internal_revenue_service number release date index number ------------------------------------------------- -------------------------------------- -------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b01 plr-122989-14 date date legend -------------------------------------- -------------------------------- -------------- ------------------- ------------------- ------- x state date decedent year dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to make an election under sec_754 of the internal_revenue_code the information submitted states that x was formed as a limited_liability_company taxed as a partnership for federal_income_tax purposes in state on date decedent was a partner in x decedent died in year however at that time x's tax advisors did not advise x of the availability of an election under sec_754 accordingly x inadvertently failed to timely file a sec_754 election for year sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of the partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in plr-122989-14 sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 b of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions therefore for filing the return for the taxable_year sec_301_9100-1 c provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 b defines the item regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant and extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-3 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for the year taxable_year and thereafter x must calculate the adjustments under sec_734 and c and sec_1_755-1 as if x had timely made the sec_754 election and allocated the increase in basis among the properties held by x at that time the election should be made in a written_statement filed with the appropriate service_center for association with x's year return a copy of this letter should be attached to the election plr-122989-14 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copy of this letter is being sent to x's authorized representative sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries


tax_exempt_and_government_entities_division release number release date uil department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas date date tax_year ending december 20xx taxpayer_identification_number person to contact employee identification_number employee telephone number phone certified mail -- return receipt dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 effective september 20xx your determination_letter dated november 20xx is revoked the revocation of your exempt status was made for the following reason s organizations described in sec_501 of the internal_revenue_code and exempt from tax under sec_501 must be both organized and operated exclusively for exempt purposes you failed the organizational_test because you did not establish that you had an organizing document that complied with sec_501 at the time of applying for tax exemption because you never had an organizing document that meets the requirements of sec_501 and because you misrepresented that fact in your form 1023-ez the revocation is effective as of the date of exemption september 20xx contributions to your organization are no longer deductible under sec_170 after september 20xx if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you’ve tried but haven’t been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosure publication department of the treasury internal_revenue_service tax_exempt_and_government_entities_division see was irs exempt_organizations examination uil certified mail - return receipt requested dear date apri taxpayer id number pril oeo-pe tax periods ended december 20xx person to contact employee id number telephone number fax address manager's contact information employee id number telephone number response due data date if you disagree send any information you want us to consider request a meeting or telephone conference with the manager shown at the top of this letter why you’re receiving this letter we enclosed a copy of our audit report form 886-a explanation of items explaining that we propose to revoke your tax-exempt status as an organization deseribed in internal_revenue_code irc sec_501 file a protest with the irs appeals_office if you request a mecting with the manager or send additional and above you'll still be able to file a protest with irs appeals_office after after we issue the final adverse determination_letter we’ ll announce that your organization is no longer eligible to receive tax deductible contributions under sec_170 if you agree if you haven’t already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issue a final adverse letter determining that you aren't an organization described in sec_501 c for the periods above the irs appéals office is independent of the exempt_organizations division and resolves most disputes informally if you file a protest the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax this is to allow the irs appeals_office enough time to consider your case for your protest to be valid it must contain certain specific information including a statement of the facts applicable law and arguments in support of your position for specific information needed for a valid protest refer to publication how to appeal an irs determination on tax-exempt status information as stated in the meeting or after we consider the information_letter rev catalog number 34809f fast track mediation ftm referred to in publication the examination process generally doesn't apply now that we’ve issued this fetter request technical_advice from the office of associate chief_counsel tax exempt government entities if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of this letter f you disagree with the technical_advice decision you will be able to appeal to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you f you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs gov forms-pubs or by calling 800-tax-form if you have questions you can contact the person shown at the top of this letter sincerely for maria hooke director exempt_organizations examinations enclosures form 886-a form_6018 form 4621-a report of examination publication publication 3498-a catalog number 34809f letter rev form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended december 20xx name of taxpayer explanation of items date of notice april 20xx issues whether the exempt status of sec_501 should be revoked effective september 20xx because it is not organized exclusively for exempt purposes within the meaning of sec_501 and sec_1_501_c_3_-1 the organization under irc facts applied for tax-exempt status by filing the form 1023-ez streamlined application_for recognition of exemption under sec_501 of the internal_revenue_code on september 20xx and was granted tax-exempt status as a c on november 20xx with an effective date of september 20xx an organization exempt under c needs to be organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes and to foster national and amateur sports competition the organization attested on form 1023-ez part il box that they have the organizing document necessary for their organizational structure sec_501 requires that an organizing document must limit your purposes to one or more exempt purposes within sec_501 the organization attested that their organizing document contains thislimitation they also attested that their organizing document does not expressly empower you to engage otherwise than as an insubstantial part of your activities in activities that in themselves are not in furtherance of one or more exempt purposes the organization attested that their organizing document contains the dissolution provision required under sec_501 or that they did not need an express dissolution provision in your organizing document because they rely on the operation of state law in the state in which you are formed for your dissolution provision the organization does not appear to have any organizing documents the agent was informed by the representative of the organization there are no organizing documents and the organization has never filed with the tax exempt status the organization has filed a final form_990-pf for the tax period ending december 20xx the organization has provided proof that all assets the organization's bank account has been transferred to another organization a c entity secretary of state for form 886-a rcv department of the treasury internal_revenue_service page -1- form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items law schedule no or exhibit year period ended december 20xx internal_revenue_code irc sec_501 of the code provides that an organization organized and operated exclusively for charitable or educational_purposes is exempt from federal_income_tax provided no part of its net_earnings inures to the benefit of any private_shareholder_or_individual treasury regulations regulation c -1 in order to be exempt under sec_501 the organization must be both organized and operated exclusively for one or more of the purposes specified in the section religious charitable scientific testing for public safety literary or educational regulation sec_1_501_c_3_-1 of the regulations states that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt regulation sec_1_501_c_3_-1 an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes regulation c -1 b an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized however an organization does not meet the organizational_test if its articles or the law of the state in which it was created provide that its assets would upon dissolution be distributed to its members or shareholders revproc_2018_5 sec dollar_figure inaccurate information on request a determination_letter issued to an organization that submitted a request in accordance with this revenue_procedure may not be relied upon by the organization submitting the request if it was based on any inaccurate material information submitted by the organization inaccurate material information includes an incorrect representation or attestation as to the organization's organizational documents the organization's exempt_purpose the organization's conduct of prohibited and restricted activities or the organization's eligibility to file form 1023-ez form 886-a rev department of the treasury - internal_revenue_service page -2- form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items organization's position schedule no or exhibit year period ended december 20xx taxpayer's position is the organization admitted the application should not have been filed the organization does not have any organizing documentation nor did they file with the secretary of state requesting tax exempt status the organization has voluntarily terminated their tax-exempt_organization the organization has filed a final form_990-pf for the tax period ending december 20xx as the organization has filed the final form_990-pf there are no filing_requirements for any_tax forms government's position based on the above facts the organization has not established that it had organizing documents limiting the purpose of the organization to one or more exempt purposes or a proper dissolution clause that meet the organizational_test under sec_501 at the time of applying for tax exemption if an organization fails to meet either the organizational_test or the operational_test it is not exempt the organization fails the organizational_test because it did not establish that it had an organizing document that complied with sec_501 at the time of applying for tax exemption because it never had an organizing document that meets the requirements of sec_501 and because it misrepresented that fact in its form 1023-ez the revocation is effective as of the date of exemption september 20xx conclusion based on the foregoing reasons it is the irs's position that the organization failed to establish that it meets the organizational_test as required sec_501 for it to be exempt from federal_income_tax under sec_501 accordingly the organization's exempt status is revoked effective september 20xx form_1120 u s_corporation income_tax return should be filed for the tax periods after september 20xx form 886-a rcev department of the treasury - internal_revenue_service page -3-


internal_revenue_service number release date index number ---------------------- ------------------------------------------------------ ----------------------------------------------------- ----------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no ------------- telephone number -------------------- refer reply to cc corp b06 plr-144533-08 date date ty ty legend shareholder ----------------------- ---------------------- distributing ------------------------------------ controlled ------------- state x country y ----------- ------------------ date ------------------------ date date ---------------- -------------- month a ------ month b ------------ business a business b ------------ ------- year ------- year ----- w x --- --- y z --- dear ---------------- taxpayer hereinafter distributing requests a ruling on the proper treatment of the proposed rescission of its distribution of the stock of its wholly-owned subsidiary controlled to its foreign parent shareholder the distribution occurred in year distributing requests a ruling to avoid the disaffiliation of controlled from the distributing consolidated_group for purposes of sec_1502 of the internal_revenue_code plr-144533-08 facts distributing is a wholly-owned domestic subsidiary of shareholder a country y corporation distributing is also the common parent of the distributing and subsidiaries consolidated_group a group which up until date included controlled distributing is currently engaged in business a prior to distributing’s transfer of certain assets and liabilities to controlled distributing was also engaged in business b as well as business a on or about date distributing transferred certain assets and liabilities of its business b to its wholly-owned subsidiary controlled which was incorporated on date prior to this transfer controlled had issued w shares of stock to distributing distributing transferred additional business b assets and liabilities to controlled on or about date immediately after the completion of the date transfer distributing transferred all of the w issued and outstanding shares of controlled common_stock and no other assets to shareholder the sole shareholder and historic direct owner of distributing as a distribution in redemption of y of the x shares of the stock of distributing held by shareholder hereinafter the distribution and redemption for federal_income_tax purposes distributing treated the distribution and redemption as a sec_355 tax free split off distributing undertook the distribution and redemption to improve the management fit and focus of business b and business a by forming controlled and distributing it to shareholder distributing facilitated the creation of separate management for business b while allowing the management of distributing to focus on business a controlled distributing and shareholder subsequently entered into an agreement to rescind the distribution and redemption for the following business reasons a new chief_executive_officer and a new chief financial officer of shareholder were appointed to their positions in month a year and month b year respectively they believe that the changed business environment reduces the benefits that can be gained from separating business b from business a increases the risks associated with separating business b from business a and increases the negative impact of the increased operational and compliance costs that the distribution and redemption produce at the time of the distribution and redemption these additional costs were contemplated but were expected to be outweighed by the benefits to be achieved by the distribution and redemption the changes in the senior management of shareholder and the changes in the business environment subsequent to the distribution and redemption cause the benefit of the separation of controlled and distributing to be outweighed by the increased risks and operational and compliance costs associated with separating controlled from distributing each of shareholder distributing and controlled has now concluded that plr-144533-08 distributing and controlled will benefit from controlled’s continuing to be a direct subsidiary of distributing rescission transaction shareholder distributing and controlled wish to rescind the distribution and redemption the parties intend to effect the rescission prior to the end of the year calendar and taxable_year in which the distribution and redemption occurred subject_to the receipt of the requested ruling the proposed rescission which is reflected in the rescission agreement submitted as an attachment to taxpayer’s ruling_request will encompass the following steps the rescission steps a controlled shall cause its corporate secretary to reflect the voiding of the transfer by distributing of w shares of controlled common_stock to shareholder on date in the corporate minute book of controlled such that distributing shall be deemed the holder of such shares from the time such shares were originally issued to distributing shareholder shall deliver b to distributing stock certificate no representing w shares of controlled common_stock issued in shareholder’s name on date duly endorsed by shareholder as returned to distributing in consideration of rescission c distributing shall deliver certificate no to controlled for cancellation and controlled shall reissue to distributing a stock certificate for w shares of controlled common_stock bearing the identical certificate number and original issuance date as the stock certificate held by distributing prior to date d distributing shall cause its corporate secretary to make a notation in the corporate minute book of distributing that the cancellation of the y shares of distributing common_stock held by shareholder prior to date is rescinded and void and such shares shall be treated as if such shares had not been cancelled distributing shall rescind and reverse the retirement of the y shares of e distributing common_stock held by shareholder prior to date and rescind and reverse the reduction of distributing’s capital that occurred in accordance with state x general corporation law immediately after the distribution and redemption and shareholder shall deliver f to distributing stock certificate no representing z shares of distributing common_stock issued in shareholder’s plr-144533-08 name on date duly endorsed by shareholder as returned to distributing in consideration of rescission and g distributing shall cancel certificate no and reissue to shareholder a stock certificate for x shares of distributing common_stock bearing the identical certificate number and original issuance date as the stock certificate held by shareholder immediately prior to date the rescission agreement further provides the parties will carry out the rescission steps prior to the last day of year and the rescission will be effective as of the last day of year the parties will treat the rescission as a rescission of the distribution and redemption and not as an acquisition of controlled stock by distributing a contribution_to_capital of distributing by shareholder as a sec_368 reorganization involving controlled stock or as any type of transaction other than a rescission of the distribution and redemption no party has taken or will take any material position inconsistent with the position that would have existed had the distribution and redemption not occurred the parties have examined the activities of distributing controlled shareholder and any other corporation controlled directly or indirectly by shareholder during the period between the distribution and redemption on date and the effective date of the rescission agreement and have determined that no activities of such entities have occurred that are materially inconsistent with the rescission and have agreed that no activities of such entities will occur prior to or after the rescission that are materially inconsistent with the rescission the distributing consolidated_return for the year taxable_year will reflect controlled as being a member of the consolidated filing group of which distributing is the common parent for the entire year taxable_year the purpose of the rescission is and the effect of the rescission will be to restore in all material respects the legal and financial arrangements among the parties that would have existed had the distribution and redemption never occurred and in particular the rescission agreement is intended to restore the legal and financial arrangements between distributing and shareholder that would have existed had shareholder not received the date distribution of the stock of controlled and to cause the legal and financial arrangements between distributing and shareholder to be identical in all plr-144533-08 material respects from the date immediately before the distribution and redemption to such arrangements that would have existed had the distribution and redemption not occurred and the parties will take all reasonable actions necessary to effectuate these purposes as a result of the rescission the stock bases of the stock issued by both distributing and controlled will be computed by their respective holders in all material respects as if the date distribution and redemption had not occurred as a result of the rescission all material items of income deduction gain and loss of each member of the consolidated_group of which distributing is the common parent will be reflected on the distributing consolidated federal_income_tax returns as if the distribution and redemption had not occurred and the parties may waive the condition of obtaining this requested letter_ruling from the service to effectuate the rescission but in that event all other conditions will remain in effect representations the following representations have been made regarding the proposed rescission of the date redemption and distribution the rescission will place distributing controlled and shareholder in the status quo ante immediately prior to the distribution and redemption controlled has not paid any consideration other than the distributed shares of controlled to shareholder in connection with the distribution and shareholder has not made any capital_contribution to controlled since the distribution no such consideration will be paid_by controlled and no such capital_contribution will be made prior to the rescission therefore no transactions between shareholder and controlled as shareholder and direct subsidiary respectively other than the distribution itself will need to be reversed in order to effect the rescission the parties will not add to the rescission any element that was not originally part of the distribution and redemption distributing controlled and shareholder will not make a payment as a condition of the rescission the rescission transaction will not involve any party that was not involved in the distribution and redemption plr-144533-08 shareholder distributing and controlled have duly executed the rescission agreement substantially in the form of the rescission agreement submitted as an attachment with its date letter_ruling request and will implement the rescission in accordance with the terms of that executed rescission agreement law and analysis the service recognizes that a rescission may be given full effect in abrogating a transaction under certain conditions when these conditions are met the transaction is disregarded for federal_income_tax purposes in this connection revrul_80_58 1980_1_cb_181 states the general legal principles pertaining to the doctrine_of rescission in the following terms the legal concept of rescission refers to the abrogation canceling or voiding of a contract that has the effect of releasing the contracting parties from further obligations to each other and restoring the parties to the relative positions that they would have occupied had no contract been made a rescission may be effected by mutual agreement of the parties by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist or by applying to the court for a decree of rescission the revenue_ruling states that there are at least two conditions that must be satisfied for the remedy of rescission to apply to disregard a transaction for federal_income_tax purposes first the parties to the transaction must return to the status quo ante that is they must be restored to the relative positions they would have occupied had no contract been made second this restoration must be achieved within the taxable_year of the transaction here the original split off which occurred on date was done pursuant to a contractual agreement entered into among shareholder distributing and controlled pursuant to the terms of this contractual agreement shareholder transferred y of the x shares it held of distributing stock to distributing in consideration for distributing’s distribution to it of all of the outstanding_stock of controlled the redemption and distributing distributed to shareholder all of the outstanding_stock of controlled in consideration for shareholder transferring to it y shares of its stock the split off as of the last day of year in accord with the terms of the rescission agreement shareholder and distributing will be restored to the relative positions they would have occupied if the stock of controlled had never been distributed to shareholder in addition this restoration will be achieved within the same taxable_year therefore the legal doctrine_of rescission applies to disregard the redemption of y shares of distributing stock disregard the distribution of the stock of controlled to plr-144533-08 shareholder and prevent the termination of controlled’s status as a member of distributing’s consolidated_group rulings based solely on the information submitted and the representations set forth above and the parties' restoration before the end of the taxable_year of the relative positions they would have occupied if the stock of controlled had not been issued rev_rul c b we rule as follows regarding the rescission transaction for federal_income_tax purposes i the distribution and redemption shall be disregarded ii the w shares of stock of controlled that distributing held on date shall be treated as continuing to be outstanding and owned by distributing during the period from date through and including the effective date of the rescission agreement and iii controlled will be treated as having remained a wholly-owned subsidiary of distributing and a member of the distributing consolidated_group at all times during the year taxable_year caveat except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-144533-08 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _________________________________ steven j hankin senior technician reviewer branch corporate cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-161836-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities --------------------------------------------------------------------------------------- subject railroad_retirement_tax_act status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following businesses became employers under the railroad retirement act and the railroad unemployment insurance act effective ---------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ----------------------------------------- and ------------------ ------became employers under the railroad_retirement_tax_act effective -------------------- ------- however we do not have enough information to support the factual statements in the rrb opinion that the two operating partners are not also employees of one or both of the entities please take the appropriate action regarding these businesses _____________________________ janine cook-


tcmemo_2008_249 united_states tax_court david a hughes petitioner v commissioner of internal revenue respondent docket no filed date p claimed numerous deductions on hi sec_2001 federal_income_tax return and did not include distribution income in his taxable_income r determined a deficiency an addition_to_tax pursuant to sec_6651 i r c and an accuracy-related_penalty pursuant to sec_6662 i r c held p is liable for the deficiency the addition_to_tax and the accuracy-related_penalty david a hughes pro_se susan s hu for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of a federal_income_tax deficiency an addition_to_tax under sec_6651 and a penalty under sec_6662 that respondent determined with respect to petitioner’ sec_2001 tax_year the issues for decision are whether petitioner is entitled to dollar_figure of deductions for unreimbursed employee business_expenses tax preparation fees tax_advice job search expenses and medical and dental expenses claimed on schedule a itemized_deductions whether petitioner is entitled to deductions of dollar_figure for expenses related to pension and profit-sharing_plans and dollar_figure for depreciation and sec_179 expenses claimed on schedule c profit or loss from business whether the dollar_figure in distributions that petitioner received from wescom credit_union is includable in his taxable_income whether petitioner is liable for the 10-percent additional tax under sec_72 whether petitioner is liable under sec_6651 for a dollar_figure addition_to_tax and 1all section references are to the internal_revenue_code_of_1986 as amended an in effect for the tax_year at issue the rule references are to the tax_court rules_of_practice and procedure whether petitioner is liable under sec_6662 for a dollar_figure accuracy-related_penalty findings_of_fact some of the facts have been stipulated and the stipulated facts and accompanying exhibits are hereby incorporated by reference into our findings at the time he filed his petition petitioner resided in california petitioner filed hi sec_2001 form_1040 u s individual_income_tax_return with respondent on date on his return petitioner reported receiving dollar_figure in distributions from wescom credit_union in petitioner also claimed deductions on schedule a and schedule c on schedule a petitioner deducted inter alia dollar_figure for unreimbursed employee business_expenses specifically dollar_figure for vehicle expenses dollar_figure for nonovernight travel_expenses dollar_figure for overnight travel_expenses dollar_figure for other business_expenses and dollar_figure for meals and entertainment_expenses dollar_figure for tax preparation fees dollar_figure for tax_advice and dollar_figure for job search expenses on schedule c he deducted among other things dollar_figure for expenses related to pension and profit- sharing plans and dollar_figure for depreciation and sec_179 expenses on date respondent issued a notice_of_deficiency to petitioner for hi sec_2001 tax_year petitioner filed a timely petition with this court on date therein he states that the company i was employed by was purchased by another company and has been unable to supply t e policy for the year in question he had gone through a divorse sic and spouse at the time will not supply copies of important tax info in their care and several personnal sic address changes as well as divorse sic and time passed caused some information to be misplaced he also asserts that any penalties due for any_tax that may be due should be waived since there was no malace sic simply errors a trial was held on date in los angeles california opinion i whether petitioner is entitled to deductions claimed on schedules a and c deductions are a matter of legislative grace and taxpayers bear the burden of proving entitlement to any claimed deductions 503_us_79 as part of their burden taxpayers must substantiate the amount of their claimed deductions a taxpayer is required to maintain records sufficient to establish the amount of any deduction claimed sec_6001 sec_1_6001-1 income_tax regs even when a taxpayer is unable to substantiate the amount of a deduction the court may still allow the deduction or a portion thereof if there is an evidentiary basis for doing so 39_f2d_540 2d cir 85_tc_731 in those instances the court may estimate the allowable expense bearing heavily if appropriate against the taxpayer whose inexactitude is of his or her own making cohan v commissioner supra pincite the cohan_rule does not apply however with respect to deductions that are subject_to the strict substantiation requirements of sec_274 sec_1_274-5t temporary income_tax regs fed reg date petitioner claimed a variety of deductions on hi sec_2001 return each of which has its own specific rules and requirements although we will address each of them in turn petitioner is ultimately unable to establish entitlement to any of them because he has failed to provide any substantiating evidence a unreimbursed employee business_expenses sec_162 authorizes a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business an expense is ordinary if it is normal or customary within a particular trade business or industry 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business 290_us_111 services performed as an employee generally constitute a trade_or_business for purposes of sec_162 91_tc_352 however if an employee’s expenses are reimbursable by his or her employer those expenses are not necessary and cannot be deducted 788_f2d_1406 9th cir affg tcmemo_1984_533 as mentioned certain business_expenses described in sec_274 are subject_to strict substantiation rules that supersede the cohan_rule 50_tc_823 affd 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs supra sec_274 applies to any traveling expense including meals_and_lodging away from home entertainment amusement and recreational expenses any expense for gifts or the use of listed_property as defined in sec_280f including passenger automobiles to deduct such expenses the taxpayer must substantiate by adequate_records or evidence sufficient to corroborate the taxpayer’s own testimony the amount of the expenditure or use which includes mileage in the case of automobiles the time and place of the travel entertainment or use its business_purpose and in the case of entertainment the business relationship to the taxpayer of each expenditure or use sec_274 flush language b tax preparation fees and tax_advice sec_212 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in connection with the determination collection_or_refund_of_any_tax c job search expenses sec_162 allows a taxpayer to deduct expenses_incurred in searching for new employment within the same trade_or_business see 54_tc_374 see also murata v commissioner tcmemo_1996_321 a deduction is not allowed for expenses_incurred while seeking employment in a new trade_or_business see 20_tc_511 d employer contributions to pension or profit-sharing_plans an employer’s contributions to pension or profit-sharing_plans are not deductible under sec_404 unless they are deductible under sec_162 as ordinary and necessary expenses see 501_f2d_675 7th cir sec_1_404_a_-1 income_tax regs sec_162 allows as a deduction a reasonable allowance for salaries or other compensation_for_personal_services actually rendered e depreciation and sec_179 expense a taxpayer may elect to deduct as a current_expense the cost within certain dollar limitations of any sec_179 property that is used in an active trade_or_business and placed_in_service during the taxable_year sec_179 b d see sec_1_179-4 income_tax regs the election must specify the total sec_179 expense deduction claimed and the portion of that deduction allocable to each specific item sec_179 sec_1_179-5 income_tax regs the taxpayer must make a separate election for each taxable_year and such election must be made on the first income_tax return for the taxable_year to which the election applies sec_179 sec_1 a income_tax regs the taxpayer must also maintain records reflecting how and from whom the sec_179 property was acquired and when it was placed_in_service sec_1_179-5 income_tax regs a taxpayer who fails to make the election is not entitled to sec_179 treatment see jackson v commissioner tcmemo_2008_70 visin v commissioner tcmemo_2003_246 affd 122_fedappx_363 9th cir f petitioner failed to substantiate the amounts of the deductions he claimed on schedules a and c there is no evidence of record to substantiate any of petitioner’s claimed deductions petitioner admits as much at trial he claimed that his accountant has the necessary evidence in his petition he asserts that his former spouse or the acquirer of his former employer has the evidence or that it was simply misplaced even assuming that substantiating evidence exists and is in the possession of third parties petitioner has had ample time to collect it but has failed to do so if the third parties were uncooperative rule permitted petitioner to issue subpoenas duces tecum that would have required third parties to appear at trial and bring written records in addition there is no indication that petitioner made an election under sec_179 petitioner sought a continuance only days before the trial session ostensibly to permit him to locate the documents necessary to substantiate his deductions because petitioner had in respondent’s opinion not cooperated in the pretrial process respondent opposed the continuance the court then denied the continuance but set the trial for a date days later to provide petitioner time to locate his documents nevertheless no documents were forthcoming at the trial accordingly our conclusion is inescapable petitioner has failed to demonstrate entitlement to any of the deductions at issue 2at trial the parties mentioned that petitioner may have reported his dollar_figure deduction for pension and profit-sharing_plans incorrectly and that he may have intended to claim that amount as a deduction for rental expenses for business machinery vehicles and equipment there is no evidence to substantiate that deduction either in addition as a result of petitioner’s failure to demonstrate entitlement to the deductions described above a portion of his deduction for medical and dental expenses must be disallowed sec_213 allows for the deduction of personal medical and dental expenses to the extent that they exceed percent of the taxpayer’s adjusted_gross_income agi in light of our conclusion above petitioner’s agi and 5-percent floor continued ii whether the dollar_figure in distributions petitioner received from wescom credit_union should be included in his taxable_income sec_63 generally defines taxable_income as gross_income minus deductions sec_61 in turn specifies that except as otherwise provided gross_income includes all income from whatever source derived generally income from annuities and pensions is included in gross_income sec_61 sec_72 further provides that distributions from qualified_retirement_plans are included in gross_income see sec_72 sec_402 in addition a taxpayer who receives a distribution from a qualified_retirement_plan before attaining the age of is generally subject_to an additional 10-percent tax pursuant to sec_72 on the amount of the distribution unless the taxpayer can prove that an exception under sec_72 applies see 114_tc_259 the commissioner’s determination_of_a_deficiency is generally presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a continued must be adjusted upward which precludes petitioner from deducting the entire amount of medical and dental expenses reported on hi sec_2001 return welch v helvering u s pincite although sec_7491 may shift the burden_of_proof to the commissioner in specified circumstances petitioner has not satisfied the prerequisites under sec_7491 and for such a shift petitioner concedes that he received distributions from pensions and annuities in the amount of dollar_figure in the taxable_year from wescom credit_union on his federal_income_tax return he reported receiving that amount as total ira_distributions but he did not include it in his gross_income at trial he stated that he invested the money into his business and that his accountant had told him that he would have losses to offset the distribution income these are not reasons to exclude the distributions from petitioner’s gross_income and petitioner has not otherwise met his burden of proving that respondent’s determination_of_a_deficiency is improper accordingly we will sustain the deficiency determined by respondent with respect to the dollar_figure in distributions received from wescom credit_union in we will also sustain respondent’s imposition of a 10-percent additional tax under sec_72 for petitioner’s early distributions from a qualified_retirement_plan petitioner does not dispute that he was under the age of when he received the distributions and has not otherwise disputed the additional tax or shown that an exception under sec_72 applies iii sec_6651 addition_to_tax respondent determined that petitioner was liable for an addition_to_tax under sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a timely return unless the taxpayer proves that such failure is due to reasonable_cause and not willful neglect see 469_us_241 pursuant to sec_7491 respondent has the burden of production with respect to this addition_to_tax and is therefore required to come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty see 116_tc_438 petitioner concedes that he filed hi sec_2001 federal_income_tax return on date--well beyond the date due_date moreover he has not disputed the addition_to_tax or presented any evidence to suggest that his failure_to_file timely was due to reasonable_cause accordingly we shall sustain respondent’s imposition of the addition_to_tax under sec_6651 iv sec_6662 penalty respondent determined that petitioner was liable for a penalty under sec_6662 respondent bears the burden of production with respect to petitioner’s liability for that penalty see sec_7491 this means that respondent must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty higbee v commissioner supra pincite sec_6662 imposes an accuracy-related_penalty of percent of any underpayment that is attributable to one of the causes listed in subsection b one such cause is negligence or disregard of rules or regulations with negligence including any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1 b income_tax regs another cause is any substantial_understatement_of_income_tax defined for individuals as an understatement that exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 d a there is an exception to the sec_6662 penalty when a taxpayer can demonstrate reasonable_cause for the underpayment and that the taxpayer acted in good_faith with respect to the underpayment sec_6664 regulations promulgated under sec_6664 provide further that the determination of reasonable_cause and good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs respondent asserts that petitioner is liable for the sec_6662 penalty because there has been a substantial_understatement_of_income_tax and because he acted with negligence and disregard of the rules respondent explains that petitioner has failed to provide respondent with evidence that he maintained books_or_records on hi sec_2001 return petitioner indicated that the total_tax due was dollar_figure respondent determined a deficiency of dollar_figure petitioner’s understatement_of_tax is substantial under sec_6662 because it exceeds dollar_figure and is greater than percent of the amount required to be shown on the return although petitioner argues in his petition that the penalties should be waived because he did not act with malice he has not shown that he acted with reasonable_cause or in good_faith which is the proper statutory test accordingly we sustain respondent’s determination that petitioner is liable for the sec_6662 penalty for the tax_year the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------ ----------------------------- ------------------------------- 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 psi plr-123530-16 date date legend decedent date spouse date dear ------ ---------- ------------------------------ ------------------ ----------------- -- ------------------------------ ------------------ -------------------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-123530-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death and decedent made no taxable_gifts during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-123530-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use 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 a request 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-123530-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-123530-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by karlene m lesho karlene m lesho senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number --------------------------------------- ----------------------------------------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-155689-04 date date legend legend p ----------------------- a b c dear ---- date ------------------------ date -------------------------- date ------------------------ a --- b ---- c -- d -- this letter is in response to your letter dated date submitted on behalf of p requesting rulings under sec_29 and sec_702 of the internal_revenue_code facts the facts as represented by p and p's authorized representative are as follows p is a limited_liability_company treated as a partnership for federal_income_tax purposes p was formed for the purpose of producing solid synthetic_fuel from coal fines the production process is described in detail in p's letter_ruling request p entered into a contract on date for the construction of a facility to produce solid synthetic_fuel from coal fines the construction_contract included such essential features as a description of the facility to be constructed a completion date and a price the construction_contract is binding under applicable law and provides for liquidated_damages of at least five percent of the total_contract_price p owns the facility and has entered into agreements with c pursuant to which c will procure coal feedstock for the facility on behalf of p will be responsible for the day- to-day operation and maintenance of the facility and will act as an exclusive agent to market the synthetic_fuel to unrelated parties on behalf of p on date a acquired a a membership interest in p pursuant to a purchase and sale agreement on date c acquired a a membership interest in p pursuant plr-155689-04 to a purchase and sale agreement on date pursuant to agreements for purchase of membership interests c sold a b membership interest in p to b and acquired a c interest in p from a accordingly on date a and b each own a b interest and c owns a d interest in p p has supplied a detailed description of the process employed at the facility and the chemical reagent currently used in that process p has also proposed that from time to time one of three specified alternative chemical reagents may be used in the process for the production of product as described the facility and the process implemented in the facility including the chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 recognized experts in coal combustion chemistry have performed numerous tests on the coal used and the product produced at the facility and have submitted reports in which the experts conclude that significant chemical changes take place with the application of the process to the coal including the alternative chemical reagents p with use of the process expects to maintain a level of chemical change in the production of synthetic_fuel that is determined through similar analysis by experts to be a significant chemical change the rulings issued in p l r which you wish to be reconfirmed in this private_letter_ruling are as follows production from the facility will be attributable solely to p and p will be the construction_contract for the construction of the facility constitutes a p with use of the process and the chemical reagents described herein will produce a qualified_fuel within the meaning of sec_29 entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person binding written contract within the meaning of sec_29 the sec_29 credit attributable to p may be allocated to member a member b and member c in accordance with their respective percentage interests in p when the credit arises for the sec_29 credit each member’s percentage interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided that the fair_market_value of the original property is more than twenty percent of the facility’s total fair_market_value immediately following the relocation or replacement and relocation of the facility to a different location after date or plr-155689-04 partnership from claiming the sec_29 credit for the production of the synthetic_fuel from the facility that is sold to an unrelated_person any termination of p under sec_708 will not preclude the reconstituted the changes in facts since the issuance of p l r are the sale of membership interests in p to a b and c as described above the use of alternative chemical reagents in the process and the revisions to the agreements relating to the operation and maintenance of the facility and the sale of synthetic_fuel on behalf of p the rulings issued in p l r are not affected by these changes in facts as described in the ruling_request ruling_request sec_1 sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer the credit for the taxable_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold sec_29 defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 and its regulations are relevant to the interpretation of the term under sec_29 former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel revrul_86_100 notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 consistent with its private_letter_ruling practice that began in the mid 1990's the service in revproc_2001_30 provided that taxpayers must satisfy certain conditions in order to obtain a letter_ruling that a solid fuel other than coke produced from coal is a qualified_fuel under sec_29 revproc_2001_30 as modified by revproc_2001_34 2001_1_cb_1293 the revenue_procedure requires taxpayers to present evidence that all or substantially_all of the coal used as feedstock undergoes a significant chemical change to meet this requirement and obtain favorable private letter rulings taxpayers provided expert reports asserting that their processes resulted in a significant chemical change plr-155689-04 in announcement 2003_30_irb_222 the service announced that it was reviewing the scientific validity of test procedures and results presented of significant chemical change in expert reports in announcement 2003_46_irb_1090 the service announced that it had determined that the test procedures and results used by taxpayers were scientifically valid if the procedures were applied in a consistent and unbiased manner however the service concluded that the processes approved under its long standing ruling practice and as set forth in revproc_2001_30 did not produce the level of chemical change required by sec_29 nevertheless the service announced that it recognized that many taxpayers and their investors have relied on its long standing ruling practice to make investments therefore the service announced that it would continue to issue rulings on significant chemical change but only under the guidelines set forth in revproc_2001_30 as modified by revproc_2001_34 this ruling is provided to p consistent with announcement and the service's long standing ruling practice accordingly based on the expert test results submitted by p we conclude that p with the use of the described process and one of four specified chemical reagents will produce a solid synthetic_fuel from coal constituting a qualified_fuel within the meaning of sec_29 because p owns the facility and operates and maintains the facility through its agent we conclude that p will be entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person ruling_request sec_29 and f provide that sec_29 applies with respect to qualified_fuels which are produced in a facility placed_in_service after date and before date and which are sold before date sec_29 modifies sec_29 in the case of a facility producing qualified_fuels described in sec_29 which qualified_fuels include solid synthetic fuels produced from coal or lignite sec_29 provides that for purposes of sec_29 a facility shall be treated as placed_in_service before date if the facility is placed_in_service before date pursuant to a binding written contract in effect before date sec_29 provides that if the facility is originally placed_in_service after date sec_29 shall be applied by substituting date for date a contract is binding only if it is enforceable under local law against a taxpayer and does not limit damages to a specified amount eg by use of a liquidated_damages provision a contract provision limiting damages to an amount equal to at least five percent of the total_contract_price for example should be treated as not limiting damages the construction_contract executed prior to date provides for liquidated_damages of not less than six percent of the total_contract_price and includes such essential features as a description of the facility to be constructed a plr-155689-04 completion date and a price therefore we conclude that the construction_contract is a binding written contract in effect before date within the meaning of sec_29 ruling_request sec_29 allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer sec_7701 provides that taxpayer means any person subject_to any internal revenue tax generally under sec_7701 the term person includes an individual a_trust estate partnership_association company or corporation sec_702 provides that each partner determines the partner's income_tax by taking into account separately the partner's_distributive_share of the partnership's other items of income gain loss deduction or credit to the extent provided by regulations prescribed by the secretary sec_1_702-1 provides that the distributive_share is determined as provided in sec_704 and sec_1_704-1 sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit is except as otherwise provided in chapter of subtitle a of title_26 determined by the partnership_agreement sec_704 provides that a partner's_distributive_share of income gain loss deduction or credit or item thereof is determined in accordance with the partner's_interest_in_the_partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner's_distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 provides that allocations of tax_credits and tax_credit recapture except for sec_38 property are not reflected by adjustments to the partners' capital accounts thus these allocations cannot have economic_effect under sec_1_704-1 and the tax_credits and tax_credit recapture must be allocated in accordance with the partners' interests in the partnership as of the time the tax_credit or credit recapture arises if a partnership expenditure whether or not deductible that gives rise to a tax_credit in a partnership_tax_year also gives rise to valid allocations of partnership loss or deduction or other downward capital_account adjustments for the year then the partners' interests in the partnership with respect to such credit or the cost giving rise to it are in the same proportion as the partners' respective distributive shares of the loss or deduction and adjustments see sec_1_704-1 example identical principles apply in determining the partners' interests in the partnership with respect to tax_credits that arise from receipts of the partnership whether or not taxable plr-155689-04 based on the information submitted and the representations made we conclude that the credit will be allowed to p and the credit may be passed through to and allocated among the members of p under the principles of sec_702 in accordance with each member’s interest in p as of the time the credit arises for purposes of the sec_29 credit a member's interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel ruling_request sec_29 and f of the code provide that sec_29 applies with respect to qualified_fuels which are produced in a facility placed_in_service after date and before date and which are sold before date sec_29 of the code modifies sec_29 in the case of a facility producing qualified_fuels described in sec_29 which qualified_fuels include solid synthetic fuels produced from coal or lignite sec_29 provides that for purposes of sec_29 such a facility is to be treated as placed_in_service before date if the facility is placed_in_service before date pursuant to a binding written contract in effect before date sec_29 provides that if the facility is originally placed_in_service after date sec_29 is to be applied by substituting for the date therein date to qualify for the sec_29 credit the facility must be placed_in_service before date pursuant to a binding written contract in effect before date while sec_29 does not define placed_in_service the term has been defined for purposes of the deduction for depreciation and the investment_tax_credit property is placed_in_service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically assigned function sec_1_167_a_-11 and sec_1_46-3 of the income_tax regulations placed_in_service has consistently been construed as having the same meaning for purposes of the deduction for depreciation and the investment_tax_credit see revrul_76_256 1976_2_cb_46 when property is placed_in_service is a factual determination and we express no opinion on when the facility was placed_in_service revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than twenty percent of the facility's total value the cost of the new property plus the value of the used_property plr-155689-04 revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy the present situation is similar to revrul_94_31 thus for purposes of determining the facility's total fair_market_value at the time of relocation or replacement a facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the briquetters or other forming equipment including output hoppers if any hence the facility's total fair_market_value includes the process equipment such as pugmills or mixers the briquetters or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above-referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction the facility's total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of the qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 of the code and other administrative assets revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 provided p’s facility was placed_in_service prior to date within the meaning of sec_29 relocation of the facility to a different location or replacement of part of the facility after date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided the fair_market_value of the original property is more than twenty percent of the facility's total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the used_property ruling_request the sec_29 credit has always been a time sensitive credit in that eligibility for the credit is determined when facilities or wells producing qualified_fuels are placed_in_service and when the qualifying fuels are produced and sold to unrelated persons for example the sec_44d credit as originally enacted in the crude_oil windfall profit tax act of was generally available for the production and sale of alternative fuels after plr-155689-04 date and before date on property that first began production after date congress has extended the sec_29 credit four times the placed-in-service deadline and the period for claiming the sec_29 credit were extended in the technical_and_miscellaneous_revenue_act_of_1988 for placed_in_service omnibus budget reconciliation act of for placed_in_service and for the end of the credit_period energy policy act of for placed_in_service and for the end of the credit_period and small_business job protection act of date for placed_in_service it is clear from the legislative_history of sec_44d that congress intended the credit to apply to facilities placed_in_service after and that the placed-in-service deadline in sec_29 must be read as applying to when the facility is first placed_in_service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the owner of the facility the legislative_history of sec_44d clearly shows that congress wanted to encourage the production of new alternative fuels from facilities first placed_in_service after and not provide a tax incentive for production capacity in service before sec_29 demonstrates that congress knows how to preclude transferees of facilities from claiming the sec_29 credit that provision provides that the extension of the period for placing facilities in service after does not apply to any facility that produces coke or coke gas unless the original_use of the facility commences with the taxpayer accordingly the determination of whether a facility has satisfied the placed-in- service deadline under either sec_29 or sec_29 is made by reference to when the facility is first placed_in_service not when the facility is transferred or sold to a different taxpayer sec_708 provides that a partnership shall be considered as terminated if within a twelve-month period there is a sale_or_exchange of fifty percent or more of the total interest in partnership capital and profits sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for the continuation of the business by the new partnership or for its dissolution and winding up sec_1_708-1 applies to terminations of partnerships under sec_708 occurring on or after date plr-155689-04 as discussed above the placed_in_service deadline in sec_29 and sec_29 must be read as applying to when the facility is first placed-in-service within the applicable dates the placed-in-service deadlines contained in sec_29 and sec_29 focus on the facility and not the taxpayer owning the facility accordingly the placed-in-service deadline under sec_29 and sec_29 is determined by reference to when the facility is first placed_in_service therefore provided the facility was placed-in-service prior to date within the meaning of sec_29 the sale of the facility after date will not result in a new placed-in-service date for the facility for purposes of sec_29 for the new owner further a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons accordingly based on the representations of p and p’s authorized production from the facility will be attributable solely to p and p will be the construction_contract for the construction of the facility constitutes a p with use of the process and the chemical reagents described herein will representative we conclude as follows produce a qualified_fuel within the meaning of sec_29 entitled to the sec_29 credit for the production of the qualified_fuel from the facility that is sold to an unrelated_person binding written contract within the meaning of sec_29 the sec_29 credit attributable to p may be allocated to member a member b and member c in accordance with their respective percentage interests in p when the credit arises for the sec_29 credit each member’s percentage interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel replacement of parts of the facility after that date will not result in a new placed_in_service_date for the facility for purposes of sec_29 provided that the fair_market_value of the original property is more than twenty percent of the facility’s total fair_market_value immediately following the relocation or replacement and partnership from claiming the sec_29 credit for the production of the synthetic_fuel from the facility that is sold to an unrelated_person any termination of p under sec_708 will not preclude the reconstituted relocation of the facility to a different location after date or the conclusions drawn and rulings given in this letter are subject_to the requirements that the taxpayer i maintain sampling and quality control procedures that conform to astm or other appropriate industry guidelines at the facility that is the subject of this letter ii obtain regular reports from independent laboratories that have analyzed the fuel produced in such facility to verify that the coal used to produce the plr-155689-04 fuel undergoes a significant chemical change and iii maintain records and data underlying the reports that taxpayer obtains from independent laboratories including raw ftir data and processed ftir data sufficient to document the selection of absorption peaks and integration points except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above specifically we express no opinion on when the facility was placed-in-service for purposes of sec_29 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see dollar_figure of revproc_2004_1 i r b however when the criteria in dollar_figure of revproc_2004_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely s joseph h makurath senior technician reviewer branch passthroughs special industries


id office uilc cca_2010093008475470 ----------------------------- number release date from ---------------------- sent thursday date am to --------------- cc ---------------------- subject sec_530 question ------- -- as we discussed by telephone yesterday it appears that taxpayer may be entitled to relief under sec_530 based on reasonable reliance on long-standing recognized practice of a significant segment of the industry as evidenced by the affidavit taxpayer provided from one of the founding owners of taxpayer described in the taxpayer's letter regarding relief the founder states that based on his lifelong experience in the transportation industry taxpayer from its inception used an ic model contracting with ics to provide the primary piece of equipment the truck and all maintenance the founder worked for many years as an ic owner-operator for multiple motor carriers observing nearly exclusive use of ics in the industry as for the reporting consistency_requirement while the error on form_1099 may not make taxpayer fail reporting requirement taxpayer should correct the error ------------


internal_revenue_service p o box cincinnati oh release number release date date date legend x city y city dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your letter indicates you will award scholarship and fellowship grants on an objective and nondiscriminatory basis to individuals enrolled at college level who have demonstrated academic success in their chosen field and are seeking to further their studies at educational institutions described in code sec_170 eligible_candidates are enrolled at college level in either undergraduate or post graduate programs seeking to further their studies they are required to provide a description of the course of study they intend to pursue a personal statement about their goals and objectives a curriculum vitae describing their education and background two letters of recommendation a proposed budget of expenses and request for funding catalog number 58263t letter - scholarship recipients will be selected based upon their prior academic success demonstrated personal commitment and financial need when selecting among several qualified applicants the selection committee will closely consider the financial need the specific goals of each applicant the ways in which a grant will impact the applicant to achieve his or her goals and the specific purposes for which the grant request was made your selection committee will be comprised of three of your governing body members no person related to a member of the selection committee officer or director substantial_contributor or any other disqualified_person will be eligible to receive a grant grant funds will be paid directly to the educational_institution at which the recipient is enrolled you will require all grant recipients to provide a report at the end of the grant term describing how the grant funds were used grant recipients will be required to return any funds that are not used specifically for the educational_purposes set forth in their application you will publicize your educational grants through educational institutions and other charitable organizations in x and y which have a focus on music and the arts you will focus on helping students who require financial assistance to expand their education at college and post graduate levels the number of grants awarded each year will depend on the quality of applications received but will not exceed two per year the amount of the grants will be determined by the needs of the applicant but will be capped at a reasonable amount you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent you will do the following maintain all records relating to individual grants including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure letter catalog number 58263t the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary stephen a martin director exempt_organizations rulings and agreements letter catalog number 58263t sincerely