internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc ebeo br5-plr-115539-99 date date legend taxpayer company esop a x y z dear this responds to a letter sent on your behalf requesting a ruling regarding the substantial compliance with the requirements of sec_1042 of the internal_revenue_code_of_1986 the code and the applicable regulations in connection with the sale of stock of the company to the employee_stock_ownership_plan esop maintained by the company the company is a domestic_corporation that had no stock outstanding that was readily available on an established_securities_market at the time of your sale of stock to the esop the company maintains esop which qualifies under sec_401 of the code and meets the requirements of sec_4975 of the code the esop has received a favorable determination_letter from the internal_revenue_service on a you sold x shares of your common_stock of the company to the esop the esop transaction in exchange the esop paid a total of y for the stock as a result of the esop transaction you realized a gain of z you had held the common_stock for more than three years and had not received the stock in a distribution from a plan described in code sec_401 or in a transfer pursuant to an option or other plr-115539-99 right to acquire stock to which code sec_83 sec_422 or sec_423 applied after the esop transaction on a the esop held more than of the total value of the outstanding_stock of the company on the date of the esop transaction the company executed its statement of consent pursuant to code sec_1042 whereby the company consented to be bound by the terms of code sec_4978 and sec_4979a also on the date of the esop transaction you executed your statement of election you were informed by your attorney and by your accountant that the statement of consent and statement of election would need to be filed along with your timely filed form_1040 u s individual_income_tax_return in order for you to properly elect to have sec_1042 of the code apply to the esop transaction prior to depositing the sale proceeds into segregated accounts with three different investment advisory firms you discussed with your accountant your intention to make a sec_1042 election and to defer the recognition of the gain from the esop transaction the accountant spoke with you concerning the general details necessary for a valid code sec_1042 election to be made the accountant did not discuss the need to have a notarized statement of purchase executed at the time that any replacement_property was to be purchased because he erroneously thought that you did not intend to make any such purchases until september or october of contrary to the accountant’s understanding beginning on date upon the recommendations of your investment advisors you began to reinvest the esop transaction sale proceeds into certain investments which would be suitable as qualified_replacement_property you periodically reinvested the sale proceeds into certain securities until date well within twelve months from the esop transaction as you were unaware of the requirement you did not complete notarized statements of purchase within thirty days of the purchases as required by temp sec_1_1042-1t q a-3 b prior to the end of the replacement_period the accountant followed up with you to discuss the purchase of replacement_property at that time you informed the accountant that you had purchased a significant number of securities starting in date with the intention to elect to hold these securities as qualified_replacement_property you were then advised to and did execute notarized statement of purchases covering the securities purchased between date and date at that time you also timely filed an amended u s individual_income_tax_return to include the appropriate notarized statements of purchase a ruling has been requested that you have substantially complied with the requirements for making an election under sec_1042 of the code with respect to your sale of company stock to the esop on a and that the election together with the executed statements of purchase covering property purchased between november plr-115539-99 and date will be treated as having satisfied the requirements of sec_1_1042-1t of the temporary income_tax regulations so that the property covered by the statements of purchase can be treated as qualified_replacement_property within the meaning of code sec_1042 sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t of the temporary income_tax regulations are satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of a immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative and the taxpayer’s holding_period with respect to the qualified_securities is at least years determined as of the time of the sale for taxable years beginning before date sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property qrp as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the plr-115539-99 corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer’s income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers sec_1_1042-1t q a-3 of the temporary income_tax regulations further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly plr-115539-99 you relied on tax professionals to advise you as to the preparation of any forms necessary to complete the sec_1042 election in a timely and correct manner immediately upon discovering that the notarized statements of purchase were not executed in a timely manner statements of purchase were notarized and were attached to your timely filed amended u s individual_income_tax_return for the taxable_year therefore based on the specific facts of this case and representations made by you and your representative we conclude that the you have substantially complied with the requirements for an election under sec_1042 of the code and that the elections will be treated as satisfying the requirements of sec_1_1042-1t of the temporary income_tax regulations at q a-3 concerning the notarized statements of purchase with respect to qualified_replacement_property purchased by you 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 representatives the rulings contained in this letter are based upon information and representations submitted by the your representative and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james l brokaw chief branch office of associate chief_counsel employee_benefits and exempt_organizations


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-126829-06 date date --------------------------------------------- ------------------------------ ------------------------------ -------------------------- legend x ----------------------------------------------------------- a --------------------------------------------------------------- b ----------------------------------------------------------- c ----------------------------------------------------------- d ----------------------------------------------------------- e ----------------------------------------------------------- f ----------------------------------------------------------- g ----------------------------------------------------------- h ----------------------------------------------------------- i ----------------------------------------------------------- ------------------------ ------------------- --------------------------- ------------------------------------ ---------------------------------------- ------------------------------------- ------------- ------- -------------------- ---------------------- ------------------------------ --------------- -------------------------------------------- plr-126829-06 j ----------------------------------------------------------- llc ----------------------------------------------------------- year state date busine sec_1 m n o busine sec_2 -------------------------------------------------------------------------------------------------------- k p ----------------------------------------------------------- property ------------------------------------------------------------------------------------------------------------ property ------------------------------------------------------------------------------------------------------------ dollar_figurem dollar_figuren year dear ---------- ----------------------------------------------------- ------------------------------------------ ---------------------------- ----------------- ----------------- ------- ------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- this letter is in response to your letter on behalf of x dated date plr-126829-06 seeking a ruling regarding passive_investment_income under sec_1362 and sec_1375 of the internal_revenue_code facts based on the materials submitted and representations within we understand the relevant facts to be as follows x was incorporated in year in accordance with the laws of state x made an election to be treated as an s_corporation effective date x has accumulated_earnings_and_profits ae p from prior years x directly or indirectly owns a b c d e f g h i and j all of which x has elected to treat as qualified subchapter_s subsidiaries qsubs in addition llc is treated as a disregarded_entity of x for federal_income_tax purposes llc along with a b c d e f g h i and j collectively disregarded entities x and certain disregarded entities are engaged in the active trade of busine sec_1 from time to time x has invested or will invest in certain publicly traded limited_partnerships ptps primarily engaged in the purchasing transportation storage and marketing of oil_and_gas x‘s investment strategy is to provide for liquidity and also to diversify its investment risk presently x has identified three specific ptps m n and o which are engaged in the active trade of purchasing gathering transporting trading storage and or resale of crude_oil and refined petroleum products and related activities x represents that m n and o each meets the qualifying_income exception of sec_7704 and thus each is taxed as a partnership for federal_income_tax purposes x also represents that neither m n nor o is an electing_large_partnership as defined by sec_775 and thus the normal flowthrough provisions of subchapter_k apply to their partners x through several of x’s disregarded entities also owns k of p a general_partnership that is treated as a partnership for federal tax purposes p owns property and property commercial real_estate properties that p leases to tenants p through a management company and various independent contractors provides various services with respect to the leasing of the property these services include janitorial and engineering services inspection and maintenance of utilities landscaping and elevator service security fire life and safety training trash and recycling service pest control rental and service billing provision of reserved and valet parking for tenants and their visitors improvement and maintenance of plumbing electrical mechanical and hvac systems and compliance with governmental building regulations in year p collected approximately dollar_figurem in gross rents and incurred approximately dollar_figuren in relevant operating_expenses plr-126829-06 law and analysis sec_1361 provides that a qualified_subchapter_s_subsidiary means sec_301_7701-2 of the regulations defines a business_entity as any entity sec_1361 provides that a corporation which is a qualified_subchapter_s_subsidiary shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qualified_subchapter_s_subsidiary shall be treated as assets liabilities and such items of the s_corporation any domestic_corporation which is not an ineligible_corporation if percent of the stock of such corporation is held by the s_corporation and the s_corporation elects to treat such corporation as a qualified_subchapter_s_subsidiary recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in this section paragraph b of that section unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner which an election under sec_1362 is in effect for the taxable_year sec_1361 defines an s_corporation as a small_business_corporation for sec_301_7701-3 provides that a business_entity that is not classified as a sec_301_7701-3 provides that except as otherwise provided in sec_1362 provides that an s_corporation_election shall be terminated whenever the corporation i has accumulated earning and profits at the close of each of consecutive taxable years and ii has gross_receipts for each of such taxable years more than percent of which are passive_investment_income the termination is effective on and after the first date of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1375 imposes a tax on the income of an s_corporation if the s_corporation has accumulated_earnings_and_profits at the close of such taxable_year and gross_receipts more than percent of which are passive_investment_income plr-126829-06 sec_1362 provides that except as otherwise provided the term apassive investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_702 provides that in determining income_tax_liability each partner shall take into account separately his distributive_share of the partnership's items of income gain loss deduction and credit to the extent provided by regulations sec_1_702-1 provides that each partner must take into account separately his distributive_share of any partnership_item that would result in an income_tax_liability for that partner different from that which would result if that partner did not take the item into account separately sec_702 provides that the character of any item_of_income gain loss deduction or credit included in a partner's_distributive_share under sec_702 through shall be determined as if the item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership sec_7704 provides that except as provided in subsection c a publicly_traded_partnership ptp shall be treated as a corporation sec_7704 provides that the term ptp means any partnership if interests in that partnership are traded on an established_securities_market or are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that subsection a shall not apply to any publicly_traded_partnership for any taxable_year of such partnership meets the gross_income requirements of paragraph c for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 states that a partnership meets the gross_income requirements of this paragraph for any taxable_year if percent or more of the gross_income of such partnership for such taxable_year consists of qualifying_income sec_7704 provides in relevant part the term qualifying_income means income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber for purposes of this section mineral_or_natural_resource means any product of a character with respect to which a deduction for depletion is allowable under sec_611 but is not a product described in sec_613 or b plr-126829-06 revrul_71_455 1971_2_cb_318 deals with an s_corporation that operates a business in a joint_venture with another corporation in the tax_year at issue the total business_expenses exceeded gross_receipts the revenue_ruling holds that in applying the passive_investment_income limitations the s_corporation should include its distributive_share of the joint venture's gross_receipts and not its share of the venture's loss in accordance with sec_702 the character of these gross_receipts were not converted into passive_investment_income upon their allocation to the s_corporation x's distributive shares of gross_receipts from m n and o if separately taken into account might affect its federal_income_tax liability under sec_1362 the status of x as an s_corporation could depend upon the character of its distributive shares of gross_receipts from m n and o thus pursuant to sec_1_702-1 x must take into account separately its distributive shares of the gross_receipts from m n and o the character of these partnership receipts for x will be the same as the character of the partnership receipts for m n and o in accordance with sec_702 sec_1_1362-2 defines arent as amounts received for_the_use_of or right to use property whether real or personal of the corporation sec_1_1362-2 provides that the term arents does not include rents derived in the active trade_or_business of renting property rents are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts as presented in the ruling_request and viewed in light of the applicable law and regulations we conclude the following x's distributive shares of the gross_receipts of m n and o will be included in its gross_receipts for purposes of sec_1362 and sec_1375 x's distributive shares of m n and o's gross_receipts attributable to the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource will not constitute passive_investment_income as defined by sec_1362 that the income that x derives from the rental activities of p is income from the active trade_or_business of renting property and is not passive_investment_income as described in d c i because p provides significant services and incurs substantial costs in its rental business plr-126829-06 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 specifically no opinion is expressed concerning whether x satisfies the s_corporation eligibility requirements of sec_1361 further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 the code provides that it may not be used or cited as precedent be sent to the taxpayer’s representative pursuant to the power_of_attorney on file with this office a copy of this letter will this ruling is directed only to the taxpayer requesting it sec_6110 of sincerely david r haglund senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------------------------- -------------------------- ---------------------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b02 plr-129690-12 date september legend legend x y ------------------------ ------------------------ ------------------------- ------------------------ date ---------------------------- country ----------------- dear ---- ---------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting that the service grant x an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat y as a partnership for federal tax purposes according to the information submitted x formed y under the laws of country on date y is a foreign_entity eligible to be treated as a partnership for u s income_tax purposes however y failed to timely file form_8832 entity classification election electing to treat y as a partnership for federal tax purposes effective date sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership plr-129690-12 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes unless the entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability a foreign eligible_entity with more than one owner having may elect to be treated as a partnership pursuant to the rules under sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the election filing_date or more than months after the election filing_date sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of days from the date of this letter to elect to treat y as a partnership for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to each election this ruling is contingent on x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief in this letter a copy of this letter should be attached to any such returns 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 internal_revenue_code provides that it may not be used or cited as precedent plr-129690-12 in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely charlotte chyr senior technician reviewer branch office of the associate chief_counsel passthroughs special industries


internal_revenue_service number release date index number ------------------------------------------------- ----------------------------------- --------------------------- -------------------------------------------- --------------------- --------------------------------------- in re ------------------------------------------ ------------------ 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 psi b09 plr-140203-04 date date legend legend child grantor spouse college trust --------------------------- ------------------------------ ---------------------------------- ----------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------------------ -------------------- ------------- -------------------------------------- ------------------------------------------ ------------------------------------------ ------------------ ------- state state partnership statute statute date year dear ---------- this is in response to your letter dated date requesting rulings on the income gift and generation-skipping_transfer gst tax consequences of certain proposed modifications to a_trust the facts submitted and the representations made are as follows during his life grantor created nine trusts trust is one of the nine trusts and is the subject of this ruling_request trust was created on date for the benefit of grantor’s spouse spouse and their issue currently grantor’s son child is the sole income_beneficiary of trust plr-140203-04 article second subparagraph a of trust provides that after the death of spouse all of trust’s net_income is to be paid to the issue of grantor and spouse upon the death of the issue the net_income is to be paid to grantor’s issue per stirpes if any if none the net_income is to be paid to the issue other than grantor of grantor’s father and mother per stirpes if any if none the net_income is to be paid to college upon the termination of trust the trust estate is to be distributed to spouse if she is living if not to the issue of grantor and spouse if living if not to grantor’s issue per stirpes if living if not to the issue other than grantor of grantor’s father and mother if living if not to college article second subparagraph c provides the trustees with the discretion to distribute trust principal to the income_beneficiary of trust to provide for the beneficiary’s support maintenance and education article second subparagraph f provides that trust will terminate years after the death of the survivor of certain named persons article sixth provides that trust is to be governed under the laws of state article seventh provides that the governing law of trust may be changed to another state in year the nine trusts entered into a partnership partnership with three other trusts to coordinate investment activities under the partnership_agreement partnership is required to distribute annually to the partner trusts an amount equal to the net accounting_income determined by applying the broadest definition of net_income under the laws of the states whose laws govern the administration of each of the trusts respectively currently the laws of five different states govern the nine different trusts due to the administrative complexity and high costs involved in determining the proper distribution amount under the respective state laws of each separate trust it was suggested that each of the partner trusts be amended to change trust governing local law to state the trustees of trust intend to change the governing law of trust to state effective as of date state amended its laws governing the administration of trusts by enacting legislation that adopts a new uniform principal and income act statute it also enacted statute which permits a trustee of a_trust that is subject_to state’s prudent investor rule to make adjustments between income and principal under specified circumstances statute statute provides in part that a trustee has a duty to invest and manage property held in a fiduciary capacity in accordance with the prudent investor standard defined therein statute also provides that where statute applies to a_trust and the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the plr-140203-04 trust's income the prudent investor standard also authorizes the trustee to adjust between principal and income to the extent the trustee considers advisable to enable the trustee to make appropriate present and future distributions if the trustee determines after applying the rules in statute that such an adjustment would be fair and reasonable to all of the beneficiaries so that current beneficiaries may be given the use of the trust property as is consistent with preservation of its value the trustee has represented that trust was irrevocable on date and there were no additions to trust after date trustee is requesting the following three rulings the proposed amendment of trust to change its governing law and the administration of trust under the new governing law will not result in trust or any beneficiary of trust being treated as having made a taxable_exchange for federal_income_tax purposes the proposed amendment of trust to change its governing law and the administration of trust under the new governing law will not be treated as a modification of trust within the meaning of sec_26_2601-1 of the generation-skipping_transfer_tax regulations that will cause trust to lose its exemption from the application of chapter of the internal_revenue_code and that after the proposed amendment distributions from trust and terminations with respect to trust will continue to be exempt from chapter pursuant to sec_26_2601-1 the proposed amendment of trust to change its governing law and the administration of trust under the new governing law will not result in any beneficiary of trust being treated as having made a taxable gift_for federal gift_tax purposes law and analysis ruling sec_61 of the code provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided plr-140203-04 in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained the supreme court of the united_states in 499_us_554 concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in the present case it is consistent with the supreme court's opinion in cottage savings to find that the interests of the beneficiaries in trust after the modification will not differ materially from their current interests under the proposed modification trust will be amended to change governing local law however trust possesses the authority to make this change see article seventh of trust therefore the proposed modification will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries accordingly based upon the facts submitted and the representations made a change in governing local law will not cause trust or trust beneficiaries to be treated as having a taxable_exchange and no gain_or_loss is recognized for purposes of sec_1001 ruling sec_2 and sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by ' applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift plr-140203-04 sec_2601 imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest_in_property_held_in_trust where the property passes to a skip_person with respect to the transferor of the property sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax made by a transferor to a skip_person under a of the tax_reform_act_of_1986 act and sec_26_2601-1 the gst is generally applicable to gsts made after date however under b a of the act and sec_26_2601-1 the gst does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides that in general this paragraph b provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under paragraph b or of this section hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a plr-140203-04 modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee's duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial_interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 of this chapter sec_26_2601-1 example provides as follows in grantor who was domiciled in state x executed an irrevocable_trust for the benefit of grantor's issue naming a state x bank as trustee under the terms of the trust the trust is to terminate in all events no later than years after the death of the last to die of certain designated individuals living at the time the trust was executed the provisions of the trust do not specify that any particular state law is to govern the administration and construction of the trust in state x the common_law rule_against_perpetuities applies to trusts in a state y bank is named as sole trustee the effect of changing trustees is that the situs of the trust changes to state y and the laws of state y govern the administration and construction of the trust state y law contains no rule_against_perpetuities in this case however in view of the terms of the trust instrument the trust will terminate at the same time before and after the change in situs accordingly the change in situs does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the transfer furthermore the change in situs does not extend the time for vesting of any beneficial_interest in the trust beyond that provided for in the original trust therefore the trust will not be subject_to the provisions of chapter if in this example as a result of the change in situs state y law governed such that the time for vesting was extended beyond the period prescribed under the terms of the original trust instrument the trust would not retain exempt status sec_26_2601-1 example provides as follows in grantor a resident of state x established an irrevocable_trust for the benefit of grantor's child a and a's issue the trust provides that trust income is payable to a for life and upon a's plr-140203-04 death the remainder is to pass to a's issue per stirpes in state x amends its income and principal statute to define income as a unitrust_amount of percent of the fair_market_value of the trust assets valued annually for a_trust established prior to the statute provides that the new definition of income will apply only if all the beneficiaries who have an interest in the trust consent to the change within two years after the effective date of the statute the statute provides specific procedures to establish the consent of the beneficiaries a and a's issue consent to the change in the definition of income within the time period and in accordance with the procedures prescribed by the state statute the administration of the trust in accordance with the state statute defining income to be a percent unitrust_amount will not be considered to shift any beneficial_interest in the trust therefore the trust will not be subject_to the provisions of chapter further under these facts no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes similarly the conclusions in this example would be the same if the beneficiaries' consent was not required or if the change in administration of the trust occurred because the situs of the trust was changed to state x from a state whose statute does not define income as a unitrust_amount or if the situs was changed to such a state from state x sec_26_2601-1 example provides as follows the facts are the same as in example except that in state x amends its income and principal statute to permit the trustee to make adjustments between income and principal when the trustee invests and manages the trust assets under the state's prudent investor standard the trust describes the amount that shall or must be distributed to a beneficiary by referring to the trust's income and the trustee after applying the state statutory rules regarding allocation of receipts between income and principal is unable to administer the trust impartially the provision permitting the trustees to make these adjustments is effective in for trusts created at any time the trustee invests and manages the trust assets under the state's prudent investor standard and pursuant to authorization in the state statute the trustee allocates receipts between the income and principal accounts in a manner to ensure the impartial administration of the trust the administration of the trust in accordance with the state statute will not be considered to shift any beneficial_interest in the trust therefore the trust will not be subject_to the provisions of chapter further under these facts no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes similarly the conclusions in this example would be the same if the change in administration of the trust occurred because the situs of the trust was changed to state x from a state whose statute does not authorize the trustee to make adjustments between income and principal or if the situs was changed to such a state from state x in this case trust was irrevocable on date and there were no additions to trust after date pursuant to the terms of article seventh of trust trust will be amended to change governing law from state to state the law plr-140203-04 governing trusts in state permits a trustee of a_trust to make adjustments between income and principal to enable the trustee to make appropriate present and future distributions that are fair and reasonable to all of the beneficiaries of the trust this situation is similar to the situation set forth in example in sec_26_2601-1 which concludes that a change similar to the one that the trustees propose to make to the trust will not be considered to shift any beneficial_interest in a_trust and therefore will not be subject_to the provisions of chapter in addition under article second subsection f of the trust agreement trust will terminate years after the death of the survivor of certain named persons because the termination_date is specifically provided for in the trust instrument the change in governing law from state to state will not change the termination_date of trust this situation is similar to the situation set forth in sec_26_2601-1 example in this case the date the trust will terminate before and after the change in governing law will be the same and therefore the change will not extend the time for vesting of any beneficial_interest in the trust finally as noted above the facts in this case are similar to those set forth in example in sec_26_2601-1 in addition to the conclusions relating to chapter example concludes that no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes accordingly based upon the facts submitted and the representation made we conclude that the change in the trust’s governing law from state to state and the administration of trust under the new governing law will not be treated as a modification of trust within the meaning of sec_26_2601-1 that will cause trust to lose its exemption from the application of chapter and that the change will not cause distributions from trust and terminations with respect to trust to not be exempt from chapter pursuant to sec_26_2601-1 we also conclude that the change in governing law and the administration of trust under the new governing law will not result in any beneficiary of trust being treated as having made a taxable gift_for federal gift_tax purposes 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 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 plr-140203-04 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan senior technician reviewer branch passthroughs special industries enclosures copy for ' purposes


significant index no department of the treasury internal_revenue_service washington d c tax exempt and cover nov in re this letter constitutes notice that conditional approval has been granted to extend the amortization period for amortizing the unfunded liabilities described in sec_412 of the internal_revenue_code the code and sec_302 of the employee_retirement_income_security_act_of_1974 erisa of the plan the extension is granted for the amortization period for amortizing unfunded liabilities of the plan for the plan_year beginning date the particular unfunded_liability for which the extension of the amortization period is granted is the single amortization base of the plan creating by combining the three existent amortization bases as of date in accordance with sec_1 b -1 d of the proposed income_tax regulations the remaining amortization period of this single amortization base before extension was dollar_figure years the extension granted to this amortization base is dollar_figure years accordingly the remaining amortization period of this amortization base after extension is dollar_figure years the extension of the amortization period of the unfunded liabilities of the plan has been granted in accordance with sec_412 of the code and sec_304 of erisa sec_412 of the code and sec_304 of erisa authorize the secretary to extend the period of time required to amortize any unfunded_liability described in sec_412 of the code and sec_302b of erisa of a plan for a period of time not in excess of years if the secretary determines that such extension would carry out the purposes of erisa and would provide adequate protection for participants under the plan and their beneficiaries and if the secretary determines that the failure to permit such extension would result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and be adverse to the interests of plan participants in the aggregate sec_101 of reorganization plan no of 1979_1_cb_480 transferred the authority for issuing rulings under sec_304 of erisa from the secretary of labor to the secretary_of_the_treasury accordingly the amortization period for amortizing the unfunded liabilities of the plan is extended as described above under sec_412 of the code and sec_304 of erisa the plan is a single employer defined_benefit_plan the interest rate applicable for the remaining amortization period of the amortization base for which the extension has been granted is the greater of a percent of the federal_mid-term_rate as in effect under sec_1274 for the first month of such plan_year or b the rate of interest used in determining costs as of date the value of the assets of the plan was approximately equal to of the plan’s current_liability for the plan_year beginning date the plan had a funding deficiency under sec_412 of the code after taking into account this extension because contributions were not made on a timely basis the company is a manufacturer of product prior to date the company was debt- free and ownership of the company was spread among six family members date the only family_member actively involved in the business on a daily basis acquired ownership from the other family members acquisition the company borrowed amount from the bank securing the amount with the business_assets of the company and the unlimited personal guaranty excluding personal residences of the owner in order to finance this effective the owner of the company represents that in ae the company reported significant losses for the first time in thelllfl years he has been involved in the management of the p of its business staff through permanent layoffs the owner represents that the company can handle its current workload and can achieve profitability at the reduced staff levels in response on date the company eliminated approximately because the prospects for recovery are uncertain and because the plan is under- funded we are granting this extension subject_to the following conditions the contributions required to satisfy the minimum_funding_standard taking into account the extension for the plan years ending date and are to be timely made as defined in sec_412 of the code without a waiver being granted for such years the company pays within days of the date of this letter the excise_tax applicable under section a of the internal_revenue_code associated with the funding deficiency for the plan_year ended date if these conditions are not satisfied the extension granted for the plan_year beginning date is retroactively null and void you agreed to these conditions in a letter which was transmitted by facsimile dated date your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting if an extension of time under sec_412 is in effect with respect to the plan please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ending date the date of this letter should be entered on the schedule b actuarial information we are furnishing a copy of this letter to the enrolled_actuary for the plan in accordance with a power of a copy of this letter is also being sent to the manager attorney form on file employee_plans classification in if you have any questions on this ruling letter please contact sincerely allwf- james e holland jr manager employee_plans technical


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c number release date date date mx xxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx vil dear contact person xxxxxxxxx identification_number xxxxxxx contact number xxxxxxxxxxxxxx employer_identification_number xxxxxxxxxx form required to be filed tax years all this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice action if you agree with our deletions you do not need to take any further in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements xxxxxxxxxxxxxxxxxxxxxx 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 federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions about your sincerely robert choi director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxaxxx contact person xxxxxxxxxx identification_number xxxxxxx contact number xxxxxxxxxxxxxx fax number xxxxxxxxxxxxxx employer_identification_number xxxxxxxxxx legend a xxxxxxxxxx b xxxxxxxxxxxxxxxaxxxxxxxxxxxxxxxxxxxxkxxaxx ax c xxxxxxxxxxxxaxxxxxxxxaxxxxxxxaxxx dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below facts you were formed on february state of a your constitution which consists of one page provides that you were formed to provide spiritual guidance and charity to those who are in need further it provides that you will hold monthly online discussions followed by weekly studies __ as an unincorporated association located in the - your constitution does not include a provision for the distribution of assets in the event of dissolution your bylaws provide that upon dissolution your assets will be distributed further to c an organization which is not described in sec_501 of the code your bylaws do not contain a contingency clause with respect to whether at the time of your dissolution the named recipient of your assets is no longer exempt under sec_501 no longer in existence or is unwilling to accept your assets article of your bylaws provides that you are governed by a five member board_of directors composed of your founder her two daughters her son-in-law and her fiancé your directors serve for a term of five years your founder and her two daughters serve as your officers xxxxxxxxkxxxxxxxaxkxaxx xk you completed schedule a of form_1023 indicating that you are seeking classification as a church described in b a i of the code your founder serves as your minister she was ordained by b b is not a tax-exempt_organization under sec_501 you operate out of your founder’s personal_residence you indicate that you will engage in two activities the operation of an internet program you characterize as a church and a program of distributing funds to the needy you state that your regularly scheduled religious services will consist of a weekly online discussion centered on a topic that will be posted by your minister visitors to your website will be able to discuss the topic by posting comments to date you have not posted any topics based on your representations your only activity thus far except for establishing your website has been to distribute funds to individuals activities using your website or engaged in your financial statements indicate that you received a total of dollar_figure eighty percent of that amount was provided by your founder an additional five percent was provided by her fiancé you did not specify the source of the remaining fifteen ' percent you indicate that once a paypal account is established on your website you will solicit donations from the public and in20 with respect to your program of distributing funds to the needy neither your application nor your subsequent submissions describe this program specify the criteria you will use to determine whether an individual is needy or indicate how individuals are referred to you further the minutes of the quarterly meetings of your board_of directors do not refer to a program of distributing funds to the needy nor do they contain any discussion of funds actually being distributed in your letter dated november needy in charges to a visa account that you claim represent distributions to the needy respect to the amounts listed to the you list check numbers and amounts as well as with you represent that you distributed dollar_figure in and dollar_figure e e e you provide nothing to evidence that the checks were actually issued who they were issued to and the purpose for each distribution you do not indicate whether the visa account is registered in your name you do not indicate what the charges were for on whose behalf they were made and the purpose of each charge you do not indicate whether the recipients were members of a charitable_class you do not describe the relationship if any between the recipients and your directors officers or their family members xxxxxxxxxxxkxaxkxaxkxxxxaxxk with respect to the operation of a church you describe your creed or statement of faith our doors are open as follows we are all sons and daughters of the same universe to all we make no demands of our members we offer freedom of faith we seek to you describe your formal code of unite and instill the truth that everyone is equal doctrine and discipline as follows do unto others as you would have them do unto you you indicate that your form of worship consists of meditation and communication at schedule a of form_1023 you represent that you e e do not have a distinct religious history describing your establishment and major events in your past do not have any literature including any writings about your beliefs rules or history have regularly scheduled religious services but do not describe such services do not know the average attendance at your services do not have an established place of worship do not know how many members you have and do not have a school for the religious instruction of the young your two-page website more than eighteen months after your you established the first page contains a vague description of your beliefs and invites formation it does not contain the word church visitors to your website to bring your religion nor does it refer to any worship services that page provides a link entitled discussion the second page of your website forum ’ to the second page of your website in order consists of one paragraph we are currently creating content for this section to be able to keep up with our high standards of service we need a little more please stop by again thank you for your interest you represent that your congregation consists of in your letter of november six individuals the members of your governing board and your founder's father further you provide that your congregation will consist of those people who regularly log into your website to participate in discussions you provide that while you are starting out and do not have the resources to pay a predetermined salary to your officers they will be compensated as much as funding will amounts will be determined by a unanimous vote of your board_of directors allow neither your constitution nor your bylaws describes the method used to determine compensation of your officers xxxxxxxxxxxxxxxxxxxxxx law sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable and religious purposes sec_1_501_c_3_-1 of the income_tax regulations states that in order to be exempt as an organization described in sec_501 of the code 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 sec_1_501_c_3_-1 of the regulations provides that to meet the organizational_test an organization must meet three sets of requirements first its articles of organization must a limit its purposes to one or more exempt_purpose and b not expressly permit substantial activities that do not further those exempt purposes second its articles must not expressly permit a substantial lobbying b any participation in the campaign of a candidate for public_office and c objectives and activities that would characterize it as an action_organization third its assets must be irrevocably dedicated to exempt purposes an organization's assets will be considered dedicated to an exempt_purpose 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 sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines private_shareholder_or_individual as a person having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests therefore to meet the requirements of this subsection it xxxxxxxxxxkxxkxxxkxxkx kkk sec_170 of the code describes a church_or_convention_or_association_of_churches revproc_82_2 1982_1_cb_367 identifies the states and circumstances in which the of assets upon service will dissolution the to organizational_test in sec_1_501_c_3_-1 of the regulations not require an express provision for the distribution organization in exempt organization’s articles satisfy an of that provides revenue_procedure nonprofit the associations none of the fifty-one jurisdictions provides certainty by statute or case law of assets upon the dissolution of an unincorporated nonprofit for the distribution association therefore any unincorporated nonprofit association needs an adequate its organizing document to satisfy the requirements of section dissolution provision in c -1 b of the regulations unincorporated respect to with be sec_1_501_c_3_-1 of the regulations provides that an organization will it engages regarded as operated exclusively for one or more exempt purposes only if primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of exempt_purpose revrul_56_304 1956_2_cb_306 held that organizations which otherwise meet the requirements for exemption from federal_income_tax are not precluded from making distributions of their funds to individuals provided such distributions are made on a true charitable basis in furtherance of the purposes for which they are organized however organizations of this character which make such distributions should maintain adequate_records and case histories to show the name and address of each recipient of aid the amount distributed to each the purpose for which the aid was given the manner in which the recipient was selected and the relationship if any between the recipient and a grantor or substantial members officers a contributor to corporation controlled by a grantor or substantial_contributor in order that any or all distributions are made to individuals can be substantiated upon request by the internal_revenue_service a members of the family of either or trustees of the organization the organization or and v commissioner 83_tc_292 universal life in universal life church inc church the tax_court held that full circle church a charter organization of the universal life church did not qualify for exemption under sec_501 of the code nothing in the administrative record showed that full circle church had a regular place of worship held regular worship services or performed any religious functions v commissioner 490_fsupp_304 d d c in american guidance foundation inc american guidance foundation affirmed in an unpublished opinion d c cir xxxxxxxxxxxxxxxxkxxaxxkx the court held that a religious_organization exempt under sec_501 of the code was not a church described in sec_170 the court discussed the criteria developed by the internal_revenue_service to evaluate applications for church foundation status the criteria are a distinct legal existence a recognized creed and form of worship a definite and distinct ecclesiastical government a formal code of doctrine and discipline a distinct religious history a membership not associated with any other church or denomination an organization of ordained ministers a complete organization of ordained ministers ministering to their congregations n w r a o d n o ordained ministers selected after completing prescribed courses of study o literature of its own established places of worship regular congregations regular religious services sunday schools_for the religious instruction of the young schools_for the preparation of its ministers criteria namely the existence of an established the court reasoned that certain congregation served by an organized ministry the provision of regular religious services and religious education for the young and the dissemination of a doctrinal code are of religious central organizations distinguishing importance church forms other from of in a criteria with respect to in the court also discussed the american guidance foundation the corporation’s directors were the organizer his wife the corporation represented that it had a his mother his sister and his brother-in-law congregation and that the congregation consisted of the organizer and his immediate a family members congregation within the ordinary meaning of the word a regular congregation individuals constitute these court held the that not do in 927_f2d_335 cir spiritual outreach society the court_of_appeals upheld the tax court's decision that an organization was not a church because it failed to meet the factual requirements of the appeals court cited the being a church under sec_501 of the code it looked criteria used in american guidance foundation supra particularly at the facts that the organization did not have an established congregation the provision of regular religious services and religious education for the young and the with respect to dissemination of a doctrinal code as reasons to deny church status the whether the organization had a congregation the appeals court found that its analysis of xxxxxxxxxxxxxxaxkxxxxxxx organization did not have an established congregation because nothing indicates that the participants considered the organization to be their church an organization which operated a in 88_tc_1341 acq 1987_2_cb_1 foundation for human understanding the tax_court held that the ministry and established local taxpayer congregations was a church because it met most of the criteria established by the internal_revenue_service for determining church status it did not adopt these criteria rather it explained that the internal_revenue_service will consider as a definitive test all facts and circumstances that may bear upon an organization’s claim for church status under sec_170 b a i of the code radio analysis in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the to meet either the purposes specified see sec_1 c - organizational_test or the operational_test it a of the regulations an organization fails in such section is not exempt if with respect to the organizational_test sec_1_501_c_3_-1 of the regulations provides that an organization's assets must be irrevocably dedicated to exempt an organization's assets will be considered irrevocably dedicated to an purposes exempt_purpose if upon dissolution such assets would by reason of a provision in the organization's organizing instrument or by operation of law be distributed for one or an more exempt purposes organization’s assets it must be one that would qualify and would be exempt within the meaning of sec_501 of the code at the time the dissolution takes place since the named beneficiary at the time of dissolution may not be qualified may not be in existence or may be or unable to accept the assets of the dissolving organization a provision should be made for distribution of the assets for one or more exempt_purpose in the event of any such contingency a named beneficiary is the distributee of unwilling be to if your organizing instrument your constitution lacks a dissolution provision there is no which provides for the distribution of assets statute or case law in the state of the nonprofit association upon see revproc_82_2 requirements of sec_1_501_c_3_-1 of the regulations supra unincorporated dissolution satisfies which an of even if the dissolution provision which appears in your bylaws appeared in your constitution you would not meet the requirements of sec_1_501_c_3_-1 of the an organization which has been regulations recognized as described in sec_501 of the code even if c were described in the named beneficiary not c is xxxxxxxxkxaxxkxaxakkaxx kkk xk sec_501 your dissolution provision does not contain the contingency provision described above thus since neither your constitution state law nor case law provide for the adequate distributions of your assets upon dissolution you do not meet the organizational_test described in sec_1_501_c_3_-1 of the regulations be regarded as operated with respect to the operational_test an organization will it engages primarily in activities exclusively for one or more exempt purposes only if which accomplish one or more of such exempt purposes specified in sec_501 of the code see sec_1_501_c_3_-1 of the regulations you indicate that you will engage in charitable and religious activities have not established that you have engaged in any such activities to date you in your application you state that your religious activities will consist of weekly online discussions centered on a topic provided by your minister although you have been in existence for more than two years you have not engaged in these activities your sole activity aside from establishing a two page website has been the distribution of funds to unidentified individuals you assert that these funds were distributed to the neither your application nor your subsequent submissions describe this needy program specify the criteria you use in determining whether an individual is needy or further the minutes of the quarterly explain how individuals are referred to you meetings of your board_of directors do not refer to a program of distributing funds to the needy nor do they contain any discussion of funds having been distributed for that you have not provided information evidencing that you maintain adequate purpose records and case histories to support your claim that distributions were actually made you have made no and that distributions if any were made to representation concerning whether funds were distributed to your directors and officers or their family members thus you have not established that you operate in a manner similar to the organizations described in revrul_56_304 supra a charitable_class accordingly you have not established that you have engaged in any charitable or religious activities therefore you do not meet the operational_test described in sec_1_501_c_3_-1 of the regulations you have not you further represent that you plan to compensate your officers established criteria to determine how compensation will be determined and to ensure that compensation is no more than the fair_market_value based on the qualification of the individuals being compensated the duties assigned and the hours devoted to those in fact you represent that your officers will be compensated as much as funding duties will allow compensation will be determined by the individuals being compensated as xxxxxxxxxxxxxkxkxkxkxaxkkk thus well as their family members this arrangement results in a conflict of interest you have not established that your compensation arrangement will not result in private benefit and private_inurement to your officers as described in sec_1_501_c_3_-1 of the regulations even if you were an organization described in sec_501 of the code you would not be classified as an organization described in sec_170 whether determining in sec_170 of the code the internal_revenue_service uses criteria as guidelines for making this determination see american guidance foundation for human understanding and spiritual outreach society supra organization qualifies church under an as a in universal life church american guidance foundation and spiritual outreach society supra the courts held that the existence of a regular place of worship and regularly held worship services were of central importance in determining whether an organization qualifies for church status based on the information submitted you have not engaged in any religious activities to you represent that in the future topics will be posted on your website by your date visitors can read these topics at any time and post comments on your minister website these types of activities do not constitute a worship service individuals will not come together at a specific time and there will be no interaction between individuals further these activities will be held solely on the internet rather than and your minister at a physical location accordingly like the organizations described in universal life church american guidance foundation and spiritual outreach society supra you lack regularly held worship services and a regular place of worship the presence of a congregation has also been determined to be a criterion of central importance in determining church status see american guidance foundation and spiritual outreach society supra the court held in american guidance foundation supra that a group consisting of the founder and his family members does not constitute a congregation within the ordinary meaning of in american guidance foundation your members with the exception of your founder's fiancé are limited to your founder and members of her immediate_family the organization described the word like in spiritual outreach society supra the court held that the organization did not have an established congregation because nothing indicates that the participants considered the organization to be their church there is nothing to indicate that the visitors to your website your sole source of your website will consider you to be their church you do not contact with prospective members does not refer to you as a church xxxxxxxxxxxxxxxxkxxaxxkxk require prospective members to renounce other religious beliefs or membership in other churches in fact you invite these individuals to bring their own religion further your creed states that you make no demands on your members and you offer freedom of faith thus like the organizations described in american guidance foundation and spintual outreach society supra you do not have a congregation you do not have a program of religious education for the young see american guidance foundation and spiritual outreach society supra which identify religious education for the young as a criterion of central importance in determining church status in addition to failing to meet the criteria described above you do not have distinct religious history describing your establishment and major events in your past and you do not have literature about your beliefs rules or history conclusion based on the information you have provided you have not established that you are an organization described in sec_501 of the code therefore we conclude that you do not qualify for exemption as an organization described in sec_501 and you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code we have also conclude that you fail to meet most of the criteria the internal_revenue_service uses as guidelines for determining church classification especially those the courts considered most important an organization described in sec_501 of the code you would not be classified as a church under sec_170 thus even if you otherwise qualified as you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief xxxxxxxxxxxxxxxxxxxxxx the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if we do not hear from you within days we will issue a final adverse if you do not intend to protest this determination you do not need to take any further action determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address you may also fax your statement using the fax number shown in the heading of this letter letter to confirm that he or she received your fax internal_revenue_service te_ge se t eo ra t x xxxxxxxxxxxxxxx constitution ave n w washington dc if you fax your statement please call the person identified in the heading of this xxxxxxxxxxxxxkxxaxkxxaxkxxk if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert choi director exempt_organizations rulings agreements


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-120422-98 date date x a b d1 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a and b the sole shareholders of x discussed with x’s attorney their desire and intentions that x elect to be an s_corporation beginning year its first taxable_year however due to a misunderstanding between the attorney and the shareholders as to who was going to file the form_2553 election by a small_business_corporation a form_2553 was not timely filed for that year a and b agree to amend their tax returns consistent with the treatment of x as an s_corporation for x’s year taxable_year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours branch j thomas hines senior technician reviewer office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes