department of the treasury internal_revenue_service washington d c contact person identification_number contact number employer_identification_number tax years tax_exempt_and_government_entities_division release number release date date date legend state u dollar_figurex dollar_figurey dear we have considered your ruling_request dated date regarding the tax consequences relating to the proposed transactions described below you are exempt from federal_income_tax under sec_501 of the internal_revenue_code hereafter code you are a cooperative under the laws of state your members elect the board_of directors on a one member one vote basis you serve approximately u members to which you provide electrical energy services pursuant to article vii sec_2 of your bylaws your operations shall be conducted in a manner so that all patrons except those excluded by contract will furnish capital to you in order to induce patronage and to assure that the cooperative will operate on a non-profit basis the cooperative is obligated to account on a patronage basis to all its patrons for all amounts received and receivable from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against the furnishing of electric energy further your bylaws specify that you are obligated to pay credits to a capital_account for each patron all such amounts in excess of operating costs and expenses your books_and_records are required to be set up in a manner so that at the end of each fiscal_year the amount of capital if any furnished by each patron is clearly reflected and credited in an appropriate record to the capital_account of each patron each patron will be notified of the amount credited to his or her account at a reasonable_time after the end of each fiscal_year your bylaws further state that if your board_of trustees determines that your financial condition will not be impaired the capital credited to patrons’ accounts may be retired in full or in part the board has discretion to determine the method basis priority and order of retirement if any for any amounts furnished as capital as of date you have allocated and have an unretired patronage capital of dollar_figurex to your patrons and had a total capitalization of dollar_figurey historically you have retired the previously allocated patronage capital on a cycle of approximately years using the first-in_first-out redemption model you have stated that your sources of electric generation will change in the next decade you also expect fossil fuels will become more difficult to use and additional financial resources will be required to acquire or upgrade electric transmission assets seeking to strengthen your equity resources you have proposed to retire the current patronage allocations to current former and deceased patrons on an accelerated basis this retirement would occur by a cash payment of the present_value of the future capital credits payments the proposed redemption program would be voluntary you have asserted that the proposed equity patronage capital credit discounting is beneficial you stated that participation in the program would allow current and former members to receive the present_value of the cash payments they would otherwise receive many years in the future you have said that the difference between the face_amount of the equity_capital credit and the amount_paid will be reserved as permanent equity to be distributed only at your dissolution or liquidation you have represented that your board_of trustees will adopt a formal policy stating that e e e e the board_of trustees in its sole discretion may establish an equity discounting program voluntary to all parties whereby all or a portion of existing allocated patronage capital may be paid in cash at present_value to members patrons former members patrons and or deceased member-patron’s estates the annual equity discount rate to be applied to determine present_value of early redemption will be established by the board_of trustees to equal the 20-year treasury risk-free bond rate determined as of the first business_day of the year in question plus a risk factor unique to you and determined by your board_of trustees inthe sole discretion of your board_of trustees each member patron departing member patron former member patron and deceased member's estate may be given the option of receiving the present_value of their cumulative allocated patronage capital or in the board’s discretion a limited number of years or year members patrons former members patrons and members’ estates will be given the option of participating in the present_value discounting program the board_of trustees may suspend the present_value discounting program if in its sole judgment such action is in the best interest of the cooperative you have requested the following rulings following the adoption by the members of your proposed policy to accommodate patronage credit discounting you will be operating_on_a_cooperative_basis and will not jeopardize your tax-exempt status under sec_501 of the code your proposed discounting of equity_capital as contemplated is consistent with the requirements of revrul_72_36 1972_1_cb_151 and will not constitute a forfeiture of patronage capital the proposed methodology for determining the discount rate is consistent with the precepts of cooperative tax law and is within the board_of trustees’ discretion law sec_501 of the code provides for the exemption from federal_income_tax of benevolent_life_insurance_associations of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations but only if percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses_and_expenses revrul_72_36 1972_1_cb_151 describes certain basic characteristics an organization must have in order to be a cooperative organization described in sec_501 of the code these characteristics include the following a cooperative must keep adequate_records of each member's rights and interest in the assets of the organization a cooperative must not retain more funds than it needs to meet current losses_and_expenses the rights and interests of members in the organization’s savings must be determined in proportion to their business with the organization a member’s rights and interests may not be forfeited upon the withdrawal or termination of membership upon dissolution gains from the liquidation of assets should be distributed to all current and former members in proportion to the value or quantity of business that each did with the cooperative over the years revrul_83_170 1983_2_cb_97 describes a cooperative organization formed to provide cable television to its members the revenue_ruling states that the term like organization as used in sec_501 of the code is applicable to those mutual or cooperative organizations that are engaged in activities similar in nature to a public utility-type service this ruling was cited affirmatively in revrul_2002_54 r b date and revrul_2002_55 2002_37_irb_529 date we have cited these three rulings to support the conclusion that providing electric services on a cooperative basis are public utility- type services and thus qualify as like organization activities revrul_2002_55 r b provides that in order to maintain tax exemption under sec_501 the cooperative must compute the percent member income test in each taxable_year the test requires a cooperative to combine all sources of income not otherwise excludable under sec_501 or c and calculate whether more than percent of that income is derived from non-members the cooperative has the burden_of_proof to establish that it satisfies the percent member income test for each taxable_year in 44_tc_305 acg 1966_1_cb_3 the court stated that an organization must meet certain common_law requirements in order to be a cooperative these common_law requirements include democratic control of the organization by members the organization operates at cost for the benefit of members and the contributors of capital to the organization do not control or receive most of the pecuniary benefits of the organization's operations ie subordination of capital discussion redemption of capital credits at discount sec_501 of the code provides for the federal tax exemption of electric cooperatives including other cooperative organizations not relevant here while the term cooperative is not defined in sec_501 or the regulations thereunder a cooperative has been traditionally and historically defined as a voluntary membership business organization that is organized in response to the economic needs of and to perform services for its members and not to realize monetary gains as a separate legal entity a cooperative is organized and operated for the benefit of and is democratically controlled by its members see 44_tc_305 acg 1966_1_cb_3 hence to qualify for exemption under sec_501 an organization must be a cooperative and organized and operated as such puget sound plywood supra describes the principles that are fundamental to the organization and operation of cooperatives they are democratic control by the members operation at cost and subordination of capital these principles apply to organizations described in sec_501 democratic control requires that the cooperative be governed by members and on a one- member one-vote basis each member has a single vote regardless of the amount of business he or she does with the organization the issue of democratic control is a question of fact operation at cost requires that the cooperative’s net_earnings or savings derived from furnishing services in excess of costs and expenses be returned to its members in proportion to the amount of business conducted with them this principle ensures that a cooperative’s net savings from members are returned to members in proportion to the amount of business each transacts with the cooperative a cooperative satisfies this requirement by making periodic allocations of patronage to members subordination of capital has two requirements first control of the cooperative and ownership of the pecuniary benefits arising from the cooperative’s business remains in the hands of the members rather than with non-patron equity investors second the returns on equity investments must be limited hence the net savings that accrue to the cooperative from the business activities it transacts with its members will largely inure to the benefit of those members rather than to its equity investors the rationale for these limitations is to ensure that the cooperative remains faithful to its purpose-providing services at the lowest possible prices or highest possible prices for a marketing_cooperative to its members and not to realize profits for capital if it were otherwise the emphasis then would likely be on protection of returns of equity_capital rather than services to members and this would destroy the basic purpose of cooperatives see puget sound plywood supra thus the redemption of capital credits at a discount rate cannot violate any of these cooperative principles in order for the organization to remain exempt under sec_501 revrul_72_36 supra also describes additional requirements that are fundamental to the organization and operations of cooperatives described in sec_501 the revenue_ruling requires that a member's rights and interest in the assets of a cooperative cannot be forfeited upon termination of membership it also requires that upon dissolution a cooperative must distribute any gains from the sales of its assets to those who were members during the period that the assets were owned sec_501 provides that a cooperative exempt under this code section must derive percent or more of its income from members for the sole purpose of meeting losses_and_expenses in order to qualify for and maintain tax exemption the percent member income test requires that percent or more of the cooperative’s income be derived from members and used to pay for services listed in sec_501 see also revrul_2002_54 2002_37_irb_527 and revrul_2002_55 2002_37_irb_529 in each particular tax_year the cooperative must combine all income received and calculate under this test the cooperative is not tax-exempt under sec_501 of the code if less than percent of its income is derived from members and used to pay for services listed in sec_501 this private_letter_ruling does not address the issue of whether the redemption of capital credits counts as non-member income under the percent member income test a fundamental tenet of cooperative operation is that the earnings_of a cooperative are allocated and ultimately distributed to its members based on the amount of business patronage done with those members the amount a cooperative_member pays for the cooperative’s services less the cost of providing such services is allocated to the member thus the presumption is that the cooperative’s services are provided at cost to the members but it is impractical for such a cooperative to return immediately all the amounts or earnings to its members because the cooperative needs to have reserves in order to operate meet unexpected expenses or to expand these amounts or earnings are held by the cooperative for a certain period of time as prescribed by cooperative bylaws and are allocated as capital credits to accounts kept for each member these capital credits are returned to the members or former members when the cooperative redeems them ie sends a check for the amount of the capital credits at the end of the prescribed time your bylaws and proposed board_of trustees policy provide for the redemption of capital credits at a discount the redemption will be at a discount ie the capital credits are not paid on the face value of the accounts but at the present_value at the time the redemption is made you will transfer the difference between the discounted amount and the original amount in the capital credit accounts to your net savings account the redemption program will be voluntary to current or former members the primary issue raised by the operation of the redemption program is whether it violates any of the cooperative requirements described in puget sound plywood supra and revrul_72_36 the cooperative principle of democratic control by members is satisfied because the redemption of capital credits at discount will not affect member voting rights or governing rights we also note that the cooperative and its board_of directors and management has fiduciary duties to former members and the former members can enforce their rights in the courts see 78_tc_894 the cooperative principle of operating at cost is satisfied because the members’ right to receive the excess ie capital credits over the cost of electricity service is also not adversely affected the cooperative principle of subordination of capital is satisfied because the proposed redemption program does not adversely affect the members’ control and ownership of the cooperative assets the cooperative requirement that there is no forfeiture of former members’ rights to assets of the cooperative is not violated specifically the redemption program permits members and former members to receive the present_value of their capital credit accounts ie patronage savings at a date earlier than a 20-year holding_period or cycle the discount rate is in accordance with the prevailing market rate thus redeeming the capital credits at a discount rate would not violate cooperative principles and your tax-exempt status under sec_501 would not be jeopardized assuming you meet the percent member income test you have said that the difference between the face_amount of the equity_capital credit and the amount_paid would be reserved as permanent equity to be distributed only at your dissolution or liquidation the issue is whether this proposal violates cooperative principles this proposal does not violate the cooperative requirements of democratic control by members and non-forfeiture of a member's right to your assets because your trustees are subject_to and responsive to the control of the members we note that the members of the cooperative elect the trustees and any members may submit resolutions to change the cooperative operations subject_to approval of the majority of members consequently the transfer of the difference between the face_amount of the equity_capital credit and the amount_paid to permanent equity or net savings under these circumstances does not violate any cooperative requirements and therefore your exempt status under sec_501 is not adversely affected assuming you satisfy the percent member income test for the particular tax_year accordingly based on the foregoing facts and circumstances we rule as follows following the adoption by the members of your proposed policy to accommodate patronage credit discounting you will be operating_on_a_cooperative_basis and will not jeopardize your tax-exempt status under sec_501 of the code your proposed discounting of equity_capital as contemplated is consistent with the requirements of revrul_72_36 1972_1_cb_151 and will not constitute a forfeiture of patronage capital the proposed methodology for determining the discount rate is consistent with the precepts of cooperative tax law and is within the board_of trustees’ discretion this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely donna e moore for mary j salins manager exempt_organizations technical group enclosure notice


t c memo united_states tax_court orlander robinson petitioner v commissioner of internal revenue respondent docket no filed date j donald hughes for petitioner john f driscoll for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge john j pajak pursuant to rule sec_180 sec_181 and sec_183 all rule references are to the tax_court rules_of_practice and procedure the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge pajak special_trial_judge this case is before the court - - on respondent's motion to dismiss for lack of jurisdiction on the grounds that the petition was not filed within the time prescribed by sec_6213 or sec_7502 section references are to the internal_revenue_code in effect for the period relevant here respondent determined a deficiency in petitioner's federal_income_tax in the amount of dollar_figure for the taxable_year the sole issue for decision is whether petitioner timely filed his petition with this court at the time the petition was filed with this court petitioner resided in grove hill alabama petitioner filed a statement opposing respondent's motion to dismiss a hearing was held in birmingham alabama on respondent's motion on date respondent mailed to petitioner at his last_known_address a notice_of_deficiency in income_tax for the year ended date the 90-day period for filing a petition for redetermination of the deficiency with this court ended on date which was not a legal_holiday in the district of columbia in a sworn affidavit petitioner's attorney j donald hughes mr hughes stated that at around p m on saturday date he placed the petition in the metered-mail receptacle of the u s post office located on st joseph street in mobile alabama prior to the mailing mr hughes used a private postage meter to place the correct amount of postage on the envelope the postage meter had been advanced to reflect monday date mailings thus the date on the envelope reads date the petition was filed in this court on date days after the notice_of_deficiency was mailed to petitioner the manager of distribution operations tour of the u s postal service in mobile alabama testified that the standard delivery time for a first-class envelope mailed from the st joseph's branch of the post office in mobile alabama to the tax_court in washington d c i sec_3 days he also testified that if a letter is misplaced missent or inadvertently lost or damaged then there should be some sort of marking on it to let you know exactly what has happened to that letter there are no such markings on the envelope that contained the petition in this case this court's jurisdiction to redetermine a deficiency depends upon the issuance of a valid notice_of_deficiency and a timely filed petition rule a c 93_tc_22 pursuant