department of the treasury internal_revenue_service washington d c government entities bivision sin may jt ep ra -t db - legend state s employer e plan a plan b plan c account x account y this is in response to a request for a ruling letter dated date and subsequent correspondence submitted on your behalf by your authorized representative this request concerns certain legislation in state s permitting employees to transfer funds between plans for the purpose of purchasing certain permissive_service_credit the following facts and representations have been submitted on your behalf employer e is an agency of state s created to administer and govern certain state colleges and universities of state s employer e maintains plan a a defined_contribution_plan that meets the requirements of sec_401 of the internal_revenue_code for the benefit of the employees of such colleges and universities plan a is composed of a number of accounts including the individual_retirement_account plan irap the supplemental retirement_plan srp the after- tax contribution account and the rollover account the irap is composed of two accounts the irap employer pick up account and the irap employer matching account the srp is composed of two accounts the employer pick up account and the employer matching page contribution account there are no employee after-tax contributions in the irap or the srp there are no after-tax contributions in any of the accounts except those heid in the aftér tax contribution account state s has also established a number of defined benefit plans benefiting the educational employees of state s and its political subdivisions including plan b and plan c plan b and plan c are qualified under sec_401 of the code when employment with employer e commences the newly hired employee has an election to participate in irap or plan b or plan c employees participating in irap or one of the specified defined benefit plans become eligible to participate in srp after meeting certain service requirements both plan a and plan b permit their participants to purchase various forms of service_credit specified under the plan during the legislative session the legislature of state s enacted legislation authorizing participants to use their srp accounts by means of a plan to plan transfer for the purpose of purchasing various types of service_credit under plan b or plan c the transfer can only be made to the defined_benefit_plan under which the employee is a participant the transfers can only be made if the transfers are not prohibited by or subject_to penalty under federal_law as provided for under state s statute the transfer must be a-plan to plan transfer and in no event can the participant directly receive any of the funds while still employed by employer e rulings are requested on the following issues whether plan amendments permitting plan a participants to utilize their entire account y to purchase service_credit in plan b or plan c jeopardizes the qualified status of plan a whether plan amendments permitting plan a participants to utilize only that portion of account y representing employee contributions and related earnings to purchase service_credit in plan b or plan c jeopardizes the qualified status of plan a will the transfer of account y assets directly from plan a to plan b or plan c result in ordinary_income to the participant under sec_402 and sec_72 of the code with respect to request sec_1 and section dollar_figure of revproc_2002_4 2002_1_irb_127 provides that the service ordinarily will not issue letter rulings on matters involving a plan's qualified status under code sec_401 through and sec_4975 these matters are generally handled by the employee_plans determinations program as provided in revproc_2002_6 2002_1_irb_203 accordingly we are not responding to ruling requests one and two with respect to request sec_402 of the code provides that except as otherwise provided in this subsection any amount actually distributed to any distributee by any employees’ trust described in sec_401 a which is exempt from tax under sec_501 a shail be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 relating to annuities revrul_67_213 1967_2_cb_149 holds that where the interests of participants are transferred from a_trust forming part of one qualified_plan to a_trust forming part of another qualified_plan no amounts will be considered distributed or made available to the participants by reason of the transfer page dollar_figure according to the facts presented the subject transfers are limited to direct plan to plan transfers and in no event can a participant receive a distribution of the transferred amounts whilé-still employed therefore the transfer of account y assets directly from plan a to plan b or plan c will not result in ordinary_income to the participant under sec_402 and sec_72 of the code this ruling is based on the assumption that plans a b and c will continue to qualify under sec_401 a of the code this ruling is not a determination on any issue related to the ongoing qualification of the subject plans as noted above the qualification of the plans is a matter for the employee_plans determinations program in addition this ruling does not address any issue under sec_72 of the code regarding subsequent distributions from plan b and pian c of amounts that were the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney submitted with the request - the author of this letter is who may be reached at yours ut ip yo a rt rncone fy ces v sloan manager ployee plans techajgg group fax-exempt and government entitiés division as enclosures deleted copy of letter notice


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 b03 plr-147250-08 date date legend x y ----------------------------------------------------------------------------------------------------- ----------------------- ------------------------------------------------------------------------ state ------------- date -------------------------- dear ------------- we received your letter dated date submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 this letter responds to your request facts x was formed on date as a state limited_liability_company x is wholly-owned by y y intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis plr-147250-08 sec_301_7701-3 provides 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 a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 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 if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed 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 a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register 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 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 acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-147250-08 based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------- --------------------------- ------------------------------------------ -------------------------------------------------- ----------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------------- id no -------- ------------------ telephone number ---------------------- refer reply to cc ita b04 plr-144239-12 date april fund company state x insurance regulator court entity entity plan newco fund claims administrator year date u date v q r dollar_figurea dollar_figureb dollar_figurec dollar_figured -------------------------------------------------------------------------- ----------------------------------------------------------------- -------------- ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------- ---------------- ------- --------------------------- -------------------- ------ ---- ------------------------------------- ------------------------------------ -------------- ------------------------------------- dear -------------- this responds to your letter dated date and subsequent correspondence submitted on behalf of fund requesting a ruling that its payments to certain fund beneficiaries are not subject_to information reporting under sec_6041 of the internal plr-144239-12 revenue code because the payments are excluded from their gross_income under sec_104 facts fund was formed under the laws of state x as a not-for-profit non-stock corporation fund was established in connection with the liquidation of company and was formed in order to replace in hardship situations some of the benefits due to company payees which are being reduced due to company’s insolvency fund's annual_accounting_period is a calendar_year and its method_of_accounting is an accrual_method company is a life_insurance_company domiciled in state x and since year has been under the direction of insurance regulator as receiver pursuant to the orders of court company's sole remaining in-force policies are annuity_contracts contracts you represent that the contracts consist of the following types structured_settlement annuities ssas the payments under which are excludable from the recipients’ gross_income pursuant to sec_104 individual certificates delivered under group annuity_contracts issued by company in connection with the terminations of defined benefit plans ie pension termination annuities and other single premium immediate annuities not included in the above categories together other annuities company's assets as of date u totaled dollar_figurea but the value of company's liabilities as of that date was approximately dollar_figureb accordingly company cannot continue to pay percent of the benefits on all contracts insurance regulator worked with representatives from and counsel for various interested parties including among others entity and entity various state life and health insurance guaranty associations with statutory coverage obligations under the contracts the participating guaranty associations or pgas and certain life_insurance_companies to reach a consensus on the plan that is in the best interests of company payees and creditors avoids disruption of annuity payments and increases the amount of funds available for company payees and creditors insurance regulator petitioned court to among other things declare company to be insolvent approve the provisions terms and conditions of the plan appoint insurance regulator and its successors in office as liquidator of company and to direct insurance regulator to liquidate the business and affairs of company on date v court approved the plan pursuant to the plan insurance regulator and entity will determine an implied account value for each contract equal to the present_value of company's projected we have assumed but do not decide that the payments made under the currently existing ssas are excluded from recipients’ gross_income under sec_104 plr-144239-12 liabilities due and payable under each contract as of the date of liquidation liquidation value the liquidation value assigned to each contract will then be reduced to a pro_rata amount that could be supported by company's assets as of the date of entry of an order of liquidation restructured value the restructured value of contracts as so restructured restructured contracts is expected to reduce benefit payments to approximately q percent of their pre-restructured value the order approving the plan will reduce the liabilities under each contract to its restructured value and the difference between the liquidation value assigned to a contract ie its pre-restructured value and the restructured value for the contract will be deemed to be an indebtedness of company to company payees under the plan company will transfer a substantial portion of its assets to newco and will cede and assign to newco its liability to make the reduced benefit payments under the restructured contracts company will not cede or assign to newco the obligations it retains under the plan in respect of the restructured contracts retained liabilities the retained liabilities may be discharged only by a future court order closing company's liquidated estate the plan provides that benefits under the restructured contracts shall be immediately enhanced upon newco's assumption of the restructured contracts from a variety of funding sources the pgas will provide financial support to supplement benefit payments up to the maximum amount allowable by their respective state laws with respect to the restructured contracts eligible for guaranty association coverage in addition insurance regulator and entity have negotiated with certain life_insurance_companies for the provision of supplemental benefit enhancements supplemental benefit enhancements a restructured contract that is subject_to a benefit reduction after application of all of the other benefit enhancements under the plan would receive supplemental benefit enhancements to increase the total benefits to be paid_by newco in respect of such contract to the lesser_of a total benefits with a present_value of dollar_figurec and b total benefits under the terms of the pre-restructured contract company's estate will retain some of company's remaining assets which will be used to pay secured claims administrative expenses and other remaining liabilities of company when no longer needed any remaining funds will be transferred to newco and allocated on the same basis as all other transferred assets in addition the plan contemplates that at defined points in the future newco will attempt to transfer all of newco's liabilities to a commercial life insurer and remit the proceeds if any of such transfer to company's estate such later recoveries by company with the approval of court will be used to satisfy company's retained liabilities in accordance with the priorities set forth in the state x insurance law and the plan even after the funding from other sources including the pgas and the supplemental benefit enhancements discussed above approximately r percent of company payees will not receive the full amounts due under their pre-restructured contracts a plr-144239-12 consortium of insurance_companies has committed to contribute dollar_figured to fund for payment to company payees whose policy benefits have been reduced and who will not receive from other sources the full amounts due under their pre-restructured contracts and who otherwise qualify for fund benefits fund beneficiary or beneficiaries these companies are not required to make any additional contributions to fund and fund will hold dollar_figured in a general account until the amount is distributed to fund beneficiaries you represent that court considered the payments fund will make to fund beneficiaries to be an integral part of the overall plan for replacing amounts due to company payees under the contracts along with other contract enhancements fund’s making of the payments depended on court’s approval of the plan payments from fund will be administered by fund claims administrator fund claims administrator has sole discretion regarding the award of financial assistance the amount of an award and the form of the award ie lump sum or periodic_payments a company payee must apply to fund in order to receive payments from fund the application fund claims administrator has developed requires information regarding the circumstances leading to the creation of a contract the amount of the annuity benefit thereunder the current monthly annuity benefit payments a fund beneficiary's life expectancy financial status and medical history and certain other relevant information fund claims administrator will make determinations regarding payments from fund based on individual needs the dollar_figured will be allocated among fund beneficiaries after such allocations fund claims administrator will pay benefits from fund assets in one of two ways fund claims administrator will make a lump sum payment of benefits to a fund beneficiary or fund claims administrator will purchase an annuity to fund periodic_payments to a fund beneficiary fund has represented that it or a third-party assignee that is unrelated to any fund beneficiary will remain the owner of any annuity including both ssa and other annuities purchased to fund periodic_payments to a fund beneficiary and that payments under the annuity will be made to a fund beneficiary at the direction of fund or a third-party assignee that is unrelated to any fund beneficiary a fund beneficiary will have no interest in an annuity and will have no ability to assign the rights to the annuity fund has also represented that a fund beneficiary will have no right to change the payee or to alter or accelerate the payments under the annuity which as noted above will be made by the issuer of the annuity to the beneficiary at the direction of fund a fund beneficiary will have no right to demand payment of any amount either from the insurance_company that issues the annuity or from fund before amounts are due and payable under the terms of the annuity fund will not create any separate escrow or trust account for any fund beneficiary with respect to any annuity or the plr-144239-12 payments to be made thereunder fund will hold the annuities in fund’s general account a fund beneficiary will have no interest in the assets of fund the payments fund makes to a fund beneficiary will not exceed on a present_value basis the amount of the fund beneficiary's shortfall under his or her restructured contract fund will be subrogated to any amount that a fund beneficiary recovers in excess of the amount the fund beneficiary would have received under his or her pre- restructured contract if a fund beneficiary receives a payment of any amount to which fund is subrogated the fund beneficiary will be obligated to make payment of such amount to fund you represent that it is erroneous to assume that the value of the rights that the company payees retain against company and correspondingly fund’s subrogation rights are de_minimis because there are at least three different potential sources of payments written into the plan for example company’s retained assets that exceed secured claims and expenses would be transferred to newco to company payees through additional pro_rata distributions to each company payee who does not receive a full payment under the plan in addition the contracts that newco is administering could have significant profit potential due to historically low interest rates thus an insurer may be willing to purchase newco’s business and newco would be required to remit the sale proceeds to company for payment to company payees in addition the owners of the ssas still have contractual obligations to company payees under the underlying structured_settlement agreements law sec_6041 requires every person engaged in a trade_or_business to file an information_return for each calendar_year in which the person makes in the course of its trade_or_business payments to another person of fixed and determinable income aggregating dollar_figure or more and furnish a copy of the information_return to that person see sec_6041 and d sec_1_6041-1 and a of the income_tax regulations sec_61 provides that except as otherwise provided in subtitle a gross_income means all income from whatever source derived sec_104 as in effect prior to the amendments made by a of the small_business job protection act of act provided in general that gross_income does not include the amount of any damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness for amounts to which the act applies sec_104 provides in general that gross_income does not include the amount of any damages other than punitive section d of the act provides that the amendments made by a to sec_104 do not apply to any amount received under a written binding agreement court decree or mediation award in effect on or issued on or before date plr-144239-12 damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness generally the taxpayer's method_of_accounting determines when an amount is treated as received for federal_income_tax purposes fund beneficiaries report on the cash_receipts_and_disbursements_method of accounting for federal_income_tax purposes under the cash_receipts_and_disbursements_method of accounting all items which constitute gross_income whether in the form of cash property or services are to be reported as income in the taxable_year in which such items are actually or constructively received or where an economic benefit has been conferred on the taxpayer if a fund beneficiary receives title to constructive receipt of or an economic benefit from the assets used to fund future periodic_payments then some portion of the future periodic_payments may not be excludable from income see revrul_79_220 1979_2_cb_74 sec_451 provides that an item_of_gross_income shall be included in a taxpayer's gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-2 provides that income although not actually reduced to a taxpayer’s possession is constructively received in the taxable_year in which such amount is credited to a taxpayer's account set apart for the taxpayer or otherwise made available so that the taxpayer may draw upon it at any time during the taxable_year if notice of intention to withdraw had been given income is not constructively received if the taxpayer's control of receipt of the amount is subject_to substantial limitations or restrictions sec_1_451-2 under the constructive_receipt_doctrine a taxpayer recognizes income when the taxpayer has an unqualified vested right to receive immediate payment and the obligor is ready willing and able to make payment 96_tc_814 the economic_benefit_doctrine developed in case law provides that if a promise to pay an amount is funded and secured_by the payor and the payee is not required to do anything other than wait for the payments an economic benefit is considered to have been conferred on the payee and the amount of such benefit is considered to have been received see 16_tc_244 aff'd 194_f2d_541 6th cir in sproull the court found that an economic benefit had been conferred on a taxpayer when the taxpayer's employer established a_trust to compensate the taxpayer for past services in the employer transferred money to the trust to be paid to the taxpayer in and the taxpayer was the trust's sole beneficiary and the trust agreement contained no restrictions on taxpayer’s right to assign or otherwise dispose_of the trust interest created further the trustee’s only duties were to hold invest accumulate and shortly pay over the funds to the taxpayer the court held that the taxpayer received compensation in in an amount equal to the value of the amount transferred to the trust for the taxpayer's benefit because such transfer to the plr-144239-12 trust provided the taxpayer with an economic benefit sproull t c pincite not all rights to receive periodic_payments however trigger application of the economic_benefit_doctrine revrul_79_220 concludes that a right to receive certain periodic_payments under the facts of the ruling does not confer an economic benefit on the recipient in revrul_79_220 a taxpayer entered into a settlement with an insurance_company for the periodic_payment of personal injury damages for an agreed period the taxpayer was given no immediate right to a lump sum amount and no control of the investment of the amount set_aside to fund the insurance company's obligation the insurance_company funded its obligation with an annuity payable directly to the taxpayer the insurance_company as owner of the annuity had all rights to the annuity and the annuity was subject_to the claims of the general creditors of the insurance_company the ruling notes that the insurance company’s purchase of an annuity was merely an investment by the company to provide a source of funds to satisfy its obligation to the payees the ruling concludes that all of the periodic_payments are excluded from the taxpayer's gross_income under sec_104 because the taxpayer did not have actual or constructive receipt of or have the economic benefit of the lump sum amount used to fund the annuity a similar result was reached in revrul_72_25 1972_1_cb_127 an employer purchased an annuity_contract to fund its deferred_compensation liability since the employee had no present_interest in the annuity_contract and the agreement created no separate_account or trust fund for the benefit of the employee the compensation payable to the employee was not includible in the employee’s income until the earlier of taxable_year that the employee actually received it or it was otherwise made available to the employee amounts that are not taxable under constructive receipt principles or the economic_benefit_doctrine nevertheless may satisfy the requirements for inclusion in income under the doctrine_of cash equivalency under the cash equivalency doctrine taxpayers may be taxed currently if a promise for payment by a solvent obligor is unconditional and assignable and readily exchangeable for cash see 289_f2d_20 5th cir 17_tc_465 14_tc_560 analysis in this case a fund beneficiary will not be in constructive receipt of the periodic_payments from fund fund or a third-party assignee that is unrelated to any fund beneficiary will own any annuities fund claims administrator decides should be purchased to fund benefit payments for a fund beneficiary the fund beneficiary will have no right to demand payment of any amount either from the insurance_company that issues the annuity or from fund before amounts are due and payable under the terms of the annuity fund will not create any separate escrow or trust account for any plr-144239-12 fund beneficiary with respect to any annuity or the payments to be made thereunder fund will hold the annuities in fund’s general account the fund beneficiary will have no interest in the assets of fund any annuity that fund purchases to fund benefits for a fund beneficiary will not confer an economic benefit on the fund beneficiary the fund beneficiary will have no interest in the annuity that will be unconditionally set_aside for the fund beneficiary’s benefit fund will not create any separate escrow or trust account for any fund beneficiary with respect to any annuity or the payments to be made thereunder similar to the annuities in revrul_79_220 any annuity fund acquires would be solely as a matter of convenience to fund so fund has a continuing source of assets from which to make periodic_payments to fund beneficiaries the fund beneficiary will have no rights in the annuity other than a right to payments thereunder at the time they are due and payable under the annuity_contract the fund beneficiary will have no interest in the assets of fund also in this case the doctrine_of cash equivalency does not apply to a fund beneficiary’s rights to collect periodic_payments from fund the fund beneficiary will not own the annuity or be able to assign or transfer his or her rights to the annuity fund’s commitment to make payments to a fund beneficiary over time is not the type of promise that is readily exchangeable for cash based on fund’s representations and the analysis above a fund beneficiary who receives a benefit from fund in the form of an ssa will not be in constructive receipt of or receive an economic benefit from the assets used to fund the future periodic_payments at any time before the fund beneficiary actually receives the applicable cash payment in addition the doctrine_of cash equivalency does not apply to a fund beneficiary’s rights to collect periodic_payments from fund with respect to an ssa in addition given the totality of the facts and circumstances any lump sum benefit payments and any the periodic_payments that fund makes to fund beneficiaries will retain their character as payments that are excludable from gross_income under sec_104 therefore because the amounts fund beneficiaries receive from fund in respect of ssas are excludable from gross_income under sec_104 they are not income under sec_6041 thus fund is not subject_to any information reporting obligations under sec_6041 with respect to the payments conclusion based solely on the information submitted and representations made we conclude that fund does not have any information reporting obligations under sec_6041 for benefits paid with respect to ssas because i any lump sum benefit payment made to a fund plr-144239-12 beneficiary with respect to an ssa will retain its character as a payment that is excludable from the fund beneficiary's gross_income under sec_104 and ii any periodic_payments made to a fund beneficiary with respect to an ssa which the beneficiary does not recognize until received under his or her method_of_accounting will retain their character as payments that are excludable from the fund beneficiary's gross_income under sec_104 thus fund is not required to file or furnish information returns under sec_6041 for benefits paid with respect to ssas similar analysis and conclusions also apply to payments fund makes with respect to other annuities regarding i the classification of payments based on the payments that are being replaced and ii the timing for recognizing a payment except as expressly provided in the preceding paragraph no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced herein for example we do not express any opinions under sec_501 and sec_5891 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 letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by 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 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


internal_revenue_service department of the treasury number release date index number sec_216 washington dc person to contact telephone number refer reply to cc psi 7-plr-104075-03 date date legend corporation state address a b c dear we received your letter requesting a ruling under sec_216 of the internal_revenue_code this letter responds to your request the represented facts are as follows corporation is a cooperative_housing_corporation organized under the laws of state corporation owns the land and building located at address which consists of a basement a floors b commercial units and c residential units corporation does not have an on-site parking garage for its tenant- stockholders and many tenant-stockholders therefore use an off-site parking garage in the neighborhood plr-104075-03 corporation proposes to lease parking spaces from an off-site garage corporation would then subsequently enter into separate agreements with the tenant- stockholders who desire to park their cars in the off-site garage the tenant- stockholders would pay for the parking rights to corporation and corporation will make all required_payments to the off-site garage corporation will not receive any money in excess of what is owed to the off-site garage for providing the parking service corporation would bear the economic risk should the payments by the tenant- stockholders be less than the payments due from corporation to the off-site garage you requested a ruling that payments by tenant-stockholders to corporation for use by them of an off-site garage will be considered as part of the gross_income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by sec_216 of the code sec_216 of the internal_revenue_code provides that in the case of a tenant-stockholder as defined in sec_216 there will be allowed as a deduction amounts not otherwise deductible paid_or_accrued to a cooperative_housing_corporation within the taxable_year but only to the extent that such amounts represent the tenant-stockholder's proportionate share of -- the real_estate_taxes allowable as a deduction to the corporation under sec_164 which are paid_or_incurred by the corporation on the houses or apartment building and on the land on which such houses or building are situated or the interest allowable as a deduction to the corporation under sec_163 which is paid_or_incurred by the corporation on its indebtedness contracted -- a in the acquisition construction alteration rehabilitation or maintenance of the house or apartment building or b in the acquisition of the land on which the houses or apartment building are situated sec_216 provides that the term cooperative_housing_corporation means a corporation -- a having one and only one class of stock outstanding b each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by such corporation c no stockholder of which is entitled either conditionally or unconditionally to receive any distribution not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation and d percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in sec_216 are paid_or_incurred is derived from tenant-stockholders sec_216 provides that the term tenant stockholder means a person who is a stockholder in a cooperative_housing_corporation and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the secretary as bearing a reasonable relationship to the portion of the value of the corporation's equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy plr-104075-03 revrul_68_387 provides that the amounts received by a cooperative_housing_corporation from its tenant-stockholders to defray expenses associated with their occupancy of the corporation's property including amounts received for maid and secretarial service garage or parking space utilities recreation facilities cleaning and related_services will be considered as part of the gross_income derived from tenant- stockholders for purposes of the percent requirement prescribed by sec_216 of the code on the other hand amounts received by a cooperative_housing_corporation from leases for commercial purposes or from the operation of a trade_or_business other than housing are not considered as part of the gross_income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by sec_216 of the code revrul_79_137 provides that revenue that is generated by a cooperative_housing_corporation from real_estate brokerage services provided to its tenant- stockholders in connection with the transfer of their apartment units and that is applied against recurring expenses for repair and maintenance of the corporation's property is income derived from tenant-stockholders within the meaning of sec_216 of the code applying the above standards to the facts and representations submitted and subject_to the below limitations we conclude that payments by tenant-stockholders to corporation for use by them of an off-site garage will be considered as part of the gross_income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by sec_216 of the code except as specifically ruled herein we neither express nor imply any opinion concerning the federal tax consequences under the cited provisions or 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 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 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs and special industries cc


internal_revenue_service department of the treasury number release date index nos washington dc person to contact telephone number refer reply to cc ita plr-116639-02 date date dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above-named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending march to a taxable_year ending october effective the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending october was due before the information furnished indicates that the application_for the change in accounting_period was filed late because of an error or misunderstanding sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner before the 16th day of the second calendar month following the close of the short_period sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the situation you present must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayer's late filed form_1128 requesting permission to change to a tax_year ending october plr-116639-02 effective for the short_period of is considered timely filed pursuant to appendix a of revproc_2002_1 2002_1_irb_1 an additional user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer’s application after the user_fee is received the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed or implied concerning the tax consequences of any other matter specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax and accounting enclosure


internal_revenue_service number release date index number -------------------------- ------------------------------------------ ---------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc intl b01 plr-137940-12 date date ty --------------- legend taxpayer spouse rrsp tax preparer tax preparer tax years year year year - -------------------------- ------------------------- ----------------------- ------------------------- ---------------------- --------------------------------------------- -------------------------------- --------------------------------------------------- --------------- ------- ------- ------- plr-137940-12 dear ------------------- this responds to your letter dated date requesting an extension of time under sec_301_9100-3 for taxpayer to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years the ruling contained in this letter is 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 requested rulings it is subject_to verification on examination the information submitted for consideration is substantially as set forth below facts taxpayer is a canadian citizen who established rrsp in year in year taxpayer moved to the u s taxpayer has not received any distributions from rrsp during tax years taxpayer and spouse were subject_to u s income_tax as u s residents and they jointly filed form sec_1040 on a timely basis neither taxpayer nor spouse has tax-related education skills or training during tax years taxpayer and spouse engaged tax preparer to prepare their u s income_tax returns tax preparer did not notify taxpayer of the requirement to make an election under article xviii of the united states-canada income_tax convention the treaty to defer recognition of undistributed_income accrued by rrsp accordingly taxpayer was unaware that such an election was required in year taxpayer and spouse engaged tax preparer to prepare their u s income_tax returns while evaluating taxpayer and spouse’s year u s income_tax obligations tax preparer discovered that taxpayer and spouse were not compliant with u s tax law with respect to rrsp as of the date of the ruling_request the internal_revenue_service has not communicated with taxpayer in any way regarding rrsp ruling requested taxpayer requests the consent of the commissioner of internal revenue for an extension of time under sec_301_9100-3 to make an election pursuant to revproc_2002_23 2002_1_cb_744 to defer u s federal income_taxation on income accrued by rrsp during tax years as provided for by article xviii of the treaty law and analysis plr-137940-12 sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer and spouse an extension of time provided that taxpayer and spouse satisfy the standards set forth in sec_301_9100-3 based solely on the information submitted and representations made we conclude that taxpayer satisfies the standards of sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to make an election for tax years under revproc_2002_23 as provided in sec_301_9100-1 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to make the above-described election pursuant to section dollar_figure of revproc_2002_23 once the election is made it cannot be revoked except with the consent of the commissioner for open tax years taxpayer and spouse must file amended u s income_tax returns and attach form_8891 u s information_return for beneficiaries of certain canadian registered retirement plans for rrsp for each subsequent tax_year through the tax_year in which a final distribution is made from rrsp taxpayer and spouse must attach a form_8891 for rrsp to their u s income_tax return 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 plr-137940-12 a copy of this letter must be attached to the u s income_tax return for the year in which taxpayer obtained the ruling and should be associated with the amended returns for open tax years this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to your authorized representative sincerely __________________________________ m grace fleeman senior technical reviewer branch office of associate chief_counsel international enclosure copy for 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 pa plr-121576-13 date date legend taxpayer ----------------------------- dear ----------------------------- this ruling replies to your letter dated date and subsequent correspondence dated date and date submitted on behalf of taxpayer in which you request that the internal_revenue_service rule that fee credits earned by certain account holders are not subject_to reporting under either sec_6041 or sec_6049 of the internal_revenue_code code facts taxpayer is a bank as defined under sec_581 of the code taxpayer offers two different fee credit programs under which its commercial account holders and tax exempt recipients customers receive an allowance fee credit that can be used to offset certain fees for banking services both fee credit programs are offered for demand deposit accounts used for daily business operations the services for which the fee credits may be used include the following check processing transaction processing wire transfers account analysis deposit and withdrawals posting of debits and credits and payment of checks under both fee credit programs the fee credit is calculated by applying a fee credit rate to the investable balance the investable balance is the account ledger balance minus float a portion of the balance unavailable to the customer while deposited items clear fee credit rates are most frequently determined by taxpayer using a rate committee that determines the rate for a specific customer type based on plr-121576-13 market rates and competitive factors fee credits may also be based on indexed rates such as libor or 90-day t-bill and are subject_to taxpayer’s discretion under the first program the noninterest fee credit program excess or unused fee credits are not paid in cash and may not be withdrawn by the customer however certain government nonprofit educational and healthcare account holders can use excess or unused fee credits to pay for banking services provided by third party vendors through vendor contracts with taxpayer the services are ancillary to the customers’ banking relationship with taxpayer and include armored car services courier services check supplies and lock boxes but in certain cases the customer rather than taxpayer contracts directly with the third party vendor to provide services with respect to the customer’s account under the second program the hybrid fee credit program the fee credits may only be used to offset fees for banking services up to a set limit taxpayer pays interest on any unused account balance not required to offset fees taxpayer concedes that any stated_interest paid on the unused account balance is interest for purposes of sec_6041 and sec_6049 of the code taxpayer represents that fee credit programs are extremely common in the banking industry and has offered empirical evidence supporting that representation taxpayer and other banks offer the fee credit programs to encourage banking relationships with commercial customers as well as to provide an incentive to customers to maintain large balances they are also used to manage a bank’s interest_expense a significant element to which shareholders and market analysts look when evaluating banking institutions taxpayer also represents that developing systems capable of reporting the amount of fee credits actually used by customers would be a large and costly administrative burden furthermore a majority of the customers who receive the fee credits are exempt recipients for purposes of the reporting rules under sec_6041 and sec_6049 therefore any system established for reporting fee credits developed by taxpayer would be used for only a small number of customers taxpayer states that if it actually paid interest on the deposits and charged the customers a fee for the banking services it provides the income and deductions generated by the transaction would offset one another the interest_income received by a customer would be offset by a deduction for the bank fees and the service fee income received by taxpayer would be offset by a deduction for interest_paid to the customer law interest generally is includible in a recipient’s gross_income under sec_61 of the code and sec_1_61-7 of the income_tax regulations regulations the term_interest means amounts paid for the use or forbearance of money which plr-121576-13 includes amounts whether or not designated as interest_paid on savings accounts and other deposit arrangements sec_6041 of the code requires information returns from persons engaged in and making payment in the course of a trade_or_business of rent salaries wages premiums and income of dollar_figure or more in a taxable_year sec_6041 allows certain exceptions including payments to which sec_6049 applies sec_6049 requires information returns for payments of interest aggregating dollar_figure or more to any other person during the taxable_year sec_7872 recharacterizes a below-market_loan as an arm’s-length transaction in which the lender made a loan to the borrower in exchange for a note requiring the payment of interest at a statutory rate as a result the parties are treated as if the lender made a transfer of funds to the borrower and the borrower used these funds to pay interest to the lender the transfer to the borrower is treated as a gift dividend contribution of capital payment of compensation or other payment depending on the substance of the transaction the interest payment is included in the lender’s income and generally may be deducted by the borrower see h_r conf rept no pincite 1984_3_cb_1 sec_7872 of the code defines a demand_loan as any loan which is payable in full at any time on demand of the lender the legislative_history of sec_7872 indicates that the term_loan should be interpreted broadly any transfer of money that provides the transferor with a right to repayment may be a loan for example advances or deposits of all kinds may be treated as loans h_r conf rept no pincite vol c b congress intended that sec_7872 of the code would apply only to the below- market loans enumerated in subparagraphs a through f of sec_7872 gift_loans compensation-related loans corporation-shareholder loans tax_avoidance loans and loans to qualified_continuing_care_facilities h_r conf rept no pincite vol c b under sec_7872 to the extent provided in regulations a loan that is not a gift_loan compensation-related_loan corporation-shareholder_loan or qualified_continuing_care_facility loan may still be subject_to sec_7872 if the interest arrangement has a significant effect on the tax_liability of the borrower or the lender sec_7872 of the code concerning compensation-related loans provides in part that sec_7872 shall apply to any below-market_loan directly or indirectly between an independent_contractor and a person for whom such independent_contractor provides services the imputed transfer in a compensation-related_loan is treated as a payment of compensation from the lender to the borrower plr-121576-13 sec_7872 of the code provides that sec_7872 shall apply to any below-market_loan one of the principal purposes of the interest arrangements of which is the avoidance of any federal tax sec_7872 of the code provides that the secretary shall prescribe regulations exempting from the application of this section any class of transactions the interest arrangements of which have no significant effect on any federal tax_liability of the lender or borrower sec_1_7872-5t of the temporary income_tax regulations lists transactions that are exempt from sec_7872 of the code because the interest arrangements of such loans do not have a significant effect on the federal tax_liability of the borrower or lender provided that they do not have a principal purpose of tax_avoidance see sec_1_7872-5t sec_1_7872-5t of the regulations exempts from the provisions of sec_7872 of the code accounts or withdrawable shares with a bank as defined in sec_581 or an institution to which sec_591 applies or a credit_union made in the ordinary course of its business sec_1_7872-5t of the regulations exempts from the provisions of sec_7872 of the code those loans the interest arrangements of which the taxpayer is able to show have no significant effect on any federal tax_liability of the lender or the borrower as described in sec_1_7872-5t sec_1_7872-5t of the regulations provides that whether a loan will be considered a loan the interest arrangements of which have a significant effect on any federal tax_liability of the lender or the borrower will be determined according to all the facts and circumstances among the factors to be considered are i whether items of income and deduction generated by the loan offset each other ii the amount of such items iii the cost to the taxpayer of complying with the provisions of sec_7872 of the code if such section were applied and iv any non-tax reasons for deciding to structure the transaction as a below-market_loan rather than a loan with interest at a rate equal to or greater than the afr and a payment by the lender to the borrower analysis in the present situation the deposit held by taxpayer in a customer’s account is a loan from the customer to taxpayer in lieu of paying interest on the deposit taxpayer provides banking services to the customer through the use of bank fee credits the loan is a compensation-related_loan under sec_7872 of the code plr-121576-13 sec_7872 of the code does not give rise to taxable_income however if the loan qualifies for an exemption under sec_1_7872-5t of the temporary regulations and the loan is not recharacterized as a tax_avoidance loan under sec_7872 in the present situation taxpayer a bank under sec_581 of the code pays the fee credits on certain commercial demand deposit accounts of its customers in the ordinary course of its business see sec_1_7872-5t of the temporary regulations under the facts_and_circumstances_test described in sec_1 5t c the fee credit programs have no significant effect on any federal tax_liability of the lender or the borrower under sec_1_7872-5t the items of income and deduction generated by the loan would offset each other if sec_7872 of the code were applied to the fee credits with respect to both taxpayer and its customers the imputed_interest income received by a customer would be offset by a deduction for the bank fees and charges that are reduced by the fee credits likewise the service fee income received by taxpayer would be offset by a deduction for imputed_interest deemed paid to the customer the costs to taxpayer of complying with sec_7872 of the code would be significant and would have little if any federal tax impact developing systems capable of tracking the amount of fee credits actually used by customers would be a large and costly administrative burden furthermore as noted above most customers in the fee credit programs are exempt recipients under the reporting rules therefore the costs for taxpayer to comply with the provisions of sec_7872 outweigh the benefits of requiring taxpayer to comply with the provision if it were applied taxpayer has offered a number of non-tax reasons for structuring the transaction as a below-market_loan the fee credit programs encourage banking relationships with commercial customers and provide an incentive to customers to maintain large balances taxpayer has represented that fee credit programs are industry wide and are used to manage taxpayer’s interest_expense a significant element to which shareholders and market analysts look when evaluating banking institutions for the reasons discussed above the application of sec_7872 of the code to the fee credit programs would not have a significant effect on the tax_liability of taxpayer or its customers the fee credit programs will be classified as tax_avoidance loans under sec_7872 of the code if a principal purpose of taxpayer or the customers of using the below-market arrangement of the loan is to avoid tax tax_avoidance is a principal purpose of the interest arrangement if it is a principal factor in the decision to structure the transaction as a below-market_loan rather than as a loan requiring the payment of interest at a rate that equals or exceeds the afr and a payment by the lender to the borrower see h_r rep no pincite vol c b plr-121576-13 the fee credit program used by taxpayer does not have tax_avoidance as a principal purpose taxpayer has offered a number of non-tax reasons for structuring the transaction as a below-market_loan furthermore because the items of income and deduction for both parties would offset each other if the transaction were not structured as a below-market_loan there is no tax to be avoided therefore tax_avoidance is not a principal purpose of the fee credit program accordingly for the reasons explained above the fee credit program is not subject_to tax under sec_7872 of the code in contrast sec_7872 of the code does not apply to the fee credits earned in lieu of interest that the account_holder uses to pay for third party vendor services if the account_holder selects and contracts the third party vendor this situation is not a compensation-related_loan described in sec_7872 because taxpayer does not directly or indirectly provide the services therefore the fee credits earned in lieu of interest that are used to pay the third party vendor for services result in interest_income to the customer under sec_61 accordingly in this case payments made by taxpayer to third party vendors on behalf of its account holders are reportable as interest under sec_6049 unless the account_holder is an exempt recipient conclusion below-market loans as described above that are made pursuant to the noninterest fee credit program and the hybrid fee credit program are compensation- related loans under sec_7872 of the code but qualify for exemption under sec_1_7872-5t of the temporary regulations because these loans will not generate imputed_interest under sec_7872 there is no reportable interest under sec_6049 or other reportable income under sec_6041 however fee credits used to pay third party vendors selected and contracted by the account_holder give rise to interest_income under sec_61 reportable under sec_6049 holdings the fee credits earned and used to offset taxpayer’s bank fees with respect to noninterest bearing accounts in the first program are not subject_to the information reporting requirements imposed by sec_6049 or sec_6041 of the code fee credits that are used to pay a third party vendor in lieu of interest where taxpayer subcontracts directly with the vendor to provide ancillary banking services are not subject_to information reporting under either sec_6049 or sec_6041 of the code to the account_holder whether or not the account_holder is an exempt recipient fee credits that are used to pay a third party vendor in lieu of paying the account_holder interest are reportable as interest on form 1099-int where the account_holder selects and contracts with the third party vendor unless the account_holder is an exempt recipient plr-121576-13 the fee credits described above with the exception of interest on any unused balances earned and used to offset taxpayer’s bank fees with respect to hybrid accounts are not subject_to the information reporting requirements imposed by sec_6049 and sec_6041of the code and the stated_interest on any unused balances paid to hybrid accounts is subject_to form 1099-int reporting under sec_6049 when paid to a non- exempt recipient except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 pamela wilson fuller senior technician reviewer procedure administration cc


t c memo united_states tax_court jovita diaz petitioner v commissioner of internal revenue respondent docket no filed date jovita diaz pro_se sarah a herson for respondent memorandum findings_of_fact and opinion kerrigan judge respondent determined the following deficiencies and penalties with respect to petitioner’s federal income taxes for taxable years and year penalty deficiency sec_6662 dollar_figure big_number dollar_figure big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure the parties have resolved all issues other than the adjusted bases for two properties owned by petitioner and whether petitioner is liable for the accuracy- related penalty the issues remaining for our consideration are whether petitioner is entitled to claim greater bases than respondent has allowed with respect to two properties she owned and sold in and and whether petitioner is liable for the accuracy-related_penalty pursuant to sec_6662 for tax years and findings_of_fact some of the facts have been stipulated and are so found petitioner resided in california when the petition was filed for tax years and petitioner was a registered nurse working full time who also ran a business as an insurance and investment agent petitioner owned two properties one pincite7 rayen street north hills california rayen property and the other pincite4 amador lane murrieta california amador property rayen property petitioner purchased the rayen property for dollar_figure in until date petitioner lived at the rayen property petitioner rented the rayen property from to in petitioner sold the rayen property for dollar_figure on her tax_return petitioner claimed an adjusted cost_basis of dollar_figure after allowing for depreciation of dollar_figure resulting in a capital_loss of dollar_figure respondent examined petitioner’s return and determined that the rayen property was personal_use_property and not rental property respondent disallowed petitioner’s claimed depreciation and her adjusted cost_basis of dollar_figure respondent determined that petitioner had an adjusted_basis equal to her cost_basis of dollar_figure resulting in a capital_gain of dollar_figure amador property petitioner purchased the amador property for dollar_figure in to be used as rental property in date petitioner sold the amador property for dollar_figure on her return petitioner claimed an adjusted cost_basis of dollar_figure and no allowance for depreciation resulting in a capital_loss of dollar_figure respondent examined petitioner’s return and determined that the amador property was rental property after allowing for depreciation of dollar_figure respondent determined that petitioner had an adjusted_basis of dollar_figure resulting in a capital_loss of dollar_figure i burden_of_proof opinion petitioner has the burden of proving that respondent’s determinations are in error see rule a 290_us_111 taxpayers must maintain records adequate to substantiate their income and deductions sec_6001 these records should be sufficient to establish the amount of the gross_income or other matters shown on the tax_return sec_1_6001-1 income_tax regs the taxpayer shall retain these records as long as they may become material in the administration of the internal_revenue_code sec_1_6001-1 income_tax regs ii adjusted_basis the first issue under consideration is whether petitioner is entitled to adjusted bases in both the rayen property and the amador property in excess of 1petitioner has not claimed or shown that she meets the requirements of sec_7491 to shift the burden_of_proof to respondent as to any relevant factual issue the amounts respondent has determined under sec_1001 the gain from the sale of property is the excess of the amount_realized over the adjusted_basis and the loss is the excess of the adjusted_basis over the amount_realized adjustments in the basis_of_property can be made for expenditures receipts losses or other items properly chargeable to the capital accounts sec_1016 petitioner has the burden of proving the basis_of_property for purposes of determining the amount of gain_or_loss that she realized and must recognize on its sale see 271_f2d_44 9th cir aff’g tcmemo_1957_193 a rayen property the parties agreed to several issues with respect to the rayen property including depreciation and the only issue that remains is whether petitioner is entitled to increase her basis by dollar_figure for improvements made petitioner contended that she made approximately dollar_figure in improvements to the rayen property after she purchased it in including dollar_figure for renovating the garage to be used as a daycare center and dollar_figure for improving the driveway and walkway petitioner testified that she hired a contractor to perform the 2petitioner did not argue for an adjusted_basis of dollar_figure and the record does not explain why she claimed on her tax_return that her adjusted_basis totaled this amount improvements but she did not introduce any records which supported the costs of the alleged improvements petitioner did not introduce an invoice from the contractor a canceled check a construction permit for the improvements or before and after pictures also petitioner did not introduce any records that showed the property was used as a daycare center petitioner contended that she did not have documentation because she kept moving from one place to another her testimony was unpersuasive in support of her claim of dollar_figure of improvements on the record before us we find that petitioner has failed to carry her burden of establishing that she is entitled to an increase of dollar_figure in her basis for the rayen property b amador property the parties agreed to several issues with respect to the amador property including depreciation and the only issue that remains is whether petitioner is entitled to increase her basis by dollar_figure for improvements made petitioner contended that she made dollar_figure of improvements to the amador property and that the improvements were made to the lawn petitioner testified that she used a 3petitioner did not argue for an adjusted_basis of dollar_figure and the record does not explain why she claimed on her tax_return that her adjusted_basis totaled dollar_figure property management company to assist with the rental of the amador property and she contacted the property management company involved regarding the installation of a lawn no records including any invoices canceled checks and records from the property management company were introduced into evidence petitioner testified that she had records at one point but lost them when she moved on the record before us we find that petitioner has failed to carry her burden of establishing that her basis in the amador property is dollar_figure greater than the dollar_figure respondent has allowed iii accuracy-related_penalties respondent determined that for each year at issue petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 respondent contends that petitioner is liable for the accuracy-related_penalty for each year on alternative grounds the underpayment is attributable to negligence or disregard of rules or regulations within the meaning of sec_6662 or there was a substantial_understatement_of_income_tax within the meaning of sec_6662 only one accuracy-related_penalty may be applied with respect to any given portion of an underpayment even if that portion is subject_to the penalty on more than one of the grounds set out in sec_6662 sec_1_6662-2 income_tax regs the commissioner bears the burden of production with respect to this penalty sec_7491 once the commissioner meets this burden the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect see rule a 116_tc_438 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and is the failure to exercise due care or the failure to do what a reasonable and prudent person would do under the circumstances sec_6662 85_tc_934 sec_1_6662-3 income_tax regs negligence also includes any failure by the taxpayer to keep adequate books_and_records to substantiate items properly sec_1_6662-3 income_tax regs petitioner owned two properties and was not able to produce receipts or any documentary_evidence of improvements to these properties also petitioner appears to have claimed adjusted bases on her tax returns that were much greater than the amounts for which she has offered explanations petitioner was unable to properly substantiate the adjusted bases she claimed respondent carried his burden of production with respect to the sec_6662 penalties for negligence because of sec_1_6662-2 income_tax regs we need not address the applicability of the penalty on the ground of substantial_understatement_of_income_tax for and the accuracy-related_penalty does not apply with respect to any portion of the underpayment for which it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 for purposes of sec_6664 a taxpayer may be able to establish reasonable_cause and good_faith by showing reliance on professional advice sec_1_6664-4 income_tax regs petitioner testified that mr seno an unenrolled agent prepared her tax_return for petitioner could not remember whether she provided any documentation to mr seno with respect to the rayen property petitioner has failed to provide evidence that mr seno was a competent professional with sufficient expertise and that she provided necessary and accurate information to him see 115_tc_43 aff’d 299_f3d_221 3d cir petitioner did not show reasonable_cause for failing to keep adequate books_and_records in order to substantiate items properly we hold that for each year at issue petitioner is liable for a sec_6662 penalty for negligence to reflect the foregoing decision will be entered under rule


internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date contact telephone number uil legend b area d name of program e name of campaign f name of program v number w number-range y dollar_figure amount-range dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated january our records indicate that you are recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation defined in sec_509 your letter indicates that you will operate a grant-making program to award qualified scholarships to be used for study at qualified educational institutions a qualified institution shall mean a college or university or other graduate educational_institution that is described in sec_170 of the code qualified scholarships shall mean payments to eligible students to cover all or part of tuition and fees books supplies and equipment contributed services and accommodations and expenses for travel research clerical help or equipment to the extent these amounts are expended by the eligible_student categories of scholarships the types of scholarships which may be awarded include without limitations i scholarships to students engaged in a particular field of study or who are candidates for a specific degree ii scholarships to students who participate in one or more varsity sports iii iv scholarships to students from a specific geographic region scholarships to students attending a particular institution eligibility criteria the applicant must be an individual who is currently a high school senior an undergraduate or graduate student at an accredited junior college college or university or a graduate student or other person pursuing a graduate or post-graduate degree who has been accepted to attend a qualified institution for the following year the individual is neither an employee nor is related to an employee institution nor is related to an employee of the qualified institution the individual is neither a relative nor employee of trustees or of a member of the selection committee determination of grants to be awarded the number of students that are eligible for a scholarship is expected to vary each year and will depend upon available funding the nature and type of scholarships to be awarded the number of application received in a given year and the quality and financial need of such applicants the trustees will determine each year the number and types of scholarships you will award the trustees have no pre-set determination of the amount to be awarded to any candidate in any particular year the trustees determined to limit the number of applications to v in order to avoid becoming overwhelmed with applications of the v applications received each year there is no set limit on the number of applicants that may receive an award however the trustees estimate that they will award w scholarships each year the number of awards granted will depend upon the number and quality of the applications as well as the perceived amount of need for each application the scholarships awarded will be in the dollar_figurey range depending upon funding levels notice of grant availability you shall make the availability of such scholarships by electronic oral or written communications or by publication designed to establish a class of recipients sufficiently large to constitute a charitable_class within the meaning of treasury regulation section b you will also publicize your scholarship through a website created by you you also will send letters to various high schools colleges and local travel sports teams initially the letters will be sent to institutions in the b area future letters may be sent to other regions depending upon the number of applications received and the purposes established for granting scholarships finally you have contacted d a part of e and forwarded a scholarship application to them for distribution among coaches and student athletes at the various f programs selection committee the recipients shall be chosen by a selection committee which shall consist of the trustees may consist of one or more qualified persons appointed by trustees a qualified_person shall mean i a person knowledgeable in the educational field such as educators school administration officials or guidance counselors ii a person having expertise or knowledge in a course and a field of study or a degree for which a grant may be awarded such as an educator a writer or a researcher in that particular field iii a person having expertise or knowledge in college sports such as a coach or an athletic director iv v a person having a connection to a specific geographic area in which eligible students reside such as a community leader and or a person having a connection to the educational_institution where eligible_student will study such as a member_of_the_faculty or an administrator of such institution or an alumnus no person shall serve on the selection committee if such person will be in a position to derive a private benefit directly or indirectly if certain potential grantees are selected over the other application process the selection committee shall establish application process which shall require each eligible_student who is interested in receiving a grant under the fund to a submit a written application in a form or forms prepared and approved by the selection committee the written application may consist in whole or in part of the financial aid form used by a qualified institution b submit to a personal interview with the selection committee or c comply with any other rules and regulations which the selection committee considered necessary or appropriate to carry out its duties hereunder objective basis for selection in considering the scholarship application submitted the selection committee shall give consideration to all eligible students who apply for a grant and will be guided by objective criteria related to the ability of each candidate to successfully complete his or her course of study proper criteria shall include but not be limited to the following prior academic performance i ii performance on tests designed to measure ability and aptitude for undergraduate graduate and or post-graduate studies iii recommendations from instructors coaches and references from persons not related to the eligible_student financial need or iv v the conclusion which the selection committee may draw from a personal interview as to the eligible student’s character motivation ability and potential in any case in which none of the above criteria are available to the selection committee the committee shall make its decision on the basis of the information available to it which the committee believe in good_faith that are sufficient for an objective and non- discriminatory selection process awarding grants the selection committee shall determine the recipients and notify each grantee in writing to the extent possible trustees shall pay scholarship directly to each qualified institution provided that the institution agrees to use such funds to defray each grantee’s expenses permitted so long as such grantee is enrolled at the institution as a student in good standing grant renewal applicants receiving award may re-apply and be considered for the next academic year the renewal procedure is the same as the initial application with the additional requirement that the student must provide a transcript or other reports of his or her achievements in school during the year in which the initial award was granted the financial information section need not be as detailed in a renewal application as that in the initial application unless the student’s financial situation has changed during the year the decision to make a subsequent award and the amount awarded will be based upon the same factors used in determining whether to make the initial award any additional criteria and the procedures used for continuation of a grant shall be objective and non- discriminatory supervision of grants trustees shall make arrangements with each qualified institution to receive directly from the institution annual reports of the courses taken and grades received in each academic period by the grantee where a grantee’s study does not involve taking courses but only the preparation of research papers or projects the trustee shall make an arrangement with such institution to receive annual reports on the progress of the paper or project the report must be approved by the faculty_member supervising the grantee or by another appropriate_official at such institution grants may be continued unless you receive information indicating the original grant is being used for a purpose other that for which it was made or you have not received any reports due from a grantee scholarships may be constituted only to grantees who have maintained good standing at their respective qualified institutions where your trustees have paid all or any part of a grant directly to the grantee and the report submitted to your trustees indicate that all or any part of such grant is not being used in furtherance of the purposes of such grant or if the qualified institution or grantee fails to issue such reports a the trustees shall investigate the circumstances surrounding the use of the grant b during the investigation trustees shall withhold all further payments to the grantee to the extent possible if the trustees conclude that a grant has been used for improper purpose a b trustees shall take all reasonable and appropriate steps to recover the grant funds such reasonable steps shall include without limitation taking appropriate legal action unless trustees in their discretion conclude that such action would not result in the satisfaction of execution of a judgment trustees shall withhold any further payments to the grantee unless i such grantee assure that future improper uses for such funds will not occur and ii trustees require the grantee to take extraordinary precautions to prevent future diversions from occurring retention of records your trustees shall maintain formal written records concerning the selection of grantees such records shall include among other things which trustees deem materials a all information trustees secured to evaluate the qualification of particular grantees b identification of each grantee c specification of the amount and purpose of each grant awarded hereunder and d all follow-up information which trustees receive in compliance with supervisions of the grants 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 sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation 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 as in effect on the day before the date of the enactment of the tax_reform_act_of_1986 and is to be used for study at an educational_organization described in sec_170gi 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 grantees sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to providing objectivity and nondiscrimination in making the awards we have determined that 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 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 award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award 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 case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois g lerner director exempt_organizations enclosure notice a redacted copy of this letter


internal_revenue_service department of the treasury uniform issue list number washington dc contact person telephone number in reference to date t ep ra t4 jan legend agency a group b members statute t dear this is in response to your date tequest for a private_letter_ruling as supplemented by correspondence dated date concerning whether agency a may establish a 401_k_plan for the benefit of group b members who are employees of agency a the following facts and representations have been submitted in support of your ruling agency a is an agency of the federal government which contracts with individuals group b members for personnel services abroad the basic authority for the employment of group b members by agency a is statute t based on the foregoing you request the following ruling that agency a as an entity of the federal government is authorized to establish a 401_k_plan for its group b members who are employees of agency a sec_401 of the internal_revenue_code the code provides in part that a cash_or_deferred_arrangement shall not be treated as a qualified_cash_or_deferred_arrangement if it is part of a plan maintained by a state_or_local_government or political_subdivision thereof or any agency_or_instrumentality thereof the code specifies the governmental employers that is state or local governments or political subdivisions agencies or instrumentalities thereof that are not eligible to maintain k plans for the benefit of their employees accordingly with respect to your tuling request we conclude that agency a as an entity of the federal government is authorized to establish a 401_k_plan for its group b members who are employees of agency a lo o2 yu you have not requested and we express no opinion in this ruling as to whether the group b members are employees of agency a under the relevant provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent sincerely yours stn lidl lr john g riddle jr manager employee_plans technical group tax_exempt_and_government_entities_division enclosures notice of intention to disclose deleted copy of letter_ruling


t c memo united_states tax_court thomas e and iris m tilley petitioners v commissioner of internal revenue respondent docket no filed date thomas e tilley and iris m tilley pro sese james r rich for respondent memorandum opinion foley judge by notice_of_deficiency dated date respondent determined deficiencies in petitioners' federal income taxes and accuracy-related_penalties as follows year deficiency dollar_figure penalty sec_6662 dollar_figure big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are as follows whether petitioners are liable for the deficiencies determined by respondent we hold that petitioners are liable whether petitioners pursuant to sec_6662 are liable for accuracy-related_penalties we hold that petitioners are liable whether a penalty pursuant to sec_6673 should be imposed upon petitioners we do not impose a penalty at the time the petition was filed petitioners resided in chapel hill north carolina petitioners filed in a timely manner joint federal_income_tax returns for and on the returns petitioners reported among other items the following a depreciation deduction of dollar_figure for a capital_loss of dollar_figure for and bad_debt deductions of dollar_figure for and dollar_figure for respondent disallowed these items and increased petitioners' taxable_income by dollar_figure for and dollar_figure for respondent further determined that petitioners were subject_to accuracy-related_penalties for negligence petitioners filed their petition on date on date the court filed respondent's motion for claim for damages under sec_6673 contending that petitioners' position in the case was frivolous or groundless taxpayers bear the burden of proving that respondent's determinations of deficiencies and penalties are erroneous rule a petitioners have introduced no evidence to support their entitlement to the deductions they claimed while mr tilley testified that he had relied on an accountant to ensure that the returns were correct petitioners introduced no evidence to establish that such reliance was reasonable see sec_6664 sec_1_6664-4 income_tax regs as a result we conclude that petitioners have failed to meet their burden_of_proof and they are liable for the deficiencies and accuracy-related_penalties as determined by respondent respondent filed a motion for the imposition of a penalty under sec_6673 we conclude that such a penalty is inappropriate in the present case and deny respondent's motion to reflect the foregoing an appropriate order and decision will be entered