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 tege eb qp3 plr-131938-17 date date company a company b esop a state c dear --------------- ---------------------------------- --------------------------------- ------------------------------------------------------------------------------- --------------- this letter is in response to a request for a ruling submitted on your behalf by your authorized representative on date and subsequent correspondence dated date and date concerning the consequences of a subsidiary corporation’s adoption of a parent corporation’s employee_stock_ownership_plan esop the following facts and representations have been submitted under penalty of perjury in support of the requested ruling company a is incorporated under the laws of state c and has elected to be taxed as a subchapter_s_corporation under sec_1361 of the internal_revenue_code code in ------- company a established esop a and it continues to maintain esop a for its employees esop a is qualified_plan under sec_401 and an esop under sec_4975 esop a holds stock in company a to participate in esop a an individual must be an employee of company a or an employee of an affiliated company that has adopted esop a with the consent of company a’s board_of directors to date no affiliated company has been approved for participation in esop a therefore the only participants in esop a are employees of company a esop a is not leveraged_esop a requires a participant’s benefit to be distributed in the form of cash as of the date of the ruling_request esop a owned approximately ---- --- of the stock of company a plr-131938-17 company a established company b as its subsidiary in ------- company a is the sole shareholder of company b company b has not submitted an election to be taxed as an s_corporation under sec_1361 nor has company a made an election to treat company b as a qualified_subchapter_s_subsidiary under sec_1361 therefore company b is taxed as a c_corporation company b’s operations have been limited and it does not have its own employees company b plans to expand its operations and employ its own employees company a intends to make the employees of company b eligible to participate in esop a as employees of an affiliated company you have represented that neither company a nor any other member of its controlled_group_of_corporations as defined in sec_409 has any stock that is readily_tradable on an established_securities_market as defined in sec_1_401_a_35_-1 of the income_tax regulations company a represents that it has issued only one class of common_stock company a represents that its common_stock has a combination of voting power and dividend rights equal to or in excess of a that class of common_stock of any member of company a’s controlled_group_of_corporations under sec_409 having the greatest voting power and b that class of common_stock of any member of company a’s controlled_group_of_corporations under sec_409 having the greatest dividend rights based on the above facts and representations company a requests the following rulings as to company b and its employees company a stock held by esop a will constitute qualifying employer_securities within the meaning of sec_4975 and sec_409 if company b adopts esop a esop a will continue to satisfy the requirements of sec_409 if it continues to provide only cash distributions and to preclude participants from electing to receive distributions in company a stock because company a stock will continue to be stock of an s_corporation and as a result sec_409 will continue to apply company b’s adoption of esop a will not affect the application of allocation restrictions of sec_409 because the stock held by esop a will continue to be s_corporation stock of company a and the restrictions of sec_409 apply to s_corporation stock held by an esop company b’s adoption of esop a for the benefit of its employees will not jeopardize the status of esop a as an esop under sec_4975 and the exception to the unrelated_business_taxable_income ubti rules of sec_512 set forth in sec_512 will continue to apply to esop a following company b’s adoption of esop a plr-131938-17 sec_4975 defines an esop as a defined_contribution_plan which is a stock_bonus_plan which is qualified or a stock bonus and a money purchase plan both of which are qualified under sec_401 and which are designed to invest primarily in qualifying employer_securities and which is otherwise defined in regulations prescribed by the secretary sec_4975 says that a plan shall not be treated as an esop unless it meets the requirements of sec_409 sec_409 and if applicable sec_409 sec_409 and sec_664 and if the employer has a registration-type_class_of_securities as defined in sec_409 it meets the requirements of sec_409 sec_4975 defines the term qualifying_employer_security as any employer_security within the meaning of sec_409 sec_409 states that a participant who is entitled to a distribution from the plan has a right to demand that his benefits be distributed in the form of employer_securities for purposes of sec_409 the term employer_securities is defined in sec_409 sec_409 states that a plan which otherwise meets the requirements of this subsection or of sec_4975 shall not be considered to have failed to meet the requirements of sec_401 merely because under the plan the benefits may be distributed in cash or in the form of employer_securities sec_409 provides in pertinent part that an applicable_plan shall not be treated as failing to meet the requirements of this subsection or sec_401 merely because it does not permit a participant to exercise the right described in paragraph a if such plan provides that the participant entitled to a distribution has a right to receive the distribution in cash under sec_409 an applicable_plan includes a plan that is established and maintained by an s_corporation sec_409 generally defines employer_securities as common_stock issued by the employer or by a corporation which is a member of the same controlled_group which is readily_tradable on an established_securities_market if there is no readily_tradable common_stock within the meaning of sec_409 sec_409 states that the term employer_securities means common_stock issued by the employer or by a corporation which is a member of the same controlled_group having a combination of voting power and dividend rights equal to or in excess of a that class of common_stock of the employer or of any other such corporation having the greatest voting power and b that class of common_stock of the employer or of any other such corporation having the greatest dividend rights sec_409 defines the term controlled_group_of_corporations as having the same meaning as under sec_1563 determined without regard to subsections a and e c of sec_1563 plr-131938-17 under sec_1563 one or more corporations will constitute a parent-subsidiary_controlled_group if stock possessing at least percent of the total combined voting power of all classes of stock entitled to vote or at least percent of the total value of shares of all classes of the stock of each corporation is owned by one or more of the other corporations and the common parent owns at least percent of the total value of shares of all classes of the stock of at least one of the other corporations under sec_1361 an s_corporation may not have more than one class of stock sec_409 generally states that an esop holding employer_securities consisting of stock in an s_corporation shall provide that no portion of the assets of the plan attributable to or allocable in lieu of such employer_securities may during a nonallocation_year as defined in sec_409 accrue or be allocated directly or indirectly under any plan of the employer meeting the requirements of sec_401 for the benefit of any disqualified_person as defined in sec_409 sec_512 and b provides that if an organization described in sec_1361 or sec_1361 holds stock in an s_corporation such interest shall be treated as an interest in an unrelated_trade_or_business and notwithstanding any other provision of part i general_rule of subchapter_f exempt_organizations all items of income loss or deduction taken into account under sec_1366 and any gain_or_loss on the disposition of the stock in the s_corporation shall be taken into account in computing the ubti of such organization sec_1361 refers to a qualified_trust described in sec_401 and exempt from taxation under sec_501 as one of the types of exempt_organizations permitted to be a shareholder of an s_corporation sec_1366 provides rules for determining the tax of a shareholder of an s_corporation sec_512 provides that sec_512 does not apply to employer_securities as defined under sec_409 held by an esop described under sec_4975 company a has represented that neither company a nor any corporation in its controlled_group_of_corporations as defined in sec_409 has securities that are readily_tradable on an established_securities_market as defined in sec_1 a - f ii company a further has represented that it has issued only one class of common_stock company a also represents that its common_stock has a combination of voting power and dividend rights equal to or in excess of a that class of common_stock of any member of company a’s controlled_group_of_corporations under sec_409 having the greatest voting power and b that class of common_stock of any member of company a’s controlled_group_of_corporations under sec_409 having the greatest dividend rights plr-131938-17 esop a holds company a stock company a as the sole shareholder of company b is in the same controlled_group_of_corporations with company b under sec_409 accordingly with respect to ruling_request we conclude that as to company b and its employees company a stock held by esop a will constitute employer_securities within the meaning of sec_409 and qualifying employer_securities within the meaning of sec_4975 with regard to your remaining ruling requests we have determined that company a’s establishment of company b as a wholly owned c_corporation subsidiary does not affect company a’s continued status as an s_corporation and the continued status of company a’s stock as stock of an s_corporation for purposes of sec_409 sec_409 sec_512 and sec_4975 accordingly we conclude that upon company b’s adoption of esop a esop a will continue to be an applicable_plan under sec_409 and not subject_to sec_409 esop a will continue to be an esop holding employer_securities consisting of stock in an s_corporation and thus subject_to sec_409 esop a will not fail to be an esop under sec_4975 merely because company b adopts esop a and sec_512 will not cease to apply to esop a this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the proposed transaction under any other provision of the code or regulations the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party as specified in revproc_2018_1 b this office has not verified any of the material submitted in support of the request_for_ruling and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions the controlling facts change during the course of the transaction see revproc_2018_1 sec_11 plr-131938-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely john t ricotta branch chief qualified_plans branch tax exempt government entities


cca_2019051007105204 id uilc number release date from sent friday date am to cc bcc subject re my question hi ---- thanks for providing the additional facts based on what you’ve told me i think that revproc_2005_18 answers your question section of that rev_proc says that if a remittance that is held as a deposit is returned at the taxpayer’s written request with or without interest and a deficiency is later assessed for that period and type of tax the running of interest will not be suspended during the period for which the remittance was held as a deposit i believe your statement that the total adjustment to the --------- is going to be -------------- ------------------means that there is a deficiency to assess this means you should only give the taxpayer credit for the ------------------portion of the deposit from ------------ if the other ------------------of the deposit is returned if the taxpayer identified any or part of the deposit as being for a disputable_tax the taxpayer is entitled to overpayment interest on the returned deposit under sec_6603 the interest rate is the federal_short-term_rate determined under sec_6621 compounded daily see sec_6603 and revproc_2005_18 section dollar_figure and section you need it i am attaching the rev_proc in case if you have any other questions related to this case please let me know ---------------------- ------------------- -------------- ---------------- --------------------


department of the treasury internal_revenue_service washington d c government entities division number release date uil date egen e z i e m o i d l e t contact person identification_number telephone number employer_identification_number a this is in reply to your letter of date concerning the federal income and excise_tax consequences under sec_507 and certain sections of chapter of the internal revenue cade cade relating to a proposed partial transfer of assets in the manner and for the purposes described below y mutual agreement your three directors have agreed to divide your assets and to transfer one-third of its principal and accrued income thereof to n you will retain two-thirds of its remaining principal and accrued income and continue to be managed by a and c will resign as one of your directors however c will remain a trustee of n the transfer of your assets will allow c to manage the transferred assets pursuant to the governing instrument of n facts you are exempt from federal_income_tax pursuant to sec_501 c of the code and are classified as a private_foundation within the meaning of sec_509 n is organized under a_trust agreement and is exempt from federal_income_tax pursuant to sec_501 and is classified as a private_foundation within the meaning of sec_509 your directors are a b and c all of whom are siblings the trustees of n are c and d whom are related parties ‘you and n represent that to the best of your collective knowledge neither foundation has committed either a willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter of the cade both foundations represent that no distribution of their assets will be made until the rulings requested herein are granted rulings requested you have requested the following rulings your transfer without consideration of your assets equal to approximately one-third of your total value to n will constitute a significant distribution of assets to one or more private_foundations within the meaning of sec_1 c of the income_tax regulations regulations and therefore as a transfer described in sec_507 of the code will not be subject_to tax under sec_807 your transfer to n will not result in termination of your private_foundation_status under sec_507 of the code but instead will consfitute a reorganization between those private_foundations under sec_507 b your transfer to nn will not constitute notification of your intent to terminate your private_foundation_status under sec_507 of the code or any willful repeated acts or failures to act or any willful and flagrant act of failure to act under sec_507 by you thus you will not be liable for any_tax imposed by section c pursuant to sec_507 b of the code n will not be treated as a newly-created organization your transfer to n will not constitute taxable_expenditures under sec_4946 of the code your transfer to n will not constitute any act of self-dealing under sec_4941 of the code by you n or any of their foundation managers as defined in sec_4946 upon your transfer to n n will succeed to a portion of your excess qualifying distributions under sec_4942 of the code if any based upon n’s proportionate share of your total assets received nwill be treated as possessing your tax_attributes and characteristics pursuant to section big_number a and of the regulations your transfer to n will not give rise to any net_investment_income or constitute any other taxable sale or disposition under sec_4940 of the cade sec_507 through of the code n will be treated as if it were you in the proportion that the fair_market_value of your assets less encumbrances transferred to n bears to the fair_market_value of your assets lees encumbrances immediately before your transfer of the assets you will not be required to exercise any expenditure_responsibility under sec_4945 of the pursuant to sec_1_507-3 of the regulations and for purposes of chapter and code with respect to your transfer of assets to n law sec_501 of the code provides an exemption from federal tax for organizations that are organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net eamings of which inures to the benefit of any private_shareholder_or_individual sec_507 a of the code states that a private_foundation may voluntarily terminate its private_foundation_status by submitting to the internal_revenue_service a statement of its intention to voluntarily terminate its private_foundation_status pursuant to section a and by paying any termination_tax under sec_507 sec_507 of the code states that when one private_foundation transfers assets to one or more other private_foundations each transferee private_foundation shall not be treated as a newly created organization sec_507 of the code imposes an excise_tax equal to the lower_of the aggregate tax benefits that have resulted from the private foundation's exempt status under sec_501 or the value of the net assets of the private_foundation on an organization that voluntarily terminates its private_foundation_status ‘ sec_4940 of the code imposes an annual tax on the net_investment_income of private_foundations sec_4940 of the code defines net_investment_income as the amount by which the sum of the gross_investment_income and the capital_gain_net_income exceeds the deductions allowed by paragraph sec_4944 of the code imposes an excise_tax on acts of self dealing between a private_foundation and any of its disqualified persons as defined in sec_4948 sec_4942 of the code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year sec_4942 of the code states that for purposes of this section the term qualifying_distribution includes a contribution to a sec_501 organization described in paragraph ama go if a not later than the clase of the first taxable_year after its taxable_year in which such contribution is received such organization makes a distribution within the meaning of paragraph a or without regard to this paragraph which is treated under subsection h as a distribution out of conpus or would be so treated if such sec_501 c organization were a private_foundation which is not an operating_foundation and b the private_foundation making the contribution obtains adequate_records or other_sufficient_evidence from such arganization showing that the qualifying_distribution described in subparagraph a has been made by such organization sec_4945 of the code imposes a tax cn the taxable_expenditures of a private_foundation sec_4945 of the code states in part that for purposes of this section the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an organization unless such organization is described in paragraph or of section a is an organization described in section a or is an exempt_operating_foundation or the private_foundation exercises expenditure responsibilty with respect to such grant in accordance with subsection h sec_4945 of the code defines the term expenditure responsibility’ to mean that a private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary sec_1 a of the treasury regulations regulations states that in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c which describes a sec_507 of the code transfer the transferee organization shall not be treated as a newly created organization but shall succeed to those attributes and characteristics of the transferor organization described in sec_1_507-3 and which include its aggregate tax_benefit substantial contributors and chapter tax and penalty liablities sec_1_507-3 of the regulations states in part that a transferee organization to which this paragraph applies shall succeed to the aggregate tax_benefit of the transferor organization sec_1_507-3 of the regulations states that for purposes of section d in the event of a transfer of assets described in sec_507 any person whe is a substantial contributor’ within the meaning of sec_507 with respect to the transferor foundation will be treated as a substantial contributor’ with respect to the transferee foundation regardless of whether such person meets the dollar_figure-two percent test with respect to the transferee organization at any time sec_1_507-3 of the regulations states that if a private_foundation incurs a liability for ‘one or more of the taxes imposed under chapter or any penalty resulting therefrom prior to or as a result of making a transfer of assets described in sec_507 to one ar more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as receiving the transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability sec_1_507-3 of the regulations states that except as provided in subparagraph of this paragraph a private_foundation is required to meet the distribution_requirements of sec_4942 for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation sec_1_507-3 of the regulations provides that when a private_foundation makes a sec_507 transfer of all or part of its net assets to another private_foundation the applicable_period of time described in sec_4943 of shall include both the period during which the transferor foundation held such assets and the period during which the transferee foundation holds such assets sec_1_507-3 sets forth certain rules that apply to the transferes foundation with respect to the assets transferred in a sec_507 transfer to the same extent and in the same manner that they would have applied to the transferor foundation had the b transfer not been effected mostly in the nature of transitional rules of limited scope for the tax reform act of sec_1_507-3 9m of the regulations provides that if a private_foundation transfers all of its net assets to one or more private_foundations which are effectively controlled within the meaning of sec_1_482-1 directly or indirectly by the same person or persons which effectively controlled the transferor private_foundation for purposes of chapter sec_4940 et seq and part ii of subchapter_f of chapter of the code sec_507 through such a transferee private_foundation shall be treated as if it were the transferor sec_1_507-3 of the regulations states that a transfer of assets is described in sec_507 if it is made by a private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization sec_1 c of the regulations defines the term significant disposition of assets to one of more private_foundations as any disposition or series of dispositions where the cumulative total of dispositions i sec_25 percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year sec_1_507-4 of the regulations states that private_foundations which make transfers described in sec_507 are not subject_to the tax impased under sec_507 with respect to such transfers unless the provisions of sec_507 become applicable sec_53_4945-5 of the foundation regulations foundation regulations provides that with regard to capital endowment grarts made to private_foundations if a private_foundation makes a grant to another private_foundation for endowment or for other capital purposes the grantor foundation must require reports from the grantee foundation on the uses of the principal and the income if any from the grant funds the grantee must make such reports annually for the tax_year in which the grant was made and for the immediately succeeding two tax years only ifitis reasonably apparent to the grantor before the end of such grantee's second succeeding tax_year that neither the principal ner the income from the grant funds has been used for any purpose which would resutt in liability for tax under sec_4945 of the code may the grantor then allow the grantee's reports to be discontinued sec_53_4946-1 of the foundation regulations states that for purposes of sec_4941 of the code only the term disqualified person’ shall nat include any organization which is described in sec_801 other than an organization described in sec_509 anaiysis ruling sec_507 of the code describes a transfer from one private_foundation to another private_foundation according to any liquidation merger redemption recapitalization or other adjustment organization of reorganization sec_1_507-3 of the regulations describes the terms other adjustment organization or reorganization as including any partial_liquidation or any other significant distribution of assets to one or more private_foundations other than transfers for full and adequate_consideration or distributions out of current income the term ‘significant disposition of assets to one or more private_foundations is defined by sec_1_507-3 as any disposition or series of dispositions where the aggregate value transferred i sec_25 percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year since you are transferring more than percent of the fair_market_value of your net assets ton a private_foundation for ne consideration your proposed transfer is a significant disposition of assets that qualifies as a transfer under sec_507 b ruling sec_2 and ruling when a private_foundation makes a transfer described in sec_507 of the code the transferee foundation is not treated as a newly created organization under sec_1_507-3 ay of the regulations since your transfer is described in sec_507 as discussed in ruling above n will nat be treated as a newly created organization pursuant fo sec_1_507-4 of the regulations a private_foundation that makes a transfer described in sec_507 of the code is not subject_to the tax imposed under sec_507 c with respect to such transfer unless the provisions of sec_507 become applicable as discussed in ruling abova your transfer will constitute a significant distribution of assets described in section b you have stated that you have not and will not notify the secretary of your intent to terminate your status as a private_foundation and that you have not ever either committed wilful repeated acts or failures to act or committed a wilful and flagrant act or failure to act which gives rise to tax undar chapter of the code therefore your proposed transfer of assets to n under sec_507 will not terminate your private_foundation_status under sec_507 a and does not result in a termination_tax imposed by section c in the case of a significant disposition of assets to one or more private_foundations within the meaning of sec_507 of the code the transferee organization shall be treated as possessing those attributes and characteristics of the transferor organization which are described in subparagraphs and of sec_1_507-3 of the regulations as discussed in ruling above your transfer is described in sec_507 accordingly n will be treated as possessing your attributes and characteristics as described in sec_1_507-3 a and of the regulations ruling ruling sec_4940 of the code imposes an excise_tax on investment_income received by private_foundations investment_income includes capital_gains from the sale_or_other_disposition of property the transfer of assets by you to n which lacks consideration does not constitute a sale of other_disposition of property that would generate capital_gains subject_to excise_tax under sec_4940 therefore the transfer will not be treated as a taxable sale or disposition of property within the meaning of sec_4940 sec_4941 and sec_1_507-3 of the regulations is recognized by the service as an organization exempt ruling sec_4941 a of the code imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation determine whether the proposed transfer of part of your assets to n will constitute an act of self- dealing between a private_foundation and its disqualified persons as defined in sec_4946 under sec_53_4946-1 a of the foundation regulations a disqualified_person does not include organizations that are exempt under sec_504 therefore your transfer of assets to nis not an act of self-dealing because n from tax under sec_501 c ruling and under sec_1_507-3 of the regulations if a private_foundation transfers all of its net assets to anather private_foundation which is effectively controlled by the same person or persons which effectively controlled the transferor private_foundation the transferee private_foundation is treated as if it were the transferor here you are transferring less than all of your net assets so n is not treated as you for all private_foundation purposes instead n will be treated as possessing your attributes and characteristics which are described in sec_1 a and to the extent applicable and ii and none of your excess qualifying_distribution carryovers under sec_4942 will transfer to n under sec_1_507-3 of the regulations except as provided in subparagraph of section big_number a a private_foundation must meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation the transfer itself shall be counted toward satisfaction of such requirements to the extent the amount transferred meets the requirements of sec_4942 which states that the term qualifying_distribution includes a contribution to a section c organization if the redistribution requirements are met therefore your proposed transfer shall be counted toward the satisfaction of your distribution_requirements to the extent the amount transferred meets the redistribution requirements of sec_4942 rulings and your sec_507 transfer of assets to n is a grant to n for capital endowment purposes because n is not treated as you under sec_1_507-3 the transfer is a taxable_expenditure under sec_4945 of the cade unless you comply with the expenditure_responsibility requirements of section h your transfer to n will not be considered a taxable_expenditure as long as you exercise expenditure_responsibility over the transfer in accordance with sec_4945 and sec_53 c of the foundation regulations c requires the grantee fo make annual reports for the year in which the grant is made and the immediately succeeding two years sec_53 conctusior based on the foregoing we rule as follows your transfer without consideration of assets equal to approximately one-third of your total value to n will constitute a significant distribution of assets to one or more private_foundations within the meaning of sec_1_507-3 of the regulations and therefore as a transfer described in section b of the code will not be subject_to tax under sec_507 thus you will not be liable for any_tax imposed by sec_507 ‘your transfer to n will not result in termination of your private_foundation_status under sec_507 of the code but instead will constitute a reorganization between those private_foundations under sec_507 your transfer to n will not constitute natifcation of your intent to terminate your private_foundation_status under sec_507 of the code or any wiliful repeated acts or failures to act of any willful and flagrant act or failure to act under sec_507 by you pursuant to sec_507 of the code n will not be treated as a newly-created organization n will be treated as possessing your tax_attributes and characteristics as described in sec_1_507-3 and of the regulations your transfer to n will not give rise to any net_investment_income or constitute any other taxable sale or disposition under sec_4940 of the code upon your transfer to n n will not succeed to any of your excess qualifying distributions under sec_4942 of the code your transfer to n will not constitute a taxable_expenditure as long as you follow the expenditure_responsibility requirements of section h of the code and sec_53_4945-5 of the foundation regulations with respect to capital endowment grants you will be required to exercise expenditure_responsibility with respect to the transferred assets under sec_4945 of the code and sec_53_4945-5 of the foundation regulations with respect to capital endowment grants your transfer to n will not constitute any act of seff-dealing under sec_4941 of the code by you n or any of their foundation managers as defined in sec_4946 n will be treated as possessing your tax_attributes prior to the transfer only to the extent provided in sec_1_507-3 and i of the regulations this ruling is based on the facts as they were presented and on the understanding that there will be no material changes this ruling does not address the applicability of any section of the code of regulations to the facts submitted other than with respect to the sections described a copy of this letter should be kept in your permanent records this ruling will be made available for public inspection under section of the code after certain deletions of identifying information are made for details see enclosed notice to disclose notice of intention 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 in accordance with the power of attomey currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely acting manager exempt_organizations technical group


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division release number release date legend org - organization name xx--date address - address date date taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax org address certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated may 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes you have failed to establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inures to the benefit of private shareholders or individuals a substantial part of your earnings inure to the benefit of your members a substantial part of your activities do not further an exempt_purpose contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a 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 contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing director eo examinations internal_revenue_service department of the treasury internal_revenue_service te_ge eo exam commerce street dallas tx taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax date date org address certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly 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 of the technical_advice letter rev 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 sec_7428 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 nanette m downing director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f schedule number or exhibit form 886-a rev date name of taxpayer org year period ended 20xx 20xx tax identification_number ein explanations of items legend org - organization name state co-1 through co-16 - xx - date city - city county - county state - through 16‘ companies issue whether the org is still exempt under internal_revenue_code irc sec_501 articles of incorporation facts the org hereinafter referred to as organization or org is a state non-profit public benefit organization org's articles of incorporation state it was formed to promote competitive amateur athletic teams from county in state regional and national competition within the meaning of c of the irc the articles also provide that no part of its net_income or assets will inure to the benefit of any director officer or member form application_for recognition of exemption in its application_for recognition of exemption the organization states its purpose is to support national and international amateur athletic cheerleading competition through - raising public and private support for cheerleading teams to attend national and international competitions hosting public demonstrations to raise awareness of cheerleading as an athletic discipline hosting cheerleading training clinics for beginning and advance cheerleaders - - the organization stated that its main source_of_income would be from donations by public corporations and private individuals membership dues and fundraising events it fundraising program will consist of fundraising activities at public athletic venues in which corporate sponsors make contributions to participating non-profit organizations determination_letter the organization received its exemption_letter in may of 20xx effective march 20xx during its advance_ruling period the organization was determined to be exempt from federal_income_tax under a of irc as described in sec_501 the organization was further classified to be a publicly_supported_organization described in sec_509 and sec_170 of the irc correspondence received september 20xx stated the organization is classified as a a form 886-a catalog number 20810w - page_1 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer org bylaws year period ended 20xx 20xx explanations of items tax identification_number ein the org’s amended its bylaws in 20xx its objective and purpose is to promote and support curricular and athletic achievements for people of all ages the organization is a membership_organization the amended bylaws state membership qualifications as follows the qualifications for membership in this corporation are to be a person or corporation interested in promoting and supporting curricular and athletic achievements personal and corporate members shall each pay the dues prescribed by the board_of directors further personal members shall commit to those hours of volunteer service or payment of a contribution in lieu of volunteer service as the board_of directors may determine membership in the tax years under audit 20xx and 20xx the organization had members membership is made up of primarily parents of student athletes the membership packet for the may 20xx through april 20xx season includes a welcome letter from the president venue dress code rules what to expect distribution of funds educational expense requests request for transfer form and membership plans the welcome letter in the membership packets states the following although we do not claim to cover your entire cost of extra expenses we do feel that becoming an active member of the org will allow you to accumulate tax free funds to help defray your expenses the organization list eight venues it volunteers at co-1 co-2 co-3 co-4 co-5 co-6 co-7 co-8 and co-9 the organization requires tuition request private and extra classes with co-10 to be submitted by the payment of each month requests made after the will be used for the next month’s tuition or educational expense payments are made directly to an accredited school requests can be made for room and board board deposits tuition and extended expenses to receive tuition request payments the individual must be an active and current member of the organization the transfer request must be submitted by the submission date the individual must have balance availability and have the original or photo copy receipt from school activities sports venues form 886-a catalog number 20810w - page__2 publish no irs gov department of the treasury-internal revenue service 886-a form evga schedule number or exhibit explanations of items name of taxpayer year period ended org 20xx 20xx the organization’s main activity is volunteering at sporting events to work in concession stands the organization supplies the workers and the concession company supplies the inventory and supplies needed in the stand once a member joins the organization and pays their membership dues they are invited to join the organization’s e-group which is used to post and sign up for events tax identification_number ein two contracts the organization worked at in 20xx and 20xx were provided the first contract with the co-5 in city covers the period of september 20xx to july 20xx the contract states that in exchange for the conduct of the concession operations the organization will receive a percentage of the total gross_receipts from the concession operations determined by a pay per person scale the second contract is with co-11 in city entered into on march 20xx the contract states that in exchange for supplying volunteers to work and sell concessions the organization will receive of profits earned all volunteers must sign an acknowledgement and release form before performing any services in 20xx the organization worked at eight event venues and earned a total of dollar_figure for work performed at approximately events co-5 co-2 co-11 co-12 co-13 coo-14 co-15 co-16 total scholarships the organization’s second activity in conjunction with its fundraising is granting scholarships to members’ children for cost of tuition books etc from the monies received from the fundraising venues each member is granted a scholarship based on the amount he or she contributes to the organization through fundraising at the sporting events the members’ scholarship amount is determined based on the funds he or she raises the amount requested cannot exceed the amount in the members’ account to request a scholarship each member must submit a request for transfer form along with receipts for the amount requested the details requested on the form includes the member’s name date of the request child’s name program group amount and payee name for the check scholarships are distributed based on membership status and the number of fundraising events attended provided the members participated in volunteering events and does not request more than he she has contributed the request will be granted a check would then be written by the treasurer and issued to the school co-11 or parent based on the details of the request form 886-a department of the treasury-internal revenue service catalog number 20810w -_-publish no irs gov page schedule number or exhibit form 886-a explanations of items rev date name of taxpayer org year period ended 20xx 20xx tax identification_number ein a sample of the organization’s request for transfer forms in 20xx and 20xx show that all payments made to academic institutions or co-10 were earmarked for a specific member child’s tuition or for reimbursement directly to the member for a child’s cost of college books travel or apparel the members submitted a request for transfer form which included the member's name child’s name program amount requested name the check should be written and reason for the request in 20xx and 20xx the organization granted dollar_figure and dollar_figure in scholarships to members’ children this was the organization’s primary expense in both years under audit the president provided a statement in response to information_document_request that it is the understanding of organization that all participants in each program or school athletic program that receives the requested monies will benefit from the members request in reply to information_document_request the organization stated that no public scholarships were given in 20xx due to lack of surplus there were no records of public scholarships distributed before 20xx when there was a surplus in 20xx a committee of two board members and two general members was formed scholarship applicants submitted two essays and a recommendation letter each essay and letter was independently graded and ranked all applications received scholarships the amounts were determined by ranking law sec_501 provides that organizations organized and operated exclusively for charitable education religious scientific testing for public safety literary or to foster national or international sports or the prevention of cruelty to children or animals is exempt the code section also requires that there be no inurement of earnings to private shareholders or individuals sec_1_501_c_3_-1 states that an organization is operated exclusively for it engages primarily in activities which accomplish one or more of such exempt exempt purposes if purposes specified in sec_501 it goes on to say that an organization will not be regarded as operating exclusively for exempt purposes if more than an insubstantial part of its activities is for a non-exempt purpose the presence of a single substantial nonexempt purpose destroys the exemption regardless of the number or importance of the exempt purposes 326_us_279 90_led_67 66_sct_112 92_tc_1053 sec_1_501_c_3_-1 states that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines private_shareholder_or_individual as persons having a personal and private interest in the activities of the organization form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibil form 886-a rev date explanations of items tax identification_number ein name of taxpayer org sec_1_501_c_3_-1 provides that an organization is not organized or operated for purposes of sec_501 if requirement 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 it serves a private rather than public interest to meet this year period ended 20xx 20xx in determining the effective date of revocation an organization may ordinarily rely on a favorable determination_letter received from the internal_revenue_service sec_1_501_a_-1 rev_proc 20xx-4 dollar_figure cross-referencing dollar_figure et seq 20xx-1 c b an organization may not rely on a favorable determination_letter however if the organization omitted or misstated a material fact in its application or in supporting documents in addition an organization may not rely on a favorable determination if there is a material_change inconsistent with exemption in the organization’s character purposes or methods of operation after the determination_letter is issued rev_proc 20xx-52 20xx8-30 irb the commissioner may revoke a favorable determination_letter for good cause sec_1_501_a_-1 revocation of a determination_letter may be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented rev_proc 20xx-52 20xx-30 irb taxpayer’s position in discussion with the taxpayer's representative on march 20xx the representative agrees to the revocation government’s position the org is not operated exclusively for exempt purposes its earnings inure to the benefit of its members who participate in fundraising more than an insubstantial part of its activities is in furtherance of a nonexempt purpose of reducing costs to members the org earnings inure to the benefit of its members the members receive a direct benefit in proportion to their participation at fundraising events the org requires members to submit a request for transfer for all payments requests show amounts paid to each institution are earmarked for a specific child’s athletic or academic tuition fees the payments benefit the individual child rather than the institution as a whole as a result the org’s activities result in the inurement of its income to its members the org’s bylaws state that the organization is to promote and support curricular and athletic achievements for people of all ages however the system in place does not benefit the public as a whole instead it benefits the individual member and their children form a catalog number 20810w page_5 -_-publish no irs gov department of the treasury-internal revenue service 886-a schedule number or exhibit tax identification_number ein explanations of items form pages tren name of taxpayer org the organization’s only activity is operating a concession stand at sporting venues to fundraise for members fundraising in itself is not generally a charitable activity fundraising is a means for an organization to raise income for use in its charitable or educational programs an organization that is created to raise funds to donate to another charitable_organization may have fundraising as its only activity for example an organization set up to raise money to support the local library this type of organization is exempt because all income raised is donated to the local library unlike the present case in which the income earned is earmarked for members and their children’s educational or athletic fees year period ended 20xx 20xx the org’s purpose is to raise funds for members this is not an exempt activity an organization does not qualify to be exempt if more than an insubstantial part of its activities is for a nonexempt purpose in the case of the org of its activities are for a nonexempt purpose therefore the organization does not qualify to be exempt under sec_501 of the irc effective date of revocation while revocation of a determination_letter is generally not retroactive revocation of a determination_letter may be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented in cases where the organization omitted or misstated a material fact revocation may be retroactive to all open years under the statute exempt status in the character the purpose or the method of operation revocation will ordinarily take effect as of the date of the material_change in any event revocation will ordinarily take effect no later than the time at which the organization received written notice that its exemption ruling or determination_letter might be revoked rev_proc 20xx-52 20xx-30 irb in cases where revocation is due to a material_change inconsistent with in this case the agent recommends retroactive revocation of the determination_letter because the organization operated in a manner inconsistent with its exempt status under sec_501 therefore it is recommended that revocation be effective as of january 20xx conclusion the exempt status of the org should be revoked because a substantial part of its earnings inure to the benefit of its members and a substantial part of its activities do not further an exempt_purpose the agent recommends retroactive revocation of the determination_letter because the organization operated in a manner inconsistent with its exempt status under sec_501 therefore it is recommended that revocation be effective as of january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 - plr-135070-02 date date legend taxpayer date trust stock state spouse accounting firm dollar_figurex year sec_1 c date date d year sec_2 dear this is in response to your letter dated date requesting on behalf of the taxpayer an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make allocations of generation-skipping_transfer gst_exemption the facts and representations submitted are summarized as follows on date taxpayer executed an irrevocable_trust agreement trust for the benefit of his descendants and transferred stock to the trust trust provides that the trust assets are plr-135070-02 to be held in a single trust to be divided into separate shares for each of taxpayer’s children trust further provides that the shares are to be redetermined upon the birth or adoption of a child after the date of the creation of the trust under the terms of trust until a child of taxpayer reaches age income from that child’s share may be distributed to the child in the trustees’ discretion for the child’s support maintenance and education once a child reaches age income of that child’s share may be distributed to the child and his or her descendants in the discretion of the corporate trustee if income is insufficient the trustees may distribute principal to the child the child’s spouse or a dependent_child of the child for support maintenance education and medical and health purposes the trustees may also distribute principal to the child for various purposes such as establishing him or her in a business or profession or assisting in the acquisition of a home upon his or her death each child of taxpayer may appoint his or her share to his or her surviving_spouse and taxpayer’s surviving descendants any property not appointed is to continue in trust for the child’s descendants if a child dies with no surviving issue the child’s share is to be divided into separate shares of equal value one for each living child of taxpayer and one for each deceased child with issue surviving trust is to terminate upon the expiration of the period provided under the applicable state rule_against_perpetuities taxpayer and spouse each elected to split the gift of stock to trust under sec_2513 and to be treated as transferor of one-half of the gift_for generation-skipping_transfer_tax purposes under sec_2652 taxpayer reported the transfer on a timely filed united_states gift and generation-skipping_transfer_tax return form_709 that was prepared by accounting firm taxpayer made additional gifts to trust in the amount of dollar_figurex in year sec_1 the c transfer of dollar_figurex to trust was made before date taxpayer and spouse elected to split the gifts in each year and taxpayer retained accounting firm to prepare the gift_tax returns gift_tax returns were filed with respect to the transfers in each of the above years on date taxpayer’s attorney who drafted trust sent a letter to accounting firm stating that additions made to trust after date were not exempt from gst tax and gift_tax returns should be filed allocating taxpayer’s gst_exemption for all transfers to trust subsequent to that date prior to the preparation of taxpayer’s gift_tax_return reporting the transfer in d taxpayer’s attorney and a partner in accounting firm discussed the issue of the allocation of the taxpayer’s gst_exemption to the transfers to trust as a result an allocation of taxpayer’s exemption was made on the gift_tax_return filed for d however it was determined that accounting firm had inadvertently failed to allocate taxpayer’s gst_exemption on any of the earlier gift_tax returns which were prepared by the firm plr-135070-02 taxpayer has requested the following rulings an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to make allocations of his gst_exemption to his transfers to trust and that such allocations shall be made based on the value of the property transferred to trust as of the date of the original transfers taxpayer’s transfer of stock to trust at the time of the creation of trust and taxpayer’s additional transfer of dollar_figurex in c were made prior to date trust was irrevocable on date under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation- skipping transfer_tax does not apply to a transfer under a_trust that was irrevocable on date however the tax does apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after that date sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 as applicable to the transfers made during the years under consideration sec_2642 provided that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 deemed allocations to certain lifetime direct skips - plr-135070-02 a the value of such property for purposes of determining the inclusion_ratio shall be its value for purposes of chapter and b such allocation shall be effective on and after the date of such transfer sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-135070-02 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to make allocations of his available gst_exemption to his transfers to trust in year sec_2 the allocations will be effective as of the date of the transfers to trust and the allocations will be made based on the value of the property transferred to trust as the date of the transfers the allocations should be made on supplemental form sec_709 and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the forms a copy is attached for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


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 plr-134285-18 date date legend s_corporation ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------------------------------- seller ----------------------------------------------------------- ------------------------- purchasers --------------------- ------------------------ ------------------------------------------------------------ ----------------------------------------------------------- x state a date date ---- ----------- ----------------------- --------------------------- company official -------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ------------------------- tax professional ------------------------------------------------------------------------------------------------ ------------------------- plr-134285-18 tax professional ----------------------------------------------------------------------------- ------------------------------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of s_corporation requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election s_corporation is requesting an extension of time to file the election statement under sec_1_336-2 the election statement with respect to seller’s disposition of x percent at least percent of the stock of s_corporation to purchasers on date the material information is summarized below s_corporation is an s_corporation incorporated in state a seller is an individual who owned all the stock of s_corporation before the transaction described below purchasers are two individuals s_corporation seller and purchasers are collectively the parties seller and purchasers made an agreement effective as of date providing that purchasers would purchase x percent of the stock in s_corporation from seller in exchange for installment payments of cash the disposition it has been represented that the disposition qualified as a qualified_stock_disposition as defined in sec_1 b i subsequent to date but prior to date the due_date of s corporation’s tax_return for the taxable_year that includes date seller and s_corporation entered into a written binding agreement to make a sec_336 election however for various reasons the election statement was not timely filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election statement the parties have each represented that they are not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time of the request for relief regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as an asset disposition if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a sec_336 election ii the s_corporation target retaining a copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and plr-134285-18 the election statement to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except for subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the time for filing the election statement is fixed by the regulations ie sec_1 h iii therefore the commissioner has discretionary authority under sec_301 to grant an extension of time to file the election statement provided the parties acted reasonably and in good_faith the requirements of sec_301_9100-3 are satisfied and granting relief would not prejudice the interests of the government information affidavits and representations submitted by the parties company official tax professional and tax professional explain the circumstances that resulted in the failure to timely file the election statement the information establishes that s_corporation reasonably relied on a qualified_tax professional who failed to timely file or advise target to timely file the election statement and that the request for relief was filed before the failure to timely file the election statement was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that the parties have acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter to file the election statement within days of the date on this letter s_corporation must file the election statement in accordance with sec_1_336-2 the election statement must be attached to s corporation's tax_return for the taxable_year including date in addition a copy of this letter must be attached to s corporation's return alternatively if s_corporation files its return electronically it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date on this letter and control number plr-134285-18 of this letter_ruling plr-134285-18 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the taxable_year in which the transaction was consummated and for any other affected_taxable_year the above extension of time is conditioned on the taxpayers' ie the parties' tax_liabilities if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liabilities for the years involved a determination thereof will be made by the applicable director's office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or making the sec_336 election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from making the sec_336 election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations made by the parties company official tax professional and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election statement penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-134285-18 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


number release date id office uilc cca-825114-08 ----------- from sent date to cc subject estate case --------- i spoke with --------------------------in --------- jct does not generally look at refunds arising from original returns eg return of withholding or estimated_taxes or claims for refund sec_6405 limits review by jct to certain types of taxes including estate_taxes irm provides that certain situations are not reported to the jct the --------- case appears to fall into the first category irs reports refunds arising from amended returns return a a refund_or_credit of estimated or withheld income_tax made without first examining the b a refund_or_credit of an unassessed advance_payment or deposit made before determining a taxpayer's tax_liability or a refund_or_credit of an amount_paid on a tentative_return in excess of the amount of the tax_liability reported by the taxpayer on a final return a final return is defined as the last return filed by the due_date for that return c prior reports submitted to the jct are not considered in determining whether the case meets joint_committee criteria in addition if a case which was previously closed did not exceed dollar_figure such amount should not be combined with any subsequently determined refund_or_credit in computing joint_committee jurisdiction d a case of any type involving overassessments as distinguished from overpayments in excess of dollar_figure for example an abatement of an unpaid portion of an assessment under sec_6404 regardless of the amount is not a refund_or_credit under sec_6405 e an overpayment determined by the united_states tax_court or any other court of competent jurisdiction as a result of the trial of a case rather than by a stipulation of settlement


t c memo united_states tax_court james e jenkins and ruth a jenkins petitioners v commissioner of internal revenue respondent docket no filed date thomas mckinney jr for petitioners martha j weber and nancy hale for respondent memorandum findings_of_fact and opinion foley judge by notice_of_deficiency dated date respondent determined deficiencies in and additions to following trial and the completion of the briefing process petitioners filed a notice of death of counsel thomas mckinney jr as a result the court deemed mr mckinney withdrawn as petitioners’ counsel petitioners’ and federal income taxes the issues for decision are whether petitioners received unreported income and are liable for the sec_6663 a fraud_penalty findings_of_fact petitioners married on date and remained married from through ie the years in issue prior to meeting ruth a jenkins james e jenkins petitioner made a modest living in the flea market business mrs jenkins was a successful businesswoman and sole owner of salvage brokers limited inc salvage brokers an auction and salvage business petitioner and mrs jenkins were president and secretary respectively of salvage brokers during the years in issue petitioners went on various gambling trips to las vegas nevada and tunica mississippi would typically take dollar_figure for gambling purposes and had gambling_losses in excess of their winnings petitioner and robert hood were partners in arjay rentals arjay petitioner and hood through arjay assisted charities in organizing and operating bingo_games in exchange for their services the charities agreed to lease building space in which to conduct the bingo_games purchase bingo equipment eg bingo cards and split a percentage of the net profits with petitioner and hood arjay’s receipt of a percentage of the net profit sec_1 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue violated va code ann sec ie prohibiting individuals partnerships and corporations from receiving compensation_for the purpose of organizing managing or conducting bingo_games and constituted illegal gambling for purposes of u s c sec from date to april of petitioner and hood operated bingo_games with the jasper volunteer_fire_department jvfd in jasper virginia in exchange for their services petitioner and hood received payments relating to the purchase and rental of bingo equipment and a percentage of profits during and part of the games were generally held twice a week in a building owned by mrs jenkins jasper property and leased to arjay for dollar_figure per month from to april of arjay subleased the jasper property to jvfd for dollar_figure per night in april of jvfd moved its bingo operations to another building owned by mrs jenkins in weber city virginia weber property jvfd leased the weber property from mrs jenkins for dollar_figure per night after each bingo session petitioner hood and certain members of jvfd would place all bingo proceeds on a table the money used to provide change to patrons during the bingo session sec_2 illegal gambling is defined as the operation of a gambling business that violates state law in which it is conducted involves five or more persons and occurs in excess of days or has a gross revenue of dollar_figure in any single day u s c sec was counted first and removed from the table after all the money was counted the charities would generally issue checks to mrs jenkins and arjay for the rent and bingo equipment respectively on financial reports generally prepared by petitioner the attendance expenses and profits were reported hood deposited the rent checks issued to mrs jenkins ie by endorsing the checks in mrs jenkins’s name and checks issued to arjay into a bank account in the name of robert c hood d b a arjay bingo supplies arjay account both petitioner and hood had signature_authority over the arjay account petitioner and hood operated bingo_games with the east carters valley ruritan club ruritan club during and in exchange for their services petitioner and hood received payments relating to the purchase and rental of bingo equipment and a percentage of the profits the bingo_games were generally held twice a week at the weber property as with the jasper property arjay leased the building from mrs jenkins on a monthly basis for dollar_figure and subleased it to the ruritan club for dollar_figure per night the ruritan club bingo_games were conducted in the same manner as jvfd bingo_games in the ruritan club terminated its affiliation with petitioner and hood ceased bingo operations at the weber property and moved its bingo operations to another building that same year one of its members kathy babb informed the virginia gaming commission that the jvfd was engaged in illegal bingo operations beginning in date petitioner and hood also operated bingo_games with handicaps unlimited in bristol virginia in exchange for their services petitioner and hood received payments relating to the purchase and rental of bingo equipment and a percentage of the profits the games were generally held twice a week although the games were not held in one of mrs jenkins’s properties they were conducted in the same manner as the jvfd and ruritan bingo_games in december of handicaps unlimited ceased operation of its bingo_games on date petitioners and hood were indicted for illegal gambling racketeering and money laundering during petitioner’s sentencing hearing hood testified that both he and petitioner had received substantial amounts of money from the bingo operations in addition to the income received relating to rent and supplies in exchange for his testimony he avoided prison and received a 12-month sentence in a halfway house petitioner pleaded guilty to the gambling and money laundering charges the remaining counts were dismissed against him and all counts were dismissed against mrs jenkins at his sentencing hearing however petitioner asserted that he did not receive any of the proceeds from the bingo_games and received only payment for rent supplies and reimbursements for out-of- pocket expenses relating to the operation of the bingo_games the court was unconvinced and sentenced petitioner to months in prison and a fine of dollar_figure at the sentencing hearing agent david gannaway the primary internal_revenue_service agent for this matter testified regarding his investigation of the illegal gambling operations he submitted a report consisting of a spreadsheet summarizing the figures used in the nightly financial reports prepared by petitioner relying on figures in the financial reports he determined the amounts petitioner and hood received from the bingo_games operated from through he then computed the profit for petitioner and hood based on what he concluded were the profit splits between the charities petitioner and hood for jvfd and the ruritan club he concluded that petitioner and hood’s percentage of the proceeds was not fixed but varied from percent to percent based on attendance he further concluded that petitioner and hood’s percentage of the proceeds relating to handicaps unlimited wa sec_80 percent in the report agent gannaway concluded and hood agreed that petitioner and hood received dollar_figure from to this amount was reduced to dollar_figure after deducting the amount he concluded that petitioner and hood received for rent and supplies although hood did not know if dollar_figure was accurate he requested that the government reduce its determination of the net amount received to dollar_figure and asserted that all proceeds were split evenly with petitioner in response the government ultimately concluded that petitioner and hood each received dollar_figure petitioners filed joint federal_income_tax returns relating to through but failed to include income payments relating to rent and supplies from the charities in petitioners filed amended returns relating to through to reflect the receipt of such income on date respondent issued petitioners a notice_of_deficiency and determined deficiencies and penalties relating to through as follows year deficiency dollar_figure big_number big_number big_number sec_6663 penalty dollar_figure big_number big_number big_number respondent based his determinations on hood’s assertions information received from various members of the respective charities and agent gannaway’s reconstruction of petitioners’ income petitioners resided in kingsport tennessee at the time they filed their petition with the court opinion in order for petitioners to be liable for the fraud_penalty an underpayment must exist 94_tc_654 respondent determined pursuant to agent gannaway’s report that petitioners failed to report income relating to the years in issue petitioner pleaded guilty to illegal gambling thus respondent has linked petitioner with the income-producing activity see 42_tc_355 as a result petitioners must prove by a preponderance_of_the_evidence that respondent’s deficiency determinations are arbitrary or unreasonable id on brief respondent contends that he used the specific item method of proof for purposes of determining petitioners’ unreported income at trial however agent robin britton the agent who conducted the audit stated that she did not do a specific items analysis and basically used agent gannaway’s calculations from the plea agreement in response to the court’s inquiry regarding why she did not use an indirect method of proof eg the net_worth_method she stated that petitioners failed to provide her with the necessary records to utilize such a method the court then asked agent britton if she had requested such records from petitioners and she admitted that she had not agent britton also admitted that she failed to verify agent gannaway’s report relating to the ruritan club by comparing his calculations with the ruritan club’s deposit slips with respect to jvfd and handicaps unlimited she did not review the charities’ financial reports or deposit slips for purposes of determining the accuracy of agent gannaway’s report thus for purposes of determining the amount of income petitioner and hood received respondent relied solely on agent gannaway’s calculations agent gannaway’s report however is fatally flawed first in determining the total amount received by petitioner agent gannaway relied on information obtained from hood hood the only witness testifying as to how much petitioner received was not credible his testimony was self- serving and laden with prevarications in addition for purposes of determining the profit percentages attributable to petitioner and hood agent gannaway relied on information obtained from certain members of the charities although agent gannaway testified that the members were certain of the percentages petitioner and hood received at trial their testimonies contained numerous inconsistencies and to varying degrees were not credible we also note that some of those charity members were inappropriately receiving a portion of the bingo proceeds furthermore agent gannaway’s report did not include corresponding deposit slips to support his calculations of approximately entries ie relating to ruritan club with respect to handicaps unlimited the original financial reports were lost prior to trial and no copies of such reports were proffered by respondent thus respondent’s determinations are critically flawed and virtually all the testimonial evidence was not credible as a result the court is required to accept respondent’s incorrect determinations recompute the determinations ie using unreliable records and testimony or reject respondent’s determinations we shall do the latter we also note that respondent did not utilize the net_worth_method for purposes of determining petitioners’ unreported income but asserted that petitioners used the proceeds from the bingo_games to support numerous gambling excursions the evidence however does not so establish petitioners had sufficient funds from other sources eg income from salvage brokers and substantial rental income received from the charities petitioners have established by a preponderance_of_the_evidence that respondent’s determinations are incorrect thus we are compelled to reject the determinations contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered for petitioners