department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul uniform issue list tep ratt legend taxpayer a taxpayer b ira c ira d financial_institution e amount amount amount dear this is in response to your request dated date as supplemented by correspondence received on date and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution equal to amount from ira c which was maintained by financial_institution e taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by d a was due to serious health problems taxpayer a’s spouse taxpayer b represents that she received a distribution equal to amount from ira d which was maintained by financial_institution e taxpayer b asserts that her failure to accomplish a rollover within the 60-day period was due to caring for taxpayer a on june __ taxpayer a withdrew amount sec_1 and from ira c and ira d respectively taxpayer a represents that he intended to roll over amount and amount into iras within the 60-day period but he was experiencing a worsening of medical problems that continued through november of during this period taxpayer b cared for taxpayer a on september taxpayer a rolled over amount sec_1 and respectively back into ira accounts based on the above facts and representations taxpayer a and taxpayer b request the following rulings that the service waive the 60-day rollover requirement with respect to the distribution of amount an amount equal to amount less the required_minimum_distribution from ira c and that the service waive the 60-day rollover requirement with respect to the distribution of amount from ira d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408i revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a and taxpayer b are consistent with their assertion that the failure to accomplish timely rollovers of amount sec_2 and was due to taxpayer a’s worsening medical problems and taxpayer b’s care of taxpayer a during the rollover period therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira c and amount from ira d taxpayer a and taxpayer b are granted a period of days from the issuance of this ruling letter to contribute amount and amount into rollover ira accounts provided all other requirements of sec_408 except the 60-day requirement are met with respect to such contributions amount and amount will be considered rollover_contributions within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code -6o no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t1 id sincerely yours calter tt whither carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter


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 psi b02 plr-124217-09 date date x --------------------------------------------------------------------------------------------------- ----------------------- country --------------- date ------------------ date ---------------------- year ------- dear -------------------- this letter responds to a request dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes the information submitted states that x was formed under the laws of country on date x’s default status was as an association_taxable_as_a_corporation for federal tax purposes x was a foreign_entity eligible to be classified as a disregarded_entity for federal tax purposes effective date but inadvertently failed to timely file a form_8832 entity classification election plr-124217-09 sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the due_date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than 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 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 as a condition for this late election relief x and any affected taxpayers must file within days of the date of this letter any necessary tax and information returns and amended tax and information returns for year through the present consistent with x having made a timely election to be treated as a disregarded_entity effective year copies of this letter should be attached to any returns or amended returns except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code plr-124217-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 03-plr-115858-98 date date legend company b c d e f g h i dear cc dom p si 03-plr-115858-98 this letter is in response to your letter dated date and subsequent correspondences requesting a ruling under sec_469 of the internal_revenue_code specifically a ruling was requested that certain interest_income generated by company be treated as derived in the ordinary course of a trade_or_business under sec_1_469-2t of the income_tax regulations for purposes of calculating passive_activity_gross_income facts company is an entity classified as a partnership for federal tax purposes company’s members currently consist of b c d and e c is also a passthrough_entity with interests held by f g h and i company is a freight payment auditing and information management service provider for large manufacturers the relevant portion of company’s business functions as follows company pre-audits a client’s freight bills company notifies the client which bills should be paid and in what amounts the client forwards the necessary funds to company and company pays the shippers within a period set by contract with the client the float period company generates revenue from these functions through a mixture of service fees charged to its clients and interest earned on the clients’ funds during the float period float revenue company’s ruling_request addresses only float revenue company has not asked for a ruling concerning interest earned on its own capital the amount of service fees charged to a client and the float revenue generated are inversely related the exact amount of fees and the length of the float period are determined during the negotiation of the service_contract clients may negotiate lower fees by permitting a longer float period the exact interrelationship between fee and float is irrelevant to company as long as the combined amounts generate the desired profit margin over the past two years more than thirty percent of company’s total revenue has been float revenue it has been represented that g h and i do not currently materially participate in the trade_or_business of company in addition d and e anticipate transferring portions of their interests in company to subsequent members who will likely not materially participate in the activity law and analysis sec_469 disallows the passive_activity_loss and the passive_activity_credit for the taxable_year of individuals estates trusts and certain types of corporations a cc dom p si 03-plr-115858-98 passive_activity includes a trade_or_business activity in which the taxpayer does not materially participate sec_469 taxpayers can own passive activities directly or through passthrough entities in general a taxpayer’s passive_activity_loss for a taxable_year equals the amount by which the taxpayer’s deductions from passive activities passive_activity deductions exceed the taxpayer’s gross_income from passive activities passive_activity_gross_income for the taxable_year sec_469 and sec_1_469-2t passive_activity_gross_income and net_active_income do not include portfolio_income as defined in sec_469 of the code and sec_1_469-2t of the regulations portfolio_income generally includes gross_income from interest dividends annuities or royalties not derived in the ordinary course of a trade_or_business accordingly sec_1_469-2t lists the only situations in which the items of gross_income described in sec_1_469-2t are considered derived in the ordinary course of a trade_or_business and thus are not portfolio_income for the purposes of sec_469 interest_income not described in one of the specific provisions of sec_1_469-2t may be excluded from portfolio_income only if the commissioner identifies it as income derived in the ordinary course of a trade_or_business company is not involved in the trade_or_business of lending money nor is the float revenue generated through accounts receivables therefore the float revenue cannot be excluded from portfolio_income under sec_1_469-2t or b the float revenue will be considered portfolio_income unless the commissioner identifies it as income derived in the ordinary course of a trade_or_business pursuant to sec_1_469-2t company contracts with its clients to generate revenue the exact composition of this revenue will be derived from a mixture of service fees and float revenue depending on the particular contract negotiated with client the amount of service fees charged to a client and the length of the float period negotiated with a client are inversely proportional thus company does not generate float revenue in addition to service fees rather float revenue is properly viewed as a substitute for service fees the legislative_history of sec_469 indicates that portfolio_income should not be included in passive_activity_gross_income because portfolio items generally are positive_income_sources that do not bear at least to the same extent as other items deductible expenses see senate report no 99th cong 2d sess c b vol pincite in this case float revenue as a substitute for service fees will bear deductible expenses to the same extent as service fee revenue therefore under these circumstances the float revenue does not present the qualities associated with portfolio_income conclusion cc dom p si 03-plr-115858-98 under the facts represented it is appropriate to treat the float revenue as derived in the ordinary course of a trade_or_business under sec_1_469-2t the float revenue will not be considered portfolio_income and will instead be included in the calculation of passive_activity_gross_income under sec_469 and sec_1_469-2t for taxpayers who do not materially participate in company’s activity except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically no opinion is expressed concerning whether any member’s interest in company is properly treated as a passive or nonpassive activity under sec_469 this letter is issued only to the taxpayer who requested it under sec_6110 it may not be used or cited as precedent company should attach a copy of this letter to its next federal_income_tax return we enclose a copy for that purpose pursuant to a power_of_attorney on file with this office a copy of this ruling is being sent to your representative sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date oo date date employer id number contact person id number contact telephone number form you must file tax years dear 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 because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code 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 we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s 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 sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service cincinnati oh legend b name n name o state p date t name dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons described below facts prior to your formation your founder and director b discovered a new development in current hydro energy technology for which he has a patent called the t system the t system is used for a device that produces inexpensive electricity which will successfully compete with other electric production to decrease costs to future consumers furtherance of this green fuel efficiency mission b also has a for profit limited_liability_company n involved in the research and the development of the t system n is a commercial physical researcher b formed you to attract investments to fund the research_and_development of the t system these results will be disseminated to potential investors and the general_public to ensure letter rev catalog number 47630w you were incorporated in the state of o on p your articles of incorporation state the specific purpose for which this corporation is organized is when an invention is completed and the devices are sold the resources will be used mainly to finance housing for homeless people your first function will be to complete the research necessary on the t technology to guarantee the satisfactory function of the devices you will then locate sites and construct devices to produce energy on these sites once the volume of electricity produced is large enough you will employ an establishment that is capable of distributing and selling the electricity n has begun this and this consumes of your time your research on production of inexpensive electricity you hope will successfully compete with carbon fuels by replacing them at decreased costs to future consumers these research results will be disseminated to potential investors and the general_public to ensure furtherance of green fuel efficiency at this time you have no intention to distribute a significant percentage of research results outside of the parent organization as you are in the infancy stage of development b currently owns the patents and his heirs will inherit ownership of the patents in the future ruled out entirely in the future b is currently trying to obtain investments to make his dream of green energy efficiency a reality currently there is no intention of charging fees for use of the patents however this is not you submitted webpages for n which show n’s products include t technology in describing your relationship with for-profit entities you indicated that the for-profit entities will be advertised in all literature and marketing materials and that experts will be utilized to ensure there is no confusion between you and the for-profits there will be a non-profit investment driven entity to fund further and large-scale research and a for-profit entity to produce the patented t on a massive basis and a sales team to market the devices to the general_public you may consider selling inventions to other entities but most will be first considered for use by n n’s website states that donations can be made to you or n your revenues will come from donations and sales of goods and services your expenses will include compensation sales and marketing research occupancy and other expenses b will be compensated as president and manager you state once the t system is fully funded it will result in a very large profitable enterprise where employees and or consultants will be paid adequate compensation you plan to donate or more of the profits to organizations that help the homeless although you indicated on the form_1023 that you have bylaws you did not submit a copy with your application you have adopted a conflict of interest policy your board is made up of b two of his relatives and a business_associate who is unrelated law sec_501 of the internal_revenue_code exempts from federal_income_tax of corporations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the organization’s net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 b i of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization limit its purposes to one or more exempt purposes letter rev catalog number 47630w and do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes you do not meet the requirements in sec_1_501_c_3_-1 of the income_tax regulations your articles of incorporation state because your purposes are not limited to those in the code you fail the organizational_test sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the income_tax regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest meet the requirement of this subsection it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests thus to sec_1_501_c_3_-1 of the regulations provides that scientific research will be regarded as in the public interest c ifsuch research is directed toward benefiting the public b ifsuch research is performed for the united_states or any of its agencies or instrumentalities or for a state or political_subdivision there of a ifthe results of such research including any patents copyrights processes or formulas resulting from such research are made available to the public on a nondiscriminatory basis revrul_65_1 1965_1_cb_226 the service considered an organization which promotes and fosters the development and design of machinery in connection with a commercial operation and in connection therewith has the power to sell assign and grant licenses with respect to its copyrights trademarks trade names or patent rights revrul_69_632 1969_1_cb_120 a nonprofit composed of members of a particular industry to develop new and improved uses of existing products of the industry is not exempt under sec_501 of the code the association’s members select research projects in order to increase their sales by creating new uses and markets for their product the primary purpose of the association’s research is to serve the private interests of its creators rather than the public interest the service concluded that the organization does not qualify for exemption from federal_income_tax under sec_501 of the internal_revenue_code of letter rev catalog number 47630w in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number of importance of truly exempt purposes the petitioner’s activities were ’ jargely animated by non-exempt purposes directed fundamentally to ends other than that of education in p l l scholarshi82_tc_196 an organization which operated a bingo at a bar for the avowed purpose of raising money for scholarships was denied exception under sec_501 because it was operating for private interests the board included the bar owners the bar’s accountant also a director of the bar as well as two players a realistic look at the operations of these two entities however shows that the activities of the organization and the bar were so interrelated as to be functionally inseparable in 765_f2d_1387 cir cert_denied 497_us_1005 the court held that when a for-profit organization benefits substantially from the manner in which the activities of a related_organization are carried on the organization is not operated exclusively for exempt purposes within the meaning of sec_501 even if it furthers other exempt purposes application of law you are not as described in sec_501 of the code because you are not exclusively organized and operated for charitable purposes you are not as described in sec_1_501_c_3_-1 of the income_tax regulations because you fail both the organizational and operational tests you do not meet the provisions of sec_1_501_c_3_-1 of the regulations because more than an insubstantial part of your activities is not in furtherance of an exempt_purpose you are operating to attract funding for the research_and_development of b’s patented technology into devices to be marketed distributed and sold this serves a substantial private purpose you do not meet the requirements in sec_1_501_c_3_-1 of the income_tax regulations your articles of incorporation state as your specific purpose when an invention is completed and the devices are sold the resources will be used mainly to finance housing for homeless people because your purposes are not limited to those in the code you fail the organizational_test as described in sec_1_501_c_3_-1 of the regulations you are not operated exclusively for exempt purposes because your net_earnings inure to the benefit of b for example you were formed to fund the research_and_development of marketable devices using b’s patented technology which will be a product of n b’s for profit business moreover the fact you have adopted a conflict of interest policy does not change the fact that the majority of your board consists of related parties and has a personal_interest in you because they are in a position to profit from your activities you are not defined in sec_1_501_c_3_-1 of the regulations because you are operating for the private interests of b and n you are operating to confer the advantages of tax-exempt status to b as shown by the fact that your tax exemption will enable b to apply for grants to develop his inventions using his patented technology these will be marketed and distributed through n this demonstrates you are primarily serving private interests letter rev catalog number 47630w you do not meet the provisions of sec_1_501_c_3_-1 of the regulations any scientific research you are carrying on is not primarily conducted in the public interest your activities of funding the research_and_development of b’s patented technology into marketable products serve the private interests of b not the public you are like the organization in revrul_65_1 your activities of funding the research_and_development of b’s ideas into products do not constitute scientific research within the meaning of sec_1 c - d of the regulations in addition your purpose of obtaining grant money to develop b’s ideas is directed to benefit b and n and any public purpose is incidental you are comparable to the organization in revrul_69_632 because you were formed to serve the private interests of your creator b although your activities may result in new processes that benefit the public this benefit does not overcome the benefit to b and n which violates the absolute inurement prohibition as held in better business bureau of washington d c inc v united_states a single non-exempt purpose if substantial will preclude tax exemption under sec_501 of the code your activities result in _substantial private benefit to b and your earnings inure to the benefit of your officers like the organization described in the court case this single substantial nonexempt purpose destroys your claim to exemption under sec_501 of the code you are also similar to the organization described in p l l scholarship fund you and n are controlled by the same individual b your functions and management are so interrelated with n that you are functionally inseparable from n because you will be funding a product for n you are comparable to the organization in church by mail because you and n are controlled by the same person moreover n benefits substantially from your operations despite any charitable and educational_purposes your activities may achieve you cannot qualify for tax exemption because more than an insubstantial part of your activities is not in furtherance of exempt purposes you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include conclusion if you don’t agree accordingly you do not qualify for exemption under sec_501 of the code your name address employer_identification_number ein and a daytime phone number an explanation of why you disagree including any supporting documents acopy of this letter highlighting the findings you disagree with the law or authority if any you are relying on e e e e letter rev catalog number 47630w e e the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney u s mail we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ l forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh letter rev catalog number 47630w street address for delivery service if you agree ' if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely director exempt_organizations enclosure publication letter rev catalog number 47630w


internal_revenue_service number release date index number ----------------------------- ------------------------- ---------------------------- ------------------------------------ in re --------------------------------- -------------------------------------------- ---------------------------- 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 b07 plr-104720-05 date date legend p t u v w x y z a b c dear ---- ---------------------------------location date ----------------------- -------------------------- date ------------------------------------date ------------------------------------date ----------------------------------------------date --------------------------------- date -------------------------------------t ------------------------------------u ----------------------- y -------------------------------------x ---------------------------------z ------ --------------- --------------- ------------------------- -------------------------- -------------------------- ---------------------- -------------------------- ------------------ ------ --------- ---- ---- this letter is in response to your letter dated date submitted on behalf of p requesting rulings under sec_29 of the internal_revenue_code facts the facts as represented by p and p’s authorized representative are as follows p received p l r on date which ruled on the issues addressed by plr-104720-05 this letter p seeks a confirmation of those rulings in light of the sale of a membership interest in p to u and the subsequent sale of a membership interest in p to z on date p purchased the facility from a and its affiliates pursuant to a p is a delaware limited_liability_company taxable as a partnership the members of p were x and y y is a wholly owned subsidiary of t x had complete and exclusive control of the management of p x has extensive experience in energy coal and related businesses p was formed by x to purchase from a and its affiliates a synthetic_fuel facility the facility that produces a solid synthetic_fuel from coal the product purchase agreement in consideration for the facility p made a cash payment at closing b entered into on date construction_contract the construction_contract is for a synthetic_fuel production facility consisting of a single production line for producing a solid synthetic_fuel from coal using a's patented process the construction_contract provides a guaranteed maximum price and a completion date the construction_contract provides that any damages recoverable by b against a shall not be less than six percent of the total_contract_price p provided an opinion of counsel that the construction_contract constitutes a binding contract under state law the facility was constructed pursuant to a construction_contract between a and certain adjustments repairs and improvements have been made to the facility material preparation handling and sampling systems and to the site p has provided an expert report which states that many of these adjustments repairs and improvements are not part of the facility necessary to produce synthetic_fuel the expert report concludes that the remaining adjustments repairs and improvements to the facility necessary to produce synthetic_fuel do not affect the production capacity of the facility the facility is currently located on property near location the site owned by c and leased to p under a site lease agreement p operates the facility as a merchant plant and will purchase coal feedstock for the facility from various coal producers or from traders or brokers of coal pursuant to various coal feedstock purchase agreements p will sell the product produced at the facility to various third party customers pursuant to various synthetic_fuel supply agreements technology trade secrets and other intellectual_property for producing synthetic_fuel from coal p will pay to a a royalty of a fixed dollar amount per ton of the product produced and sold by p for use of the technology the license agreement also provides that a will sell to p all of p's requirements of chemical reagent for the facility the price of the chemical reagent is a's cost to produce the chemical reagent plus a fixed amount p entered into a license agreement with a granting to p the right to use a's plr-104720-05 on date t sold a membership interest in p to u a wholly-owned subsidiary of x pursuant to an agreement for purchase of membership interest following the closing of the sale t owned t u owned u and y owned y of the membership interests in p on date t y and u the sellers sold a membership interest in p to z the buyer pursuant to an agreement for purchase of membership interest y will continue to manage p following the closing of the sale y owns x and z owns z of the membership interests in p in exchange for the membership interests in p buyer paid to the sellers an amount of cash at closing and buyer is obligated to make certain fixed and variable payments to the sellers taxpayer has provided projections based on expected operations that the net present_value of the contingent payments to be made to the sellers under the agreement for purchase of membership interest will be less than fifty percent of the total payments made to the sellers under the agreement for purchase of membership interest as members of p y and z members have made and are expected to the service recently completed an audit of p in connection with the audit the continue to make periodic capital contributions to p to enable it to pay its operating costs and other obligations a proforma attached to the ruling_request demonstrates that project expenses are expected to exceed revenues in connection with the sale p entered into an operation and maintenance agreement with v a wholly-owned subsidiary of x for the operation and maintenance of the facility service requested and reviewed information and various documents including documentation of replacement of parts regarding the placed-in-service facts of the facility on date p received signed forms 870-pt from the service which closed the audit and concluded with an affirmative statement that p’s facility was placed-in-service prior to date pursuant to a binding written contract in effect before date also has proposed that from time to time one of two chemical reagents may be used in the process for the production of product as described the facility and the process implemented in the facility including the chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 numerous tests on the coal used at the facility and the product produced at the facility and has submitted reports in which the expert concludes that significant chemical changes take place with the application of the process to the coal including the alternative chemical reagents p with use of the process expects to maintain a level of chemical change in the production of synthetic_fuel that is determined through similar p has supplied a detailed description of the process employed at the facility p a recognized expert in combustion coal and chemical analysis has performed p with use of the enumerated process will produce a qualified_fuel within the the construction_contract constitutes a binding written contract in effect production from the facility will be attributable solely to p within the meaning the facility is placed_in_service for purposes of sec_29 on the date the rulings issued in p l r which you wish to be reconfirmed in this plr-104720-05 analysis by experts to be a significant chemical change private_letter_ruling are as follows meaning of sec_29 before date within the meaning of sec_29 that the facility was first placed in a condition or state of readiness and availability to produce qualified_fuel of sec_29 and p will be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to an unrelated_person accordance with the members' interests in p when the credit arises for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons provided the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of part of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement the sec_29 credit attributable to p may be allocated to the members of p in a termination of p under sec_708 will not preclude the the changes in facts since the issuance of the prior rulings are the sale of a membership interest in p to u and the subsequent sale of a membership interest in p to z as described in the ruling_request the above rulings are not affected by the sale of a membership interest in p to u and the subsequent sale of a membership interest in p to z as described in the ruling_request ruling_request sec_1 plr-104720-05 sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer the credit for the taxable_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold sec_29 defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 and its regulations are relevant to the interpretation of the term under sec_29 former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel revrul_86_100 notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 consistent with its private_letter_ruling practice that began in the mid 1990's the service in revproc_2001_30 provided that taxpayers must satisfy certain conditions in order to obtain a letter_ruling that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 revproc_2001_30 as modified by revproc_2001_34 2001_1_cb_1293 the revenue_procedure requires taxpayers to present evidence that all or substantially_all of the coal used as feedstock undergoes a significant chemical change to meet this requirement and obtain favorable private letter rulings taxpayers provided expert reports asserting that their processes resulted in a significant chemical change in announcement 2003_30_irb_222 the service announced that it was reviewing the scientific validity of test procedures and results presented of significant chemical change in expert reports in announcement 2003_46_irb_1090 the service announced that it had determined that the test procedures and results used by taxpayers were scientifically valid if the procedures were applied in a consistent and unbiased manner however the service concluded that the processes approved under its long standing ruling practice and as set forth in revproc_2001_30 did not produce the level of chemical change required by sec_29 nevertheless the service announced that it recognized that many taxpayers and their investors have relied on its long standing ruling practice to make investments therefore the service announced that it would continue to issue rulings on significant chemical change but only under the guidelines set forth in revproc_2001_30 as modified by revproc_2001_34 plr-104720-05 this ruling is provided to p consistent with announcement and the service's long standing ruling practice accordingly based on the expert test results submitted by p and its members we conclude that the synthetic_fuel produced at the facility using the described process and specified chemical reagents is a solid synthetic_fuel produced from coal constituting a qualified_fuel within the meaning of sec_29 because p owns the facility and operates and maintains the facility through its agent we conclude that p will be entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person ruling_request sec_29 and f provide that sec_29 applies with respect to qualified_fuels which are produced in a facility placed-in-service after date and before date and which are sold before date sec_29 modifies sec_29 in the case of a facility producing qualified_fuels described in sec_29 which qualified_fuels include solid synthetic fuels produced from coal or lignite sec_29 provides that for purposes of sec_29 a facility shall be treated as placed-in-service before date if the facility is placed-in-service before date pursuant to a binding written contract in effect before date sec_29 provides that if the facility is originally placed-in-service after date sec_29 shall be applied by substituting date for date a contract is binding only if it is enforceable under local law against a taxpayer and does not limit damages to a specified amount eg by use of a liquidated_damages provision a contract provision limiting damages to an amount equal to at least five percent of the total_contract_price for example should be treated as not limiting damages the construction_contract executed prior to date includes such essential features as a description of the facility to be constructed a completion date and a maximum price the contract also provides that damages shall not be less than six percent of the total_contract_price p provided an opinion of counsel that the contract is binding under applicable law therefore we conclude that the construction_contract is a binding written contract in effect before date within the meaning of sec_29 ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer plr-104720-05 sec_7701 provides that taxpayer means any person subject_to any internal revenue tax generally under sec_7701 the term person includes an individual a_trust estate partnership_association company or corporation sec_702 provides that each partner determines the partner's income_tax by taking into account separately the partner's_distributive_share of the partnership's other items of income gain loss deduction or credit to the extent provided by regulations prescribed by the secretary sec_1_702-1 provides that the distributive_share is determined as provided in sec_704 and sec_1_704-1 sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit is except as otherwise provided in chapter of subtitle a of title_26 determined by the partnership_agreement sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit or item thereof is determined in accordance with the partner's_interest_in_the_partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner's_distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 provides that allocations of tax_credits and tax_credit recapture except for sec_38 property are not reflected by adjustments to the partners' capital accounts thus these allocations cannot have economic_effect under sec_1 b ii b and the tax_credits and tax_credit recapture must be allocated in accordance with the partners' interests in the partnership as of the time the tax_credit or credit recapture arises if a partnership expenditure whether or not deductible that gives rise to a tax_credit in a partnership_tax_year also gives rise to valid allocations of partnership loss or deduction or other downward capital_account adjustments for the year then the partners' interests in the partnership with respect to such credit or the cost giving rise to it are in the same proportion as the partners' respective distributive shares of the loss or deduction and adjustments see sec_1_704-1 example identical principles apply in determining the partners' interests in the partnership with respect to tax_credits that arise from receipts of the partnership whether or not taxable based on the information submitted and the representations made we conclude that the credit will be allowed to p and the credit may be passed through to and allocated among the members of p under the principles of sec_702 in accordance with each member’s interest in p as of the time the credit arises for purposes of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel ruling_request plr-104720-05 the sec_29 credit has always been a time sensitive credit in that eligibility for the credit is determined when facilities or wells producing qualified_fuels are placed_in_service and when the qualifying fuels are produced and sold to unrelated persons for example the sec_44d credit as originally enacted in the crude_oil windfall profit tax act of was generally available for post-1979 production sold before date from facilities placed_in_service after date and before date congress has extended the sec_29 credit four times the placed-in-service deadline and the period for claiming the sec_29 credit were extended in the technical_and_miscellaneous_revenue_act_of_1988 for placed_in_service omnibus budget reconciliation act of for placed_in_service and for the end of the credit_period energy policy act of for placed_in_service and for the end of the credit_period and small_business job protection act of date for placed_in_service it is clear from the legislative_history of sec_44d that congress intended the credit to apply to facilities placed_in_service after and that the placed-in-service deadline in sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the owner of the facility the legislative_history of sec_44d clearly shows that congress wanted to encourage the production of new alternative fuels from facilities first placed_in_service after and not provide a tax incentive for production capacity in service before sec_29 demonstrates that congress knows how to preclude transferees of facilities from claiming the sec_29 credit that provision provides that the extension of the period for placing facilities in service after does not apply to any facility that produces coke or coke gas unless the original_use of the facility commences with the taxpayer accordingly the determination of whether a facility has satisfied the placed-in- service deadline under either sec_29 or sec_29 is made by reference to when the facility is first placed_in_service not when the facility is transferred or sold to a different taxpayer sec_708 provides that a partnership shall be considered as terminated if within a twelve-month period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in plr-104720-05 proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for the continuation of the business by the new partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date as discussed above the placed-in-service deadline in sec_29 and sec_29 must be read as applying to when the facility is first placed-in-service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the taxpayer owning the facility accordingly the placed-in-service deadline under sec_29 and sec_29 is determined by reference to when the facility is first placed-in-service therefore because the facility was placed-in-service prior to date within the meaning of sec_29 the sale of the facility after date will not result in a new placed-in-service date for the facility for purposes of sec_29 for the new owner further a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons ruling_request sec_3 to qualify for the sec_29 credit the facility must be placed-in-service before date pursuant to a binding written contract in effect before date although sec_29 does not define placed_in_service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit for these purposes property is deemed to have been placed_in_service in the taxable_year that the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_167_a_-11 and sec_1_46-3 of the income_tax regulations accordingly p’s facility will be deemed to have been placed-in-service for purposes of sec_29 on the date that the facility was first placed in a condition or state of readiness and availability to produce a qualified_fuel as discussed above the issue regarding when the facility was placed-in-service was subject_to examination the service determined without mutual concessions that p’s facility was placed-in- service prior to date pursuant to a binding written contract in effect before date it is the policy of the service that such determinations are not reconsidered absent extraordinary circumstances for example fraud or misrepresentation see c revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed-in-service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed-in-service even though it contains some used_property provided the fair_market_value of the used plr-104720-05 property is not more than percent of the facility's total value the cost of the new property plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 because the facility was placed-in- service prior to date within the meaning of sec_29 relocation of the facility after date or replacement of parts of the facility after that date will not result in a new placed-in-service date for the facility or otherwise prevent the facility from continuing to be treated as originally placed-in-service prior to date if the fair_market_value of the property used at the original facility is more than percent of the facility’s total market_value immediately following the relocation or replacement the cost of the new equipment included in the facility plus the value of the property used at the original facility revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy emphasis added the present situation is similar to revrul_94_31 thus for purposes of determining the facility's total fair_market_value at the time of relocation or replacement a facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the briquetters or other forming equipment including output hoppers if any hence the facility's total fair_market_value includes the process equipment such as pugmills or mixers the briquetters or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above- referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction the facility's total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of the qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 of the code and other administrative assets plr-104720-05 sampling and quality control are necessary for operational control of a production facility however a particular type of sampling equipment generally is not necessary for the production of qualified_fuel thus the costs of sampling equipment are excluded from the facility's total fair_market_value unless the particular sampling equipment is necessary for operational control of the facility consistent with the holding in revrul_94_31 because p’s facility was placed- in-service prior to date within the meaning of sec_29 relocation of the facility to a different location or replacement of part of the facility after date will not result in a new placed-in-service date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than of the facility's total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the used_property conclusions accordingly based on the representations of p and p's authorized p with use of the enumerated process and the specified chemical reagents the facility is placed_in_service for purposes of sec_29 on the date representative we conclude as follows will produce a qualified_fuel within the meaning of sec_29 of the code the construction_contract as defined herein constitutes a binding written contract in effect before date within the meaning of sec_29 of the code that the facility was first placed in a condition or state of readiness and availability to produce qualified_fuel within the meaning of sec_29 of the code and p will be entitled to the sec_29 credit for qualified_fuel from the facility that is sold to unrelated persons accordance with the members' interests in p when the credit arises for the allocation of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because the service has determined taking into account any relocation or replacement of parts prior to date that p’s facility was placed_in_service prior to the production of qualified_fuel from the facility will be attributable solely to p a termination of p under sec_708 will not preclude the the sec_29 credit attributable to p may be allocated to the members of p in plr-104720-05 date within the meaning of sec_29 relocation of the facility to a different location after date or replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of the facility's total fair_market_value at the time of relocation or replacement the conclusions drawn and rulings given in this letter are subject_to the requirements that the taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility that is the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facility to verify that the coal used to produce the fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that the taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see dollar_figure of revproc_2005_1 i r b however when the criteria in dollar_figure of revproc_2005_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely joseph h makurath senior technician reviewer branch passthroughs special industries


department of the treasury internal_revenue_service washington d c date number release date uilc dollar_figure internal_revenue_service national_office chief_counsel_advice memorandum for team coordinator from subject david l fish chief branch disclosure litigation cc el d disclosure of return_information in expert report of irs economist this is in response to your memorandum dated date requesting our assistance as to whether an irs economist may disclose in his expert report to be included in the examination files of two separate entities which formed a joint_venture return_information of those two separate entities where that expert report discusses the valuation of assets contributed by one of the two entities and where the return_information to be disclosed in the report was obtained by the service during the examinations of those two separate entities this document is not to be cited as precedent legend taxpayer a taxpayer b ab year x issue whether an irs economist may disclose in his expert report to be included in the examination files of two separate entities which formed a joint_venture return_information of those two separate entities where that expert report discusses the valuation of assets contributed by one of the two entities to the joint_venture and where the return_information to be disclosed was obtained by the service during the respective examinations of those two separate entities conclusion under sec_6103 c the irs economist may disclose in his expert report return_information of the two separate entities that formed a joint_venture where that expert report discusses the valuation of assets contributed by one of the two entities to the joint_venture to the extent such information directly relates to or directly effects the resolution of examination issues in the respective entities’ proceedings facts in year taxpayer a an and taxpayer b a formed ab as a joint_venture taxpayer a owns a percent interest in the joint_venture taxpayer b owns an percent interest taxpayer a contributed its assets and taxpayer b contributed some lesser assets in addition to a large sum of cash the service contends that there is a possibility that the assets contributed by taxpayer a were not properly valued at the time of the creation of the joint_venture consequently an x issue has arisen in the examination of taxpayer a the valuation issue may also create adjustments for taxpayer b during the course of the examination of taxpayer a and the examination of taxpayer b an irs economist prepared a report analyzing the valuation of the assets contributed by taxpayer a at the time of the creation of the joint_venture ab this expert report contains the return_information of both taxpayer a and taxpayer b which was collected by the service during the respective examinations of those two taxpayers law and analysis sec_6103 of the internal_revenue_code prohibits the service from disclosing returns or return_information as those terms are defined in sec_6103 and b unless disclosure is authorized under a specific provision of title_26 484_us_9 973_f2d_962 1st cir martin v internal_revenue_service f 2d 10th cir sec_6103 is a narrowly tailored exception to the confidentiality requirements of sec_6103 which specifically lifts the confidentiality constraints and authorizes disclosure of certain tax returns and return_information in judicial or administrative tax proceedings subparagraph a of sec_6103 states that returns or return_information may be disclosed in a federal or state judicial or administrative tax proceeding pertaining to tax_administration if the taxpayer is a party to the proceeding subparagraphs b and c of sec_6103 establish an item and transaction test respectively under which returns and return_information of taxpayers who are not parties to such proceedings may nevertheless be disclosed under sec_6013 a third party taxpayer’s statutorily protected information may be disclosed in judicial or administrative tax proceedings only if the treatment of an item reflected on such third party’s return is directly related to the resolution of an issue in the proceeding under sec_6013 a third party taxpayer’s statutorily protected information may be disclosed in judicial or administrative tax proceedings only if such third party’s return or return_information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding as stated above sec_6103 speaks in terms of judicial and administrative tax_administration proceedings in 796_f2d_356 10th cir and in nevins v united_states u s tax cas cch p d kan examinations were found to be administrative tax proceedings for purposes of the statute in the circumstances presented here the expert report was drafted in connection with the examination of taxpayer a and the examination of taxpayer b thus taxpayer a and taxpayer b are each a party to a separate administrative tax proceeding based on the fact that each entity is under examination by the service although the examinations of taxpayer a and taxpayer b are being separately conducted both taxpayers were parties to the transaction at issue ie the formation of ab the information collected by the service during taxpayer a’s examination is taxpayer a’s return_information the information collected by the service during taxpayer b’s examination is taxpayer b’s return_information under sec_6103 and sec_6103 the service may disclose in the respective examinations taxpayer a’s return_information to taxpayer a and taxpayer b’s return_information to taxpayer b however in order for the service to be authorized to disclose taxpayer a’s return_information in taxpayer b’s administrative_proceeding and vice versa those disclosures must pass muster under the item and or transaction tests of sec_6103 c both taxpayer a and taxpayer b were involved in the transaction which resulted in the joint_venture that included taxpayer a’s contribution of assets further based on the facts presented to us the valuation of the assets directly relates to the resolution of issues in the respective tax_administration proceedings of taxpayer a and taxpayer b therefore under sec_6103 c the irs economist may disclose in his expert report return_information of the two separate entities that formed a joint_venture where that expert report discusses the valuation of assets contributed by one of the two entities to the joint_venture if you have any further questions please call