department of the treasury internal_revenue_service washington d c t ep rats tax_exempt_and_government_entities_division mar u i l xxxxxxxxxxxxxxxxxxkx xxxxxxxxxxxxaxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxkx legend organization a church b constitution c board d organization e committee f committee g plan x plan y state s dear xxxxxxxxxxx xxxxxxxxxxxaxxxxxxxxxx xxxxxxxxxxxxxxkxxxxxxx xxxxxxxxxxxxxxxxxxaxxx xxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxkx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxaxxxxxx xxxxxxxxxxxxxxaxxxxxk xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxaxxxxx this is in response to correspondence dated date as supplemented by correspondence dated date november date date date date and date submitted by you on behalf of organization a concerning whether plan x qualifies as a church_plan under sec_414 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the rulings requested organization a is a tax-exempt_entity under sec_501 of the code its principal offices are located in state s church b is a church for purposes of determining church_plan status constitution c mandates that organization a meet church b's requirements for its affiliate organizations board d consists solely of individuals ratified by state s synods of church b board d has the power to adopt resolutions appoint and remove organization a’s president approve organization a’s budget and designate committees to act on behalf of the board constitution c declares organization a’s affiliation with church b church b plays a significant role in governance of organization a in addition to church b’s role in the selection of board d organization a’s executive committee includes the bishop of the three state s synods of church b these synods of church b provide financial support to organization a organization a is included in a directory of church b’s ministries services provided by organization a are provided as part of the social ministry of church b organization a has been recognized as an affiliated organization of church b by annual filings with the internal_revenue_service service and is covered under a group ruling issued to church b organization a adopted plan x for the benefit of its eligible employees on date plan x is a tax-qualified plan under sec_401 of the code it is represented that plan x does not benefit any organization a employees engaged in unrelated trade or businesses plan x allows various tax-exempt organizations to sponsor plan x for the benefit of their employees the preamble of plan x states that plan x is for the exclusive benefit of the employees and their beneficiaries of the plan_sponsor and participating agencies originally effective as of date sec_1 of plan x is the definitions section of plan x sec_1 r of plan x states that an employer means the lead sponsor and any health or welfare agency that is exempt from taxation under sec_501 or sec_501 of the code which has adopted the plan as may be provided under article xv sec_1 kk defines the lead sponsor as organization e and any successor thereto sec_15 of plan x states that any health or welfare agency that is exempt from taxation under sec_501 or sec_501 of the code that is not an employer may with the consent of the lead sponsor adopt and sponsor the plan for the benefit of its employees and become an employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed in accordance with the requirements of its organizational authority section of plan x states that the lead sponsor reserves the right at any time and from time to time by means of a written instrument executed in the name of the lead sponsor by its duly authorized representatives to amend or modify the plan and to the extent provided therein to amend or modify the funding agreement section of plan x states that if an employer should disagree with any general amendment made to the plan by the lead sponsor the employer shall have days following such amendment in which to notify the lead sponsor of its disagreement and its intention either to terminate the plan with respect to its employees as provided in section or to withdraw from the plan and set up its own plan with its own funding arrangement as provided in section section of plan x states that the lead sponsor reserves the right by means of a written instrument executed in the name of the lead sponsor by its duly authorized representatives at any time to terminate the plan in the event that lead sponsor terminates the plan each employer under the plan must elect either to terminate the plan with respect to its employees and proceed as provided in section or to set up its own plan with its own funding arrangement section of plan x states that each employer may by action of its board_of directors or other governing body elect to terminate the plan solely with respect to its own employees and participants except as otherwise provided in section or such termination may be effectuated only on january or july of any year and only after the employer has given the lead sponsor at least three months advance notice of its intent to terminate on date your representative sent a letter that included the most recent determination_letter for plan x the eighteenth amendment to the prior plan document and the current plan document the eighteenth amendment is effective date and states in relevant part that plan x is a collection of single employer plans maintained for the exclusive benefit of eligible employers of health or welfare agencies exempt from taxation under sec_501 or sec_501 of the code that with the consent of the lead sponsor adopt and sponsor plan x for the benefit of their respective employees and their beneficiaries these employers are set forth on the schedule of adopting employers that immediately precedes appendix a of plan x the eighteenth amendment goes on to state that each adopting employer maintains a separate single employer plan only with respect to its own respective employees makes contributions to fund the benefits only of its own employees which assets are separately accounted for in pension fund sub-accounts segregated from any and all other adopting employers’ contributions and has received a separate favorable determination from the service on the tax-qualified status of its plan prior to date board d appointed committee f to handle functions of plan x committee f consists of members appointed by board d committee f was charged with various tasks related to the funding and administration of plan x however the administration or funding of plan x was not the principal purpose or function of committee f effective date pursuant to a resolution adopted on date by board d board d appointed committee g committee g consists of three board d members and two vice-presidents of organization a board d members constitute the majority of committee g the principal purpose and function of committee g is the administration and funding of plan x committee g is responsible for determining which benefits are offered to employees of organization a determining how to best provide such benefits determining the level of benefits provided to the employees of organization a and establishing funding policies for plan x effective date plan x as adopted by organization a was restated and renamed plan y on date plan y filed a statement as part of its amended form_5500 filing electing erisa coverage pursuant to sec_410 of the code effective date in accordance with revproc_2011_44 notice to employees with reference to plan x was provided on date this notice adequately explained to participants of plan x the consequences of church_plan status based on the above facts and representations you request a ruling that plan x is a church_plan within the meaning of sec_414 of the code effective date and for all prior years of the plan’s operation sec_414 was added to the code by sec_1015 of erisa sec_1017 of erisa provided that sec_414 applied as of the date of erisa’s enactment however sec_414 was subsequently amended by sec_407 of the multiemployer pension_plan amendments act of pub law to provide that sec_414 was effective as of date sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides in part that the term church plan’ does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 of the code or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 of the code or sec_414 of the code or their beneficiaries sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code generally defines employee of a church or a convention or association of churches to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 of the code shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches sec_1_414_e_-1 of the federal_income_tax regulations regulations states that the term church_plan does not include a plan which during the plan_year is maintained by two or more employers unless each of the employers is a church that is exempt from tax under sec_501 of the code the regulations also state that the employees of each employer must not be employed by an unrelated_trade_or_business based on the language of plan x described above plan x was a multiple_employer_plan when it was established and was a multiple_employer_plan until date when the eighteenth amendment to plan x provided that plan x is a collection of single employer plans thus effective date plan x is no longer a multiple_employer_plan but it cannot become a church_plan because it was not established as a church_plan because it is merely a continuation of plan x in addition the plan in its current form plan y cannot be a church_plan since plan x was a multiple_employer_plan not all of whose participating employers were church plans when established it failed to satisfy sec_1_414_e_-1 of the regulations which states that the term church_plan does not include a plan which during the plan_year is maintained by two or more employers unless each of the employers is a church that is exempt from tax under sec_501 there is at least one employer that had employees that participated in plan x that was not a church that is exempt from tax under sec_501 therefore we find that neither plan x nor plan y as a continuation of plan x is or can become a church_plan this letter expresses no opinion as to whether plan x satisfies the requirements of sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions regarding this letter please contact xxxxxxxxxxxxxxxxx please address all correspondence to se t ep ra t3 sincerely yours pi e waka laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc xxxxxxxxxxxxxxxxxxxxx


internal_revenue_service appeals_office elm street suite cincinnati oh release number release date date date department of the treasury person to contact employee number tel fax refer reply to ap fe oh cin in re eo revocation form required to be filed ein tax period s ended uil tl1ls i htiaj dverse determination regarding your exempt status under internal reyen'-'ie q cfe irc sec_501 it is determined that you do not qualify as ex amptftofr'rfederal income_tax under sec_501 effective date ' ' - ' our dversedet ermination was made for the following reason s 'asuhstcll ltialamount of your organization's assets inured to' the private benefit of yourf jund rand to the private benefiiof two for-profit corporations owned and ' controffed pyyour founder because a substantial amount of your charitable assets weretjs df rprivate purposes ' the organization is not operated exclusively for exernpt'purpose s described in sec_501 c of the code t contributiqns to your organization are not deductible under sec_170 of the code you are required to file forms u s_corporation income_tax return for tax periods beginning on and after date with the cincinnati service_center cincinnati oh you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate is not able to reverse legally correct_tax determinations nor extend the time fixed by law that you have to file a petition in the u s tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this'letter see the enclosed notice helpful contacts for your notice of deficiency' for taxpayer_advocate telephone numbers and addresses if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter we have sent a copy of this letter to your authorized representative sincerely appeals team manager enclosure notice helpful contacts for your notice_of_deficiency -cc -- 20f2 defartment of the treasury internal_revenue_service n14 w24200 tower place suite waukesha wi 5318e tax exempt an government entities division taxpayer_identification_number form tax_year s ended person to contact io number contact numbers telephone fax have enclodollar_figureed a copy of our report of examination explaining why we believe 6fyour exempt status under sec_501 c of the internal_revenue_code is necessary if you acceptourfihdings take no further action we will issue a final revocation letter ffyou do not agreewith our proposed revocation you must submit to us a written for appealdollar_figureoffice consideration within days from the date of this letter to nr tjq t ourdecisi6n vour protest should include a statement of the facts the law and arguments in support of your position ' -' an appeals offlcerwiu review your case the appeals_office is independent of the director eo exarninations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject ofthe technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies section b of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely renee wells acting director eo examinations enclosures publication publication report of examination letter catalog number 34609f fonn 886a depamnent of the t n asury internal revenue servic ex lanation of items name of taxpayer org schedule no or exhibit year period ended september 20xx september 20xx september 20xx legend org organization name president director sec_5 th th th xx date sate state vice-president vice-president co-1 co-2 co04 co-5 co-6 co-7 companies president dir-1 dir-2 1ft 3ju 4th st np whether org exempt under sec_50t c should retain their exempt status d granted exemption under sec_501 c by the internal_revenue_service in pi p of 19xx as a day care provider -- 6r l i vemed by president and her family president is the president of org vice r i fe t thehusband of president is the vice-president of the organization president' ' f ' ' - - ' ' - ' ' - - da jgbtci-s bir l dir-2 serve on the board_of directors t sid rl sothe owner of rejated for-profit day care centers 2nd edition and co-t ' r if iteddollar_figurein gross_receipts and dollar_figuredollar_figurein expenses for the year-ending september 20xx dollar_figuredollar_figure jt1gross tec iptsand dollar_figuredollar_figure in expenses for the year ending september 20xx and dollar_figuredollar_figure in gross t eipts' nddollar_figuredollar_figurejnexpenses for the year ending september 20xx ' ' ' ' ' - ' ' thee empt'ol'ganization on february 20xx jent president dollar_figure the joan agreement in place stipulateda n jnterest rate of throughout the course of this loan there were various advances riuldetqpresid mt increasing the 10an ba1ance it was determined by the internal_revenue_service thatfora joan of this type a interest rate represented fair_market_value this loan was'shovmbythe exempt_organization to have been paid offby president in may of20xx at an interest rate of5 which wa sec_1ess then the loan agreement stipulated in addition there was a second joan of dollar_figure extended to president by the exempt_organization in january of 20xx throughout the course of this loan there were various advances made to president increasing the joan balance this loan was shown by the exempt_organization to have it was determined that been paid off by president in december of 20xx at a interest rate for a joan ofthis type a interest rate represented fair_market_value fonn 886--a rev department of the tn asury internal_revenue_service page department of the treasury internal_revenue_service ex lanation of items form 886a name of taxpayer org i schedule no or exhibit year period ended september 20xx i september 20xx september 20xx in cases of both loans the record shows that the exempt_organization provided president with a private source of credit at rates be10w fair_market_value in addition to these loans there were various expenditures made from the exempt_organization by president or on her behalf that were for her personal benefit the majority of these expenditures represent those of the type that were questionable and for the most part unsubstantiated the amount of expenditures attributed as being made for the personal benefit of president and her related interests her for-profit organizations total more then dollar_figureduring the years in question these expenditures have been documented as follows a there was a total ofdollar_figurein leasehold improvement expenses financial records indicate the expenditures were for a new fence and landscaping however during an initial tour of the facility there was no new fence or landscaping observed president provided no further explanation that would indicate the expenditures were that ofthe exempt_organization based on visual inspections and the lack of substantiation it was determined that ofthe amounts expended on leasehold improvements were reasonably made for the exempt_organization and of the expenditures were made for the personal benefit of president b there was a total of dollar_figurein operating supply expenses the request to substantiate the expenditures was not provided based on the lack of substantiation it was determined that of the amounts expended were reasonably made for the exempt_organization and were made fur the personal benefit of president c there was a total ofdollar_figurein utilities expenses a review ofthe exempt organization's canceled checks showed a number payments made on various utility accounts the request for account information to substantiate the owners of the utility accounts was not provided in fact president stated that she did not know who owned the utility accounts based on the lack of substantiation it was determined that all payments made to the unknown accounts were made for the personal benefit of president d there was a total ofdollar_figurein telephone expenses a review of the exempt organization's invoices shows that the organization had a number oftelephone jines at different locations in addition the exempt_organization shares its cell phones with president related for profit organization co-l based on the substantiation provided and the sharing of resources between the exempt_organization and related for-profit it was determined that of the expenditures were reasonably made for the exempt_organization and were made for the personal benefit ofpresident e there was a total of dollar_figurein repairs and maintenance_expenses financial records show that the organization was leasing camera systems to provide 24-hour monitoring of the facility fonn a rev 4-6il depa rtment of the treasury internal re nue service page fonn 886a depanment of the treasury internal_revenue_service ex lanation of items name of taxpayer org schedule no or exhibit year period ended september 20xx september 20xx se tember 20xx financial records also reveal that payments were being made to two different security companies the request to provide receipts to substantiate payments to the camera monitoring company and the various security companies was not provided therefore it was determined that of these expenditures were reasonably made for the exempt_organization and were made for the personal benefit of president ' i20 xxand 20xx years in the 20xx year the ads were only for two locations the exempt f there was a total of dollar_figurein advertising promotion expenses financial records show that the ' i rganization had ads in the white pages yeliow pages and the one book it also revealed that ' ' i brganization had a website that was managed and set up by the yellow pages phone book ' ' ' ' ' company review of the advertisements showed listings for three different locations during the ' ' 'f' rganizationonly had one location based on a lack of substantiation it was determined that x ' jftheexpendituresmade were for the benefit ofthe exempt_organization and of the ' 'c penditureswel emade for the personal benefit of president ic iy ' ii ' 'o there was atotal of dollar_figurein property taxes expenses financial records show that the exempt ' ' r' qrganizatioilpai lproperty taxes for the building it leases from president a review of the ' b j' empto rganization'slease does not state that the lessee shah pay property taxes a review of r e j ' th exempt otgarij tion's cancelled checks also show that the tax id number on some ofthe bmcehed checks represents the tax id number of president' home address because there was g h j ' d9cumentati l1to show that the exempt_organization was responsible forpaying the property ' ' taxes on thebuildij g under the lease agreement and as president' personal_property_taxes was ' ' p id withtheexeri1pt organization's funds it was determined that all payments made to cover ' i property taxes were made for the persona benefit ofpresident ' i ' ' ' there were alotal ofdollar_figurein vehicles expenses financial records show that the exempt ' ' r ' qrganization l118deanumber ofpayments out ofthis account for reimbursements and payments ' oilpresidencpersona co-2 credit card the request to provide receipts to substantiate the ' ' i rt dmburseml denhlswas'no fprhovided cophieds fthe co-2 cr dibt card statements were profvided t 'andrevea et at some0 to emp oyees out petty ' '- 'casb documentationr equested to provide clarification on the use ofthe vehicle expense and yi 'petty cash accounts was not provided based on the details provided it was determined that ofthe vehicle expenditures were made for the benefit ofthe exempt_organization and were t e amounts a a rea y d been relm ursed l ' made for the personal benefit ofpresident i there was a reported dollar_figurein office expenses financial records show that there were a number ofreimbursements made with these funds the request to provide receipts to substantiate the reimbursements was not provided based on the lack of substantiation it was reasonably detennined that of the expenses were made for the benefit of the exempt_organization and ofthe expenditures were made for the persona benefit of president fonn a rev department of the treasury internal_revenue_service page -3 form 886a de ment of the treasury- internal_revenue_service ex lanation ofltem name oftaxpayer org schedule no or exhibit year period ended september 20xx september 20xx se mber 20xx j there was a reported dollar_figurein vehicle lease expenses financial records show that the exempt_organization was leasing six passenger cars and had ownership of four passenger vans a review of the day care center state inspection for the year perfonned by the state of state shows that the exempt_organization was cited for using the passenger cars to transport children these vehicles were not authorized by the state to transport children in addition a review of the insurance_policy showed that the exempt organization's insurance pojicy provided fun coverage on all of the passenger vehicles it leased as wen as the passenger vans it owned copies of the lease agreements were provided to show the vehicles were all being leased to the exempt_organization because the vehicles are not and have never been authorized to transport children they were not leased to further the exempt_purpose ofthe organization since there was no documentation showing why the exempt_organization needed the vehicles and how they were used to further exempt purposes it was reasonably detennined that of the expenditures were made for the exempt_organization and of the expenditures were made for the benefit of president k there was a reported dollar_figurein insurance expenses the insurance covered the commercial auto property marine and jiabijity insurance for the exempt oro and president' for profit organizations included in this coverage were the unauthorized passenger vehicles that the exempt_organization was leasing based on the infonnation provided it was reasonably determined that of these expenditures were made for the exempt organization's benefit and of the expenditures were made for the benefit ofpresident l there was reported dollar_figureofheahh insurance expenses with co-3 a review of the policy indicated that coverage was provided for employees ofboth president' exempt and non-profit day care centers based on the documentation provided it was determined that ofthe expenditures were made for the exempt_organization and of the expenditures were made for the personal benefit ofpresident m there was a reported dollar_figurein officer life_insurance expenses a review of the financial records shows that payments were made to five different companies co-4 co-5 policies co-6 and co-7 copies of co-4 and co-5 and co-6 were provided the co-7 policy was not provided the policies that were provided have a face value ofmore then dollar_figuredollar_figure it was determined that the total cost of the insurance premiums is not an excludable fringe benefit only group term life_insurance limited to a face_amount ofdollar_figurewould have qualified as an excludable fringe benefit based on the internal_revenue_code it was thus detennined that the full amount of the expenditures represents payments made for the benefit of president overall between the provision of loans at advantageous terms and the personal expenditures made on president behalf the record shows that the assets of oro were improperly used to benefit private interests fonn 886-a rev 4-bs departnlenl of the treasury internal_revenue_service page -4 depanmem of the treasury imcmaj revenue service e lanation ofiterns fonn886a name of taxpayer org schedule no or exhibit year period ended september 20xx september 20xx se tember 20xx the assets of an organization exempt under sec_501 c are not ai10wed to benefit private interests where the assets of an organization exempt under sec_501 c ' benefit private interests the law provides that such organization is not exempt ire sec_501 in specifying the attributes for exemption corporations and any p munlloitychest fund or foundation organized and operated excjusively for religious haritable scientific testing for public safety literary or educa'tional purposes or to foster atiol1atorintemational amateur sports competition but only if no part of its activities involve tne'pt o sion of athletic_facilities or equipment or for the prevention qf cruelty to chi1dren or ' fl m s mpartof the net_earnings ofwhich inures to the benefit of any private shareholder or ' jn i idt al nn substantial part of the activities of which is carrying on propaganda or otherwise att t til1g joinfluence legislation except as otherwise provided in subsection h and which i ' oesrjpt j arti ipate in or intervene in incjuding the publishing or distributing of statements ' i u7 a l osition to any candidate fm public_office ' ' c ' ' iprjyaie shareholder or individual defined -the words private shareholder or lndi lidt 1ai jnsectjon refer to persons having a personal and private interest in the activities 'riftllff qrgapiiation ' ' 't' eas ryregujation sec_1 50l c - c 2jdfstribution of earnings - an organization is not operated exclusively for one or more xemptpurposes if its net_earnings inure in whole or in part to the benefit of private shareholders ri 1l4i liduals forthe definition of the words private_shareholder_or_individual see paragraph ' o sec_1 a ' 'j' s ry r gnlation sec_1 c -1 d l ii j irgatlizjtjon is not organized or operated excjusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests rameses school of san antonio texas v c i r tax_court t c memo in this case the court upheld the revocation of the tax-exempt status of the rameses school of san antonio texas the court found that the assets of the exempt_organization inured to the fonn 886-a rcv department of the tn asury internal_revenue_service page -5 form 886a depanment of the treasury internal venue service e lanation of items name of taxpayer org schedule no or exhibit year period ended september 20xx september 20xx se tember 20xx benefit of the president and ceo of the school the private benefit and inurement in this case included undocumented expenditures and withdrawals made on the president and ceo's behalf and questionable_payments made for real_estate transactions and lease payments the court also found that there was not proper oversight as the ceo and president was an owed to direct -questionable payments for her benefit unchecked by the board_of directors or any other internal control mechanism in making its detennination the court noted the following nonetheless the presence of a single nonexempt purpose if substantial in nature precludes exempt status regardless of the number or importance of truly exempt purposes beller bus bureau v united_states 326_us_279 66_sct_112 90_led_67 113_tc_47 wl affd 242_f3d_904 9th cir nationalist movement v commissioner supra pincite am campaign a cad v commissioner 92_tc_1053 wl if an organization can be shown to benefit private interests a limitation substantially overlapping but encompassing more than simply the inurement of earnings to insiders it wilj be deemed to further a nonexempt purpose am campaign acad v commissioner supra pincite 76_tc_1 n wl private benefits within the scope ofthe prohibition may include an advantage profit fruit privilege gain or interest am campaign acad v commissioner supra pincite factors emerging repeatedly as indicative of prohibited inurement and private benefit include control by the founder over the entity's funds assets and disbursements use of entity moneys for personal expenses payment of salary or rent to the founder without any accompanying evidence or analysis of the reasonableness of the amounts and purported loans to the founder showing a ready private source of credit see eg founding church ofscientology v united_states supra pincite2 church ofeternal life liberty inc v commissioner supra pincite church of the transfiguring spirit inc v commissioner supra pincite basic bible church v commissioner supra pincite bubbling well church of universal love inc v commissioner supra pincite unitary mission church v commissioner supra pincite as this court has noted such circumstances provide an obvious opportunity for abuse of the claimed tax-exempt status and make incumbent open and candid disclosure of al1 facts otherwise the logical inference is that the facts if disclosed would show that petitioner fails to meet the requirements of sec_50 c bubbling well church of universal love inc v commissioner supra pincite see also eg founding church of scientology v united_states supra pincite basic bible church v commissioner supra pincite depa rt ment of the treaswy internal re nue service page -6 -- --8-8-6-a---- -- de-p-m- -n-io'f't tre- -u-ry -i - mru fu -nu-e se-m c- s c he-d w e n --o -o-r e xru b'li---------- fonn name of taxpayer ianation of items e org year period ended september 20xx iseptember 20xx september 20xx revproc_84_46 cd where there is a material_change inconsistent with exemption in the character the purpose or ' the method of operation of an organization revocation or modification wil1 ordinarily take effect 'as of the date of such material_change ' government's position - 'v' ' ' ' ' ' ' 'theassets of org inured to the private benefit of president and her related interests the h ' iintemal revenue code and regulations provide that an organization exempt under ire section ' ' s01 c cannot a ow its assets to benefit private interests an organization that a ows their i ' 'a sets to benefit private interests is not exempt ' ' ' ' ' i i i ' c 'the factpatteminthis case is similar to the fact patterns noted in the case rameses school of ' dollar_figureanantoriio texas v commissioner of internal_revenue_service this case involved the t f ' 'pj visionofloapsas a source of credit to the present and ceo of the organization as weu as a i ' t r ecordofundocumented expenses and noted persona expenditures made on the president and t c ' ceo s behalf the court established that these transactions constitute prohibited private c ' illurementlljj4 th efore upheld the interna revenue service's etennination - i s 'it ' thereforebas onthe results of the examination of org and the provisions of the internal i ' ' y revenue c d regujations and case law it has been detennined that the exempt status of org ' t ' ' ' 'c' 'ta xpayer'sposition axpayerstatedthat she was unaware of the issues involving inurement and would not have y ' j app jedfore ej dptstatus had she known ' i ould be ked' ' ' -' - - ' ' 'i - ' -' ' --'l' ' i' itbas been determined that the exempt status of org sbould be revoked effective october 'i 20xx the' date the' material_change in exempt status was first noted through 'examination ' as the organization's exempt status is being revoked tbe organization is required to file forms for all tax years beginning october 20xx the organization is also no longer exempt from futa_tax and is responsible for filing forms fonn acrev department of the treaswy interna revenue service page -7


internal_revenue_service number release date index number --------------------------------- ---------------------------------------------------- ------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-151880-09 date date legend x ------------------------------------------ ----------------------------------------------------- state ----------------------- date ---------------------------- dear ---- ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a corporation under sec_301_7701-3 the information submitted states that x was formed on date in state x represents that x is an entity eligible to elect to be treated as a corporation for u s income_tax purposes however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a corporation effective date sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that an eligible_entity with at least two members may elect to be classified as either an association and thus a corporation under sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can plr-151880-09 elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 further provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election the effective date of the election cannot be more than seventy-five days prior to the date the form is filed and cannot be more than twelve months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a corporation for federal tax purposes effective date respectively a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent plr-151880-09 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number info 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 genin-104831-05 date date --------------------------- legend legend taxpayer --------------------------------------------------- dear --------------- behalf of taxpayer requesting information regarding relief for late entity classification and s_corporation elections this letter responds to correspondence dated date submitted on taxpayer may submit a private_letter_ruling request to the national_office to obtain relief for a late entity classification election form pursuant to sec_301 of the procedural and administration regulations sec_1362 provides relief for late s_corporation elections in situations in which there was reasonable_cause for the failure to timely make an election the procedures for requesting relief for a late entity classification and s_corporation elections are outlined in revproc_2005_1 i r b we have enclosed a copy of revproc_2005_1 for your convenience if you have any additional questions please call our office at sincerely dianna k miosi branch chief branch passthroughs special industries enclosure revproc_2005_1


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 corp plr-139543-07 date date legend acquiring ------------------------------ ------------------------------------------------------------------ ------------------------------------------------------------ target ------------------------------------------------------------------ ------------------------------------------------------------ shareholder a ----------------------------------------------------------------- business a -------------------------------------- ------------------------------------------ -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ --------------------------------------------------------------------- ------------------------------------------------------------ x dear ----------------- ------ this letter responds to your representative’s letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction additional information was submitted by letters dated date date and date the material information submitted for consideration is summarized below summary of facts acquiring is a subchapter_c_corporation engaged in business a it has outstanding class a common_stock x an amount greater than but less than plr-139543-07 of which is owned by target and the remainder owned by shareholder a it also has outstanding a small number of nonvoting class b common_stock owned by employees of acquiring target is a subchapter_c_corporation that has one class of common_stock outstanding all of which is owned by two individual shareholders target's principal asset is the stock of acquiring proposed transaction to accomplish a number of business objectives that can be achieved by eliminating target such as elimination of impediments to capital markets caused by a complex and confusing corporate structure target and acquiring have agreed to a transaction in which target will merge downstream into acquiring the transaction will be effected pursuant to the applicable merger statute as a result of the operation of the merger laws acquiring will acquire all of target's assets in exchange for class a common_stock and will assume target's liabilities target will cease to exist under state law the acquiring stock received in the transaction will be distributed to the target shareholders pursuant to the merger agreement no fractional shares of acquiring stock will be issued to target shareholders representations acquiring has made the following representations with respect to the proposed transaction a the fair_market_value of the acquiring stock received by each target shareholder will be approximately equal to the fair_market_value of the target stock surrendered in the transaction b on the date of the transaction there will be no intention by acquiring or any person related to acquiring as defined in sec_1_368-1 of the income_tax regulations to acquire or redeem any of the shares of acquiring issued in the transaction either directly or through any transaction agreement or other arrangement with any other person c at the effective time of the transaction acquiring will have no plan or intention to sell or otherwise dispose_of any of target’s assets acquired in the transaction except for dispositions made in the ordinary course of business or transfers described in sec_1_368-2 d target incurred any liabilities assumed by acquiring in the ordinary course of target’s business the liabilities assumed will be associated with the transferred assets plr-139543-07 e after the effective time of the transaction acquiring will continue its historical business f acquiring target and the shareholders of target will pay their respective expenses if any incurred in connection with the transaction g at the effective time of the transaction there will be no intercorporate indebtedness existing between target and acquiring that was issued acquired or will be settled at a discount h at the effective time of the transaction no two parties to the transaction will be investment companies as defined in sec_368 and iv of the internal_revenue_code i at the effective time of the transaction target will not be under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 j at the effective time of the transaction the fair_market_value of target’s assets transferred to acquiring will exceed the sum of the liabilities assumed by acquiring if any k the fair_market_value of acquiring's assets will exceed the amount of the liabilities of acquiring immediately after the transaction rulings based solely on the information submitted and the representations set forth above we rule as follows provided the transaction qualifies as a statutory merger under applicable law the transaction will be a reorganization under sec_368 target and acquiring will each be a_party_to_a_reorganization under sec_368 target will recognize no gain_or_loss on the transfer of its assets to acquiring pursuant to the plan of merger and in exchange for acquiring stock and the assumption by acquiring of any liabilities of target sec_361 and sec_357 target will recognize no gain_or_loss on the distribution of acquiring stock to its shareholders pursuant to the plan of merger sec_361 a target shareholder will recognize no gain_or_loss on the receipt of acquiring stock in exchange for target stock pursuant to the plan of merger sec_354 plr-139543-07 a target shareholder's total basis in the acquiring stock received pursuant to the plan of merger will be the same as the total basis in the target stock surrendered in exchange therefore sec_358 the shareholder may specifically identify basis under sec_1_358-2 a target shareholder's holding_period in the acquiring stock received pursuant to the plan of merger will include the period during which the target shareholder held the target stock surrendered in exchange therefore provided that the target stock was held as a capital_asset on the date of the change sec_1223 the holding_period will reflect an identification of specific basis under sec_1_358-2 acquiring will recognize no gain_or_loss on the receipt of target assets in exchange for acquiring stock and the assumption of target liabilities if any sec_1032 acquiring’s basis in each asset of target acquired in connection with the plan of merger will be the same as the basis of the asset in the hands of target immediately before the merger sec_362 acquiring’s holding_period in each asset of target received in connection with the plan of merger will include the period for which the asset was held by target sec_1223 as provided by sec_381 and sec_1_381_c_2_-1 acquiring will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of target as of the close of the date of the transaction any deficit in the earnings_and_profits of acquiring or target will be used only to offset earnings_and_profits accumulated after the date of that day pursuant to sec_381 and sec_1_381_a_-1 acquiring will succeed to and take into account the items of target described in sec_381 as of the close of the day of the transaction the items will be taken into account by acquiring subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder caveats the rulings contained in this letter are based on 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 materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process plr-139543-07 we express no opinion about the tax treatment of the transactions described above under other provisions of the internal_revenue_code or income_tax regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transactions described above that are not specifically covered by the above rulings procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 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 any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely ___________________ mark j weiss assistant to the chief branch office of associate chief_counsel corporate cc


date t ge teb internal_revenue_service number info release date uil dear this letter is issued in response to your request dated date pertaining to the potential rebate liability of the with regard to certain tax-exempt_bonds issued by the as discussed during a telephone conversation on date we are providing you with a short description of the rebate requirements applicable to tax-exempt_bonds and rules applicable to issuers that do not pay rebate timely sec_148 of the internal_revenue_code the code generally provides that a bond issue will be treated as an arbitrage issue unless the issuer pays the rebate amount determined in accordance with sec_148 of the code sec_148 provides the time and manner of payment of the rebate amount unless an exception applies the issuer of a bond issue is required to pay at least percent of the rebate amount at least once every years sec_1_148-3 of the income_tax regulations the regulations provides that such rebate payment is due no later than days after the computation_date to which it relates the first computation_date must be no later than the fifth anniversary date of the issue_date of the bond issue sec_1_148-3 of the regulations provides that a failure to pay the required_rebate amount may cause the bond issue to be an arbitrage issue unless the service determines that such failure was not due to willful neglect and the issuer promptly pays a penalty to the united_states treasury depending on the bond issue the penalty may be as much as percent of the rebate amount plus interest on such amount sec_1_148-3 of the regulations provides however that the penalty is automatically waived under certain circumstances the penalty will not be automatically waived under this provision unless the rebate amount that the issuer failed to pay plus interest is paid within days after the discovery of the failure to pay if the service determines that unusual circumstances exist the service may grant an extension of the 180-day period and a waiver of the penalty during our phone conversation on date you stated that the rebate payment on the bonds was not made in a timely manner as discussed above sec_1_148-3 of the regulations requires that the rebate payment must be made within days of the discovery of the failure to pay in order for the automatic waiver of penalty to apply accordingly assuming that date is the date discovered the failure to pay rebate and the failure is not due to willful neglect the service will automatically waive the penalty if the rebate payment due with respect to the bonds plus interest on such amount is paid within days of date or requests and receives an additional extension if believes that unusual circumstances exist and an extension of the 180-day period is warranted we suggest that it request a ruling to that effect from the office_of_chief_counsel cc tege eoeg teb within days of date the request should be submitted in accordance with revproc_2002_1 2001_1_cb_1 to the following address internal_revenue_service attn cc pa t p o box ben franklin station washington dc if you have questions concerning this matter please contact identification_number at not a toll-free number sincerely


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number bee pilg6 on uil code uil code rl legend foundation m z l o j o r a i n i d m i l l i i this is in reply to your ruling_request dated date submitted by your authorized representative requesting a ruling under sec_4941 of the internal_revenue_code concerning your receipt of certain promissory notes from a_trust facts the foundation received a determination_letter from the internal_revenue_service that it qualifies as an organization described in sec_501 of the internal_revenue_code and as a private_foundation under sec_509 the foundation’s primary purpose is making grants to other sec_501 organizations supporting their activities m is one of the foundation’s six trustees and serves as its president m is the father of n and the father-in-law of o who are the owners of p r and his wife established an inter_vivos_trust the trust’ upon the death of the survivor the trust became irrevocable the trust is part of the survivor's estate the estate’ the estate has filed a federal estate_tax_return and has recently received a closing letter from the internal_revenue_service determining its net estate_tax under the terms of the trust upon the death of the survivor the trust's assets consisting of specific bequests and the remaining assets became distributable at the time of the survivor's death the trust owned all of the stock of s s’s assets included several notes receivable from p totaling dollar_figurex notes on date a s liquidated and transferred the notes to the trust as a remainder beneficiary under the trust the foundation will receive a distribution of the notes from the trust the trustees of the trust have filed a petition with the probate_court having jurisdiction over the trust seeking approval of the proposed transfer of the notes to the foundation with respect to this proposed transfer the foundation represents a under the terms of the trust the trustees possess the power of transfer with respect to the notes and b the transfer will not take place until it has been approved by the probate_court having jurisdiction over the trust in fact the probate_court has approved the transfer ruling requested the foundation’s receipt of the notes from the trust will not constitute an act of self- dealing to the foundation under sec_4941 of the code law sec_4941 of the code imposes a tax on acts of self-dealing between a disqualified_person as defined in sec_4946 and a private_foundation sec_4941 of the code provides that the term self-dealing includes any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person and transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 of the code provides that the term disqualified_person includes with respect to a private_foundation a person who is a foundation_manager a member_of_the_family of a disqualified_person or a partnership in which a disqualified_person holds more than percent of the beneficial_interest sec_4946 of the code provides that a foundation manager’ is an officer director or trustee of a foundation sec_4946 of the code provides that for purposes of sec_4946 the family of any individual shall include only his spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren sec_4947 of the code provides that certain excise_taxes including the excise_taxes described in sec_4941 apply to certain split-interest_trusts sec_53 d -2 of the foundation and similar excise_tax regulations provides that in general the term self-dealing includes where a note the obligor of which is a disqualified_person is transferred by a third party to a private_foundation which becomes the creditor under the note there is an exception to this rule however for transactions that occur during the administration of a revocable_trust including a_trust that has become irrevocable upon the death of the grantor sec_53_4941_d_-1 of the regulations provides that the term indirect self-dealing does not include a transaction with respect to a private foundation's interest or expectancy in property held by a revocable_trust including a_trust that has become irrevocable on the grantor's death if i ii ili iv vv the trustee of the trust possesses a power of sale with respect to the property or has the power to reallocate the property to another beneficiary the transaction is approved by the probate_court having jurisdiction over the trust in the case of a revocable_trust the transaction occurs before it is considered subject_to sec_4947 the trust receives an amount that equals or exceeds the fair_market_value of the private foundation’s interest or expectancy in the property at the time of the transaction and the transaction results in the private_foundation receiving an interest or expectancy at least as liquid as the one it gave up sec_53_4947-1 of the regulations provides that a revocable_trust that becomes irrevocable upon the death of the decedent-grantor from which the trustee is require to distribute all of the net assets in trust free of trust to charitable beneficiaries is not considered a charitable_trust under sec_4941 for a reasonable period of settlement within the meaning of sec_53_4947-1 after becoming revocable sec_53_4947-1 of the regulations provides that the term reasonable period of settlement means that period reasonably required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust including the collection of assets the payment of debts taxes and distributions and the determination of the rights of the subsequent beneficiaries in 718_f2d_290 cir cert den 104_sct_2180 the court_of_appeals affirmed a lower court decision holding that the purchase of stock from an estate by a son of the decedent constituted an indirect act of self dealing between a disqualified_person and a private_foundation that was established by a decedent’s bequest analysis m is a disqualified_person with respect to the foundation within the meaning of sec_4946 of the code because m is a trustee and thus foundation_manager and president of the foundation n and o are disqualified persons with respect to the foundation within the meaning of sec_4946 of the code because they are the daughter and son-in-law respectively of m n and o own percent of the stock of p sec_4946 of the code states that a corporation is a disqualified_person if more than percent of the total combined voting power is owned by another disqualified_person therefore p is a disqualified_person with respect to the foundation as a remainder beneficiary under the trust the foundation will receive a distribution of the notes from the trust therefore under sec_53_4941_d_-2 of the regulations the foundation’s receipt of the notes from the trust would constitute an indirect act of self-dealing under sec_4941 of the code see also rockefeller v u s supra however the foundation’s receipt of the notes from the trust will not constitute an indirect act of self-dealing under sec_4941 of the code if all the requirements of sec_53_4941_d_-1 of the regulations are met i ii iti under the terms of the trust the trustees possess the power of transfer with respect to the notes and the power to reallocate the property to another beneficiary therefore the requirement in sec_53 d -1 b i has been met the transfer of the notes from the trust to the foundation will not take place without the approval of the probate_court having jurisdiction over the trust in fact the probate_court has approved the transfer therefore the requirement in sec_53 d -1 b ii of the regulations has been met a revocable_trust that becomes irrevocable upon the death of the decedent- grantor from which the trustee is required to distribute all of the net assets in trust free of trust to charitable beneficiaries is not considered a charitable_trust under sec_4947 of the code for a reasonable period of settlement after becoming irrevocable sec_53_4947-1 of the regulations the term reasonable period of settlement means that period reasonably required by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust sec_53_4947-1 the estate which includes the trust has filed a federal estate_tax_return on a timely basis and received a closing letter from the internal revenue services in addition the trust will not distribute the notes until it has received approval from the probate_court because distribution from the trust will occur during a reasonable period of settlement within the meaning of sec_53 b iv of the regulations under sec_53_4947-1 the trust will not become a charitable_trust subject_to sec_4947 of the code before the trust distributes the notes to the foundation therefore the requirement in sec_53 d -1 b iii has been met by transferring the notes to the foundation as remainder beneficiary under the terms of the trust the trust will be relieved of its fiduciary obligation to distribute the notes to the foundation therefore the requirement of sec_53 d - b iv of the regulations has been met by receiving a distribution of the notes from the trust as remainder beneficiary under the trust the foundation will receive an interest or expectancy at least as liquid as the one it gave up therefore the requirement of sec_53 d - b v of the regulations has been met iv v in conclusion the foundation’s receipt of the notes from the trust will not constitute an indirect act of self-dealing under sec_4941 of the code because all the requirements of sec_53 d -1 b of the regulations have been met ruling the foundation’s receipt of the notes from the trust will not constitute an act of self- dealing to the foundation under sec_4941 of the code this ruling is based on the understanding there will be no material changes in the facts upon which it is based the facts submitted other than with respect to the sections described the code provides it may not be used or cited by others as precedent this ruling is directed only to the organization that requested it sec_6110 of this ruling does not address the applicability of any section of the code or regulations to after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions about this ruling please contact the person whose name and this ruling will be made available for public inspection under sec_6110 of the code telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely steven b grodnitzky manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number ---------------------------- -------------------------- -------------------------------------------- ------------------------------------------------ ----------------- -------------------------------------- in re -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number --------------------- refer reply to cc corp b01 plr-115717-11 date august legend parent --------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- state a state b ------------- ------------- business a -------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- business b ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- sub --------------------------------------------------- ------------------------------------------------------------ llc1 ----------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub -------------------------------------------------- ----------------------------------------------------------------- plr-115717-11 sub -------------------------------------------------- ------------------------------------------------------------------ sub --------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- -------------------------------------------------- --------------- sub -------------------------------------------------- ----------------------------------------------------------------- sub ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------ -------------------------------------------------- sub ---------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------- sub ------------------------------------------------------------------------------------------------------------ -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------- sub --------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- plr-115717-11 newco ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------- ------------------------------------------------ newco sub ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- -------------------------------------------------- ------------ sub ------------------------------------------------------------------------------------------------------------ ------------------------------------------------- ----------------------------------------------------------------------------------------- sub ------------------------------------------------- -------------------------------------------------------------------------- sub --------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub -------------------------------------------------- ------------------------------------------------------------------ sub ------------------------------------------------------------------ --------------- -------------------------------------------------- sub -------------------------------------------------- ---------------------------------------------------------------------- sub -------------------------------------------------- -------------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub -------------------------------------------------- ----------------------------------------------------------------------- sub ----------------------------------------------------------------- plr-115717-11 -------------------------------------------------- sub -------------------------------------------------- ---------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ----------------------- sub -------------------------------------------------- ----------------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- -------------------------------------------------- --------------- sub -------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub -------------------------------------------------- ----------------------------------------------------------------------------- sub -------------------------------------------------- --------------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- plr-115717-11 sub ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- -------------------------------------------------- sub ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- -------------------------------------------------- --------------- sub -------------------------------------------------- --------------------------------------------------------------------------- sub -------------------------------------------------- ------------------------------------------------------------------- sub ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- sub ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------- acquiring ------------------------------------------------------------- merger sub ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ date date date date date aa bb cc ------------------------- ------------------- ------------------- -------------------- ------------------- --------------- --------------- -- plr-115717-11 dd ee ff -------- ----- -- dear ----------------- this letter responds to your date request supplemented by your letter dated date for rulings on certain federal_income_tax consequences of the completed transactions defined below which effected the sale of parent owning business a to acquiring and the split-off of newco owning business b to parent’s shareholders the information provided in that request and in later communications is summarized below the rulings contained in this letter are based on 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 rulings verification of the information representations and other data may be required as part of the audit process summary of facts parent is a state a corporation whose common_stock was publicly traded before the completed transactions parent also had a class of preferred_stock outstanding which was not publicly traded before the completed transactions parent was the parent of an affiliated_group_of_corporations filing a life-nonlife consolidated tax_return the parent group that conducted business a and business b parent owned all of the outstanding_stock of sub a holding_company that owned subsidiaries that conducted both business a and business b parent also owned all of the outstanding limited_liability_company interest of llc1 a disregarded_entity for u s federal_income_tax purposes which conducted a part of business a parent also owned the stock of sub sub sub and sub sub owned all of the outstanding_stock of sub which conducted the majority of business a and a portion of business b sub which conducted a part of business b and a part of business a and sub which conducted a part of business b sub also owned the stock of sub sub sub and sub in preparation for the completed transactions below parent formed newco a state b corporation and newco formed newco sub a state b limited_liability_company newco sub elected to be treated as a corporation for u s federal_income_tax purposes under sec_301_7701-3 effective before the completed transactions plr-115717-11 in order to separate business b from business a parent transferred sub sub sub and sub the parent directly transferred targets to newco sub and sub transferred sub sub sub sub sub and sub the sub directly transferred targets and together with the parent directly transferred targets the newco directly transferred targets to newco sub certain of the newco directly transferred targets owned direct and indirect subsidiaries sub through sub inclusive the newco indirectly transferred targets and together with the newco directly transferred targets the newco transferred targets sub llc1 and sub were not transferred to newco sub and remained with parent together with parent the business a entities before the completed transactions each of sub through sub newco and newco sub was treated as a corporation for u s federal_income_tax purposes and was a member of the parent group acquiring is a publicly-traded state b corporation acquiring formed merger sub a state a limited_liability_company in connection with the completed transactions the business_purpose of the completed transactions is to separate business a and business b and to facilitate the acquisition of parent conducting business a completed transactions the completed transactions were effected by the steps described below and were completed on date i on date parent and sub entered into a binding agreement to sell nonvoting preferred_stock of newco that parent and sub would receive pursuant to step vii the newco preferred_stock and the binding agreement the preferred_stock sale agreement to certain investors the investors ii on date sub and sub entered into a reinsurance agreement the reinsurance agreement which was made effective as of date under the reinsurance agreement sub will provide reinsurance in respect of all risks liabilities and obligations of sub related to insurance policies and annuity_contracts other than those related to business a which policies and contracts are in force as of the effective time of the merger as defined below or are issued by sub up to six months after the date of the merger agreement under the reinsurance agreement sub transferred to sub all rights and obligations not primarily related to sub 6’s business a in connection with the reinsurance agreement sub and sub entered into an administrative services agreement under which sub will be responsible for the provision of certain customary services and costs in connection with the policies and contracts for which it will provide reinsurance pursuant to the reinsurance agreement plr-115717-11 iii at or before the effective time of the merger the effective time sub and a subsidiary of acquiring the acquiring reinsurer entered into a novation agreement the novation agreement pursuant to which sub agreed to novate to the acquiring reinsurer all of its risks liabilities and obligations related to business a the novation agreement became effective as of the effective time with economic_effect as of date iv on date newco issued newco common_stock and newco preferred_stock to newco sub v the business a entities on the one hand and newco newco sub and the remaining subsidiaries of parent other than the business a entities collectively the business b entities on the other hand settled all intercompany accounts between the business a entities and business b entities vi all remaining assets and liabilities primarily related to business a not already owned by the business a entities and certain other specified_assets and liabilities were transferred to and or assumed by the business a entities and all remaining assets and liabilities primarily related to business b not already owned by business b entities and certain other specified_assets and liabilities which included cash to provide newco with sufficient working_capital were transferred to and or assumed by the applicable business b entities vii parent transferred to newco sub all of the stock of the parent directly transferred targets and sub transferred to newco sub all of the stock of the sub directly transferred targets in each case in consideration for a pro_rata share of a the shares of newco common_stock held by newco sub and b the shares of newco preferred_stock held by newco sub the transfers of the newco directly transferred targets described herein are referred to as the transfers viii parent and sub immediately sold the newco preferred_stock received in step vii to the investors for cash pursuant to the preferred_stock sale agreement described in step i above investors unrelated to parent or newco purchased approximately dollar_figureaa of the newco preferred_stock and investors who were officers directors or significant shareholders or affiliates of officers directors or significant shareholders of parent purchased dollar_figurebb less than percent of the newco preferred_stock the newco preferred_stock sold in this step viii comprised all of the outstanding and issued newco preferred_stock ix sub distributed to parent all of the shares of newco common_stock and cash it received pursuant to step viii x parent used the cash received pursuant to step viii and step ix to repay existing indebtedness in part and expenses plr-115717-11 xi merger sub merged with and into parent with parent comprising the surviving corporation the merger in the merger a holders of parent common_stock received cc shares of newco common_stock and dollar_figuredd in cash in exchange for each share of parent common_stock held b holders of parent preferred_stock received the same closing consideration that ee shares of parent common_stock would have received in exchange for each share of parent preferred_stock held and c acquiring’s membership interests in merger sub were converted into shares of parent common_stock immediately after the merger acquiring owned percent of the stock of parent the investors held all of the newco preferred_stock the parent’s former common and preferred shareholders had received cash and held all of the newco common_stock and neither parent nor sub nor any of their affiliates owned any stock in newco the parties expect to make elections under sec_338 of the internal_revenue_code with respect to the transfers of the stock of the newco directly transferred targets and with respect to the deemed transfers of the stock of the newco indirectly transferred targets parent expects that the deemed asset sales resulting from the sec_338 elections with respect to the newco transferred targets will generate a net ordinary_loss life_insurance_company loss from operations or both the sec_338 loss and net_capital_gain which together with operating income and loss will be reported on the parent group’s tax_return for the taxable_year ending on the closing date of the merger the closing date date on or before the closing date newco and acquiring or certain subsidiaries of each as applicable entered into a separation agreement a tax_matters_agreement a transition services agreement the reinsurance agreement and the novation agreement representations the following representations are made with regard to the completed transactions a all of the stock of each of the applicable newco directly transferred targets was acquired by newco sub in a single transfer by either parent or sub as applicable as described in step vii of the completed transactions b for the taxable_period that included the transfers each newco transferred target was a consolidated target within the meaning of sec_1_338_h_10_-1 of the income_tax regulations and parent and sub were members of the selling_consolidated_group within the meaning of sec_338 plr-115717-11 c the terms of the preferred_stock sale agreement pursuant to which parent and sub sold the newco preferred_stock and the terms of the newco preferred_stock were determined pursuant to arm's-length negotiations with the investors d the fair_market_value of the assets of each newco transferred target with respect to which a sec_338 election will be made will exceed its liabilities at the closing of step xi of the completed transactions e there is no plan or intention for newco or newco sub to cease to remain in existence as separate corporations for federal_income_tax purposes f the newco preferred_stock will constitute stock in newco and not indebtedness for federal_income_tax purposes g at the time parent and sub sold the newco preferred_stock to the investors there was no current plan or intention to redeem the newco preferred_stock before the mandatory redemption date ff years after issuance h immediately after the merger newco sub would not be attributed under sec_318 the ownership of any stock owned by parent or sub in addition the distribution of newco common_stock to the public shareholders of parent described in step xi of the completed transactions and the sale of the newco preferred_stock to investors described in step viii of the completed transactions were not to parties whose ownership of newco stock would be attributed to parent or sub pursuant to sec_318 in measuring attributed ownership under sec_318 for these purposes there shall be taken into account all events occurring or contemplated during the period beginning with step i and ending with the completion of step xi of the completed transactions i the completed transactions would have been pursued by parent regardless of whether the sec_338 loss would be recognized j parent and sub on the one hand and newco newco sub and the newco transferred targets on the other hand ceased to be members of the same controlled_group as defined in sec_267 upon the consummation of the merger k the distribution of newco common_stock and business b to shareholders of parent was not engaged in or structured with a principal purpose to avoid the provisions of sec_267 or sec_1_267_f_-1 including for example by avoiding treatment as an intercompany sale or by distorting the timing of losses or deductions within the meaning of sec_1_267_f_-1 l parent will not make the election described in sec_172 to waive the carryback period with respect to net operating losses with respect to the taxable_year plr-115717-11 that ends on the closing date and has not made nor will make any other election which would preclude the carryback of any portion of such losses m parent will not make the election to waive the carryback period described in sec_810 with respect to the taxable_year that ends on the closing date and has not made nor will make any other election which would preclude the carryback of any portion of such losses n newco and newco sub will file a consolidated_return within the meaning of sec_1501 that includes newco and newco sub and all of their direct and indirect subsidiaries that are includible corporations under sec_1504 for the first taxable_year beginning after the completed transactions o neither newco nor any of its affiliates has purchased or has any plan to purchase any stock of parent sub or acquiring other than any stock of acquiring purchased for investment purposes by business b subsidiaries in the ordinary course of their business p except for any asset described in sec_1_338-8 neither newco nor newco sub acquired from any newco transferred target any asset described in sec_1 b after application of sec_1_338-8 during the consistency_period within the meaning of sec_338 rulings based solely on the information submitted and representations set forth above we rule as follows with regard to the completed transactions newco sub’s acquisitions of the stock of the newco directly transferred targets from parent and sub in the completed transactions will qualify as qualified_stock purchases within the meaning of sec_338 qsps assuming that a sec_338 election is made with respect to its direct shareholder whether a newco directly transferred target or another newco indirectly transferred target as applicable the deemed sale of the stock of an applicable newco indirectly transferred target resulting from the deemed asset sale of the direct owner will qualify as a qsp parent as the common parent of the selling_consolidated_group on the one hand and newco sub by the common parent of its consolidated_group on the other hand will be eligible to make the election under sec_338 in respect of the qsp of the stock of each of the newco directly transferred targets sold by either parent or sub plr-115717-11 assuming that a sec_338 election is made with respect to its direct shareholder whether a newco directly transferred target or another newco indirectly transferred target as applicable parent as the common parent of the selling_consolidated_group and newco sub by the common parent of its consolidated_group will be eligible to make the election under sec_338 in respect of the qsp of the stock of each of the applicable newco indirectly transferred targets the parent group will be entitled to deduct in the taxable_year of the parent group ending on the closing date to the extent otherwise deductible losses recognized by the newco transferred targets on the deemed sales of their assets under sec_267 sec_1_267_f_-1 and sec_1_1502-13 in each case to the extent applicable the parent group to the extent that it has a loss from operations within the meaning of sec_810 for the short taxable_year ending on the closing date will be required to carry back a portion of such loss from operations to parent group’s u s federal_income_tax returns for the taxable years specified in sec_810 pursuant to sec_1_1502-47 the parent group to the extent that it has net operating losses for the short taxable_year ending on the closing date will be required to carry back a portion of the net operating losses to parent group’s u s federal_income_tax returns for the taxable years specified in sec_172 pursuant to sec_1_1502-21 neither newco nor newco sub will be a successor to parent for purposes of sec_1504 therefore newco and its direct and indirect subsidiaries that are includible corporations under sec_1504 sec_1504 and sec_1_1502-47 and that satisfy the ownership requirements of sec_1504 will be members of an affiliated_group_of_corporations entitled to file a consolidated federal_income_tax return with newco as the common parent immediately following the merger caveats we express no opinion about the tax treatment of the completed transactions under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the completed transactions that are not specifically covered by the above rulings in addition we express no opinion regarding the application of the corporate_equity_reduction_transaction rules of sec_172 and sec_172 the application of sec_1_338-11 or whether any entity is treated as an insurance_company for federal_income_tax purposes procedural statements plr-115717-11 this ruling letter is directed only to the taxpayer who requested it sec_6110 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 this ruling letter in accordance with the power_of_attorney on file in this office a copy of this ruling letter is being sent to your authorized representative sincerely _________________________ maury passman assistant to the branch chief branch office of associate chief_counsel corporate