t c memo united_states tax_court lauren a howell and michael h howell petitioners v commissioner of internal revenue respondent docket no filed date lauren a howell and michael h howell pro sese alexander d devitis and carolyn a schenck for respondent memorandum findings_of_fact and opinion marvel judge respondent mailed to petitioners a notice_of_deficiency dated date in which respondent determined the following deficiencies and additions to tax with respect to petitioners’ federal_income_tax year deficiency sec_6651 sec_6651 sec_6654 additions to tax dollar_figure big_number dollar_figure dollar_figure big_number big_number dollar_figure after concessions the sole issue for decision is whether petitioners are liable for self-employment_tax under section on payments made to lauren a howell by intelemed llc in and which intelemed deducted as guaranteed payments on its and forms u s return of partnership income 1in their petition petitioners assign error only to respondent’s determination that they are liable for self-employment_tax with respect to payments received from intelemed during the years at issue petitioners however also allege in their petition that respondent failed to apply a dollar_figure advance_payment that they made toward their deficiency we deem any issue not raised in the assignments of error in the petition conceded see rule b accordingly we conclude that petitioners have conceded their liability with respect to the sec_6651 and and additions to tax respondent concedes that petitioners have made a dollar_figure advance_payment toward their deficiency the treatment of the advance_payment and any resulting adjustments with respect to the sec_6651 and and additions to tax will be addressed in the rule computation 2unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference petitioners resided in california when they filed their petition michael h howell is an engineer who for the last years has worked in information_technology infrastructure mrs howell does not have any background in computer technology background in date petitioners and harold bruzee formed a california limited_liability_company named intelemed intelemed is a medical technology company that provides software and hardware to hospitals the software consists of a remote access system that enables doctors to access hospital records from outside the hospital mr howell and mr bruzee came up with the concept that led to the formation of intelemed like mr howell mr bruzee had a background in computer networking mr bruzee also had the connection with the hospital to make intelemed a success when intelemed was first organized mr howell decided to make mrs howell a member of intelemed rather than himself ostensibly because she had better credit and petitioners intended to use her credit and credit card to secure loans for intelemed and or to purchase items for the business consistent with that decision the limited_liability_company operating_agreement for intelemed provided that intelemed’s members were mrs howell and mr bruzee mrs howell held of the membership units and mr bruzee held under the operating_agreement mrs howell was the record_owner of a capital interest and could dissolve intelemed at any time and appoint the manager of intelemed mrs howell was entitled to receive an allocation of net profits or losses in proportion to her capital interest the operating_agreement provided that t he liability of the members shall be limited as provided under the laws of the california limited_liability statutes on date mr howell and intelemed entered into an agreement under which mr howell would provide management services to intelemed management agreement mrs howell signed the management agreement on behalf of intelemed under the management agreement intelemed delegated to mr howell the total and exclusive control of all management and operations of intelemed during the years at issue intelemed’s principal_place_of_business was at petitioners’ personal_residence mr howell met with clients set up service agreements and handled marketing mrs howell signed intelemed documents and discussed marketing strategies with mr howell she also allowed mr howell to use her personal credit card to make purchases on behalf of intelemed intelemed’s tax reporting intelemed is a limited_liability_company treated as a partnership for federal_income_tax purposes intelemed filed forms for and on its form_1065 intelemed reported gross_receipts of dollar_figure a gross_profit of dollar_figure and ordinary_income of dollar_figure in calculating its ordinary_income intelemed deducted guaranteed payments to partners of dollar_figure on attached schedules k-1 partner’s share of income credits deductions etc intelemed reported that the percentages of ownership ordinary_income and guaranteed payments were allocated to the partners as follows partner percentage of ownership ordinary guaranteed income payments michael howell lauren howell harold bruzee kevin robert sec_1 dollar_figure big_number big_number dollar_figure big_number big_number big_number 1there is no evidence in the record with regard to mr roberts other than the schedules k-1 intelemed filed intelemed also reported on its form_1065 that mr howell was its tax_matters_partner tmp on it sec_2001 form_1065 intelemed reported gross_receipts of dollar_figure gross_profit of dollar_figure and ordinary_income of dollar_figure in calculating its ordinary_income intelemed deducted guaranteed payments to partners of dollar_figure on attached schedules k-1 intelemed reported that the percentages of ownership ordinary_income and guaranteed payments were allocated to the partners as follows partner percentage of ordinary guaranteed payments income ownership lauren howell kevin roberts harold bruzee dollar_figure dollar_figure big_number big_number big_number big_number 3the unified_audit and litigation procedures of the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite do not apply to intelemed intelemed qualifies as a small_partnership under sec_6231 and did not elect pursuant to sec_6231 to have tefra apply see wadsworth v commissioner tcmemo_2007_46 holding that the designation of a tmp on the partnership return coupled with the absence of any election statement is not an election to be subject_to tefra the small_partnership_exception allows this court to review in a deficiency_suit items that otherwise would be subject_to partnership-level proceedings id slip op pincite see also 132_tc_161 n aff’d 408_fedappx_908 6th cir 4the record does not contain any evidence explaining why the percentage of ownership varied from to intelemed also reported on it sec_2001 form_1065 that mrs howell was its tmp respondent’s examination and the notice_of_deficiency during respondent began an examination for intelemed’s taxable years respondent’s examination eventually expanded to include an examination for petitioners’ taxable years petitioners had failed to file timely returns for those years respondent proposed adjustments with respect to petitioners’ taxable years which petitioners protested to respondent’s appeals_office while the appeals_office review was pending petitioners submitted to respondent copies of delinquent joint form sec_1040 u s individual_income_tax_return for and on their form_1040 petitioners reported taxable_income of dollar_figure on an attached schedule c profit or loss from business mr howell reported a net profit of dollar_figure from his consulting business petitioners also attached a schedule se self-employment_tax for mr howell 5respondent’s examination also expanded to include examination for petitioners’ taxable years in response to respondent’s determinations with respect to those years petitioners filed a petition with the court at docket no the parties settled that case in date 6on his schedule c mr howell reported gross_receipts of dollar_figure this amount is the sum of the guaranteed_payment of dollar_figure and ordinary_income of dollar_figure he received from intelemed on the schedule se they reported that mr howell had net_earnings from self- employment of dollar_figure on an attached schedule e supplemental income and loss petitioners reported that they received partnership_distributions of dollar_figure from intelemed on their form_1040 petitioners reported taxable_income of dollar_figure on an attached schedule c mr howell reported a net profit of dollar_figure from his business what-if on an attached schedule se petitioners reported that mr howell had net_earnings_from_self-employment of dollar_figure on an attached schedule e petitioners reported that they received partnership_distributions of dollar_figure from intelemed on date respondent issued to petitioners a notice_of_deficiency for respondent determined that mrs howell received from intelemed guaranteed payments of dollar_figure and dollar_figure for and respectively and ordinary_income of dollar_figure and dollar_figure for and respectively for respondent determined that mr and mrs howell received self-employment_income of dollar_figure and dollar_figure respectively for 7to calculate net_earnings_from_self-employment petitioners multiplied mr howell’s net profit by as directed by the schedule se 8to calculate net_earnings_from_self-employment petitioners multiplied mr howell’s net profit by as directed by the schedule se respondent determined that mr and mrs howell received self-employment_income of dollar_figure and dollar_figure respectively opinion introduction a taxpayer’s self-employment_income is subject_to self-employment_tax sec_1401 and b self-employment_tax is assessed and collected as part of the income_tax must be included in computing any income_tax deficiency or overpayment for the applicable tax period and must be taken into account for estimated_tax purposes sec_1401 see also sec_1_1401-1 income_tax regs self-employment_income generally is defined as the net_earnings from self- employment derived by an individual sec_1402 sec_1402 defines n et earnings from self-employment as follows sec_1402 net_earnings_from_self-employment --the term ‘net earnings from self-employment’ means the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions allowed by this subtitle which are attributable to such trade_or_business plus his distributive_share whether or not distributed of income or loss described in sec_702 from any trade_or_business carried on by a partnership of which he is a member see also sec_1_1402_a_-1 income_tax regs sec_702 provides that in determining a partner’s income_tax each partner shall take into account separately his distributive_share of the partnership’s taxable_income or loss exclusive of items requiring separate computation under other paragraphs of sec_702 while a partner generally must include his distributive_share of income in his net_earnings_from_self-employment sec_1402 provides that in certain circumstances a limited_partner may exclude his distributive_share of income from net_earnings_from_self-employment under sec_1402 t here shall be excluded the distributive_share of any item_of_income or loss of a limited_partner as such other than guaranteed payments described in sec_707 to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services sec_1402 does not define the term limited_partner in 136_tc_137 we applied accepted principles of statutory construction to decide whether the taxpayers’ partnership interests in a law firm should be considered limited_partner interests for purposes of sec_1402 stating as follows the insight provided reveals that the intent of sec_1402 was to ensure that individuals who merely invested in a partnership and who were not actively participating in the partnership’s business operations would not receive credits toward social_security sec_707 provides that guaranteed payments are payments received by a partner from a partnership that are calculated without regard to the partnership’s income coverage the legislative_history of sec_1402 does not support a holding that congress contemplated excluding partners who performed services for a partnership in their capacity as partners ie acting in the manner of self-employed persons from liability for self- employment_taxes this court held that the taxpayers were not limited partners for purposes of sec_1402 because the distributive shares received arose from legal services the taxpayers performed on behalf of the law firm and did not arise as a return on the partners’ investment id pincite parties’ arguments petitioners who owned a majority interest in intelemed and controlled it classified and reported certain payments made to mrs howell and mr bruzee as guaranteed payments on intelemed’s returns respondent contends that in so doing petitioners admitted that the payments were guaranteed payments and may not thereafter disavow their reporting position without demonstrating that they are entitled to do so under cases such as 111_tc_105 and pinson v commissioner tcmemo_2000_208 slip op pincite-dollar_figure see infra pp respondent also contends that mrs howell was not 10in his brief respondent contends that petitioners should not be permitted to disavow the form of the transaction as adopted on intelemed’s and returns respondent appears to contend that if we accept this argument mrs howell is liable for self-employment_tax on the payments she received from continued a true member of intelemed but was merely a nominee11 for mr howell and therefore the payments must be included in his net_earnings_from_self-employment alternatively respondent contends that mrs howell was an active_participant in intelemed and consequently she may not exclude the payments from her net_earnings_from_self-employment under sec_1402 petitioners contend that mrs howell is a limited_partner of intelemed and that therefore her distributive_share of income from intelemed is excluded from her net_earnings_from_self-employment petitioners also appear to contend that mrs howell was not actively engaged in the business and imply that she did not receive the payments as remuneration for services she rendered to intelemed continued intelemed under sec_1402 a limited_partner is liable for self-employment_tax only on guaranteed payments for services actually rendered to or on behalf of the partnership accordingly even if we accept respondent’s argument that petitioners may not disavow the form adopted on intelemed’s returns petitioners could still argue that mrs howell did not receive the payments as remuneration for services she actually rendered to or on behalf of intelemed we construe petitioners’ argument to include a contention that mrs howell did not receive the payments as remuneration for services she rendered to intelemed but rather as a distribution made to her in her capacity as a limited_partner petitioners have the burden_of_proof on this inherently factual issue see rule a a nominee is an entity or individual who holds bare_legal_title to assets owned by another entity or individual lain v commissioner tcmemo_2012_99 slip op pincite see also 211_f3d_280 5th cir whether petitioners may disavow intelemed’s return treatment as a general_rule a taxpayer is bound by the form of the transaction that the taxpayer has chosen see 118_tc_32 aff’d 108_fedappx_683 2d cir a taxpayer may have less freedom than the commissioner to ignore the transactional form that he has adopted 59_tc_760 n see also 417_us_134 w hile a taxpayer is free to organize his affairs as he chooses nevertheless once having done so he must accept the tax consequences of his choice whether contemplated or not and may not enjoy the benefit of some other route he might have chosen to follow but did not citations omitted 222_fedappx_584 9th cir if the taxpayer seeks to abandon his own tax_return treatment the taxpayer’s freedom is further curtailed see norwest corp v commissioner t c pincite in deciding whether a taxpayer may disavow the form of a transaction we have considered whether the taxpayer seeks to disavow his or her own tax_return treatment for the transaction whether the taxpayer’s tax reporting and other actions show an honest and consistent respect for the alleged substance of the transaction whether the taxpayer is unilaterally attempting to have the transaction treated differently after it has been challenged and whether the taxpayer will be unjustly enriched if permitted to alter the transactional form pinson v commissioner slip op pincite see also norwest corp v commissioner t c pincite if the court permits the taxpayer to disavow the form of the transaction the taxpayer must then introduce strong_proof to establish the taxpayer’s claimed substance of the transaction a preponderance of credible_evidence is not sufficient see 99_tc_561 87_tc_1417 on both its and returns intelemed reported that it made guaranteed payments to mrs howell mr howell acting as intelemed’s tmp signed intelemed’s return mrs howell acting as intelemed’s tmp signed intelemed’ sec_2001 return mr howell testified that he provided the tax information that was used to prepare intelemed’s returns to intelemed’s return preparer mitch wallace petitioners later filed untimely joint federal_income_tax returns on which they reported intelemed’s payments to mrs howell as distributive shares of partnership income properly classified as passive_income that is not subject_to self- employment_tax petitioners did not file their joint form sec_1040 until after respondent had begun an examination for their and taxable years and had inquired about mrs howell’s liability for self-employment_tax with respect to the guaranteed payments from intelemed petitioners controlled intelemed mr howell provided the return_information to intelemed’s return preparer and petitioners acting as intelemed’s tmps signed intelemed’s partnership returns for the years at issue in arguing that the payments were not guaranteed payments to mrs howell petitioners are attempting to disavow the reporting position they took on intelemed’s returns although intelemed reported the payments to mrs howell as guaranteed payments petitioners now argue that the payments are partnership_distributions rather than guaranteed payments petitioners first took this inconsistent_position on their delinquently filed and form sec_1040 therefore they did not take an inconsistent_position until after respondent had raised the self-employment_tax issue during the examination of intelemed’s and returns under these circumstances petitioners may not disavow the form of the transaction as reported on intelemed’s and returns see pinson v commissioner tcmemo_2000_208 jacobellis v commissioner tcmemo_1988_315 even if we permitted petitioners to disavow the form of the transaction adopted on intelemed’s returns they still must offer strong_proof to show that the reporting by intelemed was incorrect they have failed to do so the only evidence petitioners introduced regarding the status of the payments as guaranteed payments was mr howell’s testimony mr howell testified in a conclusory fashion that intelemed did not make any guaranteed payments to members during the years at issue and that he informed mr wallace of that fact before the intelemed returns were prepared and filed we do not find this testimony credible in the absence of any corroborating evidence we reject mr howell’s testimony as self-serving and unreliable see 87_tc_74 see also 87_tc_533 petitioners introduced no other evidence to prove that the payments to mrs howell were not in substance guaranteed payments under sec_707 as reported on the intelemed returns whether mrs howell received payments for services rendered under sec_1402 a limited_partner must include guaranteed payments from net_earnings_from_self-employment in computing self-employment_tax if those payments were received for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services petitioners bear the burden of proving that mrs howell did not receive the payments at issue in exchange for services she rendered to or on behalf of intelemed see rule a 503_us_79 290_us_111 intelemed’s operating_agreement states that mrs howell contributed intellectual_property a business plan and organizational design at intelemed’s formation in addition mrs howell signed the management agreement on behalf of intelemed although mrs howell testified that she did not provide any services to intelemed during the years at issue we do not find this testimony to be credible when we consider other evidence in the record for example mrs howell testified that she provided marketing advice to intelemed mr howell testified that from time to time he discussed intelemed marketing strategies with his wife he also testified that intelemed used mrs howell’s personal credit card to purchase equipment furthermore mrs howell also executed documents on behalf of intelemed including a management agreement conferring on mr howell the right to manage intelemed’s operations and she served as intelemed’s tmp the record establishes that mrs howell provided marketing advice signed documents and entered into contracts on behalf of intelemed and allowed intelemed to use her credit card and credit rating intelemed’s operating_agreement recites that mrs howell contributed a business plan and intellectual property to intelemed at its formation mrs howell the majority owner of intelemed delegated management authority to her husband but still consulted with him from time to time we conclude therefore that mrs howell performed services for intelemed and that she was not merely a passive investor in intelemed we find that the payments to mrs howell were to some extent payments for services she rendered to intelemed petitioners did not attempt to establish that only some portion of the payments to mrs howell was remuneration for services she rendered to intelemed their position was that no portion of the payments was for services mrs howell rendered to intelemeddollar_figure while the record shows that the services mrs howell contributed to intelemed were relatively minimal in comparison to mr howell’s petitioners bear the burden of proving the extent to which the payments to mrs howell did not constitute payments for services rendered petitioners did not carry that burden accordingly we sustain respondent’s determination 12it may well be that respondent has correctly contended that mrs howell was a nominee for mr howell and that the guaranteed payments were in substance guaranteed payments by intelemed to mr howell however in view of the failure of petitioners’ proof here we need not reach these issues conclusion we have considered all the other arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service technical_advice_memorandum sec_1 op-e ep - employee_plans area manager uniform issue list taxpayer taxpayer's address taxpayer's identification no years involved date of conference legend hospital a university b denomination c board d convention e foundation f affiliated health care provider g affiliated health care provider h affiliated health care provider affiliated health care provider j technical_advice_memorandum page affiliated health care provider k affiliated health care provider affiliated health care provider l m affiliated health care provider n affiliated health care provider qo affiliated health care provider p affiliated health care provider q affiliated health care provider r affiliated health care provider s affiliated health care provider t affiliated health care provider u affiliated health care provider v hospital z directory w plan x pian y state aa convention bb u oe technical_advice_memorandum roses country cc country dd issue sec_1 whether both plan x and plan y are church plans as defined in sec_414 of the internal_revenue_code effective on and after whether both plan x and pian y were deemed church plans under sec_414 of the code from and after their inception through whether plan x and plan y are church plans as defined in sec_414 of the code effective on or after as a result of the split by hospital a from university b facts hospital a a charitable hospital that is tax-exempt under sec_501 of the code sponsors plan x and plan y hospital a is listed in directory w hospital a established plan x and plan y for its employees in furtherance of its health care ministry hospital a has sponsored plan x since e ond plan y since satewseaweasvevees board d administers plan y hospital a has always been affiliated with denomination c and denomination c church's ministry of healing from its inception all members of the board_of trustees of hospital a have been required to be members in good standing of registered denomination c churches hospital a has a number of affiliated health care providers they are affiliated health care providers g h j k l m n o p q r s t u and v hospital a controls the appointment of the boards of directors of each of the affiliated health care providers all participating affiliated health care providers are listed in directory w all of the affiliated health care providers are tax-exempt under sec_501 of the code each of the affiliated health care providers which hospital a has acquired also has a number of members of denomination c on its board each of the boards of the affiliated health care providers is appointed by hospital a’s board_of trustees which is composed solely of members of denomination c providers and hospital a have adopted plan y affiliated health care providers g h i j k l and hospital a participated in plan x all of the affiliated health care in hospital a then known as hospital z and university b asked convention e to place both entities under one governing board in university b reorganized the nomination of its board by changing from a board appointed by convention e to a board_of regents of which percent was appointed by convention e and all were required to be members of denomination c university b obtained a ruling that its tax-deferred annuity plan under sec_403 of the code continued to be a church_plan after the reorganization sy technical_advice_memorandum page on e sec_4 e hospital a separated from university b by amending its articles and bylaws to delete university b’s power to appoint the members of hospital a’s board and replacing it with the requirement that all board members must be members in good standing of denomination c hospital a as an entity of denomination c reports to convention e and is included in directory w convention e is a tax-exempt corporation organized under the laws of state aa and its members are members of denomination c churches located in state aa convention e is a convention or association of churches which is organized for purposes which are purely religious missionary educational and beneficent the carrying on of missionary work the support of public worship and the spread of the gospel of jesus christ throughout the world the education training and enlistment of the people and ministering to the needs of the sick helpless aged or infirm hospital a is closely tied to and supports convention e hospital a wrote five of the chapters in a chaplain training program of convention e hospital a train sec_30 chaplains each year and in order to be included in the chaplain training program each must be endorsed by convention bb convention e has a church ministry department and includes hospital a as an active_participant hospital a is on a crisis response team of convention e and does hands on ministry training for convention e hospital a’s bylaws states that it was founded and continues to carry out a ministry of healing within the humanitarian charitable and religious aims and ideals of denomination c hospital a’s bylaws also state that a major objective of hospital a is to have a christian emphasis throughout its work hospital a supports convention e and its ministries through providing meeting rooms and other services - hospital a as an entity of denomination c has followed denomination c principles and teachings regarding euthanasia and abortion the ethical policies within hospital a’s affiliated hospitals and the guidelines for care that hospital a and denomination c provide as they pursue furthering the healing ministry of jesus christ hospital a supports furthering denomination c ministries through its chaplaincy program which a denomination 'c minister heads and which helps train seminary students to be denomination c chapiains hospital a receives financial support from foundation f which is govemed and controlled by a board_of trustees which has percent of its members being members of denomination c churches upon dissolution the assets of hospital a will be distributed first to pay all debts second to be distributed or conveyed in accordance with any conditions requiring return transfer or conveyance which occurs by reason of the dissolution and finally the assets shall be distributed only for tax-exempt purposes to organizations exempt from tax under sec_501 of the code pursuant to a plan of distribution approved by the board_of trustees all of whom must be members of denomination c the assets would be distributed to continue to further the denomination c principle of furthering the healing ministry of jesus christ and to further other denomination c entities and their denomination c ideals and principles hospital a at all times while it has sponsored plan x and plan y has been listed in directory w hospital a’s affiliated entities are also listed in directory w all entities considered to be associated with denomination c are listed in directory w a total of technical_advice_memorandum page persons are employed by hospital a and a total of persons participated in pian y and persons are participants in plan x as of date only of the employees eligible to participate in plan y are providing services in an unrelated_trade_or_business and none of those perform services solely for an unrelated business no employees participating in plan x provide services in an unrelated_trade_or_business hospital a adheres to denomination c principles in its operations in that it does not permit any alcoholic beverages at any hospital a sponsored event and it participates in medical missions including those in country cc and country dd convention e assistance in resolving issues where medical_care and denomination c theology teachings or ethics overlap hospital a’s chief_executive_officer participates in the annual meeting of chief executive officers of denomination c hospitals and hospital a has established an endowment for health related educational programs and for a student health center at university b ituses pursuant to article of plan x as amended and articles viii and x of plan y plan x is administered by the plan x administration committee and plan y is administered by board d the plan x administration committee is appointed by the president of hospital a and confirmed by the board_of trustees of hospital a the president is appointed by board_of trustees of hospital a all of whom are members in good standing of a denomination c church and can be removed by the board sections and of plan x provide that the plan x administration committee shall have the full power to construe and interpret plan x to determine benefits thereunder and to perform those other functions generally considered the duties of a plarradministrator plan x is intended to qualify under sec_401 of the code plan y is administered by board d the board_of trustees of board d is elected by convention bb convention bb is a congregational structure with messengers being sent by congregations who voluntarily associate with and contribute to convention bb only denomination c congregations may be members of convention bb convention bb is the sole member of board d convention bb has always controlled the election of the board_of trustees of board d since its inception plan y is a tax-deferred annuity pian intended to qualify under sec_403 of the code plan y is a church retirement_income_account under sec_403 sponsored by hospital a plan y may only be adopted by entities affiliated with convention bb board d is a separate administrative organization described in sec_414 of the code and sec_1_414_e_-1 of the income_tax regulations the administrative committees for plan x and plan y have as their primary function the administration of plan x and plan y respectively the plan x administrative committee and board d were plan x and plan y's administrators since the inceptions of plan x and plan y law and rationale sec_414 of the code defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches which is exempt from taxation under sec_501 of the code technical_advice_memorandum page sec_414 was added to the code by sec_1015 of the employee_retirement_income_security_act_of_1974 erisa public law 1974_3_cb_1 enacted date sec_1017 of erisa provides that sec_414 applied as of the date of erisa’s enactment however sec_414 was amended by sec_407 of the multiemployer pension_plan amendments act of public law to provide that sec_414 was effective as of date sec_414 of the code provides that the term church_plan does not include a plan a which is established and maintained primarily for the benefit of employees or their beneficiaries of a church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 or b if less than substantially_all of the individuals included in the plan are church employees as described in sec_414 or sec_414 sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code defines employee to include-a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardiess of the source of his or her compensation and an employee-of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 and which is controlled by or associated with a church ora convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches in order for an organization to have a qualified church_plan it must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization's affiliation with the church_or_convention_or_association_of_churches and that the plan will be administered by an organization of the type described in sec_414 hospital a and its affiliates are organizations described in sec_501 of the code that are exempt from tax under sec_501 hospital a and its affiliates are associated with denomination c by virtue of sharing common religious bonds and convictions as evidenced by the following technical_advice_memorandum page hospital a at all times while it sponsored plans x and y was listed in directory w and hospital a’ s bylaws provide that hospital a is required to operate in a manner consistent with the philosophy teachings and practices of denomination c members of the board_of trustees of hospital a must be members of denomination c churches from and after the date of the inception of plan x and plan y hospital a has been an organization which has been associated with denomination c in addition hospital a is associated with convention e a convention or association of churches hospital a as an entity of denomination c reports to convention e convention e’s members are members of denomination c churches convention e is organized for purposes which are purely religious missionary educational and beneficent the carrying on of missionary work the support of public worship and the spread of the gospel of jesus christ throughout the world the education training and enlistment of the people and ministering to the needs of the sick -helpless aged or infirm hospital a is closely tied to and supports convention e furthermore based on the facts you submitted conceming the participants in plan x and plan y plan x and plan y are not maintained primarily for the benefits of employees who are employed in connection with one or more unrelated trades_or_businesses and substantially ail of the individuals included in plan x and plan y are considered to be church employees as defined in sec_414 of the code also in the case of a plan established by an organization thatis not itself a church or a convention or association of churches but is associated with a church_or_convention_or_association_of_churches as described in sec_414 e d the organization must establish that its plan is established and maintained by a church ora convention or association of churches or by an organization described in sec_414 of the code since hospital a is not in itself a church plans x and y must be maintained by an organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration of the plan and must also be controlled by or associated with a church or a convention or association of churches as represented above the administrators of plan x and plan y have been the administrators since the inception of plan x and plan y plan x is administered by an administrative committee that is appointed by the president of hospital a and confirmed by the board_of trustees of hospital a all of whom must be members in good standing of a denomination c church_plan y is administered by board d the board_of trustees of board d is elected by convention bb only denomination c churches may be members of convention bb convention bb is the sole member of board d convention bb has always controlled the election of the board_of trustees of board d since its inception the administrative committees thus share common religious bonds and convictions with denomination c and therefore are considered associated with denomination c since the primary purpose of the administrative committees is the administration of plan x and plan y the administrative committees constitute organizations described in sec_414 of the code technical_advice_memorandum page conclusion both plan x and plan y are church plans as defined in sec_414 of the code effective on and after both plan x and plan y were deemed church plans under sec_414 of the code from and after their adoption by hospital a through t _ plan x and plan y are church plans as defined in sec_414 of the code effective on or after as of the date of the split by hospital a from university b


internal_revenue_service number release date index numbers ------------------------- -------------- ------------------------------------ --------------------------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number ---------------------- refer reply to cc ita plr-110660-17 date date legend taxpayer ------------------------------------ ein ----------------- exempt_organization ------------------------------------------------------------------- state --------- x ---- investee -------------------------------------------------------- project -------------------------------------------------- tax_year ------- dear ----------------- this letter responds to your letter dated date requesting an extension of time for taxpayer to make an election under sec_168 of the internal_revenue_code code facts taxpayer is a corporation organized for profit under the laws of state it is in the business of investing in and managing rental real_estate taxpayer is a subchapter_c_corporation for federal_income_tax purposes taxpayer uses the cash_method_of_accounting and its taxable_year is the calendar_year taxpayer is wholly owned by exempt_organization a tax-exempt_entity described in sec_501 of the code because exempt_organization owns more than percent in value of the stock of taxpayer taxpayer is a tax-exempt_controlled_entity within the meaning of sec_168 plr-110660-17 taxpayer is the general_partner as well as the tax_matters_partner of investee and owns x of investee investee was organized for the purpose of acquiring constructing owning improving financing leasing managing and operating the project investee is a partnership for federal_income_tax purposes investee uses the accrual_method of accounting and its taxable_year is the calendar_year the rental units in the project were placed_in_service in tax_year investee’s partnership_agreement obligated taxpayer to make a timely election under sec_168 so that no part of the project would be treated as tax-exempt_use_property taxpayer failed to make the sec_168 election on a timely filed return for tax_year however the affidavits and other information submitted support the conclusion that taxpayer at all times intended to make a timely sec_168 election upon discovering this failure taxpayer promptly sought an extension of time in which to file the election applicable law sec_167 of the code provides generally for a depreciation deduction for property used in a trade_or_business under sec_168 the alternative_depreciation_system must be used for any tax-exempt_use_property as defined in sec_168 sec_168 provides that for purposes of sec_168 if any property that is not tax-exempt-use property is owned by a partnership having both a tax-exempt_entity and a nontax-exempt entity as partners and any allocation to the tax-exempt_entity is not a qualified_allocation then an amount equal to such tax-exempt entity's proportionate share of such property shall be treated as tax-exempt_use_property sec_168 provides generally that any tax-exempt_controlled_entity is treated as a tax-exempt_entity for purposes of sec_168 and under sec_168 a tax-exempt_controlled_entity can elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity under sec_301_9100-7t of the procedure and administration regulations an election under sec_168 must be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective sec_301_9100-3 provides that the commissioner of internal revenue has discretion to grant a reasonable extension of time to make a regulatory election sec_301_9100-1 defines the term regulatory election as including any election for which a regulation prescribes the due_date the sec_168 election is a regulatory election sec_301_9100-1 through provide the standards that the service will use to determine whether to grant an extension of time to make a regulatory election plr-110660-17 sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer - i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the service will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made plr-110660-17 analysis the facts submitted by taxpayer indicate that taxpayer intended from the outset to make the sec_168 election that its failure to make the election on a timely filed return was inadvertent and that taxpayer is not using hindsight in requesting relief moreover taxpayer requested relief before the failure to make the election was discovered by the service finally taxpayer acted reasonably and in good_faith and the interests of the government will not be prejudiced by the granting of relief under sec_301_9100-3 conclusion based solely on the facts as represented and the applicable law we conclude that the request for relief under sec_301_9100-3 should be granted accordingly taxpayer is treated as if it had made the sec_168 election with the tax_return it filed for tax_year provided that taxpayer attaches a copy of this letter to the next tax_return it files taxpayer also must attach the sec_168 election and the information set forth in sec_301_9100-7t to its next return if taxpayer files electronically it may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in addition the letter_ruling or statement should be attached for all subsequent returns and amended returns for all taxable years to which this ruling is relevant pursuant to sec_301_9100-7t a copy of this letter and the sec_168 election also should be attached to the federal_income_tax return of the tax-exempt shareholder of taxpayer this ruling is based on information and representations submitted by the taxpayer while this office has not verified any of the material submitted in support of this request for a ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 if you have any questions concerning this matter please contact the individual whose name and telephone number appear at the beginning of the letter plr-110660-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative sincerely stephen j toomey senior counsel branch income_tax accounting enclosure


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend x organization y scholarship fund z city state a high school b high school c agent dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that x will operate a grant-making program called y the purpose of x is to operate a non-profit private_foundation exclusively for charitable purposes including without limitation receiving holding and administering funds securities gifts_and_bequests and to use disburse or donate the income or principal thereof for charitable educational literary cultural artistic religious and scientific purposes the purpose of y is to award scholarships to children of a deceased member of the united_states armed_forces or of a first responder who lost his or her life while in service in order to be eligible for y award applicants must attend one of five designated high schools in z including a b and three high schools to be recommended by c the agent the applicant must be the child of a deceased member of the united stated armed_forces or of a first responder who lost his or her life while in service in addition the applicant must be a high school senior with a minimum grade point average of on a scale and plans to enroll in a full-time course of study at an accredited two- or four-year college or university or vocational technical school the y will be publicized by a third party agent c on its website and by coordinating with the schools c’s selection committee will consist of individuals who are independent and separate from x its organizers and the military agencies and employers of first responders no current or former employees of x or such employers will serve on the selection committee employees and affiliates of c and businesses related to the officers and directors of x will not be eligible to receive a scholarship from y c will utilize standard recipient selection procedures including the consideration of past academic performance and future potential leadership and participation in school and community activities work experience statement of career and education aspirations and goals unusual personal and family circumstances and any outside appraisal of a candidate’s qualifications and potential sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your scholarship program will be conducted as proposed with objectivity and nondiscrimination in awarding grants we determined that your procedures in awarding scholarship grants comply with the requirements of sec_4945 of the code and that scholarships granted according to these procedures will not be taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your grant-making procedures is a one-time approval of your system standards and procedures that will result in grants which meet the requirements of sec_4945 of the code this determination only covers the grant program described above thus approval shall apply to succeeding grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 if the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all grant distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreement


internal_revenue_service number release date index numbers ------------------------ -------------------------------------------------- ---------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b03 plr-107625-16 date date legend x - a ------------------------- ------------------ state -------------- date ----------------------- year ------- dear ------------------- this letter responds to a letter dated date and related correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code code the information submitted states that x was formed as a limited_liability_company under the laws of state and treated as a partnership for federal tax purposes a who owned an interest in x through a grantor_trust died on date x inadvertently failed to make a timely election under sec_754 for the year of a’s death year x represents that it has acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution_of_property or a transfer of a partnership_interest an election under sec_754 applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the plr-107625-16 taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership must be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions for filing the return for such taxable_year under sec_301_9100-1 the commissioner may 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 code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government based solely upon the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make a sec_754 election effective for its year taxable_year and thereafter the election should be made in a written_statement filed with the applicable service_center for association with x's return for its year taxable_year a copy of this letter should be attached to the statement this ruling is contingent on x adjusting the basis of its properties to reflect any sec_734 or sec_743 adjustments that would have been made if the sec_754 election had been timely made these basis adjustments must reflect any additional_depreciation that would have been allowable if the sec_754 election had been timely made regardless of whether the statutory period of limitation on assessment or filing a claim_for_refund has expired for any year subject_to this grant of late relief any depreciation deduction allowable for an open_year is to be computed based upon the remaining useful_life and plr-107625-16 using property basis as adjusted by the greater of any depreciation deduction allowed_or_allowable in any prior year had the sec_754 election been timely made additionally the partners of x must adjust the basis of their interests in x to reflect what that basis would be if the sec_754 election had been timely made regardless of whether the statutory period of limitation on assessment or filing a claim_for_refund has expired for any year subject_to this grant of late relief specifically the partners of x must reduce the basis of their interests in x in the amount of any additional_depreciation that would have been allowable if the sec_754 election had been timely made except as specifically ruled upon above we express or imply no opinion concerning the tax consequences of any facts discussed or referenced in this letter specifically we express no opinion as to whether x is a partnership for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with a power_of_attorney on file with this office we are sending a copy of this letter_ruling to your authorized representative sincerely associate chief_counsel passthroughs special industries by _____________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes