department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 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 you should follow the instructions in notice our deletions you do not need to take any further action if you agree with letter cg catalog number in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements lf you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions sincerely kenneth corbin acting director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number 47632s department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person identification_number contact number fax number employer_identification_number uil legend b date c state d project name e book name f individual z dollar amount dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issues do your activities further an exempt_purpose consistent with exemption under sec_501 of the code no for the reasons stated below do your net_earnings primarily benefit the private interests of a commercial publisher thus precluding exemption under sec_501 of the code yes for the reasons stated below facts you incorporated on b pursuant to the non profit corporation laws in the state of c the purposes for which you were formed are to oversee the production publication and distribution of materials related to a project known as d the project d initiated by your founder's ministry was started to translate a score of the new and old testament letter cg catalog number 47630w books into one english bible version known as e the promotion and publicity for the first volume of e is the first and primary objective of project d you did not provide a list of positioned officers directors with your application_for exemption however f listed himself as president chairman editor and you have indicated two additional board members as being two of f’s sons you stated you are in the process of expanding your current board and have added two more unrelated members while no board member will be paid for their intellectual work they may be hired for operational duty though currently there are no paid staff prior to your formation your founder f had used a segment of the translation project d in f’s self-employed missionary work f worked on the version of e for over years as a ministry receiving not a penny you emphasize your religious convictions by stating that in bible work and bible materials all work is done to the lord as ministry project d you will service the office staff production and distribution offices associated with the translation project d you also maintain a website that publicizes e and the methods used in the translation process that make e a unique version of the bible since incorporating you described yourself as a service_organization for the your future activities include the publication of study guides new editions of e and other bible related reference books training classes and conferences and public meetings you hope to develop a home_office and to hire staff and translators for production of other bible commentaries the publication distribution and retailing of e are in the hands of a for-profit publisher the terms and conditions of your three year publishing agreement states the publisher shall determine the details of publication including the appearance price production and manufacturing of the work e your publishing agreement allows the publisher the right to use display promote market distribute exhibit and make excerpts from the work e in order to facilitate the promotion marketing distribution and sales of e publisher will make four royalty payments per year if earned to author you for print copies you expect to earn the majority of your income from book sales the for-profit publisher receive sec_80 of the royalties from the print sale of e for ebooks or any audio versions sold you will receive you clarified that you own the copyrights to e and receive of the royalties despite being founded over ten years ago you indicated the only actual income was received last year in the form of a single z dollars donation you did submit projections for the next three years any income you earn from the sale of e will be used for your cost of operations including payroll for contracted authors and office expenses as for your obligation to the publisher you described yourself as a fledgling corporation letter cg catalog number 47630w with no national reputation the competition is mountainous in a christian bookstore one will find twelve to twenty versions on the same shelves how do we get attention we have to buy it the contract is for the present edition only and lasts only three years time enough for the publisher to recoup his expenses we are not obligated to the for-profit publisher for any further editions and we are not an agent for the publisher in short the publication contract is our instrument to accomplish our purpose your tax exemption was auto revoked due to a failure_to_file form_990 you have applied to be reinstated law sec_1_501_c_3_-1 of the income_tax regulations states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section operational_test it is not exempt if an organization fails to meet either the organizational or sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if 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 in not in furtherance of an exempt_purpose it engages sec_1_501_c_3_-1 of the 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 states that an organization is not operated exclusively for one or more exempt_purpose unless it serves a public rather than a private interest persons who created it it must not be operated for the benefit of designated individuals or the sec_1_501_c_3_-1 of the regulations assigns states 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 revrul_66_104 cb a nonprofit organization which makes funds available to authors and editors for preparing teaching materials and writing textbooks and under the terms of the contract with the publisher receives royalties from sales of the published letter cg catalog number 47630w materials and then shares them with those individuals does not qualify for exemption from federal_income_tax as a charitable educational or literary organization under sec_501 of the internal_revenue_code of although educational interests are served by the publication of better teaching materials the facts in this case show only an enterprise conducted in an essentially commercial manner in which all the participants expect to receive a monetary return revrul_67_4 1967_1_cb_121 an organization was formed for the purpose of encouraging basic_research in specific types of physical and mental disorders to improve educational procedures for teaching those afflicted with such disorders and to disseminate educational information about such disorders by the publication of a journal containing current technical literature relating to these disorders the organization may qualify for exemption from federal_income_tax under sec_501 of the internal_revenue_code of if it meets prescribed conditions four criteria indicate that publishing activities are directed to the attainment of purposes specified in sec_501 the content of the publication must be educational the preparation of materials must follow methods generally accepted as educational the distribution of the materials must be necessary or valuable in achieving the organization’s exempt purposes and the manner in which the distribution is accomplished must be distinguishable from ordinary commercial publishing practices while the revenue_ruling speaks only in terms of educational_purposes similar reasoning is applicable to religious publishing activities however religious publishing activities do not have to satisfy the methodology test the second criterion 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes 285_f2d_800 ct_cl the court found that the sale of religious literature was the organization's primary concern even though the material was religiously inspired it involved the organization directly in the conduct_of_a_trade_or_business for profit the entity's primary purpose was found to be neither religious nor educational the organization’s assertions were found to be entirely sincere throughout the organization’s history the court concluded it had been led by people of devout and intense religious conviction intensity of religious convictions was stated to not be letter cg catalog number 47630w sufficient if the activities involved do not themselves justify tax exemption piety is no defense to the assessments of the tax collector 71_tc_661 the court determined that an organization that sold books written by its founder was not entitled to exemption in making this decision the court found that the sale of books was the primary activity was not in furtherance of a religious or educational benefit and even if the publication and sale of books was in furtherance of religious or educational_purposes the organization would still fail to qualify for exemption under c because a substantial part of the activity it engaged in was in furtherance of a purpose to benefit its founder personally rather than to benefit the public at large and it was commercial in nature 71_tc_1067 the tax_court held that an organization that was essentially controlled by a separate commercial entity was operated for a substantial non-exempt purpose where it promoted a body of knowledge owned by that commercial entity whether the agreements between the parties reflected an arm’s length negotiation was irrelevant to the analysis relevant factors included that the for-profit entity through contractual arrangements exerted considerable control_over the franchisee’s activities in matters such as fees training scheduling and management that the for-profit entity's existence depended on the tax- exempt status of the franchisee and that it was thus trading on the letter’s exempt status and that the for-profit entity benefited substantially from the franchisee’s activities application of law you are not operated exclusively for charitable educational or religious purposes consistent with sec_501 c of the code nor sec_1_501_c_3_-1 of the income_tax regulations and therefore fail to meet the operational_test specifically the facts above indicate that you are not operated for exempt purposes but that you are operated in a commercial manner the books you author are priced to generate a profit - and are distributed and marketed in a traditional commercial manner further prices are set by a for-profit publisher through a licensing agreement funds earned through royalties are used to cover costs including compensation_for contracted authors as a result your services are not distinguishable from any commercial company you are not described in sec_1_501_c_3_-1 of the regulations because you are not primarily engaged in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code your primary purpose is to promote publicize and disseminate e resulting in payment to a for-profit publisher of either or of sales this arrangement also benefits any authors of these books and in this case your founder f through the publishing and promotion of their work letter cg catalog number 47630w regardless of financial gain this results in substantial private benefit to any of your authors in addition this arrangement substantially furthers the private business purposes of your publisher each of the above causes you to fail the operational_test for exemption per sec_1_501_c_3_-1 of the regulations per sec_1_501_c_3_-1 of the regulations you have failed to establish that you are not organized or operated for the benefit of designated individuals by promoting and distributing a book authored by f further you have not demonstrated the relationship between you f and the publisher will not result in inurement either directly or indirectly through the sales and subsequent receipt of royalties sec_1 c - c of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure to the benefit of private individuals your publishing agreement also allows the publisher considerable control_over the pricing and marketing function of your primary product e the fact that your product is religiously inspired does not demonstrate your primary purpose is either religious or educational see scripture press foundation v united_states supra although exclusively does not mean solely or without exception the presence of a single nonexempt purpose if substantial will preclude exemption regardless of the number or importance of exempt purposes see better business bureau above because you are operating in a manner similar to any private author selling work through a for profit publisher you are not regarded as operated exclusively for one or more exempt purposes you are similar to the organization described in revrul_66_104 in that you use royalties received from the licensing agreement from sales through a publisher to further your translating operations similar to the ruling although religious interests may be served by your publication the facts in this case show only an enterprise conducted in an essentially commercial manner - promotion and publication of texts sold through a licensed agreement with a for-profit publisher with the majority of sales income retained by that publisher you are unlike the organization in revrul_67_4 in that you differ from the criteria outlined in qualifying for exemption with publishing activities the methods used in preparing and presenting your work are both religious and commercial - while translating religious texts can be both educational or religious the manner in which you market produce and distribute those works are not the public benefit of the distribution of your work is outweighed by the benefit received by the agreement with the publisher in the amount of royalties received through sales your manner of distribution is not distinguishable from ordinary commercial publishing practices - you make your publication available to the general_public through regular retail outlets as determined by letter cg catalog number 47630w your publisher the fact that you have contracted with a for-profit publisher to compete with the mountainous competition in retail bookstores further demonstrates that your primary purpose is not charitable although your operations have been unprofitable to date they are conducted in an ordinary commercial manner the commercial manner in which you operate including the method of pricing advertising and retail operations in agreement with a for-profit motivated publisher does not further charitable purposes described under sec_501 see christian manner international inc and est of hawaii v commissioner supra because your operations further the non-exempt commercial purposes of your publisher you cannot be tax- exempt as a charitable sec_501 entity conclusion based on the facts and information provided you are not organized or operated exclusively for exempt purposes you fail the operational_test further private interests have failed to establish your operations will not inure to insiders and are operated for substantial non-exempt commercial purposes accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax exempt status types of information that should be included in your protest can be found on page of publication under the heading filing a protest the statement of facts item must be accompanied by the following declaration under penalties of perjury declare that have 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 the declaration must be signed by one of your officers or trustees with personal knowledge of the facts your protest will be considered incomplete without this statement letter cg catalog number 47630w if your representative submits a protest a substitute declaration must be included stating that the representative prepared the protest and accompanying documents and whether the representative knows personally that the statements of facts contained in the protest and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action determination_letter that letter will provide information about filing tax returns and other matters if we do not hear from you within days we will issue a final adverse please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance internal_revenue_service eo determinations quality assurance you may fax your statement using the fax number shown in the heading of this letter you fax your statement please cail the person identified in the heading of this letter to confirm that he or she received your fax if letter cg catalog number 47630w if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely kenneth corbin acting director exempt_organizations enclosure publication letter cg catalog number 47630w


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel number info release date uil no february dear this letter is in reply to your correspondence dated date to mrs clinton you said you switched jobs in and your second employer was withholding social_security_taxes from your wages even though the wages that you received from your first employer for already exceeded the contribution_and_benefit_base you expressed concern that the collection of employee social_security_taxes by two or more employers in this situation creates an undue tax burden for an employee we are providing the following general information we hope will clarify this issue every employer who makes payment of wages to an employee for employment as those terms are defined in the federal_insurance_contributions_act fica incurs liability for the employer tax imposed by that act which includes the social_security_tax no employer is excused from liability for the tax solely on the basis of the employee’s wages from another employer however if an employee receives wages from more than one employer during a calendar_year and the wages exceed the contribution_and_benefit_base which is effective for that year the employee is entitled to a credit or refund of any amount of tax on that part of the wages that exceeds the contribution_and_benefit_base of such wages for the calendar_year sec_6413 thus you can request a credit or refund of any social_security_tax withheld in from your wages in excess of the contribution and benefit wage_base amount on your form_1040 u s individual_income_tax_return filed for congress considered the issue of liability of employees for the employee tax imposed by the fica on wages received from all employers in connection with tax legislation in prior to employees performing services for more than one employer in a calendar_year were liable for the employee tax under the fica on wages received from all employers as a result congress included the special_refund provisions in the social cor-100551-01 security act amendments of permitting employees to obtain a credit or refund without interest of the employee tax paid on the total in excess of the contribution_and_benefit_base if they file a claim_for_refund in considering these provisions the senate committee on finance on the social_security act amendments of in senate report no published in cumulative bulletin beginning at page 76th congress 1st session stated in part under existing law remuneration received by an employee with respect to employment during any calendar_year is taxable up to and including dollar_figure received by the employee from each employer he may have during the year hence an employee who has more than one employer may be required to pay the old-age-insurance employee’s tax on aggregate wages in excess of dollar_figure the committee believes this bears harshly on the individual having more than one employer during a calendar_year and has accordingly incorporated an agreement which permits the employee to obtain a refund without interest of the tax paid on the aggregate in excess of dollar_figure earned after date provided a timely claim is filed for administrative reasons the committee has not disturbed the liability of the employee having more than one employer for tax on each dollar_figure of wages from each employer or the requirement that each employer shall deduct the employee’s tax from wages which he pays his employee within the dollar_figure maximum no ground for relief exists in the case of the employer’s tax each employer will and should be liable for tax with respect to the first dollar_figure paid to each employee notwithstanding the employee may be receiving or may later in the year receive wages from another employer the internal revenue service’s mandate is to carry out the provisions of the tax laws as enacted by the congress we have no administrative authority to change or alter the laws where as in this matter the law is specific and the intent of the congress concerning that law is clear if you have any questions please contact not a toll-free number sincerely of this office at michael a swim chief employment_tax branch office of division counsel associate chief_counsel tax exempt and government entities


internal_revenue_service number release date index number ---------------------------------------------------------- ------------------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------ - id no ----------------- telephone number --------------------- refer reply to cc ita b05 plr-117333-10 date date corporation -------------------------------- taxpayer ------------------ other shareholder ------------------ successor ---------------------------------------------- llc --------------------------------------- former lessee ------------------------------------- agency ----------------------------------------- date ------------------ date ---------------------- date ------------------------- date ---------------------- date ------------------ month a -------------- state a ------------- year ------- plr-117333-10 year ------- year ------- year ------- a --- dear -------------- this letter responds to your request for a private_letter_ruling under sec_172 of the internal_revenue_code the code specifically you have requested a ruling pertaining to certain costs incurred and deductible with respect to dismantling an offshore drilling platform as well as certain other costs to the extent those deductible costs generate an nol you have requested a ruling that the portion of the nol generated by such deductible costs generates a specified_liability_loss within the meaning of sec_172 and therefore qualifies for a 10-year nol_carryback period under sec_172 you have not requested a ruling regarding whether such costs are deductible to the extent such costs are deductible you have not requested a ruling regarding the character of those deductions facts corporation was incorporated on date in state a corporation elected to be taxed as an s_corporation beginning on date throughout its history corporation engaged in the oil_and_gas exploration and production business corporation conducted these activities in the federal waters of the outer_continental_shelf ocs prior to date taxpayer and other shareholder owned percent of the stock of corporation on date other shareholder died and other shareholder’s ownership_interest in corporation was acquired by successor pursuant to state a law pursuant to state a law taxpayer was the sole beneficiary of successor with respect to the ownership_interest in corporation successor and taxpayer formed llc which was treated as a partnership for federal_income_tax purposes llc was formed to acquire the assets and business of corporation through merger for federal_income_tax purposes corporation was treated as liquidated on date as part of the merger transaction and thereafter the business formerly conducted by corporation was conducted by llc as a partnership unless provided otherwise references to sections refer to sections of the internal_revenue_code_of_1986 plr-117333-10 in year pursuant to the asset purchase agreement corporation acquired from former lessee an oil_and_gas lease the lease with respect to an area on the ocs together with certain property used to conduct oil_and_gas activities on the leased area upon acquisition of the lease corporation became the lessee under the lease with the united_states as the lessor the property acquired from former lessee included an offshore drilling platform platform used in the leased area during the period beginning in year and ending in year corporation drilled additional oil and natural_gas wells in the leased area the asset purchase agreement required corporation to remove all devices works and structures from premises no longer subject_to the lease in accordance with applicable regulations and orders within a period of one year after termination of the lease in whole or in part however with appropriate regulatory approvals the asset purchase agreement allowed corporation to maintain devices works and structures on the leased area for drilling or producing on other leases in addition pursuant to federal regulations upon the abandonment of operations at the leased area corporation was obligated to perform the following decommissioning activities to permanently plug and abandon a wells drilled from platform located on the leased property in accordance with cfr sec_250 through to remove the deck and flare boom from platform in accordance with cfr through to clear the sea floor of all other obstructions in accordance with cfr sec_250 through to remove decommissioned pipelines in accordance with cfr sec_250 through and to remove contaminated soil in accordance with cfr sec_250 for purposes of this ruling the obligations set forth above will be referred to as decommissioning liabilities as the successor to corporation llc became liable to perform these tasks when it acquired the business of corporation effective the close of business on date taxpayer acquired successor’s interest in llc and became the sole owner of llc llc is a disregarded_entity for federal_income_tax purposes llc has terminated oil_and_gas operations on the lease and does not intend to use any of the property formerly used for oil_and_gas operations on the lease in other business operations in month a llc relinquished the lease and abandoned the property llc has executed the plr-117333-10 necessary agreements with the agency and has obtained the necessary agency permits to enable it to begin undertaking the decommissioning operations listed above llc anticipates that it will incur costs to complete those tasks during its year through year taxable years for federal_income_tax purposes llc reports on the calendar_year and uses an accrual_method of accounting the submission did not contain a representation regarding the method_of_accounting used by corporation to compute its federal taxable_income law and analysis sec_172 provides that the portion of any nol that qualifies as a specified_liability_loss shall be carried back to each of the taxable years preceding the taxable_year of the loss for nols arising in taxable years ending on or after date sec_172 defines a specified_liability_loss as the sum of certain deductions to the extent taken into account in computing the nol for the taxable_year in addition to deductions associated with product_liability these deductions include any amount allowable as a deduction under chapter of the code other than under sec_468 or sec_468a which is in satisfaction of a liability under a federal or state law requiring-- i the reclamation of land ii the decommissioning of a nuclear power plant or any unit thereof iii the dismantlement of a drilling platform iv the remediation of environmental contamination or v a payment under any workers compensation act within the meaning of sec_461 for this purpose a liability shall be taken into account only if-- i the act or failure to act giving rise to such liability occurs at least years before the beginning of the taxable_year the 3-year act or failure to act requirement and ii the taxpayer used an accrual_method of accounting throughout the period or periods during which such act or failure to act occurred the amount of the specified_liability_loss for any taxable_year cannot exceed the amount of the nol for the taxable_year in order for a liability to qualify as a specified_liability_loss the act or failure to act giving rise to such liability must occur at least years before the beginning of the taxable_year it is the position of the service that the final act or failure to act in the chain of causation leading to the creation of a given liability from which it can be plr-117333-10 determined that the taxpayer has a legal_obligation qualifies as the act or failure to act for sec_172 purpose sec_2 legal liability for decommissioning obligations occur when such liabilities accrue as specified in cfr sec_250 pursuant to that regulation decommissioning liabilities accrue when the party to be charged with liability performs any of the following activities a drills a well b installs a platform pipeline or other facility c creates an obstruction to other users of the ocs d is or becomes a lessee or the owner of operating rights of a lease on which there is a well that has not been permanently plugged according to this subpart a platform a lease_term pipeline or other facility or an obstruction e is or becomes the holder of a pipeline right-of-way on which there is a pipeline platform or other facility or an obstruction or f re-enters a well that was previously plugged according to this subpart under paragraph d and e above when corporation acquired the lease from former lessee in year corporation became liable to remove the platform and any pipeline or other facility that former lessee had previously installed in the leased area corporation also became liable to plug any unplugged wells previously drilled by former lessee and also became liable to remove any other obstruction to other users of the ocs that former lessee may have placed in the leased area in the case of an s_corporation sec_1366 provides that the character of any item_of_income loss deduction etc included in a shareholder's pro_rata share shall be determined as if such item were realized directly from the source from which realized by the corporation or incurred in the same manner as incurred by the corporation consequently had corporation not liquidated and had it incurred the costs at issue if notice_2005_20 2005_1_cb_635 q a provides as follows q-4 which act in the chain of causation leading to the creation of a liability constitutes the act or failure to act giving rise to that liability within the meaning of former sec_172 a-4 the act or failure to act resulting in the establishment of a legal liability constitutes the act or failure to act within the meaning of former sec_172 for example in the case of a trespass the act of trespassing constitutes the relevant act for purposes of former sec_172 not the judgment of a court plr-117333-10 corporation had satisfied the 3-year act or failure to act requirement the shareholders of corporation would also have been treated as satisfying that requirement however under the facts of this case corporation merged into llc for federal_income_tax purposes corporation is treated as liquidating that is distributing all of its assets and liabilities to its shareholders followed by the contribution of those assets and liabilities by the shareholders to a partnership sec_301_7701-3 nonetheless in our view for sec_172 purposes the act giving rise to the decommissioning liabilities at issue still occurs when such liabilities accrue as specified in cfr sec_250 because corporation acquired the lease in year and because the liabilities at issue will be satisfied in year through year the 3-year act or failure to act requirement will be satisfied with respect to any decommissioning liabilities that accrued within the meaning of cfr sec_250 d through e for the period after corporation acquired the lease taxpayer failed to specify when corporation took actions resulting in legal liability for decommissioning obligations however to the extent any decommissioning liability accrues within the meaning of cfr sec_250 at least years before the beginning of the taxable_year in which the liability is satisfied the 3-year act or failure to act requirement of sec_172 is satisfied with respect to that liability because the decommissioning liabilities at issue are imposed under federal regulations the liabilities constitute liabilities under federal_law within the meaning of sec_172 the next question is whether those liabilities fall within the five specified types of liabilities set forth in sec_172 i - v costs incurred to dismantle platform as well as the associated deck and flare boom constitute costs in satisfaction of a liability to dismantle a drilling platform within the meaning of sec_172b i iii land reclamation is not a well defined term land reclamation may include re- establishing dry land from land that has become submerged however that is not the type of land reclamation that congress had in mind when it enacted sec_172 by using the term land reclamation congress intended to cover costs of restoring land to its pre-disturbed state for example mining reclamation costs by using the term land reclamation rather than attempting to list specific types of land reclamation activities congress ensured that it would not unintentionally omit a type of land reclamation activity for which it would have provided relief had it considered it although placing subsurface land into its pre-disturbed state may not have been specifically contemplated by congress when it enacted the statute such costs fall within the class of costs for which congress generally intended relief therefore costs plr-117333-10 incurred to restore subsurface land to its pre-disturbed state qualify as land reclamation costs costs to remediate environmental contamination may include not only costs to remove pollutants from the environment but also costs to prevent such pollutants from entering the environment in the first place consequently costs incurred to seal pipelines in place to prevent hydrocarbon residues from escaping into the environment qualify as environmental remediation costs as well as cleanup costs to remove hydrocarbons that have escaped into the ocean therefore costs incurred to permanently plug and abandon the a wells drilled on the leased premises in accordance with cfr sec_250 through constitute costs incurred in satisfaction of a liability to remediate environmental contamination within the meaning of sec_172 likewise costs incurred to remove contaminated soil in accordance with cfr sec_250 constitute costs incurred in satisfaction of a liability to remediate environmental contamination within the meaning of sec_172 costs incurred to remove decommissioned pipelines in accordance with cfr sec_250 through constitute costs incurred in satisfaction of a liability to remediate environmental contamination within the meaning of sec_172 such costs also constitute costs incurred in satisfaction of a liability requiring the reclamation of land within the meaning of sec_172 finally costs incurred to clear the sea floor of all other obstructions in accordance with cfr sec_250 through constitute costs incurred in satisfaction of a liability requiring the reclamation of land within the meaning of sec_172 to the extent those costs serve to prevent or remove environmental contamination they also constitute costs incurred in satisfaction of a liability to remediate environmental contamination within the meaning of sec_172 to generate a specified_liability_loss such costs must be deductible and must be taken into account in computing an nol we are not ruling nor have we been asked to rule on whether such costs are deductible or whether if such costs are deductible what the character of those deductions are however provided that corporation used the accrual_method of accounting in taking decommissioning liabilities into account and provided that the liabilities at issue all have accrued within the meaning of cfr sec_250 at least years before the beginning of the taxable_year in which such liabilities are satisfied then we rule as follows costs incurred and deductible in satisfaction of the decommissioning liabilities set forth above that generate an nol constitute a specified_liability_loss within the meaning of sec_172 and therefore qualify for a 10-year carryback period pursuant to sec_172 plr-117333-10 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely william a jackson chief branch income_tax accounting


department of the treasury internal_revenue_service washington d c jul tax_exempt_and_government_entities_division u i l attn legend school a congregation s state b church m authority a authority b authority c diocese h office a province p city r plan x page plan y dear this is in response to your letters dated date date date date and date submitted on your behalf by your authorized representative in which you request a ruling that plans x and y are church plans described in sec_414 of the internal_revenue_code_of_1986 as amended the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested school a was school a is a not-for-profit school founded by congregation s in originally incorporated on december and is maintained as a domestic nonprofit corporation under the laws of state b school a was established as a church m school for girls in kindergarten through grade school a is committed to promoting a christian environment and fostering a learning experience that provides students with an intellectual physical aesthetic spiritual and moral education in such christian environment school a’s goal is to provide students with a spiritual foundation for the development of christian values this mission is affirmed in the by-laws of school a which charges school a’s officers with the obligation to ensure that school a maintains a church m identity and that school a's officers and students live out the charism of congregation s school a organization described in sec_501 of the code and exempt from tax under sec_501 of the code is listed in the official church m directory and is an school a is led by the head of school a who oversees school a’s administration as is well as the educational and religious programs at school a the head of school a selected by and reports to the 19-person board_of directors the board_of directors’ which is comprised of persons within congregation s the board_of directors is ultimately controlled by and under the authority of the members of school a the members’ the members approve the nomination of the head of school a also of the directors are selected and appointed by the members the other directors are nominated and elected by the board_of directors subject_to the members’ approval of the nominees the board_of directors oversees school a’s finances and non- religious non-academic operations and reports to the members the members consist of four sisters belonging to province p and one priest of congregation s the four sisters hold all the member offices with authority a who resides in state b being the president of the members authority a reports to and is under the direct authority of authority b which is headquartered in city r authority b led by authority c who retains certain powers as defined by canon law school a is required to abide by canon law and the rules and regulations of church m meaning that all of school a’s teachings must be in line with church m doctrine the bishop of is page diocese h a part of the church m in state b controls the teaching of religion and matters of faith at school a through office a school a has established and maintains two benefit plans for the exclusive benefit of eligible employees of school a plan x effective january is a tax-sheltered annuity arrangement that permits both employee elective_deferrals and employer matching_contributions and is intended to meet the requirements of sec_403 of the code plan y effective january1 a provides fully insured medical dental group long term disability and group life and accidental death and dismemberment coverage to all eligible employees under plan y is a health and welfare arrangement school an administrative committee the committee for plans x and y was informally established and has been formally established and reaffirmed on december the committee is comprised of the head of school a the business manager of school a and the human resources manager of school a the principal purpose of the committee is to administer plans x and y the committee is appointed by and reports to school a’s officers and board_of directors the school has never made a code sec_410 election on behalf of either of the plans and no statement to this effect has ever been filed with the irs in accordance with revproc_2011_44 2011_39_irb_446 notice to employees with reference to plan x was provided on april this notice explained to participants of plan x the consequences of church_plan status plan y isa health and welfare arrangement and is not subject_to revproc_2011_44 based on your submission and the above facts and representations you request a ruling that plan x and plan y are church plans under sec_414 of the code sec_414 of the code generally 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 sec_414 of the code provides in part that the term church_plan does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such 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 of the code or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 of the code or sec_414 of the code or their beneficiaries 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 page 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 of a church or a convention or association of churches to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless 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 of the code and which is controlled by or associated with a church or a 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 of the code 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 the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches revproc_2011_44 r b supplements the procedures for requesting a letter_ruling under sec_414 of the code relating to church plans the revenue_procedure requires that plan participants and other interested persons receive a notice in connection with a letter_ruling request under sec_414 of the code for a qualified_plan requires that a copy of the notice be submitted to the irs as part of the ruling_request and provides procedures for the irs to receive and consider comments relating to the ruling_request from interested persons in order for an organization that is not itself a church or a convention or association of churches to have a qualified church_plan it must establish that its employees are employees or deemed employees of a church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization’s contro by or affiliation with a church_or_convention_or_association_of_churches employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code and is controlled by or associated with a church_or_convention_or_association_of_churches in addition in order to be a church_plan the administration or funding or both of the plan must be 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 or funding of the plan and must also be controlled by or associated with a church_or_convention_or_association_of_churches in view of the common religious bonds between school a and church m the inclusion of school a in the official church m directory and the indirect control of school a by church m through congregation s and province p we conclude that school a is associated with a church_or_convention_or_association_of_churches within the meaning of page sec_414 of the code that the employees of school a meet the definition of employee under sec_414 of the code and that they are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches the administrative control of plan x and plan y is vested in the committee the committee is controlled by and shares common religious bonds with church m through its control by school a’s officers the sole purpose of the committee is to have exclusive authority to control and manage the operation and administration of plan x and plan y thus the administration of plan x and plan y satisfies the requirements regarding church_plan administration under sec_414 of the code accordingly in regard to your ruling_request we conclude that plan x and plan y are church plans as defined in sec_414 of the code this letter expresses no opinion as to whether plan x requirements for qualification under sec_403 of the code or plan y satisfies the requirements of sec_419 of the code 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 by others as precedent 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative page if you have any questions regarding this letter please contact please address all correspondence to se t ep ra t3 sincerely yours zo ilo laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


internal_revenue_service number release date index number ---------------------- ------------------------------------------------------- -------------------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc intl b02 plr-127891-12 date date ty ------- ty ------- legend shareholder ------------------------------------------------------- ein ---------------- management company --------------------------------------------- fc ---------------------------------- state ------------- x -- y --- z ----- country ---------- year ------- year ------- year ------- year ------- year ------- accounting firm ----------------------------------------- dear ---------------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for shareholder to make a retroactive qualified_electing_fund plr-127891-12 qef election under sec_1295 of the internal_revenue_code and sec_1_1295-3 with respect to shareholder’s investment in fc the ruling contained in this letter is based upon information and representations submitted on behalf of shareholder by its authorized representative 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 this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts shareholder is a limited_partnership organized under the laws of state shareholder is owned by x partners one of which is a limited_partnership owned by y taxable individuals during year shareholder purchased shares of fc which is a corporation organized under the laws of country during year shareholder disposed of a significant portion of its fc shares during year shareholder disposed of its remaining fc shares fc actively develops and uses certain technology to recover drillable oil fc employs approximately z people who are engaged in exploration and extraction activities and the management and administration functions associated with these activities according to publicly available information including fc’s securities filings fc generally does not engage in investment activities with the exception of the short-term investment of working_capital pending its deployment although fc conducts an active exploration and extraction business its holdings of significant amounts of cash caused it to qualify as a pfic for its year through year tax years for the year through year tax years management company the management company providing services to shareholder engaged accounting firm for services including tax_return preparation services for shareholder accounting firm employs experienced tax professionals and was engaged to prepare shareholder’s partnership tax returns accounting firm advised shareholder with regard to federal_income_tax matters regarding shareholder’s operations and investments shareholder relied on accounting firm to provide advice with respect to filing and reporting requirements in general as well as any elections or statements that would be necessary to elect a specific tax treatment the sale of the fc interest in year was reported as capital_gain as the shareholder relied on the advice of accounting firm for preparation of the partnership returns information received by management company with respect to shareholder’s initial investment in fc did not indicate that fc was a pfic management company intended to invest in an active development company management company shareholder and plr-127891-12 fc itself considered fc to be engaged in an active business and had no reason to believe that fc could be categorized as a pfic as part of enhanced tax procedures implemented during year accounting firm tested fc during the year annual process of reviewing and monitoring investments for pfic purposes at that time accounting firm completed its review of fc for the prior years and the pfic testing indicated that fc was a pfic from year through year management company engaged accounting firm on shareholder’s behalf to advise on the federal tax consequences of fc’s pfic status based on accounting firm’s determination regarding the pfic status of fc management company requested that accounting firm begin the process of preparing a request for relief shareholder has submitted an affidavit under penalties of perjury that describes the events that led to its failure to make a qef election with respect to fc by the election due_date including the role of accounting firm shareholder also submitted an affidavit from accounting firm which describes accounting firm’s engagement and responsibilities and the advice concerning the tax treatment of fc that it provided to shareholder shareholder represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election with respect to fc for year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if plr-127891-12 the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of the failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with shareholder’s ruling_request we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to fc for year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election 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 private_letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this plr-127891-12 requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely jeffery g mitchell branch chief branch international cc


t c memo united_states tax_court e j harrison sons inc petitioner v commissioner of internal revenue respondent docket no filed date philip garrett panitz for petitioner jonathan h sloat for respondent supplemental memorandum opinion halpern judge this case is before us on remand from the u s court_of_appeals for the ninth circuit for reconsideration of a question of reasonable_compensation see 138_fedappx_994 9th cir affg part revg part and remanding tcmemo_2003_239 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure background the single question before us is how much of the salary paid_by petitioner to myra i harrison mrs harrison and deducted by petitioner on its federal_income_tax returns for its and taxable years the audit years was not reasonable in amount and therefore not deductible as an ordinary and necessary business_expense see sec_162 sec_1_162-7 income_tax regs petitioner a california corporation is in the business of waste pickup and disposal during the audit years mrs harrison was a member of petitioner’s board_of directors indeed its chairman an officer of petitioner president and petitioner’s principal_shareholder mrs harrison’s three sons myron james and ralph harrison were the remaining members of the board and the only other officers of petitioner for the audit years petitioner’s officers received and petitioner deducted compensation in the following amounts year mrs harrison myron james ralph dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number when this case was before us originally respondent argued that petitioner’s deductions for compensation paid to mrs harrison during the audit years should be reduced on account of the unreasonableness of her salary as follows year amount deducted allowed disallowed amount amount dollar_figure big_number big_number dollar_figure dollar_figure big_number big_number big_number big_number petitioner argued that all amounts paid to her during the audit years were reasonable and therefore were deductible in full we concluded that petitioner may deduct the following amounts as compensation_for services performed by mrs harrison during the audit years year amount dollar_figure big_number big_number we were persuaded that during the audit years petitioner was a company run by mrs harrison’s sons her role in the operations of the company had always been secondary and her titles of president and chairman of the board were titular and not reflective of her status in the company we found that her role as an essentially compliant member of petitioner’s board_of directors justified her receipt of only a small fraction of the compensation paid to her during the audit years we considered apposite respondent’s analogy of mrs harrison’s activities on petitioner’s behalf to the duties performed by an outside board chair and we used that model to determine reasonable_compensation for her services the court_of_appeals affirmed our application of the five- factor test articulated in 716_f2d_1241 9th cir revg tcmemo_1980_282 to determine reasonable_compensation e j harrison sons inc v commissioner supra pincite although it reversed our finding of what was reasonable_compensation for mrs harrison id pincite it affirmed our determination that some portion of mrs harrison’s salary should be disallowed as unreasonable_compensation id pincite with respect to mrs harrison’s role in the company the court_of_appeals reversed our finding that mrs harrison’s role was secondary and equivalent to that of a typical outside board chair id pincite it found that her role was equal to or greater than the roles of other officers id it instructed us that the reasonableness of her compensation should have been evaluated based on her actual role as president of the corporation id it further instructed us at the very least mrs harrison’s reasonable_compensation should not have dropped below that of her sons during the audit years id the court_of_appeals remanded the case to us for a redetermination of reasonable_compensation in a manner consistent with its discussion discussion since the court_of_appeals affirmed our determination that a portion of mrs harrison’s salary should be disallowed as unreasonable and instructed us that it was not unreasonable for petitioner to have paid her at least as much as it paid her sons during the audit years we would not be amiss to find that she was reasonably compensated at some level between her actual compensation and the compensation paid her sons in its original brief petitioner states its position as follows it is e j harrison sons sic position that the services rendered by myra harrison including her guaranty of company notes merited the compensation she received and was reasonable under the independent investor analysis set forth in elliotts inc v commissioner of internal revenue supra in elliotts inc v commissioner supra pincite the united_states court_of_appeals for the ninth circuit identified the factors that identify what is reasonable_compensation under sec_162 among those factors is a comparison of the employee’s salary with those paid_by similar companies for similar services viz an external comparison id pincite on brief under the heading external comparison petitioner states the unique nature of the services provided by myra harrison makes an external comparison extremely difficult as the public face of a company dependent on public contracts myra harrison could not be replaced at any price following the remand of this case to us by the united_states court_of_appeals for the ninth circuit petitioner moved the court to hold an evidentiary hearing limited to the external comparison factor of the elliotts test so that the court could properly evaluate that factor respondent objected to the motion and we denied it in our order disposing of the motion we agreed with respondent that having eschewed such testimony at trial petitioner would not be prejudiced by being denied the opportunity to supplement the record with additional expert testimony addressed at external comparisons we added that granting the motion would undermine principles of judicial economy and the need for finality finally we stated that we were convinced by respondent that he would be prejudiced if forced to expend additional resources to rebut any additional testimony petitioner bears the burden_of_proof and we have little if anything in the way of guidance from petitioner to aid us in fixing a number for the reasonable amount of compensation paid to mrs harrison for the audit years in its supplemental brief on remand petitioner suggests that we adopt the perspective of a hypothetical independent investor to determine whether such an investor would be satisfied with his return on equity after the compensation in issue was paid see elliotts inc v commissioner supra pincite labelgraphics inc v commissioner tcmemo_1998_343 affd 221_f3d_1091 9th cir petitioner argues that its return on equity was a very solid during the audit years and that return is consistent with the average rate of return of comparably sized companies testified to by the irs’s expert accordingly it continues a n independent investor would have been very satisfied with the return on equity yielded by petitioner during the and fiscal years while all of that may be true it does not necessarily support petitioner’s conclusion that reasonable_compensation for mrs harrison for the audit years is as follows year amount dollar_figure big_number big_number certainly the corporation's rate of return on equity would be relevant to a hypothetical independent investor in assessing the reasonableness of compensation in a small_corporation where petitioner calculates returns on equity of and percent for petitioner’s and fiscal years respectively and a mean return on equity for those years of dollar_figure percent computed by reducing mrs harrison’s compensation_for petitioner’s fiscal_year to an amount that would make petitioner’s return on equity for that year percent and computed for a loss_year by reducing her compensation to dollar_figure an amount approximately equal to the amount_paid her son james excessive_compensation would noticeably decrease the rate of return elliotts inc v commissioner f 2d pincite it would aid in the investor’s assessment of whether the total compensation package paid_by the corporation to all of its employees is reasonable if like petitioner however the corporation has more than one employee its rate of return on equity tells us nothing precise about the reasonableness of the distribution of compensation among those employees moreover petitioner ignores the following caveat in elliotts to the application of the independent_investor_test a relevant inquiry is whether an inactive independent investor would be willing to compensate the employee as he was compensated the nature and quality of the services should be considered as well as the effect of those services on the return the investor is seeing on his investment id by agreeing that a portion of mrs harrison’s salary should be disallowed as unreasonable_compensation the court_of_appeals for the ninth circuit implicitly agrees with our finding that an independent investor in petitioner would object to the size of mrs harrison’s compensation e j harrison sons inc v commissioner tcmemo_2003_239 considering the rulings and instructions of the court_of_appeals we find that the amounts of reasonable_compensation paid to mrs harrison for the audit years are as follows year amount dollar_figure big_number big_number based on the foregoing conclusion decision will be entered under rule


internal_revenue_service number release date index numbers ------------------------ ------------------- ------------------------------- ----------------------------------- --------------------------------------- legend 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-131059-08 date date parent -------------------------------------------------- ------------------------- subsidiary -------------------------------------------------- ------------- cpa -------------------------- items ------------------------------------------------------------- ------------------------------------ date date ------------------- --------------------------- dear ---------------- this ruling is in reply to the letter submitted by parent’s authorized representative cpa requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations for parent to file a copy of a form_3115 application_for change in accounting_method with the internal_revenue_service irs national_office this request was made in accordance with sec_301_9100-3 on date parent timely filed its consolidated federal_income_tax return for the tax_year ending date along with the original of the form_3115 filed under revproc_2002_9 2002_1_cb_32 parent filed the form_3115 on behalf of one of its subsidiaries plr-131059-08 subsidiary so that subsidiary could change its accounting_method for its inventory of items however because cpa inadvertently failed to submit the copy no copy of parent’s form_3115 was filed with the irs national_office by the due_date of date revproc_2002_9 provides the procedures by which a taxpayer may obtain automatic consent to change certain accounting methods a taxpayer complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner to change the taxpayer's accounting_method under sec_446 of the internal_revenue_code and the income_tax regulations thereunder section a of revproc_2002_9 provides that a taxpayer changing an accounting_method pursuant to revproc_2002_9 must complete and file a form_3115 in duplicate the original must be attached to the taxpayer's timely filed including extensions original federal_income_tax return for the year_of_change and a copy with signature of the form_3115 must be filed with the irs national_office no earlier than the first day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making 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 evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly an extension of time is hereby granted for parent to file the necessary copy of the form_3115 with the irs national_office this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_3115 when it is filed except as specifically ruled upon above no opinion is expressed or implied concerning the federal_income_tax consequences arising from parent’s activities specifically we express no opinion concerning whether parent is qualified to file the plr-131059-08 relevant form_3115 under revproc_2002_9 or that it otherwise meets the requirements of that revenue_procedure pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to parent’s authorized representative this ruling is directed only to parent who requested it sec_6110 provides that it may not be used or cited as precedent sincerely roy hirschhorn acting chief cc ita associate chief_counsel ita


internal_revenue_service number release date index number ------------------------ ---------------------------------- ------------------------------------ ---------------------------- department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-154547-06 date date ---------------------------------- ---------------------- x -------------------------------------------------- date date a ----------------------------------------------------- trust --------------------------------------------------- dear ---------------- -------------------- ----------------- ---------------------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code x elected to be taxed as an s_corporation effective date on date trust facts became a shareholder of x however a the income_beneficiary of trust did not timely file the appropriate election under d as a result of the failure_to_file the election x’s s_corporation_election terminated on date x represents that there was no intent to terminate x s s_corporation_election and that the failure_to_file timely the qsst elections for trust was not motivated by tax plr-154547-06 avoidance or retroactive tax planning x also represents that since date and thereafter trust has complied with the requirements under sec_1361 which defines a qsst x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst's beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst's s_corporation stock to which the election under sec_1361 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a plr-154547-06 failure to meet the requirements of sec_1361 b or to obtain shareholder consents the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in ineffectiveness steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the ineffectiveness the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary conclusion that the termination of x's subchapter_s_election on date was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided that the a files a qsst election with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the qsst election based solely on the facts submitted and the representations made we conclude except as specifically set forth above we express no opinion concerning the in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer s requesting it sec_6110 of federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be treated as a qsst the code provides that it may not be used or cited as precedent letter is being sent to your representative the rulings contained in this letter are based upon information and plr-154547-06 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely david r haglund senior technician reviewer office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for ' purposes


office_of_chief_counsel department of the treasury internal_revenue_service washington d c date conex-155481-09 uil number info release date --------------------------- -------------------------- -------------------- --------------------------------------- dear ----------------- i am responding to the letter dated date received by the commissioner of the internal revenue on date from your group --------------------------- signed by you you wrote to president obama and secretary geithner about ---------------------- -------------------- referencing the internal_revenue_service irs the letter specifically requested consideration and tax relief from the irs for ----------------------------- as was granted by the irs to ponzi scheme investors on date sec_165 of the internal_revenue_code allows a deduction for losses sustained during the taxable_year and not compensated by insurance or otherwise and is the provision applicable to victims of ponzi schemes for individuals sec_165 allows a deduction for losses_incurred in a transaction entered into for profit and sec_165 allows a deduction for certain losses not connected to a transaction entered into for profit including theft losses under sec_165 a theft_loss is sustained in the taxable_year the taxpayer discovers the loss for federal_income_tax purposes theft is a word of general and broad connotation covering any criminal appropriation of another’s property to the use of the taker including theft by swindling false pretenses and any other form of guile 232_f2d_107 5th cir sec_1_165-8 of the income_tax regulations cited in revrul_2009_9 2009_14_irb_735 date revproc_2009_20 2009_14_irb_749 date release date date the relief provided to ponzi scheme investors provides an optional safe_harbor treatment for taxpayers that experienced losses in certain investment arrangements discovered to be criminally fraudulent the character of an investor’s loss ordinary or capital related to fraudulent activity depends in part on the nature of the investment for example a loss that is sustained on the worthlessness or disposition of stock acquired on the open market for investment is a capital_loss even if conex-155481-09 the decline in value of the stock is attributable to fraudulent activities of the corporation’s officers or directors because the officers or directors did not have the specific intent to deprive the shareholder of money or property revrul_77_17 1977_1_cb_44 cited in revrul_2009_9 a loss from an investment in a so-called ponzi scheme on the other hand in which the party perpetrating the fraud receives cash or property from investors purports to earn income for the investors and reports to the investors income amounts that are wholly or partially fictitious is treated as an ordinary_loss because the perpetrator of the ponzi scheme did have the specific intent to deprive the investor of money or property revrul_2009_9 the safe_harbor provided in revproc_2009_20 describes how a taxpayer can qualify for a theft_loss from investment arrangements discovered to be criminally fraudulent generally a depositor in a financial_institution would not qualify for a theft_loss under sec_165 revrul_77_383 1977_2_cb_66 the relationship between the financial_institution and the depositor is that of a debtor and a creditor and thus the loss usually is a nonbusiness_bad_debt loss under sec_166 deductible as a short-term_capital_loss revrul_77_383 see also perrotto v commissioner tcmemo_1977_99 relationship between a bank and its typical depositor of funds is that of a debtor and a creditor economic loss therefore comes within the bad_debt provisions of sec_166 sandquist v commissioner tcmemo_1978_281 financial difficulties of bank may have arisen by reason of an embezzlement or theft but depositor’s relationship with bank was that of a creditor any loss sustained comes within sec_166 smith v commissioner tcmemo_1979_76 no evidence presented showing credit_union bankruptcy caused by a casualty or theft but even if so the relationship between a credit_union and its typical depositor of funds is that of a debtor and a creditor therefore the theft_loss safe_harbor relief provided to ponzi scheme victims in revproc_2009_20 would be inapplicable there may be however other relief available which could permit a loss to be treated as an ordinary_loss under sec_165 sec_165 provides for treatment of certain losses in insolvent financial institutions if the provisions of the subsection are met in adding sec_165 to the code in congress noted that under then-current law a loss experienced with respect to a deposit is treated as any other bad_debt_loss and is therefore a capital_loss under sec_166 conf_rep no 99th cong 2d sess reprinted in 1986_3_cb_337 congress added sec_165 which permits qualified individuals to elect to deduct the losses on deposits in qualified financial institutions as casualty losses in the year in which the amount of such loss can be reasonable estimated subject_to the generally applicable limitations on the deductibility of casualty losses conex-155481-09 i hope this information is helpful please contact ----------------------at --------------------if we can be of further assistance sincerely by _________________________ thomas d moffitt chief branch income_tax and accounting