internal_revenue_service number release date index numbers ------------------ ---------------------------------- ----------------------- --------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc corp b05 plr-125440-18 date november legend parent date date company official tax professional dear ----------- ----------------------- ------------------------ --------------------------- ------------------------ ------------------ ---------------------------------- ----------------------- ----------------------- ---------------------------------------------------------------- ----------------- ----------------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election the extension is being requested for parent to make an election under sec_1_1502-21 to relinquish the entire carryback period for the parent consolidated group’s consolidated_net_operating_loss cnol for the tax_year ending date the election additional information was submitted in a letter dated date the material information submitted for consideration is summarized below plr-125440-18 parent is the common parent of a consolidated_group parent group the parent group sustained a cnol in the tax_year ending on date parent intended to relinquish the carryback period for its consolidated group’s cnol on its tax_return for the tax_year ending date all returns for the parent group were filed consistent with a valid election having been made however for various reasons a valid election was not filed after date the date that the election was due it was discovered that a valid election was not filed subsequently this request was submitted for an extension of time to file a valid election parent has represented that the parent group has not and will not carry back any portion of the cnol for the tax_year ending date to a prior consolidated_return_year of the parent group parent has also represented that no member of the consolidated_group of which parent was the common parent for the tax_year ending date had a separate_return_year within the meaning of sec_1_1502-1 at any time during the carryback period parent has further represented that parent is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time parent requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and for which the new return position requires or permits a regulatory election for which relief is requested sec_1_1502-21 provides that a consolidated_group may make an irrevocable election under sec_172 to relinquish the entire carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21 also provides that the statement must be filed with the group’s income_tax return for the consolidated_return_year in which the loss arises under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably plr-125440-18 and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 b i therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for parent to file the election provided parent establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on the taxpayers’ parent and the members of its consolidated_group tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved parent must file the election in accordance with sec_1_1502-21 the parent group’s return for the tax_year ending date having been filed consistent with a valid election having been made must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter must be attached to the election statement alternatively if the parent group files its returns electronically parent may satisfy this requirement by attaching a statement to its return that provides the date on and control number of this letter_ruling we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling plr-125440-18 for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official and tax professional however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in the office copies of this letter are being sent to your authorized representatives sincerely _ken cohen____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c summary opinion united_states tax_court patricia a and jerry frazier petitioners v commissioner of internal revenue respondent docket no 15737-05s filed date patricia a and jerry frazier pro_se john p bampfield and nancy w hale for respondent wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any 1all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure other court and this opinion should not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for the issues we must decide are whether petitioners are entitled to deductions claimed on schedule a itemized_deductions in excess of dollar_figure whether the petitioners are entitled to deductions claimed on schedule c profit or loss from business and whether a notice cp21a respondent sent to petitioners notifying them that an error in their account had been corrected and that due to the change they now owed dollar_figure estops respondent from assessing any additional tax for taxable_year background at the time they filed their petition petitioners resided in tennessee some of the facts and certain exhibits have been stipulated we incorporate the parties’ stipulations of fact in this summary opinion and the parties’ stipulations of fact are found accordingly petitioners filed a federal_income_tax return for taxable_year respondent mailed to petitioners a statutory_notice_of_deficiency for the tax_year on date petitioner jerry frazier mr frazier is an employee working in maintenance and petitioner patricia a frazier ms frazier is a customer service representative for federal express corp mr frazier also is in the lawn mowing business and filed a schedule c for that business petitioners claimed schedule a deductions of dollar_figure of that amount respondent disallowed the following expenses because of lack of substantiation expense amount medical and dental dollar_figure after 5-percent limitation big_number cash charitable_contributions big_number noncash charitable_contribution sec_280 other unreimbursed employee business_expenses mr frazier big_number ms frazier big_number total big_number tax preparation fees uniforms big_number total other big_number after 2-percent limitation big_number the unreimbursed employee business_expenses for mr frazier consist of mileage of dollar_figure and business_expenses of dollar_figure the unreimbursed employee business_expenses for ms frazier consist of mileage of dollar_figure and business_expenses of dollar_figure petitioners did not offer any credible substantiation for the schedule a deductions respondent disallowed on petitioners’ schedule c for the lawn mowing business petitioners claimed deductions for bad_debts utilities taxes and licenses supplies rent advertising and car and truck expenses on schedule c for petitioners claimed the following expenses for which respondent disallowed a deduction expense amount bad_debts from sales or services dollar_figure utilities big_number taxes license sec_80 supplies rent lease other business property big_number rent lease vehicles machinery equipment big_number advertising car and truck expenses big_number petitioners did not offer any credible substantiation for the foregoing schedule c expenses discussion the deficiency determined by respondent in the notice_of_deficiency is presumed correct and petitioners have the burden of proving the notice_of_deficiency is in error see rule a 290_us_111 i schedule a deductions a medical and dental expenses sec_213 permits a deduction for medical and dental expenses to the extent the expenses exceed percent of 2petitioners do not claim the benefit of sec_7491 moreover sec_7491 does not shift the burden_of_proof to respondent because petitioners failed to maintain records or comply with substantiation requirements as required by sec_7491 and b adjusted_gross_income petitioners did not substantiate by credible_evidence the amounts claimed for medical and dental expenses on their tax_return b charitable_contributions sec_170 permits a deduction for any charitable_contribution as defined in sec_170 if the contribution is verified as prescribed in the regulations under sec_1 170a- income_tax regs for each charitable_contribution of money taxpayers are required to keep a canceled check a receipt from the donee or some other reliable written record sec_1_170a-13 income_tax regs for nonmonetary contributions taxpayers are required to keep a receipt showing the name of the donee the date and location of the contribution and a description of the property contributed sec_1_170a-13 income_tax regs petitioners did not substantiate by credible_evidence the amounts claimed for charitable_contributions on their tax_return c unreimbursed employee business_expenses sec_162 permits a deduction for ordinary and necessary business_expenses to the extent the expenses are related to a vehicle or meals and entertainment petitioners must meet the substantiation requirements of sec_274 the expenses petitioners claimed are primarily related to a claimed business use of their vehicles sec_274 requires that expenses related to listed_property which includes passenger automobiles used for transportation be substantiated by providing an adequate record of the following elements of the expense the amount of the expense the time of the expense the business or investment purpose and the business or investment use sec_1_274-5t temporary income_tax regs fed reg date under sec_1_274-5t temporary income_tax regs fed reg date an adequate record requires that the taxpayer maintain a logbook and documentary_evidence such as receipts paid bills or similar evidence that in combination are sufficient to establish each element of the expense petitioners have not substantiated the claimed unreimbursed employee business_expenses in accordance with sec_162 and sec_274 d tax preparation fees sec_212 permits a deduction for costs incurred in the preparation of a tax_return petitioners have not substantiated that they paid for the preparation of their tax_return e work attire uniforms sec_162 permits a deduction for work_clothes or uniforms required as a condition_of_employment when the clothing is not suitable for general or personal wear and is not worn for general or personal purposes 30_tc_757 petitioners have not established that the requirements for deductibility have been met ii schedule c deductions a bad_debts from sales or services in the case of a noncorporate taxpayer sec_166 permits a deduction for a business debt that becomes worthless during the taxable_year sec_166 d a to qualify for a deduction under sec_166 the taxpayer must establish that the debt was included in the taxpayer’s income sec_1_166-1 income_tax regs additionally the taxpayer must prove that the debt is worthless sec_166 petitioners have failed to establish that the amounts claimed as bad_debts were reported as income in taxable_year or a prior taxable_year moreover petitioners have not established that the amounts claimed as bad_debts were worthless b utilities taxes licenses supplies rent advertising sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business to qualify as a deduction the expense must not be capital sec_263 sec_6001 requires taxpayers to maintain adequate books of account or records that are sufficient to establish the amount of gross_income deductions or other matters required to be shown by such persons on their tax_return the taxpayer has the burden of proving that the amounts claimed as deductions satisfy the requirements of sec_162 and sec_212 or are otherwise allowable as a deduction rule 290_us_111 petitioners offered into evidence a copy of an invoice from national pen corp for the purchase of pens the invoice is addressed to jerry t frazier frazier frazier lawn service is dated date and reflects a balance due of dollar_figure petitioners did not offer into evidence any credible proof of payment or of the business_purpose of the purchase petitioners offered into evidence a copy of an invoice stating that an order was placed for a storage building to be built at their residence the invoice is dated date and reflects that the total cost is dollar_figure the invoice states that the total cost is due upon completion of the work petitioners did not provide proof of payment and did not establish the business_purpose of the claimed storage building petitioners also provided a copy of an invoice for the purchase of pens petitioners did not establish proof of payment or the business_purpose of the purchase c utilities with respect to utilities petitioners provided a summary of their water bill for and a summary of their monthly electricity charges for the city of munford petitioners claim that the utility shed used the same amount of electricity and water as their residence and that the claimed deduction for utilities reflects the business portion of the utility expenses petitioners did not establish the business_purpose of the shed when the shed was built or the business portion of the utilities d car and truck expenses under sec_162 automobile expenses are deductible if the automobile is used in connection with a trade_or_business or in connection with an income-producing activity sec_1_162-2 income_tax regs additionally sec_274 requires that expenses related to listed_property which includes passenger automobiles used for transportation must be substantiated by providing an adequate record of the items set forth pursuant to sec_1_274-5t temporary income_tax regs supra sec_1_274-5t temporary income_tax regs supra requires an adequate record which means that the taxpayer must maintain a logbook and documentary_evidence such as receipts paid bills or similar evidence that in combination establish each element of the expense petitioners did not offer any credible_evidence substantiating their car and truck expenses in sum petitioners have failed to prove that they are entitled to any deductions beyond the amounts respondent allowed in the notice_of_deficiency iii notice cp21a the court set the instant case to be called for trial on date in memphis tennessee according to respondent on monday date petitioners signed a decision document prepared by respondent conceding a dollar_figure income_tax_liability the amount of the determined deficiency for tax_year and respondent signed the decision on date at the calendar call respondent’s counsel stated that because of the proximity to the date of the trial respondent brought the decision to the calendar call for filing however during the calendar call respondent discovered a typographical error in the decision document which incorrectly showed the tax_year as rather than during the calendar call petitioners appeared and stated that they did not wish to be bound by the decision they signed because they claimed respondent had conceded all issues in the tax_court proceeding by sending notice cp21a which they received on the preceding friday or saturday apparently this was the first time petitioners raised the concession issue with respondent notice cp21a informed petitioners that respondent changed their account for tax_year by crediting petitioners dollar_figure plus interest which was the amount of the deficiency in issue notice cp21a was admitted into evidence the transcript of petitioners’ account shows an additional tax assessed by examination on petitioners’ tax_year account of dollar_figure made on date which is after the date petitioners filed their petition with this court for the same year that assessment was based on the deficiency respondent determined in the date notice_of_deficiency for the taxable_year the assessment was made during a time in which it was prohibited under sec_6213 on date petitioners were credited dollar_figure described as prior tax abated the purpose of that action was to reverse the unlawful assessment made on date the record establishes that an improper assessment of dollar_figure was made on the petitioner’ sec_2002 tax_year account after they filed their petition with this court seeking a redetermination of a deficiency for tax_year in the same amount within a few days of petitioners’ receipt of notice cp21a an abatement of prior tax of dollar_figure was credited against petitioners’ account for taxable_year in order to remedy respondent’s erroneous premature assessment of the same amount accordingly we hold that notice cp21a does not prevent respondent from assessing the tax in issue consequently we uphold respondent’s determination in the notice_of_deficiency to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index numbers washington d c person to contact telephone number refer reply to cc psi 3-plr-111622-01 date date legend board llc state d1 d2 dear we received your letter dated date and subsequent correspondence and submissions requesting a ruling on behalf of llc that the income of llc is excluded from gross_income under sec_115 of the internal_revenue_code code alternatively your letter requests a ruling that llc is a disregarded_entity under sec_7701 of the code this letter responds to your request facts llc was formed on d1 as a state limited_liability_company llc’s sole member is board an agency of state recognized as an organization described in sec_501 board’s income is excluded from gross_income under sec_115 board’s purpose is to provide professional investment management of various trusts established under the laws of state board has broad authority under state law to manage and invest sell plr-111622-01 reinvest and collect income and rents to employ outside counsel and contractors and to acquire manage and sell real_estate the attorney_general of state has determined that board has the authority under state law to authorize the formation of llc and to purchase real_estate and other equities through llc llc’s organizing documents provide that llc’s purpose is to acquire hold and eventually sell certain real_property currently owned by board board llc’s sole member entered into an operating_agreement with respect to llc with a real_estate management company llc’s organizing documents provide that any person may become a substitute member by acquiring an interest from board the organizing documents provide that upon dissolution the cash and other assets of llc after payment of expenses will be distributed to the member effective d2 llc amended its organizing documents to provide that llc’s membership is limited to a state a political_subdivision of a state or an entity whose income is excluded from gross_income under sec_115 as long as board is a member llc’s operating_agreement was also amended effective d2 to provide that the agreement was between llc and board law and analysis sec_115 provides that gross_income does not include income derived from the exercise of an essential_governmental_function and accruing to a state or any political_subdivision thereof revrul_71_589 1971_2_cb_94 provides that the income from property held in trust by a city which was to be used by the city for certain charitable purposes is not subject_to federal_income_tax although revrul_71_589 does not explicitly so state its holding is based on a determination that the income in question was derived from the exercise of an essential_governmental_function and accrued to a political_subdivision within the meaning of sec_115 revrul_71_589 specifically mentions several types of functions that the trust might perform such as support of a hospital schools maintenance of a park or other purposes ordinarily recognized as a municipal function revrul_77_261 1977_2_cb_45 holds that income from a fund established under a written declaration of trust by a state for the temporary investment of positive cash balances of a state and its political subdivisions is excludible from gross_income under sec_115 revrul_77_261 reasons that the investment of positive cash balances by a state or political_subdivision thereof to receive some yield on the funds until needed to meet expenses is a necessary incident of the power of the state or political_subdivision to collect taxes and raise revenue revrul_77_261 points out that congress did not desire in any way to restrict a state’s participation in enterprises which plr-111622-01 might be useful in carrying out those projects desirable from the standpoint of the state government which on a broad consideration of the question may be the function of the sovereign to conduct revrul_90_74 1990_2_cb_34 concerns an organization that is formed operated and funded by political subdivisions to pool their casualty risks arising from their obligations concerning public liability workers’ compensation or employees’ health revrul_90_74 states that the income of the organization is excluded from gross_income under sec_115 if private interests do not participate in the organization or benefit more than incidentally from the organization in revrul_90_74 the benefit to the employees of the political subdivisions was excepted as incidental furthermore upon dissolution the organization will distribute its assets to its members therefore the income of the organization accrues to a political_subdivision within the meaning of sec_115 llc plans to engage in investment activities that board is authorized under state law to engage in directly llc’s sole member board formed llc to purchase real_estate and other equities therefore based on revrul_71_589 rev_rul 77-261and revrul_90_74 the income of llc is derived from an essential_governmental_function membership in llc is limited to a state a political_subdivision of a state or an entity whose income is excluded from gross_income under sec_115 as long as board is a member further upon dissolution llc’s assets less expenses will go to the member the amended operating_agreement is between llc and the board effective d2 the date of the amendments to llc’s organizing documents llc’s income is excluded under the sec_115 accrual test however if board is no longer a member of llc and llc has a member that is not a state a political_subdivision of a state or an entity whose income is excluded under sec_115 llc will not satisfy the sec_115 accrual test and llc’s gross_income will not be excluded from gross_income under sec_115 conclusion based on the information submitted and representations made we conclude that the income of llc is excluded from gross_income under sec_115 effective only on and after d2 the date llc’s organizing documents were amended to satisfy the sec_115 accrual test for purposes of sec_115 an organization’s income is excludible from gross_income from the date the necessary changes are made to an organization’s organizing documents and do not relate back to d1 the date of llc’s organization however if board is no longer a member of llc and llc has a member that is not a state a political_subdivision of a state or an entity whose income is excluded under sec_115 llc will no longer satisfy the sec_115 accrual test plr-111622-01 based on revrul_78_316 1978_2_cb_304 llc classified as a corporation subject_to tax under subtitle a of the code is required to file a federal_income_tax return under sec_6012 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code more specifically we express or imply no opinion regarding whether llc is a disregarded_entity under sec_7701 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 a copy of this letter must be attached to any income_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 the taxpayer’s representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s christine e ellison chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ----------------------------------------- ----------------------------------------------- -------------------------------------- --------------------------- -------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-152010-05 date date --------------------- ---------------------- ----------------------------------------- legend legend x -------------------------------------------------- country d dear -------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152010-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152010-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes cc


internal_revenue_service number release date index number - ------------------- ------------------------------ ----------------------------- ------------------------------- - department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-130075-03 date date ------------------------- ------------------------ ------ ---------------- x y --------------------------------------------------- z --------------------------------------------------- country date dear -------------- ----- --------------------------- ---------------------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x y and z requesting a ruling that x y and z each be given an extension of time under ' of the procedure and administration regulations to file an election under sec_301_7701-3 the information submitted states that x is an entity formed under the laws of country y a wholly owned subsidiary of x is an entity formed under the laws of country z a subsidiary of y is an entity formed under the laws of country it was intended that x y and z each file form_8832 entity classification election effective on date however x y and z each inadvertently failed to file form_8832 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as plr-130075-03 an association_taxable_as_a_corporation if all members have limited_liability unless the entity has a single member and makes an election to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if the entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed sec_301_7701-3 provides that when elections under sec_301 c i for a series of tiered entities are effective on the same date the eligible entities may specify the order of elections on form_8832 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a based solely on the information submitted we conclude that x y and z each have satisfied the requirements of and as a result x y and z are each granted an extension of days from the date of this letter to make an entity classification election under sec_301_7701-3 each entity classification election should be made by filing form_8832 with the appropriate service_center additionally in accordance with sec_301_7701-3 the entities may specify the order of the elections of x y and z and may deem the order to be for instance from the bottom tiered entity to the top tiered entity on form_8832 a copy of this letter should be attached to each form_8832 a copy is enclosed for that purpose plr-130075-03 except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the internal_revenue_code provides that it may not be used or cited as precedent being sent to x 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


department of the treasury internal_revenue_service te_ge eo examinations commerce street mc oal dallas tx tax_exempt_and_government_entities_division number release date date jun27 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 this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated march 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx 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 c - i c you have operated for the benefit of a private interest you have operated in a manner consistent with a commercial enterprise 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 inust initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court 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_judgment 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 tas 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 everything possible to help you visit taxpayeradvocate 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 eo jgrae pring ee a oleaceke na ee publication enclosures maria hooke director exempt_organizations examinations department of the treasury internal_revenue_service tax_exempt_and_government_entities_division irs exempt_organizations examination date taxpayer number form tax periods onded peracn to contact employee id number telephone number fax manager's contact information employee id number telephone nuraber 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 internal_revenue_code irc sec_501 if you agree if you haven’t already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issuc-a final adverse letter determining that you aren't an organization described in irc section dollar_figure c for the periods above afier we issue the final adverse determination_letter we'll announce that your organization is no longer eligible to receive tax deductible contributions under sec_170 if you disagree request a meeting or telephone conference with the manager shown at the top of this 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 and above you'll still be able to file a protest with irs appeals_office after information as stated in he 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 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 catalog number 34809f letter rev 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 becn treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of this letter ifyou disagree with the technical_advice decision you will be able to appeal to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right ‘the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www laxpayeradvocate irs gov or call additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs gov forms-pubs or by calling 800-tax-form if you have questions you can contact the person shown at the top of this letter sincerely maria hooke director exempt_organizations examinations enclosures form 886-a form_6018 catalog number 34809f letter rev rev date schedule number or exhibit form 886-a explanations of items name of taxpayer year period ended december 20xx december 20xx tax identification_number issue is the organization operated primarily for exempt purposes as required to qualify for exemption under internal_revenue_code sec_501 facts background the organization under auditis injune20xx c effective june 20xx the organization applied for and received public charity status as an organization described in sec_509 and sec_170 the organization was incorporated in received tax-exemptstatus as a charity under internal_revenue_code irc section was directed by uncompensated board members all operational work was contracted toa service provider and to the accounting firm secretary of state business records show that was incorporated in april 20xx a letterwassent march21 20xx adding 20xx tothe organization's the audit was conducted with accountingfirm audit and requesting information about the additional year repliedinaletter dated may 20xxx that expanding the audit was not warranted inajune 20xx letter he requested 20xx items be removed fromthe march document request orthat areasonable explanation justifying openinga subsequent year be provided documentation relating to authorized representative and employee of operations in 20xx was not provided 20xx form990 primary activity was providing a web-based platform that enabled sports teams primarily college-level to run fundraising campaigns touched and over fundraising campaigns have been conducted using this web-based fundraising platform stated that over o schools have been application_for charitable status planned exempt_purpose and activities application_for exempt status described the organization's planned purpose and activities in part iv the applicant provided a narrative description of past present and planned activities this included the following intends to provide educational information to the public by raising awareness about community needs and benefits gained from supporting organized amateur athletics and other activities inthe school environment oo form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_1_ schedule number or exhibit ren explanations of items name of taxpayer year period ended december 20xx december 20xx will foster programs meant to provide the opportunity for successful extra-curricular youth high oo tax identification_number oo oo o school andcollege sport programs and other programs plans to raise tax exempt monetary donations and monetary pledges from the general_public in orderto provide resources to qualified schoolorganizationalprograms and youth programs that would benefit from additional funding will conduct fundraising through its officers and directors using e-mail and person-to- person contact support will be provided to local youth organizations high schools and colleges throughout communities within the united_states in part viil question the applicant described how its grant program furthered the organization's exempt_purpose has been established to provide much needed funds to organizations that assist in the overall development and education of youth high school and college students distributions to education-related organizations benefits the recipients by helping them achieve theirgoals of educating youth both intellectually and socially by providing funds to various and different types of organization including but notlimited to school athletic boosterclubs drama club science club rotc recipients provide youth with experiences thatcome from interacting with others ina structured environment in follow up correspondence dated february 20xx the determinations agent asked your activity is raising and providing funds for the purposes of c however funding is not really youractivity because fundraising is done by acontractor whatis yourexempt purpose activity replied our exempt_purpose activity is to provide educational information to the public about the community needs and benefits gained from supporting organized amateur athletics and otheractivities for students and athletes the educational information raises the public awareness of the role amateur athletics and other activities paly in building a responsible and capable society as stated inthe articles of incorporation the specific purpose of this corporation is to promote educational programs for students and athletes and to carry on other activities associated with this goalas allowedbylaw these activities shallinclude the instruction ortraining ofindividuals for the purpose ofimproving ordeveloping their capabilities or the instruction ofthe public on subjects useful to individuals and beneficial to the community planned control of funds in part iv narrative description of activities included the following form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_2_ schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx december 20xx tax identification_number will also have afull-time presence on the internet which will allow individuals the o opportunity to provide direct support to their local regional or national fundraising efforts and goals by which qualifying_organization allows a contributor to specify or generally direct how their contribution is to be utilized and o in part vi the applicant described exempt-purpose activities which involved providing funds to organizations specific individuals or groups of specific individuals goal of supporting specific organizations each donor is given the in order to meet will be allowed to fund with opportunity to particularly designate which qualified organizations that particular donor's gift forexample the _ internet site will provide prospective donors with the opportunity to direct their donation toa particularly identified recipient organization in part viii question described the operations of the fundraising program will maintain separate_accounts for each contributor who advises that a particular organization orentity is to be the lawful recipient of the funds they contribute to each contributor who identifies a specific use s oftheircontributed funds willbe allowed toadvise and suggest whether a general gift should be made toaparticular organization and ifnot then howthe contribution isto be allocated between or among any number of identified organizations in part viii question the applicant wrote retains records of each distribution recording the amount and date of the distribution in follow up application correspondence dated february 20xx the determinations agent asked a501 c tax exemptorganization musthave control overthe moneyitreceives andthen uses for its charitable educational or scientific purposes without inuring the funds to individuals donors may suggest but notcontrol the use of funds they donate please clarify how you will control the payoutofcontributions gifts andgrants when the donors wish otherwise responded receives contributions from the public to support its educational activities regarding youth high school and college amateur athletic programs and other activities donors can suggest a particular school oramateur athletic program that they believe deservesthesupportof canmerelysuggest notcontrolhow __ allocatestheraisedfunds __ butthedonor planned relationship with in part vill question described relationships with professional fundraisers form886-a catalog number 20810w page_3_ _publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx has a written contract with developed a computer_program that purposes aprivate company wherein will license and utilize for internet fundraising in response to follow up questions from the determinations agent responded there is noupperlimitcap in fees paid to because they are paid a percentage of actual funds raised each program is set up asa separate fundraising event and the percentage is projected to covercost and is below market there isno excessive paymentto relationship with recipient organizations in response to part viii question wrote maintains an ongoing relationship with every recipient organization members of the recipient organization have an affirmative responsibility to report use of funds for purposes not described in the website uses software that requires each recipient organization to identify and describe how they intend to utilize the contributed funds exercises no control of influence over the recipient organizations many of the organizations origination and there isnoanticipated thatreceive distributions were established priorto overlap between members of those existing organizations and purpose and activities the purpose for which was granted tax-exempt status was o to provide educational information to the public about the need for and benefit of supporting organized amateur athletics and other activities for students and athletes tofoster support and promote educational programs for students and athletes the planned activities to support this purpose included o o theinstruction or training of individuals for the purpose of improving or developing their capabilities theinstruction of the public on subjects useful to individuals and beneficial to the community online fundraising to support specific schools youth organizations and amateur athletic programs as suggested by the contributors audit year activities ranavery lean electronic- and internet-based service which helped clients run fundraising campaigns stated that clients were generally college sports teams although the review of the form886-a catalog number 20810w page_4 _publish no irs gov department of the treasury-internal revenue service schedule number of exhibit form 886-a rev date explanations of items tax identification_number name of taxpayer year period ended december 20xx december 20xx gl indicated a significant number of high school sports teams as well the interview with found stated that it was accurate the following activities this list ofactivities was reviewed with during the auditandhe o o o o o o oo o o o website as wellas allrelated supportservices teams coaches using provided easy-to-use on-demand and targeted fundraising tools to college-level sports teams maintained contractual relationship with provided the fundraising platform for use on signed anend user license agreement directly with received donations on behalf of fundraising coaches teams retained of donations raised by coaches teams electronically remitted of donations received to hired cutting monthly remittance checks to teams coaches on behalf of interacted with teams coaches high school athletic community so coaches tended to reach out to sent occasional bulk emails to coaches who had opted-in to receive messages confirmed charitable status of fund raisers who used fundraising tools tohandle accounting needs including receiving the occasional check donation and not with said that for fundraising tools was well-known in the college and uncompensated officers directors of provided sporadic training on administrative skills needed forrunning asports team and occasionally offered clinics on specific athletic skills to teams based on the time motivation and interest of the officers and of the teams coaches held annual board meeting these activities can be summarized as fundraising tools and support services provided access to occasionally interacted with teams coaches confirmed charitable status of teams coaches sporadic training for teams coaches annual boardmeeting documents reviewed during the audit confirmed that there was an annual board meeting and that had a contractual relationship with teams coaches no evidence was observed that showed interaction between officers directors and teams coaches or that the org confirmed the tax-exempt status of the recipient orgs who then contracted directly with the fundraising stated that activities remained largely unchanged since inception website the policy relevant to electronic and online data and communication website uses text from the organization's organizing documents and adds a privacy form 886-a department ofthe treasury-internal revenue service catalognumber20810w publish no irs gov page_5_ schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx december 20xx tax identitication number the begins by saying committed to safeguarding you your participants and website describes in detail how the web-based fundraising platform works the faq __ are deeply _ and our non-profit partner privacy online writes in response to the question are donors contributions tax deductible unequivocally yes program via a qualified 501_c_3_organization ships ordonations always are directed to the intended inresponseto another question every month will remit your funds securely writes you'll ove us like ourclientsdobecauseonthe _ of another question asks how safe isitto donate online with the industry's most robust ssl encryption throughout its website and database -_- responds _- deploys the final faq asks will and share our personal information with any third-party thedemovideo describing the tax-deductible the receipt lists the nonprofit donation was made the date and amount of donation and the donor information the fine print says __ afederalnon-profit501c3 product includes an image of a receipt showing the donation tobe the program and organization for which the your sponsorship has been processed by corporation proceeds will be distributed to inyourname this willensure you receive the maximum_tax benefit for you generous sponsorship please rememberthatthis charge on yourbankorcreditcardstatementwillreflecta check clearance to ora charge from on behalf of donations to when asked fora copy ofthe letter given todonors fortheirtax records asample confirmation emailwas provided itread upon your donation you will receive a thank you email receipt thatmay be used for tax purposes please consult your tax preparer for any questions regarding non-profit donation deductions no goods or services were received in connection with this donation despite giving an acknowledgment letter to donors the organization did not record donations as income tothe organization fundraising services agreement between and the contract between contract begins with the following recitals and provided was effective july 20xx until july 20xx the form 886-a catalog number 20610w page_6_ publish no irs gov department of the treasury-intemal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx whereas isanonprofit public benefit corporation formed andoperated forcharitable and educational_purposes including but not limited to raising donated funds that will be distributed to qualifying organizations meeting the criteria for furthering educational and athletic programs for youth high school and college students and athletes whereas chantable purposes __isaforprofit corporation engaged in the business of commercial fundraising for whereas subjecttotheterms ofthis agreement desires to engage in fundraising activities on behalf of desirestoengagetheservicesof and the terms of the contract provide that activities for and solicitations trademark in fundraising on behalf of at least every three months records will include a contribution history for each donor will use its online software applications to conduct fundraising willconductall of itsown sales and solicitation activity inconducting sales willmaintain records and will provide them to willstate that they represent name and may use controloffunds each contribution made byadonoror directlyto beheldintrustfor andshallbedeliveredto -_ anycontributionmade byadonoror shallbe delivered electronically inadvertently deliveredto shall within zero working days of its receipt by for service inexchange for fundraising and software services provided under this agreement a fixed fee inthe amount of opercent of total contributions raised and actually received fees shall pay by distribution of contributions received from all donors and shall retain percent of total contributions raised and actually the agreement was signed by secretary and ceo end user license agreement between and fundraising client perthefundraising services agreement individualagreements with each user usually schoolsports teams acopy ofasample end user license agreement for 20xx was provided the agreement was applicable to any user who clicked the 'accept' button when logging into the conducts allfundraising for online system makes the agreement granted the coach team use of the agreement included software to fundrdise through the website oo aninternet-based sponsorship environment to be used for fundraising by the team coach internet-accessibledatabase management tools form 886-a department of the treasury-intemal revenue service catalog number 20810w _publish no irs gov page_7_ schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx december 20xx o tax identification_number recordkeeping of each fundraising transaction inthe account account andtechnical support via phone online chat or email paymentoffees allfees payable to corporation and partner with no greater than thirty percent as negotiated between the program administratorand _ this percentage will be available through the system accessible by the program administrator at any time before during or afterthe fundraiser begins __ will be expressed as apercentage of gross funds raised and will be atax exempt nonprofit public benefit will accept and retain funds raised and remit the percentage agreed upon by the client _ each fundraiser percentage will be approved prior to each fundraiser by authorized sponsorship remittance inexchange for youruse ofthe software and services offered under this agreement and personneloftheclientand who contributes to your fundraising program willbe remitted bythe dayofthenextmonth all remittances will be electronically deposited into licensee's financial_account the software will account for all sponsorships submitted to your accounts during each sponsorship campaign _ the designated percentage ofallfunds collected from each checksreceivedbylicensee during the course ofthe campaign and orasaresultofthe campaign the licensee receives hand-written checks the licensee is required to send the checks to where thecheckswillbemanuallyinputintothe systemandincludedinthe according sic remittance disbursement unless deductible receipt receives the written checks your sponsor s will not receive a tax- audit year remittance amounts the fee percentages have been updated since these agreements were created in 20xx and 20xx they were o o o o tothe fundraising team coach fee to o retained by had no discretion over who received the funds raised allwere based onthese contracts distributed per the contracts coaches teams ran their own campaign using the donor network rather than to individual athletes per the contracts transaction and provided that information to the users and to stated thatthe teams coaches liked thatthe money raised wenttothe team maintained records of each fundraising software and their own financial records in audit years the three most recent years' income statements taken from the filed form 990s show the following form 886-a department of the treasury-internal revenue service catalog number 20810w _publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items year period ended december 20xx december 20xx tax identification_number name of taxpayer table filedforms 990income statement 20xx 20xx income program service revenue investment_income uncleared payments expense accounting legal fees advertising office expenses payments to bank charges payment processing taxes and licenses dues and subscriptions maintenance other printing postage shipping misc dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure oo o o net profit dollar_figure dollar_figure dollar_figure stated that program service revenue represented the of gross_income retained by stated that the near-doubling of revenue from 20xx to 20xx reflected the natural handled all bookkeeping needs including cutting and mailing growthi in the business and increasing efficiency in operations the business had not yet reached the saturation point hesaid accounting fees were paid to disbursement checks recording and depositing mailed fundraising checks and paying any unusual ornon-automatedexpenses alsopreparedannualreturns aboutdollar_figure of theprofessional fees in20xxwerepaidto speculated that the advertising cost recorded on the 20xx during anaudit meeting fee he refused to answer the same question in writing when the form_990 was actually the question was proposed inadocument request sentin march 20xx but he did say that there was no adverting expense in 20xx andaboutdollar_figurewas paid forlegalservices o theexpenseto reported on the 20xx form_990 was in addition to the fee payable to fee was recorded onthe balance_sheet as an account_stated that the payable schedule o indicated that the expense ontheincomestatementwas for form 886-a catalog number 20810w page_9_ pub ish no irs gov department of the treasury-internal revenue service form886-a rev date name of taxpayer explanation of items tax identification_number schedule number or exhibit year period ended december 20xx december 20xx information_technology an analysis of the gl confirmed that these payments to addition to the monthly fee payment processing was credit card fees which typically run pincite of sales processed bank fees grew over the three years as business grew gross_sales were notrecorded ontheincome statement so a direct relationship between income and credit card fees cannot be made were in also refused to explain why there was a maintenance expense of dollar_figure in 20xx but none o in other years distribution of gross_income and payments to the fundraising sports teams were not recorded on gross_income payments to the income statement but rather as balance_sheet transactions per the agreements described above all income fundraised by the teams coaches was received by remitted electronically to the sports teams this amount was recorded onthe balance_sheet as acash asset and as an account payable the fee described the automated electronic system as very lean and managed lightly onamonthly basis was was handled the same way advised that adding all deposits recorded in the bank statements would show gross_income since donations to the clients were the only source ofincome table calculation of gross_income received 20xx description amoun total annual deposits checking checking savings savings dollar_figure dollar_figure dollar_figure dollar_figure remove internal transfers xx xx xx xx xx xx xx xx to tod to to to to to savings to interest_income gross_income dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-a catalog number 20810w page_10_ pubj ish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax ‘dentification number year period ended december 20xx december 20xx this approximates deposits recorded inthe gl total deposits recorded in the gl were dollar_figure before internal transfers a comparison of total gl deposits and total bank_deposits finds a discrepancy of about dollar_figure or o based on this gross_income expected allocations would be table expected distributions based on bank statement income to teams fee income rate dollar_figure dollar_figure dollar_figure dollar_figure expected income recorded onthe form 990was dollar_figure making adifference of dollar_figure the gl amount for income matched the form_990 gltotals forthe distributions the gl indicated that amounts remitted to passed ontothesports teams were lower than the contracted amount fee and funds raised returned totheteams coaches did notmatch expected were higher than and amounts table distributions per gl rate gl amount to sports teams fee income additional payments to dollar_figure dollar_figure dollar_figure dollar_figure the gl showed thatthe monthly fee to form990incomestatementas information_technology and which fee was actually a different monthly fee paid to totaling dollar_figure totaled dollar_figure the glrevealed thatthe dollar_figure recorded onthe thought might be the the gl also founda third group of payments to table summary of gl payments to monthly payments to payments for services to other_payments to s a a f d s o o o o form 886-a publish no irs gov department of the treasury-internal revenue service catalog number 20810w page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx december 20xx tax identification_number the additional monthly payments for services to through december these payments for services included two unusualtransactions whenaskedfora written explanation of certain large expenses including these two withdrawals are either vendor bill payments or donation disbursements generally averaged dollar_figure each month from april replied allofthese the first unusual transaction was a march 20xx bank originated debt of dollar_figure thememoonthegl entry for this transaction said 20xx-20xx the supporting documentation for this withdrawal indicated that it was abank originated debt requested by customer anaccountantwith month cut usual monthly payment the glwith the othermonthly payments to was __ thefirmwhichprovided allbookkeeping services forthe organization inthe next in addition tothe for services dollar_figure in april20xx both ofthese unusual checks were included on acheck for dollar_figure withthe memoline services this check was asacostofgoods sold the other_payments to were four checks dated in january and march 20xx and varied from dollar_figure to dollar_figure totaling dollar_figure were recorded on the gl as payables to these payments for-profit competition other businesses provide similar fundraising software and services to schools and youth sports teams ona for-profit basis for example online platform for running fundraising campaigns and charges a percent of funds-raised unlike informs donors that the tax-deductibility of their donation depends onthe exempt status of the provides users with an like organization receiving the donation other fee-based for-profit entities include law operational_test internal_revenue_code sec_501 exempts from federal_income_tax organized that are organized 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 orforthe prevention of cruelty to children oranimals solong as no partofthe net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states inorderto be exemptas an organization described in sec_501 anorganization must be both organized and operated exclusively for one or more of the purposes specified in such section ifanorganization fails to meet either the organizationaltestorthe operational_test itisnotexempt form 886-a catalog number page publish no irs gov department of the treasury-intemal revenue service 886-a schedule number or exhibit form rev date year period ended explanations of items tax identification_number name of taxpayer december 20xx december 20xx sec_1_501_c_3_-1 defines the operational_test 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 anorganization willnot be so regarded if more than an insubstantial partofits activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 says an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i ofthis subparagraph unless itsenesapublicratherthanaprivate interest thus tomeetthe requirement of this subdivision itisnecessaryforan organization toestablish thatitis not organized_or operated forthe benefit of private interests sec_1_501_c_3_-1 defines educational a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community congress identified the organizations intended to be included in the phrase to foster national or international amateur sports competition in the senate congressional record dated date at page s13612 they included two types o national organizations that are responsible for the conduct of national and international competition including the conducting of national championships and the selection of national teams in olympic and pan american sports national local and regional organizations whose primary purpose is supporting and developing amateur athletes for participation innationaland international competition in olympicandpan american sports the discussion of the amendment emphasized that it is not intended to make social clubs or organizations of casual athletes into tax-exempt charities only an organization whose primary purpose is the support and development ofamateur athletes forparticipation in international competition in olympic and pan american sports willqualify under this amendment organizations whose primary purposes are the recreation of theirmembers or whose facilities are used primarily by casual athletes will not qualify congress amended sec_501 in by adding sec_501 sec_501 removed the requirement of subsection c that no part of amateur sports organization's activities involve the provision of athletic_facilities or equipment sec_501 defined a qualified_amateur_sports_organization as any organization organized and operated exclusively to foster national orinternational amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports orto support and develop amateur athletes fornational or international competition insports form 886-a department of the treasury-internal revenue service catalognumber20810w publish no irs gov page schedule number or exhibit on bee explanations of items year period ended tax identification_number name of taxpayer sec_53_4942_b_-1 defines primarily as at least of total activities december 20xx december 20xx sec_53_4942_b_-1 defines substantially_all a sec_85 or more therefore insubstantial mean sec_15 or less in revrul_72_369 advice was requested as to whether an organization that otherwise qualified for exemption under sec_501 was operated for charitable purposes when engaging in the activities described as follows the organization was formed to provide managerial and consulting services for nonprofit_organizations exempt from federal_income_tax under sec_501 c of the code to improve the administration oftheir charitable programs the organization enters into agreements with unrelated nonprofit_organizations to furnish managerial and consulting services ona cost_basis the services consist of writing job descriptions and training manuals recruiting personnel constructing organizational charts and advising organizations on specific methods ofoperation these activities are designed forthe individual needs ofeach clientorganization receipts of the organization are from services rendered disbursements are for operating_expenses the government found that the organization was not operated for charitable purposes an organization is not exempt merely because its operations are not conducted for the purpose of producing aprofit to satisfy the ‘operational test’ the organization's resources must be devoted to purposes that qualify as exclusively charitable within the meaning of sec_501 of the code and the applicable regulations - providing managerial and consulting services on aregular basis fora fee is trade_or_business ordinarily carried onfor profit the factthat the services inthis case are provided atcostand solely for exempt_organizations is not sufficient to characterize this activity as charitable within the meaning of sec_501 of he code furnishing the services at cost lacks the donative element necessary to establish this activity as charitable accordingly it is held that the organization's activities are not charitable and therefore the organization does not qualify for exemption from federal_income_tax under sec_501 of the code inb s w group incvs commissioner of internalrevenue the issue operated exclusively for charitable educational or scientific purposes within the meaning of sec_501 the court's opinion found the following was whether the organization was form 886-a department of the treasury-intemal revenue service catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items year period ended tax identification_number name of taxpayer december 20xx december 20xx the petitioner's activity consists of selling consulting services to nonprofit or exempt_organizations interested in rural-related policy and program development actual substantive research work is conducted by individual researchers supplied by petitionertoits clients petitioner's services are largely intended to be asubstitute for full-time staffing of client organizations petitioner charges each client a fee based primarily upon its cost of obtaining paid researchers plus an administrative charge we must agree with the commissioner that petitioner's activity constitutes the conduct of a consulting business of the sort which is ordinarily carried on by commercial ventures organized for profit petitioner has completely failed to demonstrate that its own services orthe services performed by its consultants are not in competition with commercial businesses such as personnel agencies consulting referral services realestate agents housing rental services banks loan companies trash disposal firms or environmental consulting companies competition with commercial firms is strong evidence of the predominance of nonexempt commercial purposes and since the conduct ofa business with an apparently commercial character is petitioner's sole activity we think that fact weighs heavily against exemption thisisnotthe typical case where an organization concededly conducting substantial educational scientific or charitable activities also conductsa trade orbusiness relatedtoits exemptfunctions furthermore petitioner's only role is that of a conduit linking individual researchers with interested clientorganizations seeking asubstitute for full-time staffing this aspect ofpetitioner's service is not inherently charitable educational or scientific however we would be sympathetic to petitioner ifthe record showedthatthe research conducted by the independent consultants in fact furthered exclusively exempt purposes several additional factors weigh against petitioner's claim inthe firstplace its financing doesnot resemble that of the typical sec_501 c organization petitioner has not solicited norhasit received voluntary contributions from the public its onlysource ofincomeis fees forservices and those fees are sethigh enough torecoup all projected costs including anunexplained dollar_figure 250item denominated administrative expenses andindeed toproduceanetprofit thisnetprofit dollar_figure is not insubstantial compared to projected income dollar_figure being percent of income furthermore although tosome extent fees will reflect ability to pay itdoes not appear that petitioner ever plans to charge afee less than cost to be sure petitioner states that its fee is nominal anditmay infact be lower than those charged by otherfirms however we think that this isnot enough toprove that petitioner's purposes are primarily exempt in this respect petitioner resembles certain health care organizations which have sought classification under sec_501 onthe ground that they provide medical services which are of great social value despite the public benefit ofthe services provided some degree of free or below-cost services to patients has generally been required to qualify these organizations as charitable before exemption has been granted under sec_501 another negative factor lies in petitioner's failure to limit its clientele to organizations which are themselves sec_501 exempt_organizations but only to organizations which are either nonprofitorexempt insome cases organizations conducting trades_or_businesses have been granted exemptionon thegrounds that they serve onlyexempt organizations and are performing services which their clients would otherwise have to provide for themselves in order to accomplish their own exempt purposes form 886-a catalog number 20810w page_15 publish no irs gov department of the treasury-internat revenue service schedule number or exhibit form b86 explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx it is with some reluctance that we conclude that petitioner is not an organization described in sec_501 because its primary purpose is neither educational scientific nor charitable but rather commercial petitioner's officers at least for the present time serve without compensation and there is no indication in the record that their personal motives are different from the stated purposes of petitioner nonetheless we are unable to find that petitioner's primary purpose is educational scientific or charitable rather than the conduct of an ordinary commercial consulting enterprise incompetition with other commercial firms government position primary purpose was neither educational charitable nor the fostering of national or international amateur sports competition the organization engaged in commercial activities for the purpose ofenriching application_for exemption the application_for exemption stated the following planned activities o theinstruction or training of individuals for the purpose of improving or developing their capabilities theinstruction ofthe public on subjects useful to individuals and beneficial to the community fundraising to support schools and amateur athletic programs throughout the united_states education is a tax-exempt purpose audit year an organization willshow that itis operated exclusively forexempt purposes ifitis engaged primarily in activities which accomplish the exempt_purpose to be engaged primarily generally means to be engaged at least in the exempt-purpose activity sporadic educational activities do not meet this requirement conducted at best sporadic educational activities inthe software operations were handled by an organization that conducts the fundraising activities for the purpose of distributing funds to other charitable organizations may be recognized as exempt under sec_501 did no fundraising in the audit year asdescribed above the clientteams coaches conducted the fundraising activity using the so that the program via a qualified 501_c_3_organization ‘ __ afederal non-profit 501c3 corporation activities and your sponsorship has been processed by did not engage in exempt- purpose fundraising could advertise that donations made using their system were tax-deductible as stated on sponsorships or donations always are directed to the intended was a passive shell present only website and was granted tax-exempt status for educational_purposes and to provide financial support to schools and amateur athletics in the audit year the organization did not engage in activities to support these exempt purposes the organization's purpose was to support business form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date year period-ended explanations of items december 20xx december 20xx license agreements and contract tax identification_number name of taxpayer the contracts between to work directly with the fundraising clients and to conductallfundraising support activities yet passed all funds raised through totheclients this allowed processed using their software were tax-deductible the to advertise toclients thatall donations website proclaims and the client coaches teams allowed and between and contracts specified thatall funds raised would pass through accepted both delivery ofallfunds andremitted fees to agreement between directly from a donor they would have to send it to donation was tax deductible and donations tothe fundraising teams and coaches the and the clients specified that ifthe coach orteam was to receive a check purpose was to increase the marketability of software in order to get a receipt indicating thatthe website website does not indicate any activities website provides tutorials and a faq describing how the fundraising process works includes included in the faq throughoutthe description ofthe fundraising product forexample the following was and qwill we do not share any information gathered for your campaign with a third-party since theissuance ofthe draft form 886-a in this audit this item and otherreferences to website have been changed share our personal information with any third-party a on is described as the company's non-profit partner is presented to clients as the reason that donors can make tax-deductible donations and as an advantage over other fundraising services purpose is to induce customers to use competing online fundraising service software and services for fundraising campaigns rather than a organizational income did not solicit donations or receive tax-exempt_income from any charitable or educational activities or from activities engaged in to foster national or international amateur sports competition all funds received were fees received in exchange for enabling tax-deductible donations in fundraising software business as anagentof coaches teamsthroughthe system andremitted to and backtotheclients received alldonations raised by ' form 886-a department of the treasury-internal revenue service catalog number 20810w - publish no irs gov page-17 schedule number or exhibit rev name of taxpayer explanations of items tax identification_number year period ended december 20xx december 20xx was responsible for issuing a letter thanking the donor for their tax-deductible donation did not report the of funds retained as donations received zero percent of each donation made through fundraisers amounts were remitted monthly to amounts were not remitted to the fundraising coaches teams as a part of a grant program or atthe discretion of organization and reported these amounts as liabilities on the balance_sheet until the contracted did nothave control_over this money allamounts remitted to fundraisers was in compliance with a contract between the was contractually held in trust for andtothe clients and for the around dollar_figure was an insignificant portion of the overall activity and wasall the fee retained by eatenupby overhead stemming fromthe business activity the largest component ofoverheadin above the contracted net_income after business 20xxwas payments totaling dollar_figure made to expenses averaged aloss of dollar_figure overthe years 20xx 20xx and20xx leaving no funds for any exempt- purposes the lack of profit or a profit_motive does notmake the organization's operations exempt- purpose to satisfy the 'operational test’ the organization's resources must be devoted to purposes that qualify as exclusively charitable themandatory pass-throughs of offunds raised by exempt-purposetransactions as such theydidnotconstitute publicsupport of purpose the organization was an agentthat acted forthe benefit ofthe for-profit entity qualified for tax-exempt status clients were business transactions not charitable andisnot operated to foster national or international amateur sports competition to operate an organization for the purposes of fostering national or international amateur sports competition refers only to organizations which conduct national championships select national teams and support and develop athletes affiliated with the olympics and the pan american games regarding support and development of amateur athletes only an organization whose primary purpose is the support and development of amateur athletes for participation ininternational competition in olympic and pan american sports willqualify underthis exemptpurpose activities havenothing todowiththe olympics the pan american games or any other national or international sports competition summary anorganization mustbeoperated exclusively forexemptpurposes to qualify fortax-exempt status under sec_501 to qualify as operated exclusively for exempt purposes it must engage primarily in activities which accomplish one ormore ofsuch exempt purposes specified in sec_501 these exempt purposes include charitable and educational_purposes orto foster national or international amateur sports competition ananalysis of the facts has shown that fundraising software sales and support and clients to engage conducted all bookkeeping conducted virtually no activities conducted all coach and team clients conducted the actual fundraising existed almost entirely on paper serving as an inducement to services because of the advantage of all donations being tax-deductible department of the treasury-internal revenue service catalog number 20810w form 886-a publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx december 20xx tax identification_number to donors donations were paid via were paid electronically or by check prepared by remittances to and clients software to failed to qualify for tax-exempt status under sec_501 because it was not operated exclusively for exempt purposes as shown by it not being engaged primarily in exempt_activities organization position in aletter dated september 20xx the taxpayer's representative statement provided the following solong as no part of the net_earnings inures to the benefit of any private per sec_501 an organization must be organized and operated exclusively to foster national or international amateur sports competition there are other qualifying activities butthis is the elementthatis most applicable to shareholder or individual as the initialexamination report clearly states cents of every dollar goesto amateur sports of every dollar donated to ensure thatthese funds went to amateur sports while the auditor has raised vague questions about some ofthe expenses foundon direct contrast to the government's nonfactual statement that in the audit year none of these these includes fundraising to support schools and amateur athletic programs activities were conducted profit and loss statement the auditor cannot refute this fact remarkably this isin hasmaintained operationalcontrol itis importantto note that while all qualify there is no requirement thatthe recipient amateur sports teams themselves be approved as exempt_organizations the requirement is that the funds are used to foster amateur sports and the government has not presented a single piece of evidence tothe contrary wecan provide tens of thousands of pieces of evidence to support that the funds were used to support amateur sports every coach every player every parentwill gladly testify thatitwas through were able to buy much needed equipment travel to remote games purchase uniforms attend educational clinics etc whatthe government omitted in their report was that the fundraisers are typically tied to very specific goals for the team thatis the team might need funds to buy a new piece of equipment which is highlighted throughout the fundraising campaign infact funding goals amounts are usually setaround specific goals and the auditor was certainly made aware of this during the examination as such itwould be very hard for a team to then use these funds for something else and contrary to sec_501 in other words with everyone players parents etc aware of the outcome ofa fundraising campaign itis impossible for the funds to be used for non-qualified uses thatis the goal was to attend abasketball clinic and they met their fundraising goal and they don't attend the clinic someone will have to answer the question as to where the money went however that question is ever asked because ofthe transparent nature ofthe campaign and the effective crowd based honesty assurance thatis the team wouldscream ifthey didn't get what they worked hard to raise money for inotherwords sec_1_501_c_3_-1 operationaltestas substantially ofits activities are to accomplish the goal of fostering amateur sports the all notmerely primarily or thatthey meets form 886-a catalog number 20810w page publish no irs gov department ofthe treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx auditor cites both revrul_72_369 and b s w group inc vs commissioner as part of the argument that the activities of pertinent to this case the revenue_ruling concerns an organization providing managerial and consulting services tononprofit organizations that organization is notexempt because oftheir proceeds benefit them and them alone and they are not formed and operated for public benefit in stark contrast ofthe funds raised by the b s w case the petitioner had not solicited nor received voluntary contributions from the public go to amateur sports b s w group was selling consulting services in are not exempt in nature neither of these references are solicits voluntary contributions from the public to foster amateur sports ismerelya operational tasks performed many of was operating as anagent via notthe other way around asthegovernment claims thatis despite this fact the auditor in her report states that she believes only client first itis both incorrect and irresponsible forthe auditor to assert that as the auditor has noknowledge of howmany clients while contract for vendor of were formed togethertowork inthis way ie that is onlyclient other than moreover some of considered as competitors to formation dates to supporther assertion as to the formation intent intrue reality toputitsimply was formed to foster amateur sporting teams moreover the relationship between and amootpointas application which was approved by the irs other clients also raise funds for amateur sports and as such can be secondly the auditor has presented noevidence otherthan is and am quoting the auditor operating as outlined in their exempt status and the auditor was informed of this during the audit and and that activity wastosupport has in reality is has clients is the facts have shown that funds raised reach these amateur sports organizations purposes and clearly serves as public benefit as such should not be revoked primary purpose was to foster amateur sports andthat ofthe was formed and operated forthese exempt status is without question and conclusion was not operated exclusively for tax-exempt purposes under irc the facts have shown that sec_501 dueto thelack ofany charitable activity and the lack of funds geared toward charitable activities the organization failed to meet the primary purpose test described in sec_1_501_c_3_-1 which says that to be considered a charitable_organization under sec_501 the organization must be operated exclusively private interest for charitable purposes anditmustserveapublicratherthana the exempt status of status should be revoked effective january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service