t c summary opinion united_states tax_court domell t moore petitioner v commissioner of internal revenue respondent docket no 23637-05s filed date michael b van landingham and kirby mitchell specially recognized for petitioner michael t sargent and j craig young for respondent gustafson judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 sec_1unless otherwise indicated all citations of sections refer to the internal_revenue_code_of_1986 u s c in effect for the tax_year at issue and all citations of rules refer to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case the internal_revenue_service irs determined a dollar_figure deficiency in petitioner domell t moore’s federal_income_tax the issues for decision are i whether mr moore is entitled to file as a head_of_household under sec_2 and ii whether mr moore is entitled to an earned_income_tax_credit under sec_32 the record shows that mr moore is not entitled to these tax benefits background this case was submitted fully stipulated pursuant to rule reflecting the parties’ agreement that the relevant facts could be presented without a trial the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time that he filed his petition mr moore resided in south carolina mr moore’s spouse and living arrangements during mr moore was married to lakisha moore mr moore was also married to lakisha moore during the previous year but according to his amended petition he and his spouse lived apart for to months in and did not get back together until april of during mr moore and his spouse lived together at the same address from april of through the end of that tax_year in his amended petition mr moore alleges that he also lived with his stepchildren in the stipulated record does not make clear whether mr moore’s stepchildren actually lived with him for any period during but respondent’s arguments seem to assume that they did and we will so assume form_1040 mr moore timely filed his form_1040 u s individual_income_tax_return as a head_of_household on that form_1040 he claimed i two qualifying children for purposes of the earned_income_tax_credit and ii an earned_income_tax_credit of dollar_figure in his amended petition mr moore refers to his claimed qualifying children as his stepchildren 2since mr moore filed as a head_of_household it necessarily follows that he failed to elect married_filing_jointly status see chiosie v commissioner tcmemo_2000_117 furthermore sec_6013 bars an election to file an amended joint_return under sec_6013 after there has been mailed to either spouse with respect to such taxable_year a notice_of_deficiency under sec_6212 if the spouse as to such notice files a petition with the tax_court within the time prescribed in sec_6213 since mr moore has filed a petition with this court in response to a notice_of_deficiency he is barred from electing to file an amended joint_return therefore mr moore and his spouse filed separately and not jointly and he may not make a remedial election to change that fact notice_of_deficiency on date the irs mailed mr moore a statutory_notice_of_deficiency for tax_year that determined mr moore’s proper filing_status was married_filing_separately disallowed the earned_income_tax_credit and determined a deficiency of dollar_figure in response to the notice_of_deficiency mr moore petitioned this court pursuant to sec_6213 to redetermine this deficiency discussion i burden_of_proof generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 503_us_79 290_us_111 deductions and credits are a matter of legislative grace and the taxpayer bears the burden of proving that he is entitled to any deduction or credit claimed rule a 308_us_488 new colonial ice co v 3under sec_7491 the burden_of_proof may shift from the taxpayer to the commissioner if the taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s tax_liability mr moore has neither claimed nor shown that he satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent with respect to any factual issue mr moore therefore bears the burden_of_proof see rule a helvering 292_us_435 likewise the taxpayer is obliged to demonstrate entitlement to an advantageous filing_status such as head_of_household smith v commissioner tcmemo_2008_229 ii head_of_household filing_status sec_1 of the code provides the various rates at which income_tax is imposed with inter alia different rates for married individuals filing separately see sec_1 and heads of households see sec_1 mr moore filed his form_1040 as a head_of_household sec_2 defines head_of_household as pertinent here sec_2 provides that an individual shall be considered a head of a household if the individual is not married at the close of his tax_year sec_2 provides that an individual shall be treated as not married at the close of the tax_year if the individual is so treated under sec_7703 sec_7703 provides that an individual who is married shall not be considered as married if four requirements are satisfied i the individual files a separate tax_return ii the individual maintains a household that is for more than one-half of the taxable_year the principal_place_of_abode of a child for whom the taxpayer would be entitled to claim a dependency_exemption iii the individual pays more than half the cost of maintaining the household for the tax_year and iv the individual’s spouse is not a member_of_the_household during the last months of the tax_year here the pivotal issue is whether mr moore and his spouse were living apart in separate households for purposes of sec_2 and we have repeatedly held that living apart required geographical separation and living in separate residences see 118_tc_373 the record establishes that mr moore and his spouse resided at the same address from april of through the end of that tax_year ie they resided in the same geographical area and at the same residence for more than the last months of the tax_year we therefore hold that mr moore did not live apart from his spouse in accordingly mr moore is not considered unmarried under sec_7703 and his filing_status is necessarily married_filing_separately not head_of_household respondent’s determination on this issue is sustained iii earned_income_tax_credit sec_32 provides for an earned_income_tax_credit however one of the requirements for the credit is that the taxpayer if married must file a joint_return with his or her spouse see sec_32 because mr moore is not considered 4the amount of the credit is determined according to percentages that vary depending on whether the taxpayer has one qualifying_child two or more qualifying children or no qualifying children sec_32 the credit is also subject_to a limitation based on adjusted_gross_income sec_32 unmarried pursuant to sec_7703 see supra part ii and because he and his spouse filed separately and not jointly he is not entitled to claim an earned_income_tax_credit for see chiosie v commissioner tcmemo_2000_117 respondent’s determination on this issue is sustained to reflect the foregoing decision will be entered for respondent


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 b01 plr-152109-05 date date --------------------- ------------------------ ------------------------------- legend legend x -------------------------------------------------- country d dear --------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152109-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides 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 that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152109-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code 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 mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


internal_revenue_service department of the treasur index nos dollar_figure -0 washington dc person to contact telephone number refer reply to cc ebeo - plr-103332-98 date sep plan trust dear in response to your request for a ruling dated on behalf of x concerning a nonqualified this is december deferred_compensation agreements the plan and a_trust agreement the trust established to provide benefits for designated key management employees the participants of x and any subsidiary or other affiliate of x who adopts the plan x represents that the plan constitutes an unfunded nonqualified_deferred_compensation_plan that benefits certain designated employees who are within a select group of key management or highly compensated employees represented that the obligation of xx adopts the plan to pay benefits under the plan constitutes a mere promise to pay plan benefits and that any participant or beneficiary will remain no more than an unsecured general_creditor of x or the adopting affiliate is also it or any affiliate of x that x established the plan to allow participants to realize the retirement benefits they otherwise would to able to attain under the qualified cash or deferred profit-sharing_plan the qualified_plan of x but for the limits on contributions and benefits applicable to the qualified_plan under the internal_revenue_code_of_1986 the plan provides for payment of benefits upon termination of employment the right of a participant or his beneficiary to receive payments under the plan may not be anticipated alienated sold assigned transferred pledged encumbered attached or garnished by creditors of such participant or beneficiary the trustee will establish x established the trust to hold assets to provide x and any adopting affiliate with a source of funds to pay obligations to the participants under the plan separate bookkeeping accounts to account for the contributions of x and any adopting affiliates the account of any individual employer will be subject_to the claims of the general creditors of the individual employer but will not be subject_to the claims of the general creditors of any other employer having assets held by the trust conforms to the model trust contained in revproc_92_64 including the order in which the sections of the model trust language appear inconsistent with or conflicts with trust agreement the trust does not contain any language that is the assets held by the trust in the language of the model the trust under the plan and the trust the interest of a participant or beneficiary in the trust estate shall be no greater than the interest of any general unsecured creditor of x sec_83 of the internal_revenue_code provides that the of the fair_market_value of property transferred excess if any in_connection_with_the_performance_of_services over the amount_paid if any of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture for the property is includible in the gross_income sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 the term property includes real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors for example in a_trust or escrow account sec_402 of the code provides that contributions made by an employer to an employees' trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 sec_1 b -1 a contributions to a nonexempt employees' trust are included as compensation in an employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee's interest in such contribution is substantially_vested as defined in the regulations under sec_83 of the regulations provides that employer sec_404 of the code provides the general deduction timing rules applicable to any plan or arrangement for the deferral of compensation regardless of the code section under which the amount might otherwise be deductible sec_404 a of the code and sec_1 a -12 b the regulations and provided that they otherwise meet the requirements for deductibility amounts of contributions or compensation deferred under a non-qualified plan or arrangement are deductible in the taxable_year in which they are paid or made available whichever is earlier pursuant to of sec_451 of the code provides that the amount of any item_of_gross_income shall be included in gross_income for the taxable_year in which the taxpayer receives it unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for in a different period sec_1_451-1 of the regulations provides that under the cash_receipts_and_disbursements_method of accounting amounts are included in gross_income when actually or constructively received sec_1_451-2 of the regulations provides that income is constructively received in the taxable_year during which it credited to the taxpayer's account or set apart for him or otherwise made available so that he may draw upon it at any time or so that he could have drawn upon it during the taxable_year if notice of intention to withdraw had been given however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions is under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee's sole benefit curiam 194_f2d_541 c b a result of the employer's purchase of an insurance_contract to provide a source of funds for deferred_compensation because the’ insurance_contract is the employer's asset subject_to claims of the employer's creditors sproull v commissioner t c 6th cir rev an employee does not receive income a sec_244 aff'd per rul situation in revrul_72_25 c b and revrul_68_99 economic various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements situation c b co pay holds that a mere promise not represented by notes or secured in any way does not rev_rul constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting rul 1969_2_cb_106 rul c b see also rev and rev as described above under the terms of the trust assets will be placed in trust to be used to provide x and the adopting affiliates with a source of funds to assist in providing deferred_compensation benefits to the participants the trustee will establish separate bookkeeping accounts to account for the contributions on behalf of x or any other subsidiary or affiliate that adopts the plan however the trustee has the obligation to hold the trust assets and income in each bookkeeping account for the benefit of the general creditors of an individual employer in the event of that individual employer's insolvency further provides that a participant receives no beneficial_ownership in or preferred claim on the trust assets although the assets are held in trust in the event of an individual employer's insolvency the assets in that individual employer's bookkeeping account are fully within reach of that individual employer's general creditors as are any other assets of the individual employer therefore the trust sec_301_7701-4 of the procedure and administration regulations provides that generally an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_671 of the code provides that where a grantor shall be treated as the owner of any portion of a_trust under subpart e part i subchapter_j chapter of the code there shall then be included in computing the taxable_income and credits of the grantor those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be held or accumulated for future distribution to the grantor -s- sec_1_677_a_-1 of the regulations provides that under in general treated as the sec_677 of the code a grantor is owner of discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor a_trust whose income is a portion of in the or provided i that creation of trust does not cause the plan to be other than unfunded for purposes of title i employee_retirement_income_security_act_of_1974 provision of the trust requiring use of trust assets to satisfy claims of x's general creditors in the event of x's insolvency is enforceable by such creditors under federal and state law iii of duly the plan and trust are amended as proposed in your letters that the of the ii and and date we conclude that because the principal and income of the trust may the trust will be classified as a_trust within the meaning of sec_301_7701-4 of the procedure and administration regulations be applied in discharge of legal obligations of x and any adopting affiliate x and any adopting affiliates shall be treated as the owners of the trust under sec_677 of the code accordingly there shall be included in computing the taxable_income and credits of x and any adopting affiliates all items of income deductions and credits against tax of the trust sec_671 neither the creation of the trust the contribution of asset sec_2 to the trust nor the crediting of earnings on the trust assets will constitute transfers of property for purposes of sec_83 of the code or sec_1_83-3 of the regulations neither the creation of the trust the contribution of asset sec_3 to the trust nor the crediting of earnings on the trust assets will constitute a contribution to a nonexempt employees' trust under sec_402 of the code under the economic benefit and constructive_receipt_doctrine sec_4 of sec_61 and sec_451 of the code neither the adoption of the plan the creation of the trust the contributions of assets to the trust the crediting of earnings on the trust assets nor the deferral of compensation by a participant in the plan will create taxable_income for the participants or their beneficiaries under the cash_receipts_and_disbursements_method of accounting benefits payable under the plan and out of the trust will be s includible as compensation in the gross_income of the participants or their beneficiaries under the cash_receipts_and_disbursements_method of accounting only in the taxable_year or years in which such amounts are actually distributed or otherwise made available whichever is earlier x or the appropriate subsidiary or other affiliate is entitled to a deduction pursuant to sec_404 for the amounts paid or made available under the plan in the taxable_year in which such amounts are includible in the gross_income of the participants or their beneficiaries provided such amounts otherwise meet the requirements for deductibility however sec_280g of the code may limit the amount that may be deducted of the code ruling sec_2 through that relate to the trust are based on the assumption that prior deferrals under the plan did not result in constructive receipt of income or economic benefit opinion is expressed as or constructively received in the prior years to whether such deferrals were actually no this ruling is directed only to the taxpayer who requested sec_6110 of the code provides that it may not be it used or cited as precedent above no opinion is expressed as of the transaction described above under any other provision of the code in particular no opinion is expressed concerning the possible consequences of the plan's change-in-control provisions under sec_280g and sec_4999 of the code regarding the federal tax treatment of golden parachute payments plan or trust are substantially amended this ruling may not remain in effect except as specifically ruled on to the federal tax consequences moreover if the sincerely yours quad robert d patchbll assistant chief office of the associate branch one enclosure copy for sec_6110 purposes chief_counsel employee_benefits and exempt_organizations


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 b01 plr-147732-11 date date legend trust debtor date1 date2 date3 date4 date5 date6 date7 n1 court --------------------------------------------------- ------------------------ -------------------------------- ------------------------ ------------------ ------------------- --------------------------- ----------------------- --------------------------- --------------------------- --------------------------- -- -------------------------------------------------------------------------------- dear ---------- this is in response to your letter dated date and subsequent correspondence submitted on behalf of trust requesting a ruling regarding the classification of trust as a liquidating_trust under sec_301_7701-4 of the procedure and administration regulations facts the information submitted states that debtor filed a voluntary petition under chapter of the bankruptcy code in the united_states bankruptcy court on date1 debtors submitted a plan_of_liquidation the plan on date2 the bankruptcy court confirmed plr-147732-11 the plan on date3 on date4 trust was established and approved by the bankruptcy court to facilitate the liquidation of the estate trust’s initial term was for n1 years ending date5 the bankruptcy court subsequently extended trust’s term until date6 pursuant to the provisions of trust agreement trust was created for the purpose of liquidating the assets of trust with no objective to continue or engage in the conduct_of_a_trade_or_business except to the extent reasonably necessary to and consistent with the liquidating purpose of trust trust shall not receive or retain cash in excess of a reasonable amount to meet claims and contingent liabilities including disputed claims or to maintain the value of the assets during liquidation cash not available for distribution and cash pending distribution will be held in demand and time deposits such as short-term certificates of deposit in banks or other savings institutions or other temporary liquid investments such as treasury bills trust is required under the terms of trust to distribute to the beneficiaries of trust at least annually its net_income and all net_proceeds from the sale of trust’s assets except that trust may retain an amount of net_proceeds or net_income reasonably necessary to maintain the value of the property or to meet claims or contingent liabilities trust provides that the beneficiaries of trust will be treated as the grantors and deemed owners of trust it further provides the parties will value all assets transferred to trust consistently and use such values for all federal_income_tax purposes trust provides that the trustee of trust shall file tax returns as a grantor_trust pursuant to sec_1_671-4 of the income_tax regulations trust consistent with the requirements set out in revproc_94_45 1994_2_cb_684 provides that the transfer of trust assets to trust will be treated for all federal tax purposes as a deemed transfer by the debtors to the beneficiaries followed by a deemed transfer by the beneficiaries to trust to date trust has distributed substantially_all of the assets of trust to its beneficiaries trust represents that from its establishment trust has been formed and operated consistent with the conditions set out in revproc_94_45 trust represents that the remaining assets of trust include certain causes of action that are the subject of litigation that has been stayed in court pending the resolution of matters which are beyond the control of the trustee or trust accordingly it is impossible to completely liquidate trust by date6 trust requests a ruling that it will retain its status as a liquidating_trust in compliance with sec_301_7701-4 and revproc_94_45 if trust’s term is extended by the bankruptcy court until date7 law and analysis sec_671 of the internal_revenue_code provides that where it is specified in subpart e that the grantor or another person shall be treated as the owner of any portion of a plr-147732-11 trust there then shall be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust that are attributable to that portion of the trust to the extent that such items would be taken into account under chapter of the code in computing taxable_income or credits against the tax of an individual sec_1_671-4 provides that except as provided in sec_1_671-4 and items of income deduction and credit attributable to any portion of a_trust which under the provisions of subpart e sec_671 and following part i subchapter_j chapter of the code are treated as owned by the grantor or another person should not be reported by the trust on form_1041 u s income_tax return for estates trusts but should be shown on a separate statement attached to that form sec_677 provides in part that the grantor shall be treated as the owner of any portion of a_trust whether or not the grantor is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a non-adverse party or both may be distributed to the grantor or the grantor’s spouse or held or accumulated for future distribution to the grantor or the grantor’s spouse sec_301_7701-4 provides that certain organizations which are commonly known as liquidating trusts are treated as trusts for purposes of the code an organization will be considered a liquidating_trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it and if its activities are all reasonably necessary to and consistent with the accomplishment of that purpose a liquidating_trust is treated as a_trust for purposes of the code because it is formed with the objective of liquidating particular assets and not as an organization having as its purpose the carrying on of a profit-making business which normally would be conducted through business organizations classified as corporations or partnerships however if the liquidating is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned the status of the organization will no longer be that of a liquidating_trust revproc_94_45 provides the conditions under which the service will consider issuing advance rulings classifying certain trusts as liquidating trusts under sec_301_7701-4 conclusion revproc_94_45 states that the service will issue a ruling classifying an entity created pursuant to a bankruptcy plan under chapter of the bankruptcy code u s c sec_1101 et seq as a liquidating_trust under sec_301_7701-4 if certain specified conditions are met based on the information submitted and the representations made we conclude that the conditions of revproc_94_45 have been satisfied plr-147732-11 accordingly based on the representations made and the information submitted we rule that trust will be classified for federal_income_tax purposes as a liquidating_trust under sec_301_7701-4 of the regulations therefore trust will be a grantor_trust and the beneficiaries of trust will be treated as the owners of trust under sec_671 and sec_677 additionally an extension of trust’s term to date7 will not adversely affect the determination that trust is a liquidating_trust under sec_301_7701-4 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code 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 sincerely faith p colson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court edward greene petitioner v commissioner of internal revenue respondent docket no 5192-08s filed date edward greene pro_se deborah mackay for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax the four issues for decision are whether petitioner is entitled to head_of_household filing_status a child_tax_credit the refundable portion of the child_tax_credit and an earned_income_credit background some of the facts have been stipulated and are so found the stipulation of facts a subsequent supplemental stipulation of facts and the attached exhibits are incorporated herein by this reference at the time petitioner filed his petition he resided in illinois petitioner wa sec_57 years old in and retired from his career job in his income consisted of a taxable pension of dollar_figure and wages of dollar_figure that he received as a part-time security officer for the chicago board_of education petitioner had a longtime girlfriend named elmond brown who turned in the trial record indicates but is not conclusive that elmond brown lived with petitioner in his apartment during elmond brown’s sister linda jean hayes ms hayes died of brain cancer in ms hayes had a daughter christina hayes who was years old when ms hayes passed away elmond brown adopted her niece in date and christina’s legal name became christina hayes brown ms brown as a result of petitioner’s relationship with ms brown’s adoptive mother petitioner became a father figure to her during trial he referred to ms brown as his niece ms brown turned in she has a biological daughter named a c who wa sec_2 years old in during trial petitioner referred to a c as his grandniece a c ’s biological father who was years old in was incarcerated starting in for a period of years after a c was born ms brown lost her job and was in a difficult financial position because of ms brown’s financial situation petitioner in began paying the monthly rent for a studio apartment for ms brown and a c the apartment was around the corner from petitioner’s three-bedroom apartment too many people were visiting ms brown’s apartment and disturbing the baby to remedy the situation ms brown and a c moved into petitioner’s apartment sometime in perhaps with elmond brown already residing there ms brown and a c continued to reside with petitioner until date when they moved to mississippi to be near family petitioner and elmond brown also broke off their relationship around this time suggesting that she likely moved out of petitioner’s apartment as well 1the court uses only the initials of minor children see rule a in ms brown enrolled as a full-time_student at westwood college o’hare airport campus studying toward a degree in medical insurance coding and billing she obtained educational financial aid in totaling dollar_figure consisting of dollar_figure in student loans and a pell grant of dollar_figure on her college application forms and on her forms for financial aid ms brown listed elmond brown as her mother residing at petitioner’s address ms brown also listed petitioner’s address as her own address on the same forms during the summer of ms brown worked at a traveling carnival the record does not indicate the nature of her work whether she traveled outside of the area or the amount of income from that employment throughout ms brown received food stamps and medicaid she was enrolled in the women in crisis wic program but did not use the assistance provided by wic respondent stipulated that the internal_revenue_service has no record of a federal_income_tax return for ms brown and respondent confirmed that no third-party sources reported paying her during elmond brown filed a federal_income_tax return for reporting dollar_figure of taxable_income she claimed a full exemption deduction for herself and one dependency_exemption deduction the dependent was not ms brown or a c instead of preparing his own return for the first time petitioner engaged a national tax_return preparation firm to complete his federal_income_tax return the firm prepared a form 1040a u s individual_income_tax_return for reporting petitioner’s filing_status as head_of_household and reporting an associated standard_deduction of dollar_figure additionally the return reflected dependency_exemption deductions for ms brown and a c a child_tax_credit of dollar_figure for a c an additional_child_tax_credit of dollar_figure for a c and an earned_income_credit of dollar_figure an attached schedule listed both ms brown and a c as qualifying children for the earned_income_credit in a notice_of_deficiency respondent disallowed both of petitioner’s dependency_exemption deductions changed petitioner’s filing_status to single and disallowed the child_tax_credit the additional_child_tax_credit and the earned_income_credit petitioner filed a petition with this court challenging all of the disallowances in the notice_of_deficiency respondent answered denying each of petitioner’s challenges however in respondent’s pretrial memorandum and in his opening statement on the record respondent stated that the only issues to be decided were petitioner’s filing_status and the tax_credits respondent no longer contested petitioner’s two dependency_exemption deductions accordingly with respect to the two dependency_exemption deductions we deem that respondent has abandoned or conceded the issue see muserlian v commissioner tcmemo_1989_493 affd 932_f2d_109 2d cir discussion the commissioner’s determination set forth in a notice_of_deficiency is generally presumed correct and the taxpayer bears the burden of showing that the determination is in error rule a 503_us_79 292_us_435 290_us_111 petitioner does not argue that he satisfied the elements for a burden shift but even if he did we need not and explicitly do not decide the issue because we resolve this case on the preponderance_of_the_evidence and not on an allocation of the burden_of_proof rendering the issue of burden moot see 131_tc_185 cyman v commissioner tcmemo_2009_144 petitioner contends that he is entitled to head_of_household filing_status the child_tax_credit the additional_child_tax_credit and an earned_income_credit because he supported ms brown and a c throughout including allowing them to live with him for the entire year we now turn to apply the law to the facts of this case i dependency_exemption deductions because respondent has abandoned or conceded this issue we comment on the dependency_exemption deductions solely for the analysis of petitioner’s entitlement to the filing_status and credits at issue we begin by noting that in ms brown and a c did not bear with respect to petitioner any of the qualifying family relationships detailed in the relationship requirements for a qualifying_child under sec_152 therefore they were not petitioner’s qualifying children additionally with respect to whether ms brown and a c were petitioner’s qualifying relatives we note that sec_152 provides that a qualifying_relative may not be the qualifying_child of any other taxpayer in this instance ms brown and a c appear to satisfy the requirements to be elmond brown’s qualifying children they bore the right relationship being respectively daughter and granddaughter they appear to have all resided together in petitioner’s apartment for all of they met the age requirement because ms brown was age while still a student in college and furthermore the record establishes that neither ms brown nor a c provided more than one-half of her own support the fact that elmond brown did not claim the two individuals as her dependents is not determinative because elmond brown was not required to file an income_tax return for see notice_2008_5 2008_1_cb_256 accordingly we find that ms brown and a c were not petitioner’s qualifying relatives for ii filing_status the code provides a favorable tax schedule for a taxpayer who qualifies as a head_of_household see sec_1 a taxpayer may file as a head_of_household if the taxpayer is not married at the end of the year is not a surviving_spouse and maintains a home as the principal_place_of_abode for a qualifying_child or any other person who is a dependent for more than one-half of the taxable_year sec_2 maintain here means provide over one-half of the cost of maintaining the household id the taxpayer bears the burden to prove entitlement to a filing_status more beneficial than single smith v commissioner tcmemo_2008_229 because we have already found that petitioner had no dependents in and because petitioner was unmarried at the end of the year and was not a surviving_spouse his proper filing_status for is single see sec_1 iii child_tax_credit the code allows for a credit to be taken against the tax imposed for each taxable_year with respect to each qualifying_child of the taxpayer sec_24 a qualifying_child means a qualifying_child of the taxpayer as defined in sec_152 who has not reached the age of sec_24 because petitioner had no qualifying children in he may not claim a child_tax_credit for a c for iv additional_child_tax_credit the child_tax_credit discussed above can be a refundable_credit to the taxpayer sec_24 an additional refundable_credit is available for a taxpayer who could not claim the full child_tax_credit to offset his tax_liability since we have already held that a c is not petitioner’s qualifying_child and thus petitioner does not qualify for the child_tax_credit petitioner is not entitled to the additional_child_tax_credit for v earned_income_credit individuals may be eligible for an earned_income_credit calculated as a percentage of earned_income if they meet certain criteria sec_32 128_tc_13 the amount of the credit depends on the taxpayer’s adjusted_gross_income earned_income and the number of qualifying children if any the taxpayer can claim sec_32 petitioner claimed both ms brown and a c as qualifying children for purposes of the earned_income_credit we have already held that ms brown and a c are not his qualifying children therefore petitioner may not claim them as qualifying children for purposes of the earned_income_credit nonetheless a taxpayer who does not have qualifying children may still be able to claim a smaller earned_income_credit available for single taxpayers with no qualifying children to be eligible for this reduced credit the taxpayer may not have income exceeding a statutory ceiling sec_32 in the ceiling was dollar_figure measured against the greater of the taxpayer’s earned_income or adjusted_gross_income sec_32 providing for an inflation adjustment revproc_2005_70 sec_3 2005_2_cb_979 pronouncing the specific ceiling for for purposes of the earned_income_credit the law does not consider pensions as constituting earned_income sec_32 smith v commissioner tcmemo_1995_304 sec_1_32-2 income_tax regs as a result for petitioner’s earned_income excluding the dollar_figure pension was dollar_figure and his adjusted_gross_income was dollar_figure therefore for because petitioner had no qualifying children and because his adjusted_gross_income of dollar_figure was greater than the allowable income ceiling of dollar_figure petitioner is ineligible for the earned_income_credit vi conclusion we commend petitioner who is essentially retired and living on a small income for being so generous supportive and protective of people who are not his blood relatives summarizing for for the reasons stated above petitioner is entitled to dependency_exemption deductions for ms brown and a c but the code and administrative provisions render him ineligible to claim head_of_household filing_status the child_tax_credit the additional_child_tax_credit and the earned_income_credit to reflect our disposition of the issues decision will be entered under rule


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi 7-plr-119052-00 date date number release date index number re sec_29 request for a ruling credit for producing fuel from a nonconventional source legend p a b c d e f g h x state y date date dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of p by its authorized representative requesting rulings under sec_29 and sec_702 of the internal_revenue_code facts the facts as represented by p and p’s authorized representative are as follows p is a limited_liability_company formed for the purpose of acquiring relocating and operating three separate facilities facility for the production of solid synthetic_fuel from coal p is classified as a partnership for federal_income_tax purposes the members of p are a and b a holds a ownership_interest in p and b holds a ownership_interest in p a is a limited_liability_company that has elected to be classified as an association_taxable_as_a_corporation for federal_income_tax purposes a and b are wholly-owned plr-119052-00 directly or indirectly subsidiaries of c which is engaged in a number of businesses directly and through affiliates including investments in the energy sector d entered into separate construction contracts on date with general contracting firms to build facilities the construction contracts were for synthetic_fuel production facilities for producing solid synthetic_fuel that was a qualified_fuel within the meaning of sec_29 p has provided an opinion of counsel that each of the construction contracts was a legal valid and binding obligation of d under applicable state law as of date in addition each of the construction contracts i provided for liquidated_damages of at least five percent of the contract_price ii included a description of the facility to be constructed iii provided for a completion date and iv provided for a maximum price p represents that each of the facilities was placed_in_service within the meaning of sec_29 before date as described in the ruling_request and subsequent correspondence from p’s authorized representative each of the facilities consists of a high-speed mixer a ribbon blender and two pellet mills in the process by which synthetic_fuel is produced in the facilities coal feedstock and a chemical reagent are mixed in the high-speed mixer and transported by gravity feed to the ribbon blender the ribbon blender provides additional blending and then distributes the mixture to the two pellet mills for final processing and delivery to the finished product conveyor belt the coal-based synthetic_fuel originally produced in the facilities by d was not commercially viable as a result d began using different chemical reagents to produce marketable synthetic fuels on date d sold the facilities to p for a fixed dollar amount_paid in full in cash at closing a and b the members of p made capital contributions in cash to p in accordance with their ownership interests in an amount required to acquire and relocate the facilities the members of p have made and will continue to make periodic cash capital contributions to p to pay its operating costs in accordance with their respective ownership interests p contracted with f an affiliate of d to reassemble and install the facilities at the site of x located in state y p has represented that following the relocation the fair_market_value of the original property of each facility is more than of the facility’s total fair_market_value the cost of the new property plus the value of the original property g owns x and has granted to p a lease at the site of x to enable p to reassemble and operate the facilities under the surface lease agreement p agreed to pay g a fixed monthly rent and additional rental amount based on the amount of synfuel sold to third parties pursuant to a feedstock supply agreement h has agreed to sell coal feedstock to p if h fails to deliver the coal feedstock it is required to deliver p can purchase its feedstock from other suppliers p also entered into a synthetic fuels sales agreement with g where g agreed to purchase a minimum amount of synthetic_fuel produced at the facilities each year if g does not purchase the synthetic_fuel it is obligated to purchase plr-119052-00 p can sell the synthetic_fuel to third parties p has represented that all sales of synthetic_fuel will be to unrelated persons p entered into an agreement with f for the operation and maintenance of the facilities f is subject_to the direction and control of p which has the sole authority to set production levels and make other strategic decisions f is paid a graduated fixed fee without adjustment for inflation per ton of synthetic_fuel produced any capital costs associated with the facilities will be paid_by p and must be authorized by p p has entered into separate arrangements with suppliers of chemical reagents p has supplied a detailed description of the process employed at each facility p also has proposed that from time to time several alternative chemical reagents identified in p’s submissions may be used in the process as described the facilities and the process implemented in the facilities meet the requirements of revproc_2001_34 i r b recognized experts in coal and chemical analysis have performed numerous tests on the fuel produced from coal feedstock using the process including the alternative chemical reagents that will be used at the facility and has submitted a report in which the experts conclude that significant chemical changes take place with the application of the process to the coal under the limited_liability_company agreement of p all items of income gain loss deduction and credit including the sec_29 credit of p are allocated and any distributions made in proportion to the members’ ownership interests to a and to b 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 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 of its regulations is 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 is one that differs significantly in chemical composition as opposed to plr-119052-00 physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 based on the representations of p and p’s authorized representative including the preponderance of p’s test results we agree that the fuel to be produced in the facilities using the process on the coal feedstock including the use of alternative chemical reagents results from a significant chemical change in coal transforming the coal feedstock into a solid synthetic_fuel from coal because p owns the facilities and because f on behalf of p operates and maintains the facilities we conclude that p will be entitled to the sec_29 credit for the production of the qualified_fuel from each of the facilities that is sold to an unrelated_person ruling_request sec_29 and f provide that sec_29 applies with respect to qualified_fuels that 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 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 each of the construction contracts executed prior to date includes such essential features as a description of the facility to be constructed a completion date and a maximum price p provided opinions of counsel that each of the construction contracts is binding under the applicable state law each of the construction contracts also provides for liquidated_damages of at least five percent of the contract_price therefore each of the construction contracts is a binding written contract for purposes of sec_29 ruling_request under sec_7701 the term taxpayer means any person subject_to any internal revenue tax sec_7701 provides that the term person includes an individual 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 plr-119052-00 prescribed by the secretary under sec_1_702-1 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 i the partnership_agreement does not provide for the partner’s distributive_share of income gain loss deduction or credit or item thereof or ii the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof lacks substantial economic_effect under sec_1_704-1 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 tax_credit recapture arises if a partnership expenditure whether or not deductible that gives rise to a tax_credit in a partnership taxable_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 regarding the 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 regarding 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 sec_29 credit attributable to p may be passed through to and allocated to the members of p in accordance with each member’s interest in p when the credit arises for 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 we express no opinion however regarding how the members’ interests in p are determined ruling_request 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 the production and sale of alternative fuels after date and before date from facilities placed_in_service after date and before date on property which first began production after date plr-119052-00 the sec_29 credit has been extended by congress 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 if sec_29 were read as requiring facilities producing qualified_fuels to be placed_in_service by the taxpayer facilities placed_in_service before that are sold or transferred to a new taxpayer after would entitle the purchaser transferee to claim the sec_29 credit 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 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 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 there is no such limitation on facilities for producing synthetic_fuel from coal 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 therefore the acquisition of the facilities by p will not affect the placed-in-service date of any of the facilities for purposes of sec_29 when property is placed_in_service is a factual determination and we express no opinion on when the facilities were placed_in_service ruling_request 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 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 plr-119052-00 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 determination of whether a facility has satisfied the placed-in- service deadline under sec_29 and sec_29 is made by reference to when the facility is first placed_in_service not when the facility is placed_in_service by a transferee taxpayer therefore we conclude that any termination of p under sec_708 arising from sales or exchanges of interests in p 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 to qualify for the sec_29 credit the facilities must be placed_in_service before date pursuant to a binding written contract in effect before date while 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 property is placed_in_service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1 a - e i and d ii of the income_tax regulations placed_in_service has consistently been construed as having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 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 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_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 for each of the facilities if the facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to the x site or other 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 of the facility is more than of the facility’s total fair_market_value at the time of the relocation or replacement when property is placed_in_service is a factual determination and we express no opinion on when the facilities were placed_in_service plr-119052-00 conclusions accordingly based on the representations of p and p’s authorized representative we conclude as follows p with the use of the process and the chemical reagents will produce a qualified_fuel within the meaning of sec_29 the production of the qualified_fuel from each of the facilities will be attributable solely to p entitling p to the sec_29 credit for the production of qualified_fuel from each facility that is sold to an unrelated_person each of the contracts for the construction of the facilities constitutes a binding written contract within the meaning of sec_29 the sec_29 credit attributable to p may be passed through to and allocated among the members of p in accordance with the principles of sec_702 in accordance with each member’s interest in p at the time the sec_29 credit arises for 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 the acquisition of the facilities by p will not affect the placed_in_service_date of any of the facilities for purposes of sec_29 any termination of p under sec_708 arising from sales or exchanges of interests in p will not preclude p as reconstituted from taking the sec_29 credit for the production and sale of qualified_fuel to unrelated persons and for each of the facilities if the facility was placed_in_service prior to date within the meaning of sec_29 the relocation of the facility to the x site or other 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 of the facility is more than of the facility’s total fair_market_value at the time of the relocation or replacement we express no opinion on when the facilities were placed_in_service except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above specifically we express no opinion on when p’s facilities were placed_in_service or how the partners’ interests in p are determined 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 section dollar_figure of revproc_2001_1 2001_1_irb_1 however when the criteria plr-119052-00 in section dollar_figure of revproc_2001_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 p’s authorized representative sincerely yours joseph h makurath senior technical reviewer branch office of assistant chief_counsel passthroughs and special industries cc enclosure copy for sec_6110 purposes


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend b scholarship option c scholarship option e scholarship program f scholarship corporation g scholarship program p applicant q employer x test y test dear we have considered your request for advance approval of your employer-related grant-making program under sec_4945 of the internal_revenue_code dated date this letter supersedes our previous letter dated date our records indicate that you p were recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 the information submitted shows that you sponsor scholarships for children and or relatives of employees of q and its eligible subsidiaries through f’s b and c options procedures for option b under option b selection is considered under two programs program e and g under program e you enter into an agreement with f to sponsor a specified number of college scholarships for children and or other relatives of employees of q students enter the national scholarship competition by taking x those students scoring within the top one-half of one percent on a state-by-state basis are designated as semifinalist they may advance to the finalist level by confirming their scores on a second test y and by submitting an application form that includes a high school record provided by their high school officials showing academic performance a personal essay extra-curricular accomplishments and the recommendation of their high school principal or school official designated by the principal f selects students from among those children of employees who attained the finalist level in the e to receive p-sponsored scholarships g procedures generally parallel those of e except that eligibility in g is limited to black high school students the selection of individual grant recipients under both programs comply with the facts and circumstance test under sec_4 of rev_proc because the probability of attaining the finalist level and therefore being eligible for either e or g is extremely low procedures for option c under option c you enter into an agreement with f to sponsor a specified number of college scholarships for children and or other relatives of employees of q students enter the national scholarship competition by taking a test called x those students scoring within the top one-half of one percent on a state-by-state basis are designated as semifinalist they may advance to the finalist level by confirming their scores on a second test y and by submitting an application form that includes a high school record provided by their high school officials showing academic performance a personal essay extra-curricular accomplishments and the recommendation of their high school principal or school official designated by the principal f selects students from among those children of employees who attained the finalist level in e to receive p-sponsored scholarships these scholarships comply with the facts_and_circumstances_test under sec_4 of revproc_76_47 because the probability of attaining finalist level and therefore being eligible for g is extremely low if the number of children who qualify as finalists is less than the number of scholarships that the foundation agreed to sponsor f selects additional special scholarship recipient from among high-performing student below the finalists level the number of special scholarship recipients is limited to not more than of eligible applicants in accordance with the percentage_test of section dollar_figure of revproc_76_47 selection and governance for both b and c options option b and option c programs meet the requirements of sections dollar_figure of rev_proc f administers all aspects of the programs and bears all administrative costs scholarship recipients are selected by an independent selection committee f confirms scholarship recipients are selected by an independent selection committee f confirms the individual scholarship recipient’s enrollment at a college or university in the united_states that holds accredited status with a regional accrediting commission on higher education makes payment of the award through the financial aid office of the institution and supervises and investigates the use of the scholarships by the recipients in their educational program the scholarships will not be used as a means of inducement to recruit employees nor will a grant be terminated if an employee parent and or relative leave the company the prior employment period for establishing eligibility will not exceed three years scholarships will only be awarded to students who plan to enroll in an institution that meets the requirements of sec_170gi of the code sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 gi the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant that meets the provisions of sec_117 of the code as that section read before the tax_reform_act_of_1986 ifa private foundation’s program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in sec_4 the service will assume the grants meet the provisions of sec_117 as that section read before the tax_reform_act_of_1986 you have agreed that procedures in awarding grants under your program will be in compliance with sections dollar_figure through dollar_figure of revproc_76_47 without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 in particular the selection of individual grant recipients will be made by a selection committee the members of which are totally independent and separate from the private_foundation the foundation’s creator and the relevant employer the grants will not be used as a means of inducement to recruit employees nor will a grant be terminated if the employee leaves the employer the recipient will not be restricted in a course of study that would be of particular benefit to the relevant employer or to the foundation section dollar_figure of rev_proc provides a percentage_test guideline it states in the case of a program that awards grants to children of employees of a particular employee the program meets the percentage_test if either of the following tests are met the number of grants awarded under that program in any year to such children do not exceed percent of the number of employees’ children who were eligible were applicants for such grants and were considered by the selection committee in selecting the recipients of grants in that year or the number of grants awarded under the program in any year to such children does not exceed percent of the number of employees’ children who can be shown to be eligible for grants whether or not they submitted an application in that year you have agreed that your program will meet the requirements of either the percent or percent percentage_test of section dollar_figure applicable to a program that awards grants to children of employees of a particular employer records should be maintained to show that you meet the applicable_percentage test of section dollar_figure this determination is issued with the understanding that in applying the percent test applicable to employees’ children set forth in revproc_76_47 you will include as eligible only those children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 this determination will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of rev_proc without regard to the amendments to sec_117 made by the tax_reform_act_of_1986 if you enter into any other program covering the same individuals the percentage_test of revproc_76_47 must be met in the aggregate based on the information submitted and assuming your award programs will be conducted as proposed your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your employer-related grant-making program is a one-time approval this determination only covers the grant programs described above thus approval shall apply to subsequent grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and histories so that any or all grant distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110g of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements enclosure notice