research materials response founder the founder of org the org previously worked for some time as a loan officer during that time he became aware of numerous problems encountered by those with low incomes and those located in communities in which the majority of residents have low incomes founder's research consists nearly exclusively of anecdotal information gathered during conversations with acquaintances and colleagues together with information leamed while reading through various publications requested information you indicate that your organization will provide gift funds to assist homebuyers with theit down payment a describe the class of potential recipients of your organization’s gift funds describe any restrictions of limitations on who may apply or whom your organization will consider as possible grantees b please describe in detail the source of the gift funds response 2a the org will provide gift funds in the form of down payment assistance to recipients who are otherwise unable to obtain a mortgage without resorting to financing form 886-aev ‘department of the treasury - internal_revenue_service pa deparsnent ofthe peasy -incseal revenue sonice form_8864 schedule no or exhibit name of taxpayer ‘yeac period ended explanation of items org through finance companies who offer loans with extremely high interest rates the org cannot limit applicants who apply to receive benefits however the org is particularly interested in assisting individuals who have encountered hardship and can demonstrate their effort to overcome this hardship 2b the org will request contributions from various individuals involved in or concerned about predatory lending practices and the improvement of traditionally underserved communities the org anticipates that it will request contributions from individuals selling residential real_estate agents mortgage companies and other c organizations the org from time to time anticipates conducting fundraising drives and engaging in other efforts designed to raise community awareness of the impact of predatory lending practices requested information please submit a copy of the gift application response see enclosed a copy of the gift application is attached to this report as exhibit a requested information members what experience do they have please explain explain how the current officers were elected as the first board response the org was born of a vision by founder the current president and executive and other metropolitan areas director of the org founder was tremendously concerned about the impact of predatory jending practices on the communities surrounding several reports by news-1 news-2 news-3 and other newspapers demonstrated that the number of foreclosures on residential real_estate has been increasing rapidly through these articles and numerous conversations with friends and colleagues founder became aware that many individuals are forced to borrow money at exorbitant rates in order to purchase reasonable housing in the alternative they may rent housing of dubious quality in neighborhoods that feature under-performing schools and decrepit infrastructure in this type of situation members of the community are trapped and without viable recourse founder determined that he would make a difference founder then began contacting individuals he whether they were interested in participating in his vision after speaking knew to determine with several individuals the initial board_of directors of the org consisting of founder bm- bm-2 and bm-3 was selected bm-2 recently resigned as a member of the board_of directors and the org’s board has appointed bm-4 as a board member to take his place founder previously worked as a loan officer after working in the grocery business for more than twenty years in 20xx he became impressed with the need to help his community and to assist hard working families achieve the dream of owning a home he has taken a significant reduction in salary to make this opportunity work and open doors for people who may not have been able to purchase a home in the past bm-1 has been a volunteer in his community for the past twelve years at which time he became wheelchair bound he has form 886-acrer468 ‘department of the treasury - internal_revenue_service pa foun 886a daparcnert af the weensury rveral revere sena ‘name of taxpayer org explanation of items ‘schedule novo eshibie year period ended a strong desire to help people and volunteers in many community projects such as little league at his local high school coaching wherever there is a need bm-1 is the first volunteer he saw being on the board_of the org as another way of helping people bm-3 has worked and owned her own hair salon for more that fifteen years and works well with the public she is a great communicator and does a lot of volunteer work through her church she also saw this as an opportunity to help the community and low-to-moderate income families achieve the dream of owning their own home bm-4 is currently a warehouse manager in city xyz he voluateers in his community for many projects such as but not limited to little league coaching soccer coaching football for kids and co-1 he is a strong leader in his church and is always the first one to volunteer when help is requested for any project he found out about the opportunity with the org through a friend and looked at it as another way to help people requested information will any officers directors members or their relatives receive a salary reimbursement for expenses or any other form of payment from your organization if so explain fully and include the recipients’ names duties and the number of hours each week that they will devote to such duties will receive and the basis for arriving at the amounts of such payment response state the amount of compensation each no officer director member or their relatives will receive a salary from the org except as fait and reasonable_compensation for services actually rendered to the org currently founder is active in the day-to-day operations of the org and devotes at least forty hours per week to the org’s activities founder maintains an office at the org’s headquarters and approximately dollar_figure dollar_figure in salary from the org an amount far less than the salary to which he previously was accustomed officers directors and employees of the org may be reimbursed for expenses they incur on behalf of org if they first obtain the org’s written permission the org expects that any such expenses will be minimal so as to devote as much as possible to the org’s charitable endeavors the requested information please explain how sellers are made aware of your organization response the org anticipates communicating its ability and willingness to help through conducting community education seminars developing and maintaining a website and form 886-a ev of the teeasury internal_revenue_service pag department form 886a ‘name of taxpayer explanation of items depariicat of he trcauny talore reveove woedae schedule no or exhibit ‘yeat petiod ended 20xx org contracting civic minded individuals involved in residential real_estate when beneficiaries of the org’s charitable endeavors identify a home they would like to purchase the org will deliver information to the home seller regarding its charitable efforts and will request that the home seller make a contribution nor will the gift of funds for dowo payment assistance to the beneficiary be affected requested information if your organization provides funds to a buyer in a real_estate_transaction are sellers required to make a contribution or pay a fee to your organization please explain response sellers of residential real_estate are never required to make any contribution to the org nor will the org charge any fee of any sort whatsoever please submit a copy of all forms sellers are tequited to complete response see enclosed requested information you have indicated that your organization will comply with revproc_96_32 and you have submitted a declaration agreeing to comply with revproc_96_32 revproc_96_32 provides a safe_harbor provision for organizations that develop or maintain housing projects to provide housing to low income individuals based on your organization’s proposed activities it appears that the safe_harbor provisions in revproc_96_32 are not applicable to your organization your organization will provide financial assistance to individuals to purchase homes located at scattered sites in the community please explain in detail how the safe_harbor provisions are applicable to your organization response in my conversation with irs exempt_organizations specialist agent id on february 20xx agent instructed me that all charitable organizations involved in any way with providing down payment assistance were required to sign an agreement evidencing their compliance with revproc_96_32 she then faxed me a document entitled declaration of compliance with revenue_procedure thave attached a copy of sdid facsimile neither i nor the org now make or have made any representation as to the org has the applicability of revproc_96_32 to the org’s activities agreed to comply with all requirements of the intemal revenue code and applicable regulations and procedures including those expressed by agent on february 20xx form 886-a ger ‘department of te teearury internal_revenue_service page foun 886a department ofthe trearry-ineenal revere senice explanation of items name of taxpayer org schedule no or exhibit ‘year period ended requested information the flyer you submitted with your application_for exemption states there are no income or asset limits and no geographical location restrictions as _is a nationwide program this program is designed to allow everyone the opportunity to own their own home please explain in detail how this program serves a charitable purpose under sec_501 c of the code response ‘the members of the board_of directors of the org have determined that many individuals in need of assistance are reluctant to ask for assistance because they experience shame embarrassment or guilt in asking for help in addition it appears as though many are embarrassed to admit they are low income individuals the org believes it will be able to generate greater interest and help applicants minimize embarrassment and shame by structuring it promotional material in this manner by doing so the org may provide solutions for and assistance to traditionally underserved individuals and their communities the original application provided by org disclosed that the sources of financial support will come in the form of contributions from individuals grants from various governmental agencies and grants from other o organizations the application also stated that the org will raise money by soliciting contributions from community organizations and charitable organizations individuals selling homes to participants in the org’s homebuyer assistance program and conducting fundraising drives the application also states that the org anticipates that many sellers may contribute to the org’s charitable purposes but no seller will be required to contribute in order for a participant to receive down payment assistance articles of incorporat included in the articles of incorporation for the org dated october 20xx are the following article ii the corporation is organized pursuant to the xyz nonprofit corporation code the code article xiu the corporation is a nonprofit corporation and is organized exclusively for charitable purposes including i making distributions to organizations that are designated as charitable organizations under sec_501 of the intemal revenue code of as amended ii providing down payment assistance to individuals of low to moderate income levels first time homebuyers displaced spouses single parents and such other persons in need form 886-acnev 4a department of the treasury - interaal revenue service page -- ‘schedule no or exhibic ‘year pericd ended 20xx for 886a department of the trewuaytatemal revenue senior name of taxpayer explanation of items org of down payment assistance iii providing education to first time homebuyers regarding home ownership and mortgage requirements iv leasing purchasing and selling any and all kinks of property in furtherance of the purposes of the corporation and v carrying on any lawful business under the laws of the state of xyz governing nonprofit_corporations subject_to the limitations of sec_501 of the intemal revenme code of as amended the corporation shall do all such things as are incidental and or conducive to the attainment of its charitable objectives ‘the org has a dissolution clause which requires that upon dissolution remaining net assets will go to another sec_501 c organization federal returns the org filed form_990 for the period ended june 20xx the organization reported the income from the down payment from the seller as contributions part ii of the org’s form_990 for the 20xx tax_year state the exempt_purpose of the organization as follows assist home buyers with down payments in order to purchase personal_residence in the period ending june 20xx the org received dollar_figure in gross revenue from amounts paid to it by sellers participating in the org’s dpa program the org reported the seller’s payments as contributions the org also reported that it distributed dollar_figure in down payment assistance to homebuyers for use as down payments and or to pay for closing costs the org’s form_990 part iv line shows that as of june 20xx the org had total unrestricted net assets of negative dollar_figure operation of down payment assistance program the org advertised in its publication the process through which an applicant may receive down payment assistance the org’s publication included the following information the org offers potential homebuyers a nationwide down payment assistance program that has helped many people to purchase a home there are no income restrictions or first time buyer of educational requirements the org will give the potential applicant up to of the sale price of the house to be used as a down payment or for closing costs the funds are a gift to the potential home buyer from a non-profit charitable_organization the funds are not required to be repaid the seller makes a contribution to the org to cover the amount_of_the_gift and a small additional service fee the org works with mortgage lenders and realtors nationwide to offer the program the mortgage lenders will help to determine if the potential home buyer is qualified for the program form 886-aeveoy ofthe treasury - toteroal reveour service_department pay ‘schedule no or exhibit ‘year period banded 20kx fom 886a dparieacot of the tecauny talgrnl revenue soot explanation of items ‘name of taxpayer org the org does not provide down payment assistance to the buyer if the seller does not enter into the agreement if the seller agrees to participate the agent and buyer must sign a gift request the gift request and the loan agreement then go to the underwriter for loan approval if the oan is not approved the seller will not make a gif to the organization the org does not participate in the processing of the loans once the loan is approved the amount agreed to by the seller on the gift request is disbursed to the org which then provides the assistance to the buyer for the down payment during the closing the seller wires or delivers the gift funds to the closing attorney the money is not given directly to the org by the seller the check is made payable to the closing attomey and is deposited into an escrow account afier closing the funds are wired to the org by the attorney if the sale is not completed the seller provides no funds to the org in the 20xx tax_year the org received percent of its income from transactions in which there are agreements between a buyer and seller regarding specific properties owned by the sellers the org does not provide gift funds to any buyer if the seller of the home does not agree to participate in the program the org does not have any income limitations for its dpa program the records provided by the org did not include data on the buyers’ incomes and gave no indication that the org sereened applicants based on such data the org’s dpa program provided down payment assistance to any homebuyers whe qualified for a loan if the sellers agreed to participate in the program according to the flyer provided by the org no conditions are placed on the buyer except that the buyer must be approved for a loan by a mortgage_lender or broker the flyer also stated that there are no underwriting guidelines and no income qualifications no funds are delayed and processing is fast the form_1023 stated that the org obtains funds by requesting contributions from the seller and by requesting contributions from various charitable organizations government programs and individuals the return for the 20xx fiscal_year ending june 20xx however reflects that percent of the revenue received is from the sellers of the homes law and analysi sec_501 of the code provides for the exemption from federal_income_tax of corporations organized and operated exclusively for charitable or educational_purposes provided that no part of the net_earnings of such corporations inures to the benefit of any private_shareholder_or_individual see lr c sec_501 sec_1 c -1 of the income_tax regulations provides that an organization operates exclusively for exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in section dollar_figure c an organization must not engage in substantial activities form 886-acrer ‘department of the teeasury - internal_revenue_service pa form 886a tepacismne of the treavry internal revenve sonic ‘name of taxpayer org explanation of items schedule no ot bshibit ‘yeat petiod ended 20kx that fail to further an exempt_purpose states 326_us_279 the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in better business bureau of washington d c v united sec_1_501_c_3_-1 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 -1 d defines the term charitable for sec_501 purposes as including the relief and the promotion of social welfare by organizations designed to lessen neighborhood tensions to eliminate prejudice and discrimination or to combat community deterioration the term charitable also includes the advancement of education of the poor and distressed or of the underprivileged sec_1 -1 d provides in part that the term educational for sec_501 purposes relates to the instruction of the public on subjects useful to the individual and beneficial to the community ‘ sec_1_501_c_3_-1 provides that an organization that operates a trade_or_business as a substantial part of its activities may meet the requirements of sec_501 if the trade_or_business furthers an exempt_purpose and if the organization’s primary purpose does not consist of carrying on an unrelated_trade_or_business in easter house v united_states cl_ct aff'd 846_f2d_78 fed cir the u s court of federal claims considered whether an organization that provided prenatal care and other health-related services to pregnant women including delivery room assistance and placed children with adoptive parents qualified for exemption under sec_501 ‘the court concluded that the organization did not qualify for exemption under sec_501 because its primary activity was placing children for adoption in a manner indistinguishable from that of a commercial adoption agency the court rejected the organization’s argument that the adoption services merely complemented the health-related services to unwed mothers and their children rather the court found that the health-related services were merely incident to the organization's operation of an adoption service which in and of itself did not serve an exempt_purpose the organization's sole source of support was the fees it charged adoptive parents rather than contributions ftom the public the court also found that the organization competed with for- profit adoption agencies engaged in substantial advertising and accumulated substantial profits in addition although the organization provided bealth care to indigent pregnant women it only did so when a family willing to adopt a woman’s child sponsored the care financially accordingly the court found that the business_purpose and not the advancement of educational and charitable activities purpose of plaintiff's adoption service is its primary goal and held that i form 886-asrer4 department of the treasury ineemal revenue secvice p form 886a departnant of the teesuny-intemal revere santee ‘name of taxpayer explanation of items org schedule noor eshibie ‘yeae periad ended 20xx the organization was not operated exclusively for purposes described in sec_501 easter house cl_ct pincite in 92_tc_1053 the court held that an organization that operated a school to train individuals for careers as political campaign professionals but that could not establish that it operated on a nonpartisan basis did not exclusively serve purposes described in section dollar_figure c because it also served private interests more than incidentally the court found that the organization was created and funded by persons affiliated with entities of a particular political_party and that most of the organization’s graduates worked in campaigns for the party’s candidates consequently the court concluded that the organization conducted its educational activities with the objective of benefiting the party’s candidates and entities although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest within the meaning of sec_1_501_c_3_-1 the court concluded by stating that even if the political party’s candidates and entities did comprise a charitable_class the organization would bear the burden of proving that its activities benefited members of the class in anon-select manner american campaign academy t c pincite in 71_tc_202 the court held that an organization that marketed handicrafts made by disadvantaged artisans through museums and other non-profit organizations and shops operated for exclusively charitable purposes within the meaning of sec_501 the organization in cooperation with national craft agencies selected the handicrafts it would market from craft cooperatives in communities identified as disadvantaged based on objective evidence collected by the bureau of indian affairs or other government agencies the organization marketed only handicrafts it purchased in bulk from communities of craftsmen the organization did not market the kind of products produced by studio craftsmen nor did it market the handicrafts of artisans who were not disadvantaged purpose of the organization’s activity was to benefit disadvantaged communities the organization’s commercial activity was not an end in itself but the means through which the organization pursued its charitable goals the method the organization used to achieve its purpose did not cause it to serve primarily private interests because the disadvantaged artisans directly benefited by the activity constituted a charitable_class and the organization showed no selectivity with regard to benefiting specific artisans therefore the court held that the organization operated exclusively for exempt purposes described in sec_501 the court concluded that the overall v commissioner 283_fsupp2d_58 d d c the court relied on the in airlie foundation commerciality doctrine in applying the operational_test because of the commercial manner in which the organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for a tax-exempt purpose as the court stated form 886-aieract department ofthe treasury -tateroat revenue service r page -- foun 886a dpartnent ofthe treatuay inner revenve sones ‘name of taxpayer org explanation of items schedule no of exhibit ‘year period aded 20xx among the major factors courts have considered in assessing commerciality are competition with for-profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations see also 950_f2d_365 7th cir holding that a religious_organization which ran restaurants and health food stores in furtherance of its health ministry did not qualify for tax-exempt status because it was operated for substantial commercial purposes and not for exclusively exempt purposes revrul_67_138 1967_1_cb_129 held that helping low-income persons obtain adequate and affordable housing is a charitable activity because it relieves the poor and distressed or underprivileged in revrul_67_138 the organization carried on several activities directed to assisting low-income families obtain improved housing including conducting a training course on various aspects of homebuilding and homeownership coordinating and supervising joint construction projects purchasing building sites for resale at cost and lending aid in obtaining home construction loans revrul_70_585 1970_2_cb_115 discussed four situations of organizations providing housing and whether each qualified as charitable within the meaning of sec_501 situation i described an organization formed to construct new bomes and renovate existing homies for sale to low-income families who could not obtain financing through conventional channels the organization also provided financial aid to low-income families who were eligible for loans under a federal housing program but did not have the necessary down payment the organization made rehabilitated homes available to famities who could not qualify for any type of mortgage when possible the organization recovered the cost of the homes through very small periodic_payments but its operating funds were obtained ftom federal loans and contributions from the general_public the revenue_ruling held that by providing homes for low-income families who otherwise could not afford them the organization relieved the poor and distressed situation described an organization formed to ameliorate the housing needs of minority groups by building housing units for sale to persons of low and moderate income on an open-occupancy basis the housing was made available to members of minority groups who were unable to obtain adequate housing because of local discrimination the housing units were located to help reduce racial and ethnic imbalances in the community as the activities were designed to eliminate prejudice and discrimination and to lessen neighborhood tensions the revenue_ruling held that the organization was engaged in charitable activities within the meaning of sec_501 situation described an organization formed to formulate plans for the renewal and rehabilitation of a particular area in a city as a residential community the median income level in the area was jower than in other sections of the city and the housing in the area generally was old and badly form 886-acgerdollar_figure department of the treaoury - intemal revenue service page dpartment of he teeany intemal revenue service forn 886a name of taxpayer ‘schedule no or exhibit year period ended 20xx explanation of items org deteriorated the organization developed an overall plan for the rehabilitation of the area sponsored a renewal project and involved residents in the area renewal plan the organization also purchased an apartment building that it rehabilitated and rented at cost to low and moderate income families with a preference given to residents of the area the revenue_ruling held that the organization was described in sec_501 c because its purposes and activities combated community deterioration situation described an organization formed to alleviate a shortage of housing for moderate- income families in a particular community the organization planned to build housing to be rented at cost to moderate-income families the revenue_ruling held that the organization failed to qualify for exemption under sec_501 because the organization’s program was not designed to provide relief to the poor or further any other charitable purpose within the meaning of sec_501 and the regulations the revenue_ruling held that an organization does not revrul_2006_27 2006_21_cb_915 in part discusses whether organizations that provide dpa in situations in which there is a direct correlation between the amount of the dpa provided by the organization and the amount of the seller’s payment to the organization operate exclusively for charitable purposes qualify as an organization described in sec_501 if it relies for its financing on sellers and other real-estate related businesses that stand to benefit from the transactions the organization facilitates further in deciding whether to provide assistance to an applicant the organization's grantmaking staff knows the identity of the home seller and may also know the identities of other interested parties and is able to take into account whether the home seller or another interested_party is willing to make a payment to the organization the organization’s receipt of a payment from the home seller corresponding to the amount of the down payment assistance in substantially_all of the tcansactions and the organization’s reliance on these payments for most of its funding indicate that the benefit to the home seller is a critical aspect of the organization’s operations in this respect the organization is like the organization considered in easter house which received all of its support from fees charged to adoptive parents so that the business_purpose of the adoption service became its primary goal and overshadowed any educational or charitable purpose like the organization considered in american campaign academy the organization is structured and operated to assist private parties who are affiliated with its funders because the organization is not operaied exclusively for exempt purposes the organization does not qualify for exemption from federal_income_tax as an organization described in sec_501 private interes benefiting even if an organization's activities serve a charitable_class or are otherwise charitable within the meaning of sec_501 c it must demonstrate that its activities serve a public rather than a private interest within the meaning of sec_1 e -1 form 886-arer department of the treasury - internal_revenue_service page form 886a department of te treaty tntemal revenue soni explanation of items ‘name of taxpayer org ‘schedule no or exhibit ‘yeat period ended 20kx revrul_72_147 c b held that an organization that provided housing to low income families did not qualify for exemption under sec_501 because it gave preference to employees of a business operated by the individual who also controlled the organization the ruling reasoned that although providing housing for low-income families furthers charitable purposes doing so in a manner that gives preference to employees of the founder’s business primarily serves the private interest of the founder rather than a public interest in kj's fund raisers v commissioner t c memo aff'd 163_f3d_1200 2d cir the tax_court held and the second circuit affirmed that an organization formed to taise funds for distribution to charitable causes did not qualify for exemption under sec_501 because its activities resulted in a substantial private benefit to its founders the founders of the organization were the sole owners of kj's place a lounge at which alcoholic beverages were served the founders served as officers of the organization and at times also controlled the organization’s board the tax_court found and the second circuit agreed that the founders exercised substantial influence over the affairs of the organization the organization’s business consisted of selling lucky or similar instant win lottery tickets to patrons of kj's place the organization derived most of its funds from its lottery ticket sales the organization solicited no public donations the lottery tickets were sold during regular business hours by the owners of the lounge and their employees from the proceeds of the sales of the lottery tickets the organization made grants to a variety of charitable organizations although supporting charitable organizations may be a charitable activity the tax_court nevertheless upheld the commissioner’s denial of exemption to the organization on the ground that the organization’s operation resulted in more than incidental private benefit the tax_court held and the second circuit affirmed that a substantial purpose of kj's activities was to benefit k ’s place and its owners by attracting new patrons by way of lottery ticket sales to ki's place and by discouraging existing customers ftom abandoning k j's place in favor of other lounges where such tickets were available thus the organization was not operated exclusively for exempt purposes within the meaning of sec_501 effective date of revocation ‘an organization may ordinarily rely on a favorable determination_letter received from the internal_revenue_service sec_1_501_a_-1 a revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq 2003_1_cb_123 an organization may not rely on a favorable determination_letter however if the organization omitted or misstated a material fact in its application or in supporting documents in addition an organization may not rely on a favorable determination if there is a material_change inconsistent with exemption in the organization’s character purposes or methods of operation after the determination_letter is issued treas reg big_number n 3x i revproc_90_27 1990_1_cb_514 the commissioner may revoke a favorable determination_letter for good cause sec_1 -1 revocation of a determination_letter may be retroactive if the organization form 886-a ios deparmmeot of che treasury - internal_revenue_service page -- foun 886a aparienene ofthe treanugy leona revenue sentee explanation of items ‘name of taxpayer org schedule no or exhibit ‘year period ended 20xx omitted-or misstated a material fact or operated in a manner materially different from that originally represented sec_601_201 revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq government's po of the poor and distressed see sec_1 c - the org operates a program that does not exclusively serve an exempt_purpose described in sec_501 and provides substantial private benefit to persons who do not belong to a charitable_class charitable purposes include relief d the org’s down payment assistance program does not operate in a manner that establishes that its primary purpose is to address the needs of low-income people by enabling low-income individuals and families to obtain decent safe housing see revrul_70_585 situation the down payment assistance program did not serve exclusively low-income persons the org does not have any limitations for participation in its dpa program the org did not screen applicants for down payment assistance based on income the org’s records do not include data on the buyers’ incomes instead the program is open to anyone without any income limitations who otherwise qualified for loans the org’s program does not limit assistance to certain geographic areas or target those areas experiencing deterioration or neighborhood tensions see revrul_70_585 situation down payment assistance is available for any property that is otherwise able to qualify for a mortgage arranging or facilitating the purchase of homes in a broadly defined geographic area does not combat community deterioration or serve other social welfare objectives within the meaning of sec_501 of the code only an insubstantial portion of the activity of an exempt_organization may farther a nonexempt purpose as the supreme court held in 326_us_279 the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the org’s total reliance for financing its dpa activities on home sellers or other real-estate related businesses standing to benefit from the transactions demonstrates that the program is operated for the substantial purpose of benefiting private parties like the organization considered in 92_tc_1053 the org is structured and operated to assist the private parties who fund it and give it business sellers who participate in the org’s program benefit from achieving access to a wider pool of buyers thereby decreasing their risk and the length of time the home is on the market they also benefit by being able to sell their homes at the homes’ listed prices or by being able to reduce the amount of the negotiated discounts buyers who participate in the org’s program benefit by being able to purchase a home without having to commit more of their own funds real_estate professionals who participate in the org’s program from real form 886-a evs department ofthe treasury - tnteroal reveoue secvice page foun 886a deparinant af the tanaey-tncral revonoe se xplanation of items name of taxpayer org schedule noor exhibit ‘year petiod ended 20kx estate brokers to escrow companies benefit from increased sales volume the org’s program provides private benefit to the parties in each home sale the org’s down payment assistance procedures are designed to channel funds in a circular manner from the sellers to the buyers and back to the sellers in the form of increased home prices to finance its down payment assistance activities the org relies exclusively on sellers and other real-estate related businesses that stand to benefit from the transactions it facilitates the org neither solicits nor receives funds from other sources before providing down payment assistance the org’s staff takes into account whether there is a home seller willing to make a payment to cover the down payment assistance the applicant has requested the org tequites the home seller to reimburse it dollar-for-dollar for the amount of funds expended to provide down payment assistance on the seller’s home plus an administrative fee of several hundred dollars per home sale the org secures an agreement from the seller stipulating to this arrangement prior to the closing no dpa assistance transactions take place unless the org is assured that the amount of the down payment plus the fee is or will be paid_by the seller upon closing the org's promotional material and its marketing activities show that it's operated in a manner consistent with a commercial firm seeking to maximize sales of services rather than in a manner that would be consistent with a charitable or educational_organization seeking to serve one or more of the charitable purposes enumerated in sec_501 e the manner in which the org operated its dpa program shows that the org was in the business of facilitating the sales of homes in a manner indistinguishable from an ordinary trade_or_business in this respect the org’s operations were similar to an organization which was denied exemption because it operated a conference center for commercial purposes see airlie supp 2d d d c org v commissioner f operating a trade_or_business of facilitating home sales is not an inherently charitable activity unlike the trade_or_business in 71_tc_202 the org s trade_or_business was not utilized as a mere instrument of furthering charitable purposes but was an end in itself the org provided services to home sellers for which it charged a market rate fee the org did not market its services primarily to persons within a charitable_class the org did not solicit or receive any funds from parties that did not have interest in the down payment transactions like the organizations considered in american campaign academy supra and easter house supra a substantial part of the org’s activities furthered commercial rather than exempt purposes based on the foregoing the org has not operated exclusively for exempt purposes and accordingly is not entitled to exemption as an organization described in sec_501 the government proposes revoking the org’s exemption effective the date of the organization’s inception because the organization operated in a manner materially different form 886-agens6 department of the trearury- internal_revenue_service pag wy fom 886a ‘department of ge treanuy- intenal revenue service explanation of items ‘name of taxpayer org ‘schedule no or exhibit year period ended 20xx from that represented in its application_for exemption in its form_1023 the org represented that its purpose was to assist those individuals who have a poor credit history and are unable to obtain financing through conventional lenders and those individuals that have a reasonable credit history and are unable to save enough money for the down payment according to the form_1023 the org planned to develop several programs that it believed to be appropriate to accomplish the above objectives these programs are the down payment assistance program education and counseling and community reinvestmeot org provided information on the application pertaining to educating and counseling the public through seminars and web sites online seminars regarding mortgages personal finance credit reporting and predatory lending the org did not provide documentation during the examination showing this education was provided the examining agent found that the only program operated by the org appeared to be the down payment assistance program financed by fees from the seller there was no evidence of additional fund raising activities or the operation of additional activities revocation of a determination_letter may be retroactive if the organization operated in a manner materially different from that originally represented sec_601_201 revproc_2003_4 since the org operated its activities in a manner materially different from that represented in its application_for exemption retroactive revocation is appropriate org’s pos the org’s position with respect to the issues facts applicable law and government’s position as discussed in this report is unknown the org wilj be allowed days to review this report and respond with a rebuttal if considered necessary conch the org is not operated exclusively for exempt purposes as an organization described in internal_revenue_code section dollar_figure further it is operated in a materially different manner than that described io its form_1023 revocation of exempt status is proposed effective the date of the organization’ inception form 886-airerss8 department of the treasury - interaal reveaue service pa


internal_revenue_service department of the treasury washington dc number release date index number person to contact telephone number refer reply to cc intl br2 plr-113859-00 wli1 in re date legend trust a_trust b corp a corp b corp c partnership a partnership b partnership c partnership d partnership e partnership f partnership g individual a individual b plr-113859-00 individual c individual d individual e individual f individual g individual h individual i individual j individual k individual l individual m individual n individual o individual p individual q firm a fp gp fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 plr-113859-00 fc11 year year year dear this private_letter_ruling is in response to your request dated date for a determination that trusts a and b corps a through c partnerships a through f and individuals a through q hereinafter collectively referred to as taxpayers are eligible to make retroactive elections to treat certain investments in passive foreign investment companies pfics as qualified electing funds qefs pursuant to sec_1_1295-3 the rulings contained in this letter are based upon information and representations submitted by taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party fp is a limited_partnership organized in year under the laws of bermuda gp a u s limited_partnership is the general_partner of fp trusts a and b domestic trusts corps a and b domestic corporations and partnerships a through f domestic partnerships became limited partners of fp in year also in year fc11 a foreign_corporation and partnership g a foreign_partnership became limited partners of fp individuals a through f u s individuals and corp c a domestic_corporation owned stock in fc11 individuals g h and i u s individuals were partners in partnership g individuals j through q u s individuals became limited partners of fp in year during year fp acquired the stock of fc1 a foreign_corporation that is treated as a pfic under sec_1297 therefore under sec_1298 and trusts a and b corps a through c partnerships a through f and individuals a through i were indirect shareholders of fc1 for the taxable_year ended december year fp elected to treat fc1 as a qef and filed a form_8621 with fp’s u s partnership income_tax return fp attached the pfic annual information statement for fc1 to form_8621 for such taxable_year no qef elections were made by trusts a and b corps a through c partnerships a through f or individuals a through i with respect to fc1 for taxable_year ended december year trusts a and b corps a through c partnerships a through f individuals a through i and fp have represented that the items of income and gain reported on the schedule sec_1 pub_l_no sec redesignated the provisions contained under sec_1296 of the code as sec_1297 effective as of date for purposes of this document the former sec_1296 will be referred to herein as sec_1297 plr-113859-00 k-1 for the year taxable_year included the ordinary_earnings and net_capital_gain of fc1 however the items of income and gain reported on the schedules k-1 did not specifically identify that such amounts included ordinary_earnings and net_capital_gain earned from a pfic during year fp acquired the stock of five foreign_corporations fc2 fc3 fc4 fc5 and fc6 that are treated as pfics under sec_1297 therefore taxpayers were indirect shareholders of fc2 fc3 fc4 fc5 and fc6 sec_1298 and for taxable_year ended december year fp did not file a form_8621 with its u s partnership income_tax return for fc1 through fc6 and did not elect qef status for fc2 through fc6 no qef elections were made by taxpayers with respect to fc2 through fc6 for taxable_year ended december year taxpayers and fp have represented that the items of income and gain reported by fp to its partners on the schedules k-1 for the year taxable_year included the ordinary_earnings and net_capital_gain of fc1 through fc6 however the items of income and gain reported on schedules k-1 did not specifically identify that such amounts included ordinary_earnings and net_capital_gain earned from pfics during year fp acquired the stock of four foreign_corporations fc7 fc8 fc9 and fc10 that are treated as pfics under sec_1297 therefore taxpayers were indirect shareholders of fc7 fc8 fc9 and fc10 sec_1298 and for taxable_year ended december year fp elected to treat fc7 through fc10 as qefs and filed forms with fp’s u s partnership income_tax return further fp also elected to treat fc2 through fc6 as qefs and filed forms with its u s partnership income_tax return for taxable_year ended december year fp attached the pfic annual information statements for fc1 through fc10 to forms for that taxable_year no qef elections were made by taxpayers with respect to fc2 through fc10 for taxable_year ended december year taxpayers and fp have represented that the items of income and gain reported by fp to its partners on the schedules k-1 for the year taxable_year included the ordinary_earnings and net_capital_gain of fc1 through fc10 however the items of income and gain reported on schedules k-1 did not specifically identify that such amounts included ordinary_earnings and net_capital_gain earned from pfics firm a was fp’s tax advisor and u s income_tax_return_preparer for the year through year taxable years firm a was competent to render u s tax_advice with respect to stock ownership in foreign_corporations and prepared fp’s u s partnership income_tax return form_1065 and the schedules k-1 for fp’s partners for those taxable years firm a had access to all relevant facts including financial information regarding fp’s investments in fc1 through fc10 fp and taxpayers relied on the tax services and advice provided by firm a fp did not plr-113859-00 notify taxpayers that it made investments directly or indirectly in foreign_corporations that were pfics although firm a possessed all relevant facts and financial information about fc1 through fc10 it did not advise taxpayers of the consequences of making or failing to make the sec_1295 qef election further the items of income and gain reported on taxpayers’ schedules k-1 did not specify that such amounts included ordinary_earnings and net_capital_gain earned from pfics a u_s_person that owns stock in a pfic may elect under sec_1295 to treat the pfic as a qef pursuant to this election the u_s_person must include in gross_income its pro_rata share of the ordinary_earnings and net_capital_gain of the qef for the taxable_year sec_1293 the qef election may be made only by the first u_s_person in a chain of ownership from the pfic see notice_88_125 1988_2_cb_535 applicable to taxable years prior to date thus if a u_s_person holds an interest in a foreign_partnership that holds an interest in a pfic the qef election is made by the u_s_person generally a taxpayer makes the qef election by attaching a form_8621 to a timely filed income_tax return for the taxable_year to which the election applies see notice_88_125 1988_2_cb_535 however in certain circumstances a taxpayer may make the qef election retroactively sec_1_1295-3 sets forth the requirement for making a retroactive qef election by special consent sec_1_1295-3 provides that the commissioner will grant a retroactive qef election only if i the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 ii granting consent will not prejudice the interests of the united_states government as provided in sec_1_1295-3 iii the shareholder requests consent under sec_1_1295-3 before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and iv the shareholder satisfies the procedural requirements set forth in sec_1_1295-3 sec_1_1295-3 sets forth the standard for reasonable reliance on a qualified_tax professional with certain exception a shareholder is deemed to have reasonably relied on a qualified_tax professional only if the shareholder reasonably relied on a qualified_tax professional who plr-113859-00 failed to identify the foreign_corporation as a pfic or failed to advise the shareholder of the consequences of making or failing to make the sec_1295 election a shareholder will not be considered to have reasonably relied on a qualified_tax professional if the shareholder knew or should have known that the foreign_corporation was a pfic and of the availability of a sec_1295 election or knew or reasonably should have known that the qualified_tax professional - a was not competent to render tax_advice with respect to the ownership of shares of a foreign_corporation or b did not have access to all relevant facts and circumstances sec_1_1295-3 defines the circumstances that would result in prejudice to the interests of the united_states government the interests of the united_states government are prejudiced if granting relief would result in the shareholder having a lower tax_liability taking into account applicable_interest charges in the aggregate for all years affected by the retroactive election other than by a de_minimis amount than the shareholder would have had if the shareholder had made the sec_1295 election by the election due_date the time_value_of_money is taken into account for purposes of this computation fp attempted to make the qef election for fc1 for the year taxable_year and for fc2 through fc10 for the year taxable_year however as a foreign_person fp is not entitled to make the qef election rather the qef election should have been made by the first u_s_person that is the direct or indirect shareholder of fc1 through fc10 and thus the elections should have been made by taxpayers although taxpayers failed to make timely qef elections for fc1 through fc10 they may request the consent of the commissioner to make retroactive qef elections under sec_1_1295-3 effective for the respective taxable years in which they indirectly acquired ownership in the stock of fc1 through fc10 in this case taxpayers relied on the professional tax services of firm a firm a had all relevant facts and financial information concerning fc1 through fc10 and knew that such entities were pfics firm a did not inform taxpayers that fc1 through fc10 were pfics and of the availability or consequences of making the qef elections rather firm a reported the ordinary_earnings and net_capital_gain of fc1 through fc10 in taxpayers’ schedules k-1 without identifying that such amounts related to income and gain earned from pfics therefore taxpayers were not aware that fp had invested in foreign_corporations that were pfics or that they could have made qef elections with respect to such investments plr-113859-00 taxpayers represent that they have reported on their respective returns for the tax years at issue the proper amount of ordinary_earnings and net_capital_gain of fc1 through fc10 to support this representation taxpayers have provided tax_return information to the commissioner for review based upon this review the commissioner is satisfied that granting consent to make retroactive qef elections would not prejudice the interests of the u s government no representative of the internal_revenue_service has raised upon audit the pfic status of fc1 through fc10 for any taxable_year in which fp held the stock in such foreign_corporations further taxpayers have satisfied the procedural requirements of sec_1_1295-3 based on the facts herein and provided taxpayers comply with the rules under sec_1_1295-3 regarding time and manner for making the retroactive qef election consent is hereby granted under sec_1_1295-3 to make retroactive sec_1295 qef elections with respect to fc1 through fc10 as follows trusts a and b corps a through c partnerships a through f and individuals a through i are granted consent to make retroactive qef elections with respect to fc1 for the year taxable_year individuals j through q are granted consent to make retroactive qef elections with respect to fc1 for taxable_year ended december year taxpayers are granted consent to make retroactive qef elections with respect to fc2 fc3 fc4 fc5 and fc6 for taxable_year ended december year and taxpayers are granted consent to make retroactive qef elections with respect to fc7 fc8 fc9 and fc10 for taxable_year ended december year this private_letter_ruling does not express an opinion about whether fp or taxpayers properly complied with the sec_1295 annual reporting requirements or the sec_1293 annual income inclusions with respect to fc1 through fc10 for taxable years ended after year this private_letter_ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this ruling must be attached to any_tax return to which it is relevant plr-113859-00 in accordance with the power_of_attorney on file with this office a copy of this ruling is forwarded to taxpayers and their second representative sincerely by valerie a mark lippe senior technical reviewer cc intl office of associate chief_counsel international


dollar_figure department of the treasury internal_revenue_service p o box irs cincinnati oh number release date dear date date employer id number contact person id number contact telephone number form you must file tax years uil this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy of this letter to your representative as indicated in your power_of_attorney letter rev catalog number 47635z sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 a other than c redacted letter final adverse determination under sec_501 other than c - no protest letter rev catalog number department of the treasury internal_revenue_service cincinnati oh legend u state v date w type of therapy 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 internal_revenue_code irc sec_501 we determined that you don’t qualify for exemption under sec_501 this letter explains the reasons for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you incorporated in the state of u on v you were formed to be an organized health care provider network for delivering providing or arranging for the delivery or provision of certain health care services relating to the field of w therapy all such health care services shall be provided by you through individuals who are licensed registered or certified to practice a certain health care profession by and in u your activities include developing and improving w therapy services and education coordinating interested parties to meet the w therapy needs of the state and developing and promoting professional standards of w therapy the total percentage of time devoted to these activies is percent of your total time your other activities include creating a network of w therapists for one-stop shopping providing better care coordination and quality improvements for your members reducing costs for members creating a network large enough to manage population health and negotiating rates with a larger market share due to the collaboration of the individual practices you will also decrease overhead for your members by sharing costs of multiple services you will establish a collaborative environment to ensure sustainability of independently owned practices which will allow each practice to benefit from an economy of scales in procuring fair equitable and value-based reimbursement models and expand current market presence for the benefit of your members you will be an organized health care provider network for delivering providing or arranging for the delivery of certain health care services you will devote percent of your total time to these activities letter rev catalog number 47628k your revenue comes entirely from gross dues and assessments of your members law sec_501 of the code exempts from federal_income_tax business_leagues chambers_of_commerce real_estate boards boards_of_trade and professional_football_leagues whether or not administering a pension fund for football players which are not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 states activities must 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 revrul_56_65 156_2_cb_185 held that a local organization that principally furnishes particular information and specialized individual service to its individual members engaged in a particular industry is performing particular services for individual persons and therefore is not exempt under sec_501 of the code revrul_61_170 1961_2_cb_112 describes an association composed of professional private duty nurses and practical nurses which operated a nurses’ registry primarily to afford greater employment opportunities for its members the association was not entitled to exemption as a business league described in sec_501 of the code because its primary purpose was the operation of a regular business of the kind ordinarily carried on for profit and it was engaged in rendering particular services for individual persons rather than promoting the general business conditions of the nursing profession revrul_68_264 1968_1_cb_264 defined a particular service for the purpose of sec_501 of the code as including an activity that serves as a convenience or economy to members of the organization in the operation of their own businesses revrul_71_175 1971_1_cb_153 ruled on a nonprofit organization whose principal activity was the operation of a telephone-answering service for member doctors providing a telephone-answering service the organization relieved the individual members of securing this service commercially resulting in a convenience or economy in the conduct of the medical practice of its individual members therefore the organization was rendering particular services for individual persons as distinguished from the improvement of business conditions in the medical profession and public health area generally thus the organization was not exempt under sec_501 of the code in indiana retail hardware ass'n inc v united_states ct_cl the court held that when conducting particular services for members is a substantial activity of an organization the organization will be precluded from exemption under sec_501 of the code application of law to be exempt under sec_501 of the code your activities must be directed to the improvement of business conditions of one or more lines of business and not inure to the benefit any private_shareholder_or_individual you operate primarily to provide cooperative services for your members which is a private benefit to your members and does not improve business conditions as described in sec_1_501_c_6_-1 therefore you are not exempt under sec_501 letter rev catalog number 47628k you are not operated as a business league as described in sec_501 of the code because you provide particular services to your members similar to the organization described in revrul_56_65 you are providing a service that affords your members employment opportunities similar to the organization denied exemption in revrul_61_170 by providing these employment services you are serving the private interests of your members and do not qualify for exemption under sec_501 of the code you are providing your members bargaining power and acting as a bargaining agent to negotiate for better terms and conditions of doing business with vendors suppliers and service providers with whom your members do business given that your primary activity is directed at providing a particular service to your members you are similar to the situation described in revrul_68_264 and not exempt under sec_501 of the code as noted in revrul_71_175 rendering particular services for individuals is distinguished from the improvement of business conditions of a particular line_of_business by providing employment services you are providing services for the economy and convenience of your members and not for the overall improvement ofa line_of_business therefore exemption under sec_501 of the code is precluded like the organization described in indiana retail hardware ass’n inc your primary activities provide direct economic benefit to your members rather than improve business conditions for the industry therefore you are precluded from exemption under sec_501 of the code your position you assert that in order to accomplish your goals such as developing and improving w therapy service and education improving professional standards care coordination quality improvements and cost reductions it will be necessary for you to provide certain administrative and other services for its members but such services are the means to achieving the desired ends and not the ends themselves you also assert low reimbursement levels have been the cause of the closure or sale of numerous independently owned w therapy practices in u in recent years you also assert the only way to assure the continuance of the relatively few such practices that remain will be to allow them to work together in an integrated fashion in working together this will allow the members to both increase revenue and decrease costs our response to your position the information provided reinforces the fact that your primary activities provide particular services to your members a significant portion of your activities constitute services to members this precludes you from exemption under sec_501 of the code conclusion based on the information provided we conclude that you are not operated as a business league described in sec_501 of the code your operations provide specific services to members and allow a convenience and private economic benefit your activities also are not directed toward the improvement of business conditions of one or more lines of business therefore you do not qualify for exemption under sec_501 letter rev catalog number 47628k 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 if you don't agree you have a right to protest if you don’t agree with our proposed adverse determination to do so send us a protest within days of the date of this letter you must include your name address employer_identification_number ein and a daytime phone number a statement of the facts law and arguments supporting your position a statement indicating whether you are requesting an appeals_office conference the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative the following declaration for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i have examined this request or this modification to the request including accompanying documents and to the best of my knowledge and belief the request or the modification contains all relevant facts relating to the request 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 they haven’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 gave us a basis to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t given us a basis for reconsideration we’ll send your case to the appeals_office and notify you you can find more information 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 later because the law requires that you use the irc administrative process first sec_7428 letter rev catalog number 47628k where to send your protest send your protest form_2848 if applicable and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance mail stop p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street mail stop cincinnati oh you can also fax your protest 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 they received it you can get the forms and publications mentioned in this letter by visiting our website at www irs gov forms- pubs or by calling 800-tax-form if you have questions you can contact the person listed at the top of this letter contacting the taxpayer_advocate_service the taxpayer_advocate_service 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 if 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 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 letter rev catalog number 47628k


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-110033-12 date date legend parent ----------------------------------------------------------- ----------------------------- date date date x -------------------------- -------------------------- --------------------------- -- company officials ------------------------------------------------------------------ ----------------------------------------------------------------- ---------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------------- --------------------- tax professionals ------------------------ ------------------------------------------------------------------ --------------------------------------------------- ------------------------- dear -------------- plr-110033-12 this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group the parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 of the internal_revenue_code parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date parent intended to file the election but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s consolidated_income_tax_return for the taxable_year in which the year cnol was incurred or any subsequent taxable_year parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requested relief and the new position requires or permits a regulatory election for which relief is requested sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that the term applicable nol means the taxpayer’s nol for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected plr-110033-12 and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group can elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-110033-12 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company officials and tax professionals explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional to make the election and that the election was not made because of intervening events beyond the taxpayer’s control see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that 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 provided the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election parent having already filed the election must within days from the date on this letter amend its return by attaching a copy of this letter to its tax_return for the taxable_year ending date if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr- of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions plr-110033-12 existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company officials and tax professionals the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely ________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc