internal_revenue_service number release date index number 860d ----------------------- --------------------- ------------------------------- ----------------------------------- ------------------------------------ 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 fip b06 plr-122616-16 date date legend trustee taxpayer a taxpayer b state company a company b company c company d company e company f exchange year date date ------------------------------- ------------------------------------------ ------------------------------------------ -------------- ------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------- --------------------------------------- -------------------------------- -------------------------------- ------------------------------------- ------- --------------------------- ---------------------- plr-122616-16 date date date date court a b c ------------------- ---------------------- ------------------------ --------------------------- ------------------------------------------------------------------------------- ------------------- ------------------ ---------------- dear ------------- this letter is in reply to a letter dated date and subsequent correspondence in which trustee solely in its capacity as trustee of each real_estate_mortgage_investment_conduit remic identified above each a taxpayer and collectively the taxpayers requests certain rulings in connection with each taxpayer’s qualification as a remic under sec_860a-860g of the internal_revenue_code specifically you have asked for the following rulings in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreement as defined below none of i the execution of the settlement agreement as defined below ii the right to receive the settlement payment as defined below or iii the receipt of the settlement payment will cause the taxpayer to fail to meet the requirements of sec_860d in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreement the receipt of the settlement payment will be treated as payments received on qualified mortgages within the meaning of sec_1_860g-2 of the income_tax regulations in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreement the distribution of the settlement payment in plr-122616-16 accordance with the applicable governing agreement and the settlement agreement will not cause any regular_interest in such taxpayer to fail to qualify as a regular_interest as defined in sec_860g or the sole class of residual_interest in such taxpayer to fail to qualify as a residual_interest as defined in sec_860g in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreement the receipt of the settlement payment will not be treated as a prohibited_transaction within the meaning of sec_860f or as a contribution that is subject_to the tax imposed under sec_860g facts background each taxpayer has elected to be treated as a remic within the meaning of sec_860d and is evidenced by separate pooling and servicing agreements and related mortgage loan purchase agreements and other related agreements each a governing agreement and collectively the governing agreements under the governing agreements trustee serves as trustee for each of the taxpayers the law of state governs the rights and obligations of the parties to the governing agreements including the trustee the annual_accounting_period for each taxpayer is the calendar_year and each taxpayer utilizes the accrual_method of accounting for maintaining its accounting books and filing its u s federal_income_tax return taxpayers function as residential mortgage loan securitization vehicles the taxpayers were established during year for the primary purpose of raising money in the securitization market for pools of residential real_estate mortgage loans originated or acquired by company b and its affiliates the sponsor of the mortgage securitizations the aggregate principal balance of mortgage loans that were securitized through the taxpayers was approximately dollar_figurea trustee is a wholly-owned banking subsidiary of company f a public company whose shares of common_stock are traded on exchange the securitization process for each taxpayer generally occurred as follows company b and one or more of its affiliates collectively the seller sold portfolios of residential mortgage loans the mortgage loans to a company a entity the depositor the depositor conveyed the mortgage loans to trustee as trustee to be held in trust pursuant to pooling and servicing agreements plr-122616-16 several classes of certificates representing various entitlements to the underlying mortgage pool’s cash flows then were issued and sold through an underwriter or underwriters to investors including with respect to certain taxpayers interests in an upper-tier remic that held all of the regular interests in such taxpayer directly or through one or more intermediate remics the holders of any such interests in a taxpayer or in such an upper-tier remic holding all of the regular interests in a taxpayer the investors company c and at times company d as successor to company c or company e acted as master servicer for each of the taxpayers and was charged with responsibility for among other things collecting debt service payments on the mortgage loans taking or delegating to another servicer any necessary enforcement action against borrowers and remitting payments on a monthly basis for distribution to the investors pursuant to the governing agreements in each securitization elections were made to treat the mortgage loans held by each taxpayer and related assets as one or more remics under the code the governing agreement for each taxpayer contains a series of representations and warranties made by the seller for the benefit of the taxpayer in general these include representations as to various characteristics of the mortgage loans held in each remic trust which may include loan-to-value property condition and related mortgagor credit metrics that the mortgage loans were underwritten in all material respects in accordance with certain underwriting guidelines that the mortgage loans conform in all material respects to their descriptions in the investor disclosure documents and that the origination underwriting and collection practices of the seller have been lawful and customary in the mortgage lending business the governing agreements also impose servicing obligations on the master servicer requiring among other things that the master servicer service and administer the mortgage loans in accordance with the terms of the governing agreements and customary and usual standards of prudent mortgage loan servicers subsequent to the mortgage securitizations involving taxpayers company a was acquired by company d the dispute a dispute arose concerning the seller’s alleged breaches of certain representations and warranties under the governing agreements and company d’s and its affiliates’ alleged past and continuing breaches and defaults under the governing agreements plr-122616-16 on date company d presented the trustee with a settlement offer the original settlement that sought to resolve all rep and warranty claims as defined below held against company d as successor to seller under certain of the governing agreements in exchange for settlement consideration consisting of a cash payment by company d to the affected remic trusts that accepted the original settlement on or around date at the direction the direction of certain investors the directing investors the trustee declined to accept the original settlement on behalf of the taxpayers the direction further directed the trustee to initiate litigation against company d with respect to the taxpayers to among other things enforce covenants and obligations under the governing agreements to cure or repurchase certain mortgage loans identified to the trustee as being subject_to breaches of seller’s representations and warranties that adversely and materially affect the value of the related mortgage loans and to enforce covenants and obligations relating to servicing breaches on date the directing investors delivered to the trustee an additional direction letter the second direction directing the trustee to accept a new settlement offer proposed by company d to settle the rep and warranty claims on date following an evaluation process the trustee accepted the second direction and entered into a settlement agreement with company d the settlement agreement on behalf of the taxpayers the trustee’s acceptance of the settlement agreement on behalf of the taxpayers was conditioned on the outcome of the judicial proceeding described further below the settlement agreement and the settlement payments under the settlement agreement the term rep and warranty claims means a ny claims against any company d releasee concerning or relating to any alleged breaches of representations and warranties made in connection with the origination sale and or delivery of mortgage loans to the trusts including breaches of any obligation to notify or to cure any such alleged breaches of representations and warranties or to repurchase any mortgage loan the settlement agreement has two primary components one a settlement payment payable by company d i to taxpayer a in the amount of dollar_figureb and ii to taxpayer b in the amount of dollar_figurec collectively the settlement payment and two servicing and document improvements to be implemented with respect to each taxpayer plr-122616-16 each taxpayer’s settlement payment will be paid to an escrow account and thereafter will be deposited into the related remic trust’s collection or distribution account pursuant to the terms of the governing agreements for further distribution in accordance therewith each of the taxpayers has represented that the amount of its settlement payment does not exceed the losses suffered by such taxpayer allegedly as a result of the rep and warranty claims the settlement payment distribution provisions contained in the settlement agreement do not alter the rights or obligations of any remic trust or remic interests therein and the distribution of a taxpayer’s settlement payment to its investors is consistent with applicable provisions in such taxpayer’s governing agreement providing for the distribution of subsequent recoveries for this purpose a subsequent recovery is an unexpected amount that a remic trust might receive from time to time with respect to a mortgage loan such as recoveries in respect of representations and warranties in the mortgage loan purchase agreement or when a mortgage loan has been foreclosed upon and the property sold for less than the debt but the borrower subsequently repays all or some amount of the previously written-off mortgage loan balance distributions that are made pursuant to these provisions of the governing agreements are treated as and constitute distributions of underlying mortgage loan principal collections accordingly the settlement agreement provides that each taxpayer’s distribution of settlement payment amounts to investors are characterized the same way - as distributions of principal in respect of the remic regular_interest classes entitled to receive such distributions the settlement agreement also provides that in the event a taxpayer’s distribution waterfall provisions would result in a distribution of any amount on or in respect of any taxpayer’s residual_interest class whether on the date of distribution of the settlement payment or on any subsequent distribution date that is not the final distribution date under the taxpayer’s applicable governing agreements such amount shall not be paid on or distributed to such residual class instead the trustee shall retain this amount in the applicable taxpayer’s collection or distribution account and on the next distribution date the trustee will distribute this retained amount to the applicable regular_interest investor s entitled to receive a principal distribution of subsequent recoveries for the servicing component of the settlement agreement company d has agreed to implement various servicing improvements and remedies judicial proceeding the settlement agreement was conditioned upon final court approval and the receipt of the rulings provided in this letter to that end the trustee on behalf of the taxpayers commenced in the court on date a proceeding seeking judicial instructions and approval of the settlement agreement on behalf of the taxpayers on date the court entered an order and judgment finding that the trustee is authorized to accept plr-122616-16 execute and implement the settlement agreement in accordance with the second direction including the application and distribution of the settlement payment as subsequent recoveries subject_to the terms and conditions set forth in the settlement agreement that order became non-appealable before the date on which this ruling was requested thus resulting in final court approval of the settlement agreement law and analysis issue and qualified mortgages permitted_investments and payments received on qualified mortgages sec_860d provides that the terms real_estate_mortgage_investment_conduit and remic mean any entity that meets several requirements including that as of the close of the third month beginning after the startup_day and at all times thereafter substantially_all of the assets of the entity consist of qualified mortgages and permitted_investments sec_860g defines qualified_mortgage to include any obligation including any participation or certificate of beneficial_ownership therein which is principally secured_by an interest_in_real_property and which i is transferred to the remic on the startup_day in exchange for regular or residual interests in the remic ii is purchased by the remic within the 3-month period beginning on the startup_day if except as provided in regulations such purchase is pursuant to a fixed-price contract in effect on the startup_day or iii represents an increase in the principal_amount under the original terms of an obligation described in clause i or ii if such increase- i is attributable to an advance made to the obligor pursuant to the original terms of a reverse_mortgage_loan or other obligation ii occurs after the startup_day and iii is purchased by the remic pursuant to a fixed price contract in effect on the startup_day sec_860g defines permitted_investments to mean any cash_flow_investment qualified_reserve_asset or foreclosure_property sec_860g defines cash_flow_investment to mean any investment of amounts received under qualified mortgages for a temporary period before distribution to holders of interests in the remic sec_1_860d-1 provides that for purposes of the asset test of sec_860d substantially_all of a qualified entity’s assets are qualified mortgages and permitted_investments if the qualified_entity owns no more than a de_minimis amount of other assets sec_1_860d-1 provides that the amount of assets other than qualified mortgages and permitted_investments is de_minimis if the aggregate of the adjusted bases of those assets is less than one percent of the aggregate of the adjusted bases of all of the remic’s assets sec_1_860g-2 states that in determining what is a cash_flow_investment the term payments received on qualified mortgages includes among other_payments plr-122616-16 payments by a sponsor or prior owner in lieu of the sponsor’s or prior owner’s repurchase of a defective obligation as defined in sec_1_860g-2 that was transferred to the remic in breach of a customary warranty sec_1_860g-2 defines a defective obligation as a mortgage subject_to certain defects including that the mortgage does not conform to a customary representation or warranty given by the sponsor or prior owner of the mortgage regarding the characteristics of the mortgage or the characteristics of the pool of mortgages of which the mortgage is a part each taxpayer’s right to receive its settlement payment under the settlement agreement arises from the mortgage loans the settlement payment for each taxpayer is a contract claim that stems directly from the rights held by the trustee on behalf of such taxpayer and its status as a remic therefore a taxpayer’s right to receive a settlement payment does not constitute an asset that is newly acquired by a remic after its startup date the execution of the settlement agreement and the receipt of the settlement payment by a taxpayer arise from each taxpayer’s interest in the mortgage loans and its status as a remic and therefore will not cause any taxpayer to fail to meet the requirements under sec_860d the settlement payment under the settlement agreement is the result of a dispute between the directing investors and the trustee with company d regarding whether the mortgage loans conveyed to each taxpayer violated customary representations and warranties under the respective governing agreements for purposes of the remic rules a defective obligation includes mortgages that do not conform to a customary representation or warranty given by the sponsor or prior owner of the mortgage regarding the characteristics of the mortgage or the characteristics of the pool of mortgages of which the mortgage is a part each taxpayer’s right to the settlement payment under the settlement agreement is akin to a payment received by such taxpayer from a sponsor or prior owner in lieu of the sponsor or prior owner’s repurchase of such a defective obligation therefore pursuant to sec_1_860g-2 the settlement payment will be considered a payment received on a qualified_mortgage_issue regular and residual interests sec_860g defines a regular_interest in a remic to mean any interest in a remic which is issued on the startup_day with fixed terms and which is designated as a regular_interest if a such interest unconditionally entitles the holder to receive a specified principal_amount or other similar amount and b interest payments or other similar amount if any with respect to such interest at or before maturity i are payable based on a fixed rate or to the extent provided in regulations at a variable rate or ii consist of a specified portion of the interest payments on qualified mortgages and such portion does not vary during the period such interest is outstanding plr-122616-16 sec_860g defines a residual_interest in a remic to mean an interest in a remic which is issued on the startup_day which is not a regular_interest and which is designated as a residual_interest sec_860g defines the term startup_day to mean the day on which the remic issues all of its regular and residual interests sec_1_860g-1 provides that for purposes of sec_860g a remic designates an interest as a regular_interest by providing to the internal_revenue_service the information specified in sec_1_860d-1 in the time and manner specified in sec_1_860d-1 sec_1_860g-1 provides that a residual_interest is an interest in a remic that is issued on the startup_day and that is designated as a residual_interest by providing the information specified in sec_1_860d-1 at the time and in the manner provided in sec_1_860d-1 a residual_interest need not entitle the holder to any distributions from the remic sec_1_860g-1 provides that for purposes of sec_860g a regular_interest in a remic has fixed terms on the startup_day if on the startup_day the remic’s organizational documents irrevocably specify i the principal_amount or other similar amount of the regular_interest ii the interest rate or rates used to compute any interest payments or other similar amounts on the regular_interest and iii the latest possible maturity_date of the interest taxpayers represent that the distribution provisions of the settlement agreement do not alter the rights or obligations of any of the taxpayers or the investors’ interests therein and that the distribution of settlement payments to investors is consistent with the distribution provisions contained in the governing agreements the settlement payments will be distributed by the taxpayers to the regular_interest holders under the applicable governing agreements in accordance with the distribution provisions as a subsequent recovery the settlement agreement also provides that should a principal payment become payable to a class of remic residual interests such payment will be maintained in the distribution account and the trustee shall distribute it to investors on the next distribution date as though it was a subsequent recovery or an unscheduled payment of principal available for distribution on that date accordingly the distribution of a settlement payment to investors will not cause any regular_interest in a taxpayer to fail to qualify as a regular_interest or the sole class of residual_interest in any taxpayer to fail to qualify as a residual_interest issue tax on contributions after startup date and prohibited_transaction except as provided in sec_860g sec_860g imposes on any amount that is contributed to a remic after the startup_day a tax equal to percent of the amount contributed sec_860g provides that the tax on contributions after the startup date shall not apply to any contribution which is made in cash and is a a contribution plr-122616-16 to facilitate a cleanup call as defined in regulations or a qualified_liquidation b a payment in the nature of a guarantee c a contribution during the 3-month period beginning on the startup_day d a contribution to a qualified_reserve_fund by any holder of a residual_interest in the remic or e any other contribution permitted in regulations sec_860f imposes a tax equal to percent of the net_income_derived_from_prohibited_transactions sec_860f defines prohibited_transaction to mean one of the following a disposition of any qualified_mortgage transferred to the remic other than a disposition pursuant to i the substitution of a qualified_replacement_mortgage for a qualified_mortgage or the repurchase in lieu of substitution of a defective obligation ii a disposition incident to the foreclosure default or imminent default of the mortgage iii the bankruptcy or insolvency of the remic or iv a qualified_liquidation b the receipt of any income attributable to any asset which is neither a qualified_mortgage nor a permitted_investment c the receipt by the remic of any amount representing a fee or other compensation_for services or d gain from the disposition of any cash_flow_investment other than pursuant to any qualified_liquidation as discussed above the receipt of the settlement payment by a taxpayer arises from the mortgage loans and each taxpayer’s status as a remic the settlement payment arises in connection with each taxpayer’s interest in the mortgage loans and is neither a contribution of cash to the remic nor is it listed as a prohibited_transaction in sec_860f as a result the receipt of the settlement payment by a taxpayer will not be treated as a prohibited_transaction within the meaning of sec_860f or as a contribution subject_to tax under sec_860g conclusion we hereby rule as follows in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreements none of i the execution of the settlement agreement ii the right to receive the settlement payment or iii the receipt of the settlement payment will cause the taxpayer to fail to meet the requirements of sec_860d in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreements the receipt of the settlement payment will be treated as a payment received on qualified mortgages within the meaning of sec_1_860g-2 plr-122616-16 in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreements the distribution of the settlement payment in accordance with the applicable governing agreements and the settlement agreement will not cause any regular_interest in such taxpayer to fail to qualify as a regular_interest as defined in sec_860g or the sole class of residual_interest in such taxpayer to fail to qualify as a residual_interest as defined in sec_860g in the case of each taxpayer for which a timely valid and continuing remic election has been made in accordance with the applicable governing agreements the receipt of the settlement payment will not be treated as a prohibited_transaction within the meaning of sec_860f or as a contribution that is subject_to the tax imposed under sec_860g this ruling’s application is limited to the facts representations code sections and regulations cited herein except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences related to the facts herein under any other provisions of the code specifically we do not rule whether any taxpayer qualifies as a remic under sec_860a-860g or whether any mortgage loan qualifies as a qualified_mortgage as defined in sec_860g this ruling is directed only to the taxpayers that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely john w rogers iii senior technician reviewer branch office of associate chief_counsel financial institutions products cc


t c memo united_states tax_court ida mae whittaker petitioner v commissioner of internal revenue respondent docket no filed date ida mae whittaker pro_se sandra veliz for respondent memorandum opinion wolfe special_trial_judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the issue for decision is whether petitioner must include in her gross_income annuity payments received from her deceased - - husband’s former employer’s retirement_plan ’ petitioner’s position is that she should not be subject_to income_tax on the payments in question because her deceased husband’s social_security_number ssn rather than her own is listed on various documents concerning the payments that she periodically received from his former employer’s retirement_plan no written stipulation of fact was filed in this case an oral stipulation of fact was made at trial the oral stipulation of fact and the referenced exhibits identified in that stipulation are incorporated herein by this reference petitioner resided in tacoma washington on the date the petition was filed petitioner was married to denorise whittaker mr whittaker until his death on date approximately months before his death mr whittaker retired from the boeing co boeing effective date as an employee of boeing mr whittaker participated in the boeing employee retirement_plan plan when he retired mr whittaker elected a 75-percent joint and surviving_spouse option naming petitioner as his joint annuitant under the plan after mr whittaker’s death petitioner became entitled to receive from the plan a benefit of dollar_figure per month for the remainder of her life pursuant to the petitioner claimed an earned_income_credit on her tax_return her eligibility for the credit is a computational matter plan during petitioner received a total of dollar_figure dollar_figure each month by direct deposit from boeing into a bank account held by petitioner as trustee for her grandchild petitioner received certain documents relating to the retirement annuity payments that bore her name yet listed her deceased husband’s ssn rather than her own specifically boeing’s retirement_plan account statements which were mailed to petitioner twice each year and the line on petitioner’s monthly bank statements describing boeing’s deposit both refer to mr whittaker’s ssn rather than petitioner’s in addition petitioner claims that boeing sent her a form_w-2 wage and tax statement listing mr whittaker’s ssn however petitioner did not attach a form_w-2 from boeing to her federal_income_tax return nor did she produce a copy of such a form at trial we consider it unlikely that boeing sent petitioner a form_w-2 because petitioner was not employed by boeing see sec_6051 sec_31_6051-1 i employment_tax regs as the payor of a retirement annuity boeing was reguired to send petitioner a form 1099-r distributions from pensions annuities retirement or profit--sharing plans iras insurance contracts etc sec_1_6041-1 income_tax regs the evidence here unless otherwise specified all section references are to the internal_revenue_code in effect for the year in issue - indicates that boeing did in fact send petitioner a form 1099-r the internal_revenue_service received a form 1099-r from boeing that listed petitioner’s ssn and not mr whittaker’s ssn petitioner’s federal_income_tax return was prepared at a local church by vita an organization that petitioner believes is associated in some way with seattle university petitioner claims she was told that the retirement benefits she received from boeing were not includable in her gross_income because the documents she presented listed an ssn that was not her own petitioner argues that because her deceased husband’s ssn rather than her own was listed on these documents the retirement benefits that she received from boeing should be excluded from her gross_income gross_income includes all income from whatever source derived unless otherwise specifically excluded sec_61 annuities are specifically included in gross_income sec_61 a under sec_72 amounts received as an annuity generally are includable in the recipient’s gross_income except to the extent that they represent a reduction or return of premiums or other consideration paid sec_1 72-l1 a income_tax regs mr whittaker did not make any contributions to the plan all contributions were made by boeing therefore the full amount of each annuity_payment is taxable - - petitioner cannot avoid taxation of her annuity payments merely because boeing administrative personnel apparently mistakenly listed mr whittaker’s ssn rather than petitioner’s ssn on documents relating to payments made to her after mr whittaker’s death the sweep of sec_61 is very broad gross_income includes instances of undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 petitioner was entitled to the annuity payments at issue and they were properly deposited to a bank account under her control petitioner has not shown that the annuity payments fall within any provision of the code or of other law exempting or excluding them from gross_income the bank account into which the funds were deposited appears to be a so-called totten_trust account that is an account belonging to the depositor with a beneficiary designated to succeed to the funds only in the event of the depositor’s death see funk v funk p 2d wash ct app in funk v funk p 2d wash ct app the washington court_of_appeals stated the doctrine_of tentative_trusts emerged from the oft- quoted case of in re totten n y n e cited with approval in in re madsen’s estate wash 2d p 2d a deposit by one person of his own money in his own name as trustee for another standing alone does not continued -- - nothing in the record indicates that petitioner’s grandchild owned any portion of the funds in the account instead the record clearly establishes that petitioner had full control_over the bank account copies of her bank statements show that petitioner routinely withdrew funds for personal expenditures the facts of this case establish that the income from the plan was payable to petitioner and was paid to an account to which she directed payment and over which she exercised complete control petitioner’s reliance on the alleged mistaken advice of her tax preparer also has no bearing on her tax_liability such reliance might be relevant if respondent had determined penalties or additions to tax see eg 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 dyckman v commissioner tcmemo_1999_79 but no penalties or additions to tax are in issue here petitioner is responsible for the deficiency in tax even though she relied on erroneous advice see united_states v boyle continued establish an irrevocable_trust during the lifetime of the depositor it is a tentative trust merely revocable at will until the depositor dies or completes the gift in his lifetime by some unequivocal act or declaration such as delivery of the pass book or notice to the beneficiary in case the depositor dies before the beneficiary without revocation or some decisive act or declaration of disaffirmance the presumption arises that an absolute trust was created as to the balance on hand at the death of the depositor - jj - u s de aycardi v commissioner tcmemo_1997_308 reasonable reliance on an agent may constitute a possible defense to penalties but not to the underlying tax to reflect the foregoing decision will be entered for respondent


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service te_ge eo examinations commerce st mail stop dal dallas texas date date number release date legend org - organization name xx - date address - address org address certified mail dear taxpayer_identification_number person to contact employee identification_number contact numbers uil this letter supersedes our letter dated july 19xx this is a final_determination with respect to your non-private foundation status under sec_509 of the internal_revenue_code in our letter dated july 19xx we classified you as other than a private_foundation by being described under code sec_509 and sec_170 we have determined based on additional review that your non-private foundation status should remain unchanged accordingly this letter supersedes our prior letter and confirms your non-private foundation status as a public charity described under code sec_509 and sec_170 a vi effective as of july 19xx your exempt status under sec_501 a of the internal_revenue_code as an organization described in sec_501 remains in effect grantors and contributors may rely on this determination unless the internal_revenue_service publishes a notice to the contrary because this letter could help resolve any questions about your private_foundation_status please keep it with your permanent records processing of tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed before the 5t day after the date this determination was mailed to you if you wish to seek review of our determination please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a lega y correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours enclosure signed form_6018 publication exempt_organization appeal procedures for unagreed issues nanette m downing director eo examinations internal_revenue_service date date org address certified mail - return receipt requested dear department of the treasury te_ge eo examinations fulton street brooklyn ny taxpayer_identification_number form tax_year s ended person to contactjld number contact numbers telephone fax we have enclosed a copy of our report of examination explaining why we propose modifying your foundation status under sec_509 of the internal_revenue_code code your exempt status under sec_501 c of the code is still in effect ifyou accept our findings take no further action we will issue a final letter modifying your foundation status if you do not agree with our proposed modification of your foundation status you may provide additional information that you would like to have considered or you may submit a written appeal the enclosed publication the examination process and publication exempt_organization appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference with appeals you must submit a written protest within days from the date ofthis letter an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly letter rev catalog number r you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject ofthe technical_advice ifwe do not hear from you within days from the date ofthis letter we will process your case based on the recommendations shown in the report ofexamination if you do not protest this proposed determination within days from the date ofthis letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part ita declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court ofthe united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final letter you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication report of examination letter rev catalog number r form 886a name oftaxpayer org department of the treasury internal_revenue_service ex lanation of items schedule no or exhibit year period ended 20xx09 legend org - organization name xx - date whether org org is excluded from private_foundation_status because they are a publicly_supported_organization described in sec_509 of the internal_revenue_code the code facts org org was formed may 19xx the purpose for which org was founded is to conduct surveys and research relating to first amendment issues and to disseminate conclusions to the general_public on july 19xx they received tax exemption as a charitable_organization within the meaning of sec_501 c of the code and were classified as a publicly_supported_organization under sec_509 and sec_170 vi our records idrs show that at a later date org was reclassified to a publicly_supported_organization under sec_509 during the examination the sources of financial support were reviewed the organization receives financial support in the form of contributions and investment_income for the 4-year period prior to the year under examination the organization received the following support gifts grants contributions gross_receipts investment_income unrelated_business_income total support dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure law sec_509 of the code provides that the term private_foundation means a domestic or foreign organization described in sec_501 c other than an organization described in sec_170 a other than clauses vii or viii this includes organizations described in sec_170 a vi of the code that normally receive a substantial part of its support from a governmental_unit or from direct or indirect_contributions from the general_public the treasury regulations treas regs sec_1_170a-9 further define an organization as publicly supported if it receive sec_33 percent of their total support from contributions made by the general_public sec_509 sec_170 a vi of the code describe an organization which normally receives a substantial part of its support from a governmental_unit or from direct or indirect_contributions from the general_public income_tax regulations sec_1_170a-9 states in part that in order to meet the support_test contributions from individuals and corporations are includable public support only to the extent that they do not exceed of the total support sec_509 of the code describes an organization that normally receives more than one-third of its support in each taxable_year from any combination of gifts grants contributions or membership fees and form 886-a rev department of the treasury - internal_revenue_service page -1 form 886a name oftaxpayer org department of the treasury internal_revenue_service ex lanation of items schedule no or exhibit year period ended 20xx09 gross_receipts from admissions sales of merchandise performance of services that is related to the exempt_function and does not received more than one-third of its support in each taxable_year from the sum of gross_investment_income and unrelated_business_income taxpayer's position the organization has indicated their agreement to the proposed reclassification by signing form_6018 government's position of the dollar_figurein total support dollar_figure total contributions minus donor excess_contributions or constitutes support from contributions therefore organization meets the support_test of a b a vi of the dollar_figurein total support dollar_figureor constitutes support from contributions and dollar_figureor constitutes support from investment_income therefore organization meets the support_test of a since income_tax regulation sec_1_509_a_-6 states in part that if an organization is described in sec_509 and also in another paragraph of sec_509 it will be treated as described in sec_509 therefore the organization's foundation status should be modified from an organization described in sec_509 to an organization described in sec_509 and sec_170 a vi of the code conclusion the organization's foundation status should be reclassified from a publicly_supported_organization described in sec_509 to an organization described in sec_509 and sec_170 a vi of the code the effective date of this modification will be october 20xx form 886-a rev department of the treasury - internal_revenue_service page -2


tcmemo_1999_345 united_states tax_court warren jack kidder and barbara jeanne kidder petitioners v commissioner of internal revenue respondent docket no filed date warren jack kidder and barbara jeanne kidder pro sese caroline tso chen and laura b belote for respondent memorandum findings_of_fact and opinion gerber judge respondent by notice_of_deficiency determined income_tax deficiencies an addition_to_tax and penalties as follows year deficiency dollar_figure big_number addition_to_tax penalty sec_6651 sec_6662 dollar_figure dollar_figure --- big_number the issues that remain for our consideration are whether petitioners are entitled to claim a nonbusiness_bad_debt deduction for loans made to petitioner barbara jean kidder’s mrs kidder’s son and whether petitioners are liable for a late filing addition_to_tax for and or an accuracy-related_penalty for the and or tax_year findings of fact1 petitioners resided in pebble beach california at the time their petition was filed in this case petitioners filed a joint federal_income_tax return for their and taxable years with respect to their return petitioners sought two extensions of time to file the last of which extended the time to date petitioners’ return was executed by the return preparer on date and by petitioners on date the date stamp placed on petitioners’ income_tax return which would normally show when respondent received the return is illegible during the taxable years mrs kidder was employed as a manager and petitioner warren j kidder mr kidder was self- employed as an appraiser mrs kidder began advancing funds to her son david bogue mr bogue in the advances were to pay for mr bogue’s personal and business obligations some of the stipulation of facts and the attached exhibits are incorporated by this reference the advances were paid directly to third parties on mr bogue’s behalf after mrs kidder’s marriage to mr kidder and through the years under consideration petitioners continued to advance funds to mr bogue the advances were not formalized no collateral or security was provided and no written demands for repayment were made by petitioners on schedule d of their income_tax return petitioners claimed a dollar_figure short-term_capital_loss attributable to a loss on personal loan - david bogue on that same schedule d petitioners reported a long-term_capital_gain of dollar_figure which left a net_short-term_capital_loss of dollar_figure of which dollar_figure was claimed for the remaining dollar_figure short-term_capital_loss was carried over to and applied against an dollar_figure long-term_capital_gain reported for respondent disallowed the entire dollar_figure loss claimed with respect to mr bogue explaining that petitioners had not established that the amount was a bad_debt arising from a true debtor-creditor relationship on date mr bogue and his wife mrs bogue engaged in a business known as garage doors unlimited voluntarily filed for bankruptcy protection in mr and mrs bogue’s initial petition seeking bankruptcy protection petitioners were not listed as creditors after speaking with mr and mrs bogue’s bankruptcy attorney petitioners based on their estimates of the outstanding advances decided to file a dollar_figure claim in the bankruptcy proceeding ultimately mr and mrs bogue received a discharge from bankruptcy and relief from their debts including petitioners’ claim in the preparation of their income_tax return petitioners were advised by their accountant that the claim against mr bogue could be deducted as a bad_debt against petitioners’ long-term_capital_gains during when petitioners were compiling information for the preparation of their income_tax return they performed a more thorough analysis of the total amount that had been advanced to mr bogue over the years based on their analysis of numerous documents petitioners calculated that the total outstanding advances made to or on behalf of mr bogue was dollar_figure and they claimed that amount as a bad-debt loss on their return petitioners produced substantial amounts of documentation reflecting that they had made numerous advances to and on behalf of mr bogue beginning in opinion we must determine whether the advances made by petitioners represent loans to mrs kidder’s son and if so whether the loans became worthless in in general sec_166 a 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 unless otherwise indicated allows an individual to deduct losses sustained from bad_debts that become worthless during the taxable_year sec_166 restricts the deduction for losses from nonbusiness debts of a taxpayer other than a corporation by characterizing them as short-term_capital_losses only a bona_fide debt arising from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money qualifies for a deduction under sec_166 sec_1_166-1 income_tax regs whether a bona_fide debtor-creditor relationship exists is a question of fact to be determined upon a consideration of all the facts and circumstances see 54_tc_905 petitioners must show that a bona_fide debt existed between them and mr bogue see 512_f2d_882 9th cir affg tcmemo_1972_133 we also note that intrafamily transactions are subjected to closer scrutiny see 549_f2d_1155 8th cir affg tcmemo_1975_319 see also 92_tc_470 affd 912_f2d_1466 5th cir it is more likely that a transfer between family members is a gift see perry v commissioner supra 55_tc_172 petitioners may overcome this inference by showing that a real expectation of repayment existed and that there was an intent to enforce the collection of the indebtedness see 12_tc_1158 affd 192_f2d_391 2d cir during some of the period that funds were advanced by petitioners mr bogue was involved in a business in order for petitioners to be successful they would have to show among other things a reasonable expectation belief and intention that petitioners would be repaid as creditors regardless of the success of the business and that the advances were not contributions to capital put at risk in the venture see fisher v commissioner supra pincite 398_f2d_694 3d cir the record however does not generally show that the advances were made to capitalize mr bogue’s business activity instead it generally reflects that the advances made to mr bogue were randomly made without any apparent formality or expectation of repayment a review of the documents offered by petitioners to support the amount of the advances reveals payments for medical bills credit card purchases apartment rent utilities fines and court costs for motor_vehicle violations and other personal bills of mr and mrs bogue until the time that mr and mrs bogue voluntarily petitioned themselves into bankruptcy petitioners had not considered the amount s that had been advanced and after discussions with mr bogue’s bankruptcy attorney during made an estimate of dollar_figure in connection with the preparation of petitioners’ tax_return they conducted a more thorough evaluation and concluded that the amount advanced to mr bogue was almost double the amount petitioners had claimed in the bankruptcy proceeding although petitioners contend that the advances were loans with the expectation of repayment the record contradicts such a conclusion based on the facts and circumstances in this record petitioners’ advances were made with compassion and generosity the record also reveals that mr bogue was in financial and other types of difficulty throughout the entire period in which the advances were made it was therefore highly unlikely that he would be able to repay the advances although petitioners are generous parents who financially supported their child in his time of need the circumstances here do not show a bona_fide debtor-creditor relationship and entitlement to a bad-debt deduction under sec_166 see 91_tc_575 respondent also determined that petitioners are subject_to an addition to the tax for late filing of their return and a because we hold that petitioners did not have a debtor- creditor relationship and that the advances were in the nature of gifts and were not loans it is unnecessary to decide whether petitioners substantiated the amounts claimed for their and taxable years sec_6662 accuracy-related_penalty for and as to the sec_6651 late filing addition it applies if petitioners filed their return late and are unable to show that their failure_to_file the return on time was due to reasonable_cause and not due to willful neglect see 99_tc_202 before considering whether petitioners have shown reasonable_cause we consider whether petitioners’ return was timely filed respondent determined that petitioners’ return was filed month or less after the due_date as extended the parties stipulated a copy of petitioners’ return that was filed with respondent the parties did not stipulate the date on which respondent received the return the stipulated copy of petitioners’ return bears a date stamp that is illegible the return was signed by the tax_return_preparer on date and by petitioners on date attached to petitioners’ return are extensions that extend the time for filing the return to date petitioners did not prove however that they mailed by u s mail their return on or before date see sec_7502 providing that timely mailing will be considered to be timely filing under certain circumstances which includes a showing of a timely u s postmark petitioners failed to show that they mailed their return or that it was received by the irs prior to or on the due_date nor have petitioners shown reasonable_cause for the late filing because petitioners have not shown respondent’s determination to be in error we find that petitioners are liable for the sec_6651 addition_to_tax for their tax_year see rule a respondent also determined that petitioners are subject_to a sec_6662 accuracy-related_penalty because of negligence or disregard of rules or regulations sec_6662 provides for a 20-percent penalty on the portion of the underpayment to which sec_6662 applies respondent determined that the entire underpayment is subject_to the penalty for the and taxable years no penalty is imposed with respect to an understatement as to which the taxpayer acted with reasonable_cause and in good_faith see sec_6664 petitioners were advised by the bankruptcy attorney that they could file a claim in bankruptcy for the advances they had made to mr bogue they did so during and their claim was discharged during the same year petitioners who had capital_gains were advised by their accountant return preparer that they were entitled to claim a capital_loss for bad_debts that they had claimed and that were discharged in the bankruptcy considering petitioners’ background the circumstances of this case and petitioners’ reasonable reliance on professional advice we hold that petitioners acted in good_faith and had reasonable_cause and accordingly are not liable for the sec_6662 penalty for their or taxable_year to reflect the foregoing and concessions of the parties decision will be entered under rule


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-141237-14 date date x ------------------------------------------------------------------- country ----------- date date date ---------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------- dear -------------------------- this letter responds to a letter dated date submitted on behalf of x by its authorized representatives requesting a ruling under sec_301_7701-3 and sec_301_9100-3 of the procedure and administration regulations specifically your letter requests the service’s consent to change x’s classification from an association_taxable_as_a_corporation to a disregarded_entity effective date facts x was formed under the laws of country x an eligible_entity elected to be treated as a corporation for federal tax purposes effective date x represents that as of date x had a change_of_ownership of more than fifty percent that would satisfy sec_301 c iv plr-141237-14 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_7701-3 provides that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing_date or on the effective date of the entity’s prior election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer plr-141237-14 acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based on the facts submitted and representations made we consent to x changing its classification for federal tax purposes less than months after its previous classification change as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity for federal tax purposes effective date 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 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 b01 plr-134054-17 date april taxpayer a b c d e f g day date date date amount -------------------------------------------------- -------------------------- -------------------------------------- ------------------------------- ------------------------------ ----------------------------- ---------------------- ------------------- -------------- ---------------------- --------------------------- ---------------------- -------------- dear ---- ------------------- this letter responds to your letter dated date submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make the election described in sec_4 of revproc_2011_29 2011_18_irb_746 which includes claiming a deduction for a portion of success-based fees and attaching statements to taxpayer’s original consolidated federal_income_tax return for the tax_year ending on date facts taxpayer is a corporation that files its federal_income_tax returns on a fiscal_year basis with a tax_year ending on day and it uses an accrual_method as its overall_method_of_accounting taxpayer is engaged in the design simulation layout engineering and fabrication of test interface circuit boards plr-134054-17 a a corporation wholly owned by taxpayer files its federal_income_tax returns on a fiscal_year basis with a tax_year ending on day and uses an accrual_method as its overall_method_of_accounting b an entity taxed as a partnership was the percent owner of taxpayer before the transaction taxpayer and b file a federal consolidated tax_return with taxpayer as the common parent b is engaged in the engineering design and manufacturing of advanced technology printed circuit boards c is an entity disregarded for federal_income_tax purposes c is wholly owned by d an entity taxed as a partnership for federal_income_tax purposes c acquired percent of the stock of taxpayer the transaction on date taxpayer represents that taxpayer and c became related within the meaning of sec_267 or sec_707 on that date taxpayer also represents that the stock acquisition is a covered transaction under sec_1_263_a_-5 taxpayer engaged e on date to provide financial advisory services related to the transaction under the engagement letter taxpayer was to provide the greater of amount or a calculated percentage of the purchase_price of a completed transaction taxpayer represents that this fee is a success-based_fee and that it accrued on date taxpayer engaged f and relied upon it to prepare its federal_income_tax return for the tax_year ending on date taxpayer’s return did not treat any of the fees related to the transaction as success-based fees deductible under revproc_2011_29 in addition f failed to advise taxpayer to make the election provided in revproc_2011_29 concerning the treatment of success-based fees as not facilitating a business acquisition taxpayer subsequently engaged g to prepare its federal_income_tax return for the tax_year ending on date and to analyze the costs of the transaction g discovered that none of the success-based_fee was deducted on taxpayer’s tax_return for the tax_year ending on date and it recommended that taxpayer amend its return to make the election provided in revproc_2011_29 and deduct a portion of the success-based_fee law sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 112_sct_1039 l ed 2d plr-134054-17 397_us_572 90_sct_1302 25_led_577 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances see sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1 a - a ie a success-based_fee is presumed to facilitate the transaction a taxpayer may rebut this presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to allocate a success-based_fee between activities that facilitate the transaction and activities that do not facilitate the transaction by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized 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_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the plr-134054-17 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the service failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return at issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides that an extension of time to make a regulatory election will be granted only when the interests of the government are not prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section sec_301_9100-3 sec_301_9100-3 provides special rules for accounting_method regulatory elections the interests of the government are deemed to be prejudiced except in plr-134054-17 unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested i ii iii iv is subject_to the procedure set forth in sec_1_446-1 of this chapter requiring advance written consent of the commissioner requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year in which the election should have been made would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals_office or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year analysis taxpayer’s election is a regulatory election as defined in sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_263_a_-5 the commissioner has the authority under sec_301_9100-1 and sec_301_9100-3 to grant an extension of time to file a late regulatory election the information provided and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith taxpayer reasonably relied on f a qualified_tax professional to prepare its tax_return taxpayer is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time relief is requested taxpayer did not affirmatively choose not to make the election after having been informed in all material respects of the required election and related tax consequences rather taxpayer relied on f to advise it as to any relevant elections which f failed to do with respect to this election taxpayer is not using hindsight in requesting relief further based on the information provided and representations made by taxpayer granting an extension will not prejudice the interests of the government taxpayer will not have a lower tax_liability in the aggregate for all taxable years to which the election applies at this time than taxpayer would have had if the election had been timely made in addition the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under sec_6501 before taxpayer’s receipt of the ruling granting an extension of time to make a late election conclusion plr-134054-17 based solely on the information provided and representations made we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its amended_return and attach the mandatory statements as required by section dollar_figure of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized 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 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 including whether taxpayer is properly including the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer’s transaction is within the scope of revproc_2011_29 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 a copy of this ruling should be attached to taxpayer’s federal tax returns for the tax years affected 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 in accordance with the provisions of the power_of_attorney currently on file with this office a copy of this letter is being sent to your authorized representatives sincerely s ronald j goldstein ronald j goldstein assistant to the branch chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court tamaki foundation petitioner v commissioner of internal revenue respondent docket no 23089-96xx filed date william j tully an officer for petitioner kirk m paxson for respondent memorandum opinion laro judge petitioner petitioned the court to declare whether petitioner qualifies for exempt status under sec_501 see sec_7428 the parties dispute whether petitioner meets the operational_test of sec_1 c -1 income_tax regs we hold it does not unless otherwise stated section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure background we decide this case on the basis of the entire administrative record see rule b which is incorporated herein by this reference petitioner's mailing address was in ontario california when its petition was filed william j tully is a promoter of tax-exempt entities and he was retained by donald tamaki to form for him a tax-exempt foundation mr tully organized a corporation named tamaki foundation petitioner herein petitioner's officers are mr tully vice president mr tamaki president and mr tamaki's wife mary secretary and treasurer these officers also serve as directors on petitioner's board mr tully filed articles of incorporation for petitioner with the nevada secretary of state and he prepared bylaws for the corporation the articles state that petitioner's primary purpose is to provide financial assistance to the needy the bylaws state that petitioner's primary purpose is that set forth in the articles the bylaws further state that nothing herein contained shall be construed to prevent any director from receiving compensation_for services to the corporation rendered in a capacity other than director on date petitioner filed with the commissioner a form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code application in which it sought recognition as a tax-exempt_entity the application reported that petitioner's activities were supplying money goods or services to the poor providing services for the aged and providing aid to the handicapped the information that petitioner provided to the commissioner on and with the application was vague as to the specifics of these activities the application stated generally the primary objective of the foundation is to be able to offer financial assistance mostly in the form of actual credit for food or clothing and or cash where required all on a professional approach to those persons in immediate need we define those in immediate need as those who are homeless sick or under severe financial hardship due to circumstances beyond their control further we define the term immediate need as those who's sic need is temporary as verses sic that of a more longer term need the application indicated that petitioner had not currently begun any activity except for organizational activities and that petitioner was not going to begin operating until after the commissioner recognized it as tax exempt as to sources of financial support the application stated at the present time this organization does not have any procedure for the generation of income other than a direct donations from the general_public at large b larger sums from various fund raising activities c a possible thrift store type operation and d donations of property both personal and real which can be turned into cash and e various others as may be recommended and implemented by the organization on date the commissioner mailed petitioner a letter seeking clarification of the information that it had provided him on and with the application the letter specified the information that the commissioner needed to rule on petitioner's request for exempt status and listed the name and phone number of a person at the internal_revenue_service to contact with any questions the letter stated we can only recognize you as exempt in advance of operations if you are able to describe your proposed operations in sufficient detail to enable us to determine that you will be organized and operated in accordance with sec_501 of the code on or about date petitioner mailed the commissioner a response to his letter the response gave vague answers to the guestions set forth in the commissioner's letter and did not explain in detail petitioner's proposed activities or operation on date the commissioner mailed petitioner another letter seeking specificity as to petitioner's organization activities and operation the letter explained that the commissioner needed specific information before he could rule that petitioner was exempt from taxation under sec_501 the letter citing and quoting revproc_90_27 sec_5 1990_1_cb_514 stated exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt a record of actual operations may be required before a ruling or determination_letter will be issued emphasis added in the letter the letter asked for specific information that the commissioner needed to rule on petitioner's request for exemption and listed the name and phone number of the person at the internal_revenue_service to contact with any questions by way of an undated letter to the commissioner petitioner responded to the commissioner's letter of date this response was no more informative than the prior response as to the specifics of petitioner's organization activities or operation the latest response repeated many of the statements set forth on the prior response on date the commissioner issued to petitioner a 30-day_letter reflecting the commissioner's determination that petitioner did not qualify under sec_501 because it failed the operational_test of sec_1 c -l1 c income_tax regs approximately month later mr tully in his capacity as petitioner's vice president notified the commissioner that petitioner was appealing that determination and approximately months after that mr tully met with one of the commissioner's appeals officers to discuss petitioner's case shortly after this meeting petitioner filed with the commissioner an amended form_1023 as amended petitioner's form_1023 stated the primary purpose of the foundation as stated in its oroginal sic application_for exemption was amended to read as follows the primary purpose of the foundation will be to raise funds for financially strap families living within the immediate area of the foundation's base of operation with all funds being administered by other irs approved c charitable organizations such as the salvation army united way and the catholic church the foundation will limit its currect sic fund raising activities to raising funds directly from its officers directors and their immediate familites sic friends and business associates the amended form_1023 did not list specifics as to petitioner's operations including the manner in which petitioner would effect its amended primary purpose the amended form_1023 did not address any safeguards against private_inurement on date the commissioner mailed a letter to mr tully in his capacity as petitioner's vice president explaining that petitioner had not yet described its operations in sufficient detail the letter set forth four items of information that the commissioner lacked as to petitioner including a definition of the term financially strap as set forth in the amended form_1023 by way of an undated letter mr tully responded to the commissioner's letter of date the response was generally vague as to the information sought as to the definition of the term financially strap the letter stated this organization defines the term financially strap as a temporary condition wherein the person or family under consideration is without immediate funds in sufficient amount to provide the very necessities of life for the present day or week at most tt is not to bail out any person or family from their current financial psoition sic rather it is a temporary means of relief that is intended to assist that person or family in their immediate need of foods and or lodging for at least a day or two perhaps a week at the most until they can get on relief or find other assistance if that be the case it is to make sure that the person or persons in question do not have to go hungry over night or not have a safe place to stay included in this immediate need might be considered a doctor appointment for life threatening situations on date the commissioner issued to petitioner a final adverse determination_letter the letter stated our adverse determination was made for the following reason s you did not meet the operational_test under sec_1 c -1 of the income_tax regulations in order to qualify under code sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in that section you did not describe your proposed activities in sufficient detail as required by sec_1 c -1 of the regulations discussion respondent has determined that petitioner does not meet the requirements of sec_501 petitioner must prove this determination wrong see rule c a 765_f2d_1387 9th cir affg tcmemo_1984_349 83_tc_381 affd 823_f2d_1310 9th cir in order for petitioner to do so the administrative record upon which this case is to be decided must contain enough evidence to support a finding contrary to the grounds set forth in the notice_of_determination and petitioner must demonstrate the merits of its claim by at least a preponderance_of_the_evidence see 88_tc_38 see also rule c a fed r evid if petitioner fails to carry its burden respondent will prevail see 243_f2d_125 9th cir affg 25_tc_351 512_f2d_882 9th cir affg tcmemo_1972_133 estate of gilford v commissioner supra pincite sec_501 provides in part sec_501 exemption from taxation ---an organization described in subsection c shall be exempt from taxation under this subtitle unless such exemption is denied under sec_502 or sec_503 c list of exempt_organizations --the following organizations are referred to in subsection a corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office from this text we understand that an organization is entitled to exempt status if it 1s organized and operated exclusively for charitable purposes see also sec_1 c -1 a income_tax regs we also understand that an organization that fails this test does not qualify for exempt status under sec_501 see also id respondent focuses entirely on petitioner's failure to satisfy its burden as to the operational_test so do we sec_1 c -l1 c income_tax regs provides as follows as to the operational_test c operational_test -- primary activities an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose distribution of earnings 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 xk kek from the text of these regulations we understand 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 see sec_1 c -l1 c income_tax regs the concept of private_inurement as expressed therein ensures that the organization serves public rather than private interests see church of scientology v commissioner supra pincite tax exemption is a matter of legislative grace it is not a matter of right see 470_f2d_849 10th cir we have previously observed that the opportunity for abuse is present when the affairs of an organization are controlled by its creators who belong to the same family see 74_tc_531 affd 670_f2d_104 9th cir in such a situation therefore we require an open and candid disclosure of all facts bearing upon the organization its operations and its finances so that we may be assured that we are not sanctioning an abuse of the revenue laws by granting a claimed exemption see id see also united libertarian fellowship inc v commissioner tcmemo_1993_116 where such a disclosure is not made the logical inference is that the facts if disclosed would show that the taxpayer fails to meet the requirements of sec_501 see bubbling well church of universal love inc v commissioner supra pincite petitioner leaves us no choice but to draw such an inference here the record is devoid of sufficient documentation or other substantive information regarding petitioner's organization activities or operations what little information petitioner did provide pursuant to respondent's requests was extremely vague and in our view simply an attempt by petitioner to avoid disclosing the requested information petitioner has completely failed to establish its entitlement to tax-exempt status we also note that petitioner has failed to prosecute its case properly ’ petitioner failed to file a brief as ordered by the court and required by rule and it has failed to explain its failure to do so we have previously treated such inaction by a party as an abandonment of those issues not addressed see 84_tc_716 we also have held that the failure_to_file a brief may justify the dismissal of all issues as to which a taxpayer has the burden_of_proof see 84_tc_693 affd without published opinion 789_f2d_917 4th cir we sustain respondent's determination see also larry d bowen family found v commissioner tcmemo_1999_149 wherein we reached the same result based on an administrative record that was virtually identical to the administrative record at hand as ' petitioner's representative mr tully is no stranger to litigation he has filed cases in this court on at least three prior occasions see tully v commissioner an order of this court dated date dismissing the case for failure to prosecute vacated and remanded without published opinion 164_f3d_631 9th cir with instructions to dismiss petition for lack of jurisdiction tully v commissioner tcmemo_1997_310 on appeal 9th cir date oliver family found v commissioner tcmemo_1997_220 he has prosecuted or is prosecuting the appeal of two of these cases before the court_of_appeals for the ninth circuit and he prosecuted one case before a federal district_court see tully v kaply aftr 2d c d cal is true with the case here mr tully also formed the corporation in larry d bowen family found and was its representative before this court accordingly decision will be entered for respondent