to sec_6213 the taxpayer ha sec_90 days or days if the notice is addressed to a person outside of the united_states from the date that the notice_of_deficiency is mailed to file a petition with the court fora redetermination of the deficiency if the petition is not filed - - within days then it is untimely and we have no jurisdiction to redetermine the deficiency sec_6213 sec_7502 a provides an exception to the rule_of sec_6213 in that if the petition is deposited in the mail in the united_states ina properly addressed envelope on or before the date on which it is required to be filed and if the date of the u s postmark on the envelope containing the petition is on or before the date on which the petition is required to be filed the date of such postmark is deemed to be the date of filing however if the envelope bears a postmark other than that of the u s postal service sec_7502 applies only to the extent provided by regulations sec_7502 rules concerning the application of sec_7502 where mailing is through a private delivery service are set forth in sec_7502 but such services were not used in this case the regulations provide that privately metered mail showing a date within the 90-day period is considered timely filed if it is received by the agency officer or office with which it is required to be filed not later than the time when a document contained in an envelope or other appropriate wrapper which is properly addressed and mailed and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the united_states post office on the last date or the last day of the period prescribed for filing the document sec_301_7502-1 6b proced admin regs we refer to that time period as the normal delivery time for mail --- - postmarked by the u s postal service fujioka v commissioner tcmemo_1999_316 we rely on the credible testimony of the witness from the u s postal service and find that the normal delivery time for first-class mail between mobile alabama and washington d c is approximately days cf beacham v commissioner tcmemo_1996_226 in the instant case the petition was received by this court days after the date shown on the private postmark because the petition was not delivered within the normal delivery time petitioner will not be entitled to relief unless he can establish the actual date of mailing was prior to the expiration of the 90-day period that the delay in delivery was attributable to a delay in the transmission of mail and the cause of such delay fujioka v commissioner supra sec_301_7502-1 6b proced admin regs petitioner contends that his case is similar to that in 847_f2d_229 5th cir revg and remanding an order of this court where the petition was mailed days before christmas and received by this court days later we find that case distinguishable on its facts petitioner states in his opposition to the motion to dismiss that there was a delay in the delivery of the petition and that the delay was attributable to one or more of the following factors a the fact that date was one week before the memorial day celebration on date a federal_holiday b there is an increase in the volume of such holiday mail c the recognized deficiency of some u s post office employees to take time off leave early and work less diligently during such holiday d the addition of temporary postal employees during such holiday rush and celebration with their known deficiency in accuracy and efficiency e the heavy airline passenger traffic during the memorial day celebration period requiring that the mail be pulled off flights and held for later flights causing mail handling delays at mobile regional airport f the inclement weather during the critical period and the adverse effect it had on travel in the district of columbia and 9g the mail routine of the u s tax_court which calls for delivery of mail to the u s tax_court only once a day so that any items received at its immediate post office during the day is sic not delivered until the next day petitioner makes speculations about the impact of holiday conditions on mail service we do not believe that petitioner has established that holiday conditions existed that would have had a significant impact on mail service during the relevant period cf chang v commissioner tcmemo_1998_298 oswald v commissioner tcmemo_1995_17 we note that none of the assertions made above are corroborated while the christmas holiday season could very well lead to delays in mail delivery we find no evidence or reason to believe that memorial day has a similar effect it is unfortunate that a petition purportedly mailed by the end of the 90-day period was not received by the court until the 14th day after its mailing however because petitioner's attorney used a private metered postmark instead of taking the envelope to the post office on date and having it postmarked the regulations require petitioner to show and he - has not shown that there was a delay in the transmission of the mail nor has he shown any reason for the delay in the transmission of the mail if there was such a delay beacham v commissioner supra petitioner argues that because the regulations cannot be satisfied they are invalid we reject this assertion this court and other courts have upheld the regulations with respect to when a private metered postmark will be accepted as a filing_date beacham v commissioner supra mr hughes could have used other alternatives to mail the petition such as certified mail which would have provided prima facie evidence that the petition was timely mailed sec_7502 petitioner has failed to provide evidence that establishes that the late delivery of the petition was due to a delay in the transmission of the mail and the cause of any such delay thus we hold that he did not file his petition with this court within the time prescribed by sec_6213 and sec_7502 and respondent's motion to dismiss for lack of jurisdiction should be granted although petitioner cannot pursue his case in this court he is not without a judicial remedy specifically he may pay the tax file a claim_for_refund with the internal_revenue_service and if his claim is denied sue for a refund in the appropriate federal district_court or the u s court of federal claims see --- - 55_tc_138 to reflect the foregoing an order granting respondent's motion to dismiss for lack of jurisdiction will be entered


internal_revenue_service department of uniform issue list washington dc person to contact telephone number refer reply to t ep ra t3 nae jl toe legend grantor ira x custodian a beneficiary e beneficiary f beneficiary g this is in response to your request for a private_letter_ruling dated date submitted on your behalf by your authorized representative in support of your request your authorized representative has submitted the following facts and representations grantor was born on date and maintained ira x with custodian a grantor attained age during the calendar_year and his date of death was date grantor's required_beginning_date with respect to the commencement of required minimum distributions under sec_401 of the internal_revenue_code cade from ira x was date your authorized representative asserts that grantor received his required minimum distributions during his lifetime based upon a single life expectancy which was recalculated each year grantor designated his three children beneficiary e beneficiary f and beneficiary g as designated death beneficiaries of ira x on date each having an equal interest in ira x beneficiary e whose birthday is date gu page is older than either beneficiary f or beneficiary g his single life expectancy wa sec_43 in the calendar_year grantor attained age the remaining term-certain with respect to beneficiary e as of the year the calendar_year following the grantor's death wa sec_36 grantor received part of his minimum_required_distribution prior to his death on date and beneficiaries e f and g received the balance of grantor's minimum_required_distribution based on the above you request the following letter rulings that beneficiaries e f and g are designated benefi iciaries for purposes of sec_401 of the code with respect to ira x that beneficiaries e f and g were timely selected as designated beneficiaries of ira x for purposes of sec_401 of the code that grantor's use of the single recaiculated life expectancy in determining his required minimum distributions during his lifetime does not preclude the use of the term certain life expectancy of the oldest desiqnated beneficiary in the calendar_year after the death of grantor that in determining the required minimum distributions after the death of grantor that beneficiary g may use the remaining term-certain life expectancy of beneficiary e since he is the oldest non-spouse designated_beneficiary commencing in the calendar_year and reduced by one for each calendar_year thereafter sec_408 of the code defines an individual_retirement_account as a_trust which meets the requirements of sec_408 through a sec_408 of the code states that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the ira trust is maintained sec_401 of the code sets forth the general rules applicable to required minimum distributions from qualified_plans sec_401 of the code provides that a_trust shall not constitute a qualified_trust under this subsection unless the plan provides that the entire_interest of each employee will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary aye under sec_401 and ii of the code the term required_beginning_date as it applies to ira’s means april of the calendar_year following the year in which the employee attains age sec_401 of the code provides that where distributions have begun under subparagraph a ii a_trust shall not constitute a qualified_trust under this section unless the plan provides that if - i the distribution of the employee's interest has begun in accordance with subparagraph a ii and il the employee dies before his entire_interest has been distributed to him the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph a ii as of the date of his death sec_1_401_a_9_-1 of the proposed income_tax regulations proposed_regulations q a-d-2 a provides in pertinent part that designated beneficiaries are only individuals who are designated as beneficiaries under the plan in general it provides that an individual may be designated as a beneficiary under the plan either by the terms of the plan or if the plan provides by an affirmative election by the employee or the employee's surviving_spouse specifying the beneficiary a beneficiary designated as such under the plan is an individual who is entitled to a portion of an employee's benefit contingent on the employee's death or another specified event sec_1_401_a_9_-1 of the proposed_regulations q a-d-3 a provides that for purposes of calculating the distribution period described in sec_401 a a ii for distributions before death the designated_beneficiary will be determined as of the employee's required_beginning_date if as of that date there is no designated_beneficiary under the plan to receive the employee's benefit upon the employee's death the distribution period is limited to the employee's life or a period not extending beyond the employee's life expectancy in the present case since beneficiaries e f and g were named beneficiaries on date a date before grantor's required_beginning_date of date beneficiaries e f and g were selected in a timely manner for purposes of calculating the distribution period described in sec_401 of the code accordingly with regard to ruling requests one and two we conclude that beneficiaries e f and g are timely selected designated beneficiaries of ira x for purposes of sec_401 of the code att page sec_401 of the code permits an employee and his spouse to recalculate their life expectancies annually sec_1_401_a_9_-1 of the proposed_regulations q a-e-8 a provides guidance on how an employee's life expectancy is recalculated and provides that upon the death of the employee the recalculated life expectancy of the employee or the employee's spouse will be reduced to zero in the calendar_year following the calendar_year of death in any calendar_year in which the last applicable life expectancy is reduced to zero the plan must distribute the employee's entire remaining interest prior to the last day of such year in order to satisfy sec_401 a sec_1_401_a_9_-1 of the proposed_regulations q a-e-8 b provides guidance on calculating the applicable life expectancy when the employee's life expectancy is being recalculated and the life expectancy of his designated_beneficiary is not recalculated it provides in relevant part that if the designated_beneficiary is not the employee's spouse and the life expectancy of the employee is being recalculated annually the applicable life expectancy for determining the minimum distribution for each distribution calendar_year will be determined by recalculating the employee's life expectancy but not recalculating the beneficiary's life expectancy such applicable life expectancy is the joint and last survivor expectancy using the employee's attained age as of the employee's birthday in the distribution calendar_year and an adjusted age of the designated_beneficiary the adjusted age of the designated_beneficiary is determined as follows first the beneficiary's applicable life expectancy is calculated based on the beneficiary's' attained age as of the beneficiary's birthday in the calendar_year described in e-1 reduced by one for each calendar_year which has elapsed since that calendar_year the age rounded if necessary to the higher age in table v of sec_1_72-9 is then located which corresponds to the designated beneficiary's applicable life expectancy such age is the adjusted age of the designated_beneficiary as provided in paragraph a upon the death of the employee the life expectancy of the employee is reduced to zero in the calendar_year following the calendar_year of the employee's death thus for determining the minimum distribution for such calendar_year and subsequent calendar years the applicable life expectancy is the applicable life expectancy of the designated_beneficiary determined under this paragraph sec_1_401_a_9_-1 of the proposed_regulations q a-e-i a provides generally that for required distributions under sec_401 of the code life expectancies are calculated using the employee's and the designated beneficiary's attained age as of the employee's birthday and the designated beneficiary's birthday in the calendar_year in which the employee attains age sec_280 page sec_1_401_a_9_-1 of the proposed_regulations q a-e-5 a provides generally that if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for determining the designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period because grantor's life expectancy was being recalculated upon his death in accordance with q a-e-8 a of sec_1_401_a_9_-1 of the proposed_regulations his life expectancy was reduced to zero although his benefit was paid in the form of a single life expectancy upon his death his life expectancy was not the last applicable life expectancy because he timely designated his beneficiaries by his required_beginning_date in accordance with q a-d-3 a of the proposed_regulations therefore pursuant to q a-e-8 b of sec_1_401_a_9_-1 of the proposed_regulations for purposes of determining the minimum distribution in the calendar_year after the death of grantor the applicable life expectancy is the life expectancy of the designated_beneficiary as determined under that section since more than one individual was designated as a beneficiary with respect to the grantor as of date pursuant to sec_1_401_a_9_-1 of the proposed_regulations q a-e-5 a the beneficiary who is the oldest and correspondingly who has the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period under ira x therefore with regard to ruling_request three we conclude that grantor's use of the single recalculated life expectancy in determining the required minimum distributions during his lifetime does not preclude the use of the term-certain life expectancy of the oldest designated_beneficiary in the calendar_year after grantor's death beneficiary e had the shortest life expectancy of the three designated beneficiaries on grantor's required_beginning_date date therefore he is the designated_beneficiary whose life expectancy will be used when determining the minimum distribution period under ira x for the calendar_year commencing after the year of grantor's death and for all subsequent years thereafter pursuant to q as e-i a and e-8 b of the proposed_regulations beneficiary e's applicable life expectancy is calculated based on his attained age as of his birthday in the calendar_year in which grantor attained age reduced by one for each calendar_year which has elapsed since that calendar_year his single life expectancy in the year that grantor attained age wa sec_43 therefore as of the calendar_year the remaining term-certain period with respect to beneficiary e i sec_36 years 02s page accordingly with respect to ruling_request four we conclude that in determining the required minimum distributions after grantor's death beneficiary g may use the remaining term-certain life expectancy of beneficiary e since he is the oldest non-spouse designated_beneficiary commencing in the calendar_year and reduced by one for each calendar_year thereafter the above ruling is contingent upon the continuation of ira x as one described under sec_408 of the code the original of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours prane u dower frances v sloan manager employee pians technical group tax_exempt_and_government_entities_division enclosures deleted copy form_437


internal_revenue_service number release date index number ---------------------------------- ---------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ---------------------------------------------------- telephone number -------------------- refer reply to cc intl b02 plr-150470-12 date date ty ------ legend taxpayers -------------------------------------------- ------------------------------------------ trust --------------------------------------------------------------- partnership ---------------------------------------------------- corporation ----------------------------------------------------------- country x --------------------- firm year date year ------------------------------------- ------ -------------------- ------ month ------------------ dear -------------------------- this is in response to a letter dated date requesting the consent of the commissioner of the internal_revenue_service commissioner to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal plr-150470-12 revenue code and sec_1_1295-3 with respect to taxpayers’ investment in corporation the ruling provided in this letter is based upon information and representations submitted by taxpayers and accompanied by a penalty of perjury statement executed by appropriate parties while this office has not verified the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts trust is a domestic_trust that was settled by taxpayers via a_trust document executed on date the trust is a grantor_trust and all of the income gains losses and other tax items of the trust are reportable on taxpayers’ federal_income_tax returns in year trust acquired an interest in partnership a limited_partnership organized under the laws of country x to the best of taxpayers’ knowledge partnership has never made an entity classification under sec_301_7701-3 and is classified as a partnership under the default entity classification rules of sec_301_7701-3 partnership invested in corporation a foreign_entity that is understood to be a pfic within the meaning of sections of the code the schedule_k-1 provided by partnership to trust discloses that partnership has invested in a pfic and states that as a foreign_partnership partnership cannot elect to treat the pfic as a qef under sec_1295 of the code the k-1 provided the necessary information to permit taxpayers to make valid a qef election including their share through the trust of corporation’s ordinary_earnings and net capital_gains for the year taxpayers had relied upon firm for over years to advise them with respect to all applicable tax consequences and filing_requirements including their investment in fund through trust and to prepare their returns firm has been a well-respected accounting firm for more than years with ample expertise in providing tax_advice pertaining to the ownership of stock in a foreign_corporation taxpayers had no professionals other than their tax preparer review their tax returns before filing in the course of preparing taxpayers’ year federal_income_tax return on extension firm discovered upon review of the k-1 that taxpayers owned a pfic through their ownership of an interest in partnership taxpayers were informed of the pfic issue for the first time in month until that time they were unaware that corporation was a pfic taxpayers have submitted affidavits under penalties of perjury that describe the events that led to their failure to make a qef election with respect to corporation by the plr-150470-12 election due_date including the role of firm taxpayers also submitted an affidavit from firm which describes firm’s engagement and responsibilities and firm’s failure to provide advice regarding the tax consequences of taxpayers’ ownership of corporation until firm was preparing taxpayers’ year income_tax returns taxpayers represent that as of the date of this request_for_ruling the pfic status of corporation has not been raised by the irs on audit for any of the taxable years at issue ruling requested taxpayers request the consent of the commissioner of the internal_revenue_service to make a retroactive qef election with respect to corporation for year under sec_1_1295-3 law and analysis sec_1295 of the code provides that any pfic shall be treated as a qef with respect to a taxpayer if an election by the taxpayer under sec_1295 applies to such company for the taxable_year and the company complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a taxpayer may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united_states government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1_1295-3 the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief plr-150470-12 counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events which led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made we conclude that taxpayers have satisfied sec_1_1295-3 consent is granted to taxpayers to make a retroactive qef election with respect to corporation for year under sec_1_1295-3 provided that they comply with the rules under sec_1 g regarding the time and manner for making the retroactive qef election 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 a copy of this ruling must be attached to any_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely jeffery g mitchell branch chief branch international


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-108692-05 date date ------------ --------------------------- ------------------------------------------------ legend x ------------------------------------------ country date dear --- -------------- this responds to a letter dated date submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity however the service has no record of a timely filed form_8832 entity classification election electing to treat x as a disregarded_entity effective date entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 the information submitted states that x was formed under the laws of country sec_301_7701-3 provides guidance on the classification of a foreign sec_301_9100-1 through provide the standards the sec_301_9100-1 provides that the commissioner may grant a reasonable sec_301_7701-3 provides that an entity classification election must be filed plr-108692-05 on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent except as specifically set forth above no opinion is expressed concerning the based solely on the information submitted and the representations made we this ruling is directed only to the taxpayer requesting it sec_6110 plr-108692-05 being sent to x’s authorized representatives pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


elizabeth m jacobson petitioner v commissioner of internal revenue respondent docket no 20577-15w filed date p petitioned under sec_7623 for review of r’s denial of her claim for a whistleblower award p subsequently moved for voluntary dismissal of her case to which r has not objected held because r will suffer no prejudice from dis- missal of this case we will apply the principles of 118_tc_330 and grant p’s motion geoffrey g bestor for petitioner ladd christman brown jr for respondent opinion lauber judge this whistleblower award case is before the court on petitioner’s motion for voluntary dismissal of her case respondent does not oppose this motion and we will grant it background the following facts are derived from the parties’ pleadings and motion papers and the exhibits attached thereto peti- tioner resided in maryland when she filed her petition in date petitioner filed form_211 application_for award for original information with the irs whistleblower jacobson v commissioner office office on date the office sent petitioner a preliminary decision to deny her claim on date she provided the office with comments on this preliminary deci- sion on date after reviewing petitioner’s comments the office sent her a final_determination denying her claim for an award the reason given was that the irs took no action based on the information that you provided on date petitioner filed a timely petition for review under sec_7623 on date petitioner filed a motion to with- draw her petition which the court filed as a motion to dis- miss in that motion petitioner stated that she had decided to withdraw her appeal acknowledged that she had no right to file an appeal in the united_states district_court or anywhere else and stated that respondent therefore would suffer no prejudice from the dismissal of this case at our request respondent filed a response to petitioner’s motion on date he there stated that he did not object to the granting of petitioner’s motion expressing his view that dis- missal was appropriate under standards analogous to those set forth in 118_tc_330 discussion in 62_tc_519 we considered a taxpayer’s motion to withdraw a petition with- out prejudice in a deficiency proceeding when the court in a deficiency context dismisses a case on a ground other than lack of jurisdiction sec_7459 requires that we enter a decision deciding that the deficiency is the amount deter- mined by the secretary we held in estate of ming t c pincite that in a case brought under sec_6213 a tax- payer may not withdraw his petition in order to avoid the entry of a decision we therefore denied the taxpayer’s motion to withdraw without prejudice in wagner we found the rationale of estate of ming to be inapplicable in a collection_due_process cdp case brought under sec_6320 and sec_6330 to review a notice of fed- eral tax_lien_filing as we noted there sec_7459 all statutory references are to the internal_revenue_code_of_1986 as amended and in effect at all relevant times united_states tax_court reports applies specifically to a petition that is filed for a redeter- mination of a deficiency and makes no mention of a petition that is filed to review a collection action wagner t c pincite in the absence of any statutory requirement that we enter a decision consistent with an antecedent notice_of_deficiency we looked to rule a of the federal rules of civil procedure civil rules which permits dismissal in the sound discretion of the court the case law under civil rule a indicated that a court should grant dismissal unless the defendant will suffer clear legal prejudice wagner t c pincite quoting 781_f2d_855 11th cir we concluded in wagner that the commissioner would suffer no prejudice if we dismissed the case the irs would then be free to maintain collection action against the tax- payer as if the instant proceeding had never been com- menced id pincite and because the time for seeking judicial review of the commissioner’s cdp determination had expired there was no risk that the irs would face duplica- tive litigation in this court or anywhere else see id pincite accordingly in the exercise of the court’s discretion and after weighing the relevant equities including the lack of a clear legal prejudice to respondent we decided to grant the taxpayer’s motion to dismiss id pincite in 144_tc_273 we extended wagner’s logic to stand alone cases brought under sec_6015 for relief from joint_and_several_liability sometimes referred to as innocent spouse relief we there distinguished 116_tc_272 where the innocent spouse claim had been raised as an affirmative defense in a deficiency proceeding commenced under sec_6213 see davidson t c pincite the logic of wagner and davidson applies with equal force to the instant whistleblower proceeding sec_7459 requiring entry of a decision in deficiency cases likewise does not apply here sec_7623 which grants this court exclusive jurisdiction to review irs determinations regarding whistleblower awards provides that any appeal must be filed within days of such determination because the office’s final_determination on her claim was made months ago petitioner has no right to file another petition in our court for review of that determination or to file an appeal in the jacobson v commissioner united_states district_court or anywhere else dismissal of the instant case will thus leave binding on petitioner the irs’ date determination to deny her claim for an award i n the exercise of the court’s discretion and after weighing the relevant equities including the lack of a clear legal prejudice to respondent we will accordingly grant peti- tioner’s motion to dismiss wagner t c pincite to implement the foregoing an appropriate order of dismissal will be entered f


t c memo united_states tax_court nemetschek north america inc petitioner v commissioner of internal revenue respondent docket no filed date joseph schmelzle an officer for petitioner william j gregg for respondent memorandum findings_of_fact and opinion laro judge petitioner’s predecessor diehl graphsoft inc diehl petitioned the court to redetermine respondent’s determination of a dollar_figure deficiency in its federal_income_tax - - for its taxable_year ended date taxable_year we must decide whether respondent abused his discretion under sec_446 when he determined that diehl must change its overall_method_of_accounting from a hybrid method to an accrual_method we hold he did not unless otherwise indicated section references are to the internal_revenue_code in effect for the subject year findings_of_fact some facts were stipulated and are so found the stipulated facts and the exhibits submitted therewith are incorporated herein by this reference diehl is a publicly traded corporation whose principal_place_of_business was in columbia maryland when its petition was filed diehl designs develops manufactures and sells unmodified software that allows sophisticated design and engineering projects to be performed on computer hardware diehl also develops and sells to its software users usually as part of the software sale three manuals which are an integral part of the software the manuals which are printed and bound by outside vendors consist of a programming language manual technical reference manual and tutorial manual diehl also sells to its customers software produced by third parties we ' respondent also determined that diehl is liable for the increased rate of interest under sec_6621 hereinafter refer collectively to all of the products sold by diehl as products in addition to its products diehl provides to its customers free of charge access to its customer support services diehl sells some of its products within the united_states through its employees dealers and distributors it sells the remainder of its products outside the united_states through foreign distributors and resellers most of diehl’s sales approximately percent of them by revenue are of a single product minicad5 that is sold to users of macintosh computers diehl’s gross_receipts for the subject year were dollar_figure all of these receipts were attributable to diehl’s sale of its products diehl’s sales were made as follows ten percent as direct sales between diehl and end users percent as sales through dealers and percent as sales through distributors both foreign and domestic diehl’s sales were made either by delivering its products electronically through an electronic code and serial number or by delivering its products in boxes containing the software usually ona disk manuals and any other item that diehl considered necessary for the particular market in the latter case the boxes and the manuals were significant parts of the sales upon its inception in and throughout the subject year diehl used a hybrid method_of_accounting for book and tax q4e- purposes specifically diehl used the cash_receipts_and_disbursements_method cash_method to report its receipts and certain expenditures and lower_of_cost_or_market method to value its yearend inventory at the beginning and end of its taxable_year diehl had an inventory valued for federal_income_tax purposes at dollar_figure and dollar_figure respectively diehl’s inventory consisted of blank disks software manuals binders and videos and shipping materials and other supplies the values of those items on date and were as follows date may blank disks dollar_figure dollar_figure software manuals binders and videos big_number big_number shipping materials and other supplies big_number total big_number big_number the dollar_figure difference between this amount and the dollar_figure listed immediately above and below is attributable to rounding diehl reported taxable_income of dollar_figure for its taxable_year it computed and reported its cost_of_goods_sold as follows inventory at beginning of year dollar_figure purchases big_number cost of labor big_number commissions big_number inventory scrap total inventory at end of year big_number cost_of_goods_sold big_number respondent determined that diehl was required to use an overall accrual_method to reflect its income clearly respondent - - made two positive increase to income adjustments to diehl’s reported taxable_income to reflect this determination first respondent made a dollar_figure adjustment under sec_481 to reflect the effect of the change from the cash_method to an accrual_method as of date application of application of cash_method accrual_method difference accounts_receivable -o- dollar_figure dollar_figure interest receivable -o- big_number big_number prepaid expenses dollar_figure big_number big_number prepaid advertising -o- big_number big_number accounts_payable big_number big_number big_number total big_number big_number big_number second respondent made a dollar_figure adjustment to reflect the current year’s application of an accrual_method to the following items balance on balance on date date difference accounts_receivable dollar_figure dollar_figure dollar_figure interest receivable big_number big_number big_number prepaid expenses big_number big_number big_number prepaid advertising big_number big_number accounts_payable big_number big_number big_number total big_number big_number big_number opinion petitioner argues that respondent abused his discretion when he determined that diehl must change from its hybrid method to an accrual_method petitioner generally makes four assertions in support of its argument first petitioner asserts that the cash_method is listed in sec_446 as a permissible method_of_accounting and that a taxpayer who consistently uses the cash_method may continue to use that method until it fails the dollar_figure -- - million gross_receipts exception of sec_448 petitioner claims that diehl has consistently used the cash_method since its inception and that diehl met the dollar_figure million gross_receipts exception for the relevant year second petitioner asserts that a taxpayer meeting the dollar_figure million gross_receipts exception may use the cash_method whenever its sale of merchandise is not an income-producing factor petitioner claims that diehl primarily earned its income by selling intellectual_property which petitioner claims is not merchandise petitioner claims that diehl’s sales of the manuals and other inventory_items were not an income-producing factor in its business because petitioner claims the sales merely helped diehl sell and market its intellectual_property third petitioner asserts that diehl could use the cash_method because its sales of the manuals and other inventory_items were insignificant as a function of its gross_receipts and that the amount of these items fluctuated little from one yearend to the next petitioner claims that it is a per se abuse_of_discretion when respondent’s change in method_of_accounting generates adjustments to accounts_receivable and not to the amount of inventory at the beginning or end of the year fourth petitioner asserts that respondent’s determination is an abuse_of_discretion because diehl changed to an overall accrual_method years after the subject year - we disagree with petitioner that respondent’s determination is an abuse_of_discretion sec_446 contains the general_rule for tax_accounting sec_446 provides that the accounting_method used to compute taxable_income generally must be based on the method_of_accounting used to compute book income when the accounting_method used to compute taxable_income does not clearly reflect income sec_446 gives the commissioner broad authority to prescribe a method that does clearly reflect income 439_us_522 360_us_446 see also sec_1_446-1 income_tax regs no method_of_accounting is acceptable unless in the opinion of the commissioner it clearly reflects income the commissioner’s exercise of authority under sec_446 is given much latitude and cannot be disturbed unless clearly unlawful thor power tool co v commissioner supra pincite 280_us_445 see also 384_us_102 372_us_128 am auto association v united_states 367_us_687 auto club of mich v commissioner 353_us_180 291_us_193 taxpayers challenging the commissioner’s authority must prove that the commissioner’s determination is --- - clearly unlawful or plainly arbitrary thor power tool co v commissioner supra pincite the commissioner’s authority under sec_446 encompasses overall methods_of_accounting as well as specific methods used to report any item_of_income or expense thor power tool co v commissioner supra pincite 91_tc_1101 affd 882_f2d_820 3d cir sec_1_446-1 income_tax regs the fact that the commissioner possesses broad authority under sec_446 does not mean that the commissioner can change a taxpayer’s method_of_accounting with impunity see eg prabel v commissioner supra pincite3 thus for example if a taxpayer uses a method_of_accounting that clearly reflects income the commissioner may not require a change to another method merely because the commissioner believes that the latter method will reflect income more clearly 104_tc_367 60_tc_794 56_tc_610 see also st james sugar coop inc v united 643_f2d_1219 5th cir 357_f2d_656 9th cir affg 42_tc_926 75_tc_410 affd 689_f2d_1 1st cir likewise we have petitioner asserts mistakenly that respondent bears the burden of proving that diehl’s use of the cash_method did not clearly reflect income --- - allowed the use of an accounting_method that was challenged by the commissioner when the taxpayer’s method clearly reflected income and the commissioner’s method did not see 88_tc_1500 when a taxpayer challenges the commissioner’s authority under sec_446 we inquire whether the accounting_method in issue clearly reflects income the answer to this question does not rest on whether the taxpayer’s method is superior to the commissioner’s method or vice versa 98_tc_457 affd 58_f3d_413 9th cir wal-mart stores inc subs v commissioner tcmemo_1997_1 affd 153_f3d_650 8th cir see also 291_us_193 nor does the answer rest solely on whether a consistently applied method_of_accounting is listed in sec_446 as a permissible method sec_446 commissioner may change any method used that does not clearly reflect income and c subject_to the provisions of subsections a and b a taxpayer may compute taxable_income under any of the following methods_of_accounting emphasis added see also sec_1_446-1 income_tax regs instead the answer must be found by analyzing the facts and circumstances of the case ansley--sheppard-burgess co v commissioner supra 78_tc_1029 -- - a special rule may apply where a taxpayer sells merchandise as part of its ordinary business under sec_471 whenever in the opinion of the secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer inventories shall be taken by such taxpayer on such basis as the secretary may prescribe as conforming as nearly as may be to the best_accounting_practice in the trade_or_business and as most clearly reflecting the income applicable regulations clarify that a taxpayer must account for inventories whenever the production purchase or sale of merchandise is an income-producing factor in the taxpayer’s business sec_1_471-1 income_tax regs other pertinent regulations mandate that a taxpayer who is required to maintain inventories must use an accrual_method with regard to purchases and sales see sec_1_446-1 income_tax regs sec_448 does not displace this special rule ’ that sec_448 provides sec_448 limitation on use of cash_method_of_accounting a general_rule ---except as otherwise provided in this section in the case of a-- c_corporation taxable_income shall not be computed under the cash_receipts_and_disbursements_method of accounting b exceptions -- entities with gross_receipts of not continued section generally prohibits a c_corporation from using the cash_method sec_448 although sec_448 provides an exception to this prohibition in the case of a c_corporation that satisfies the dollar_figure million gross_receipts_test of sec_448 we read nothing in sec_448 that provides that ac corporation may use the cash_method merely because it meets that exception in fact sec_1_448-1t temporary income_tax regs fed reg date explains clearly the effect of sec_448 on sec_446 that section states nothing in sec_448 affects the authority of the commissioner under sec_446 to require the use of an accounting_method that clearly reflects income for example a taxpayer using the cash_method may be required to change to an accrual_method of accounting under sec_446 because such method clearly reflects that taxpayer’s income even though the taxpayer is not prohibited by sec_448 from using the cash_method petitioner also asserts that diehl did not sell merchandise that was an income-producing factor in its business we disagree the term merchandise includes any item held_for_sale 113_tc_376 see also 420_f2d_352 lst cir continued more than dollar_figure ---paragraphs and of subsection a shall not apply to any corporation or partnership for any taxable_year if for all prior taxable years beginning after date such entity met the dollar_figure gross_receipts_test xk k -- affg tcmemo_1969_79 merchandise is an income- producing factor whenever its cost is significant to the taxpayer’s gross_receipts computed under the cash_method see eg wilkinson-beane inc v commissioner supra pincite income-producing factor where cost of coffin was included in price of funeral package and represented percent and percent of cash_basis receipts 743_f2d_781 11th cir percent of total cash receipts suggests that items are an income-producing factor thompson elec inc v commissioner tcmemo_1995_292 income-producing factor where cost of materials consisted of percent to percent of gross_receipts merchandise may be properly characterized as an income-producing factor even if it is not maintained in yearend inventory j p sheahan associates inc v commissioner tcmemo_1992_239 in the case of diehl it manufactured or purchased all of its products and its sale of those products was its only source_of_income under the facts at hand we conclude that diehl’s products were merchandise and that diehl’s sale of its merchandise was an income-producing factor in its business in this regard we disagree with petitioner that it is a per se abuse_of_discretion when respondent’s change in method_of_accounting generates adjustments to accounts_receivable and not to the amount of inventory at either the beginning or end of the year we also disagree with petitioner’s assertion that the fluctuation of the amount of yearend inventory is dispositive to our analysis accord applied communications inc v commissioner tcmemo_1989_469 seller of prepackaged software required to use accrual_method to report its software sales petitioner invites the court to hold that diehl’s primary product was not merchandise under sec_1_471-1 income_tax regs because it was intellectual_property we decline to do so each of diehl’s products generally consisted of a package with manuals and a disk we believe that where this package is held_for_sale as an item and imbued with the characteristics which one normally associates with merchandise it is merchandise for purposes of sec_1_471-1 income_tax regs given the fact that most of diehl’s sales involved transfers of tangible products the purchase and sale of those products required diehl on the basis of the record at hand to use an overall accrual_method as determined by respondent petitioners’ final argument centers on the fact that diehl changed from the cash_method to an accrual_method years after the subject year in order to comply with sec_448 petitioner rationalizes on brief that requiring the change in the subject year is unreasonable offering no practical benefit to the fact that diehl’s business is product oriented rather than service oriented also distinguishes this case from honeywell v commissioner tcmemo_1992_453 affd aftr 2d 8th cir the primary case relied upon by petitioner there the court held that the taxpayer a servicer of computer equipment did not have to inventory the materials which it used in its businesses because those materials were incidental to its service-oriented business see also 113_tc_376 the government and is therefore an abuse_of_discretion we disagree the change for the subject year was neither unreasonable nor an abuse_of_discretion adjustments to prevent amounts from being duplicated or omitted were specifically required to be made in the first year in which diehl’s method_of_accounting was changed to an accrual_method see sec_481 sec_1_481-1 income_tax regs see also 114_tc_1 petitioner has failed to demonstrate that the commissioner’s determination was clearly unlawful or plainly arbitrary accordingly we hold that respondent did not abuse his discretion under sec_446 when he determined that diehl had to change from its hybrid method to an accrual_method all arguments for a contrary holding have been considered and have been rejected as meritless to the extent not discussed decision will be entered for respondent petitioner also notes that the commissioner had previously examined some of diehl’s earlier returns and had not changed diehl’s use of the cash_method on those returns petitioner suggests that the commissioner is estopped from making the sec_481 adjustment for the subject year we find this suggestion unavailing the fact that the commissioner had the opportunity to but did not change an improper method_of_accounting in an earlier year does not mean that he is estopped from making the change in the later year see 743_f2d_781 11th cir


department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx tax_exempt_and_government_entities_division number release date date oct person to contact identification_number telephone number in reply refer to last date for filing a petition with the tax_court uil certified mail - return receipt requested dear internal_revenue_code irc this is a final adverse determination regarding your exempt status under sec_501 of the to you dated september 20xx is hereby revoked and you are no longer exempt under sec_501 as an organization described in sec_501 of the irc effective december 20xx our favorable determination_letter our adverse determination was made for the following reasons you have not established that you are operated exclusively for an exempt_purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes as required by sec_1 50i c - k c i contributions to your organization are no longer deductible under sec_170 of the code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia before the 91st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory judgement you may write to the courts at the following addresses united_states tax_court second street nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc the taxpayer_advocate_service t1 s is an independent organization within the irs that can help protect your taxpayer rights we 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 our assistance which is always free we will do evelything possible to help you visit taxpayeradvocatc irs gov or call we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours mame qeoke maria hooke director exempt_organizations examinations enclosures publication h department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations date jun taxpayer_identification_number te form tax_year s ended person to contact employee d telephone fax manager's contact information employee id telephone response due_date certified mail - return receipt requested dear 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 described in intemal revenue code irc sec_501 c 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'llissue a final adverse letter determining that you aren't an organization described in sec_501 c for the periods above 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 ifyou disagree request a meeting or telephone conference with the manager shown at the top of thi sec_2 letter send any information you want us to consider file a protest with the irs appeals_office if you request a meeting with the manager or send additional information as stated in and above you'll still be able o file a protest with irs appeals_office after the meeting or after we consider the information the irs appeals_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 letter rev catalog number 809f 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 fast track mediation ftm referred to in publication the examination process generally doesn't apply now that we've issued this letter 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 if you disagree with the technical_advice decision you will be able to appeal this letter fn the irs anneals office as explained above a decision made in a technical_advice_memorandum however generally i is final and binding on appeais tf we don't hear from you if you don't respond te this proposal within s0ealentiar oe issue a final adverse determination_letter ee ys ‘rém the date of this letter we'll contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the rs 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 for 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 co go hooke lf maria enclosures form 886-a form_6018 ‘ director exempt_organizations examinations leiter rev catalog number 34809f form_8 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service issue whether an organization described in the internal_revenue_code irc sec_501 because of no operation or activity since december 20xx which includes subsequent year of the examination continues to qualify for exemption as facts following as a non-profit corporation on april 20xx for the purpose of the was incorporated under the laws of the state of the purpose of this corporation is to advance the nation's economic environmental and energy security by supporting local decisions to reduce petroleum consumption hereafter referred to as the the coalition was designated by the u s department of energy in 20xx to accelerate the use of vehicles powered by alternative fuels as a means to reduce dependence on imported oil improve regional air quality and promote economic development the scope of the coalition's work has expanded since its inception to include the promotion of other vehicle-related measures which support these purposes the coalition is a voluntary collaboration of public and private stakeholders dedicated to increasing the use of alternative_fuel vehicles and expanding the fueling infrastructure necessary to support these vehicles promoting other vehicle-related programs that result in decreased petroleum consumption and reduced emissions serving its members by providing research and technical assistance providing access to grant funds seeking incentives and identifying partnership opportunities providing opportunities for collaboration among members and regional partners leveraging resources of knowledge time and funding and setting the example through the leadership of its members and partners on september 20xx exempt from federal_income_tax as an organization described in sec_501 was recognized to be during telephone discussion on february 20xx the organization’s representative stated the organization had been trying to dissolve since 20xx law sec_501 exempts from federal_income_tax organizations which are organized form 886-acrev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office tax reg sec_1_501_c_3_-1 states that an organization may be exempt as an organization described in c if or more of the following purposes religious charitable scientific testing for public safety literary educational or prevention of cruelty to children or animals it is organized and operated exclusively for one tax reg sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section tax reg 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 revrul_58_617 1958_2_cb_260 jan rulings and determinations letters granting exemption from federal_income_tax to an organization described in sec_501 of the internal_revenue_code of to which contributions are deductible by donors in computing their taxable_income in the manner and to the extent provided by sec_170 of the code are effective only so long as there are no material changes in the character of the organization the purposes for which it was organized or its methods of operation failure to comply with this requirement may result in serious consequences to the organization for the reason that the ruling or determination_letter holding the organization exempt may be revoked retroactively to the date of the changes affecting its exempt status depending upon the circumstances involved and subject_to the limitations on retroactivity of revocation found in sec_503 of the code taxpayer’s position the organization’s representative declared that the organization has no operational or financial activities agent discussed revocation with the organization's form 886-a crev department of the treasury - internal_revenue_service page -2- form_8 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the ‘l'reasury - internal_revenue_service representative on february 20xx and he agreed to the proposed revocation as organization is no longer operating for an exempt_purpose government's position and conclusion as demonstrated in revrul_58_617 an organization’s exempt status will remain in effect only so long as there are no material changes in the character of the organization the purposes for which it was organized or its methods of operation in the case of abc inc the organization has been inactive for several years and there have been no activities conducted as such fails to meet the operational requirements to continue its exemption status under sec_501 therefore the effective revocation date will be december 20xx if you agree to this conclusion please sign the attached forms if you disagree please submit a statement of your position form 886-a crev department of the treasury - internal_revenue_service page -3-


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-121027-01 date date x a d1 year year dear this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in year a as the president of x represents that x intended to be an s_corporation beginning on d1 of year the resolution of the board_of directors of x evidences this intent however the form_2553 election by a small_business_corporation was not timely filed with the internal_revenue_service for year x filed a form_1120s u s income_tax return for an s_corporation 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 plr-121027-01 corporation for x’s year 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 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 x’s authorized representative sincerely yours shannon cohen assistant to the branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------ --------------------------- ------------------------------ ----------------------------------------------------- ------------------------------ in re ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number -------------------- refer reply to cc intl b06 plr-100126-11 date date ty ------- legend taxpayer company products accounting firm individual a date date date month ------------------------------ ------------------------------------------------ --------------------------------------------------------------------------------- ---------------------------- ------------------------- -------------------- -------------------------- ---------------------------- ------------------- dear -------------------- this responds to a letter submitted by accounting firm taxpayer’s authorized representative requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file a form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings given in this letter are based on facts and representations submitted by taxpayer and accounting firm and accompanied by penalty of perjury statements this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process plr-100126-11 facts taxpayer is a domestic_corporation company also a domestic_corporation is an affiliate of taxpayer that manufactures and exports products accounting firm is an accounting tax and consulting firm in month representatives of accounting firm met with individual a company’s cfo to discuss the tax advantages of forming an interest charge domestic_international_sales_corporation ic-disc as a result taxpayer was incorporated on date with the sole intention of qualifying and operating as an ic-disc on date company formally engaged accounting firm to assist in electing ic-disc status for taxpayer which included preparing form 4876-a on date accounting firm realized that form 4876-a had not been filed with the service on behalf of taxpayer this was due to a procedural oversight on the part of accounting firm by that time the due_date for filing a form 4876-a for taxpayer’s first taxable_year had passed taxpayer has requested a ruling that grants an extension of time to file form 4876-a so that taxpayer can be treated as an ic-disc for its first taxable_year law and analysis sec_992 of the internal_revenue_code code provides that an election by a corporation to be treated as a disc shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on the first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time plr-100126-11 under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is 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 for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government in the present situation the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year caveats the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be filed with the form 4876-a and shareholder consent statements 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-100126-11 in accordance with the power_of_attorney on file with this office a copy of this letter is being furnished to your authorized representative sincerely christopher j bello chief branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc