internal_revenue_service number release date index number ------------------------------------------------------------ ----------------------- ---------------------------------------- re ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-122656-16 date date legend decedent date spouse date -------------------------------------- ------------------ ---------------------- ----------------------------------- ------------------ --------------------------- dear ----- -------------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 plr-122656-16 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election plr-122656-16 once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 plr-122656-16 and a in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-122656-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by leslie h finlow leslie h finlow senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc psi b3 cdmorton postu-114111-16 uilc date date third party communication none date of communication not applicable to glenn c mcloughlin senior counsel atlanta group large business international from christopher kelley acting deputy associate chief_counsel passthroughs special industries subject allocations consistent with partner's_interest_in_the_partnership this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend us parent --------------------- ------------------------ ---------- ---------- foreign parent jv country partner ------------------- country partner ------------------ us partner foreign sub country country area date date date date year year year -------- ---------------------- ---------------------- --------- ----------------------------------------------------------------- -------------------- ----------------------- ---------------------------- ----------------------- ------- ------- ------- postu-114111-16 ------- ------- ------- ---- ---- ---- ---- ---- ------------------------ ------------------------ ------------------ ------- ------ -------- -------- -------- -------- -------------------- -------------------- --------------------- ------------------ ----------------- ---- ------------------ ---- -------------------- -------------------- year year year a b c d e f g h i j k m n o p q r s t u v w x y issue sec_1 should the allocation of jv’s partnership loss to country partner and country partner be limited to their positive capital_account balances should jv be allowed to allocate its losses solely to country partner and country partner up to the amount of their positive capital_account balances or should that loss be reallocated pro_rata among all partners conclusion sec_1 the allocation of jv’s partnership loss to country partner and country partner should be limited to the amount of their positive capital accounts any further losses should be reallocated to us partner and foreign parent who bore the economic burden of those additional losses postu-114111-16 the allocation of jv’s losses solely to country partner and country partner should be respected up to the amount of their positive capital_account balances facts joint_venture between us parent and foreign parent in year us parent u s_corporation and foreign parent country corporation announced that they would enter into a joint_venture in year to develop resources in the area in country us parent and foreign parent formed jv a country limited_liability_company and an eligible_entity under sec_301_7701-2 of the procedure and administration regulations to carry out the joint_venture under country law jv had two a equity owners country partner country corporation and country partner country corporation us parent held a b interest in country partner foreign parent held a c interest in country partner and was the sole owner of country partner thus under country law us parent indirectly held a d interest in jv and foreign parent indirectly held the remaining e interest us parent also contributed funds to jv through its subsidiary us partner a u s_corporation foreign parent also contributed funds to jv directly us parent filed form_8832 entity classification election on date to treat jv as a partnership for u s federal tax purposes as of date the joint_venture agreement for jv jv agreement did not set forth any of the economic_effect test provisions required under sec_1_704-1 of the income_tax regulations - capital_account maintenance liquidation in accordance with positive accounts or deficit restoration obligations dros - nor did it specify the allocation of partnership items among the partners exam calculated the partners’ capital accounts during its audit of jv the amounts provided to jv by us partner and foreign parent were treated as loans under country law thus under country law jv was treated as having two owners - country partner and country partner for us federal tax purposes however the amounts provided by us partner and foreign parent were treated by us parent as equity rather than debt exam did not challenge us parent’s treatment of these amounts as equity for u s tax purposes and we do not address the validity of that treatment here as a result for us federal tax purposes jv was treated as having four partners - country partner country partner us partner and foreign parent the contributions from us partner to jv from year to year totaled dollar_figuref the amount of us partner’s contributions remaining on date was dollar_figureg country partner and country partner each contributed a total of dollar_figureh to jv between year and year jv partners contributed the following percentages of jv capital for u s federal tax postu-114111-16 purposes country partner and country partner each - i to j us partner - k to m and foreign parent - n to o requirements to provide additional funding to jv country law requires that in order for an entity to maintain its legal status as a limited_liability_company it should have net assets as determined under country accounting principles greater than or equal to its charter capital if an entity’s net assets are less than its charter capital at the end of the second year after its registration and every consecutive year thereafter then the entity must either decrease its charter capital but not below a minimum statutory threshold or obtain additional contributions from its owners if the entity’s owners do not take steps to improve its negative net asset position the country governmental authority may file a claim to force the liquidation of the entity furthermore where an entity improves its net asset position by reducing its charter capital in lieu of obtaining contributions from its owners country law allows any creditor to marshal the liquidation of the entity the jv agreement required the owners of jv to lend additional funds through their wholly-owned subsidiaries pro-rata to their respective ownership interests in jv whenever jv lacked sufficient assets to meet certain funding requirements under country law guaranteed payments under the terms of their individual agreements with jv us partner and foreign parent had first rights to the cash_flow of jv according to the jv agreement us partner and foreign parent would receive both fixed and variable payments related to their contribution amounts the fixed payments were computed without regard to the income and cash_flow of jv while the variable payments were triggered by jv’s net positive cash_flow from year to year jv never made any variable payments because it never had any net positive cash_flow for those years us parent characterized the fixed payments paid to us partner by jv as guaranteed payments for_the_use_of capital as described under sec_707 from year to year jv deducted its payments to us partner as guaranteed payments jv had cumulative operating losses from year to year of dollar_figurep jv did generate a small amount of operating income in year and year which reduced the cumulative net_loss to dollar_figureq the guaranteed payments generated approximately dollar_figurer of these losses the loss deductions were allocated solely to country partner us partner was not allocated any of the deductions end of the joint_venture after several years of disappointing production from the area foreign parent and us parent reached an agreement on date to sell us parent’s indirect interest in jv to foreign parent for dollar_figures a foreign parent subsidiary foreign sub purchased postu-114111-16 country partner’s interest in jv for dollar_figuret u of the purchase_price and us partner’s interest in jv for dollar_figurev w of the purchase_price because no jv loss deductions had been allocated to us partner us partner’s basis in jv at the time of the sale was dollar_figurex as a result us parent reported a loss of dollar_figurey on its u s consolidated_return attributable to the sale of us partner’s interest in jv for dollar_figurev law and analysis sec_707 of the internal_revenue_code provides that to the extent determined without regard to the income of the partnership payments_to_a_partner_for_services_or_the_use_of_capital shall be considered as made to one who is not a member of the partnership but only for the purposes of sec_61 relating to gross_income and subject_to sec_263 capital expenditures_for purposes of sec_162 relating to trade_or_business_expenses sec_704 states a partner’s distributive_share of income gain loss deduction or credit or item thereof shall be determined in accordance with the partner’s interest in the partnership determined by taking into account all facts and circumstance if---- the partnership_agreement does not provide as to the partner’s distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect sec_1_704-1 sets forth the two-part analysis of the substantial_economic_effect_test first the allocation must have economic_effect within the meaning of sec_1_704-1 second the economic_effect of the allocation must be substantial within the meaning of sec_1_704-1 sec_1_704-1 provides that an allocation of income gain loss or deduction to a partner will have economic_effect if throughout the full term of the partnership the partnership_agreement provides that the partnership will maintain a capital_account for each partner under the rules of sec_1_704-1 the partnership will liquidate according to positive capital_account balances and the partners are unconditionally obligated to restore any deficit balances in their capital accounts following the liquidation of the partnership or of the partner's_interest_in_the_partnership if an allocation lacks substantial economic_effect the regulations require that the item be allocated in accordance with the partners’ interest in the partnership sec_1_704-1 states that references in sec_704 to a partner's_interest_in_the_partnership or to the partners' interests in the partnership signify the manner in postu-114111-16 which the partners have agreed to share the economic benefit or burden if any corresponding to the income gain loss deduction or credit or item thereof that is allocated the determination of a partner's interest in a partnership shall be made by taking into account all facts and circumstances relating to the economic arrangement of the partners a partner receives income not a distributive_share from a guaranteed_payment for_the_use_of capital under sec_707 and the partnership receives a corresponding deduction under sec_162 the income from the guaranteed_payment does not affect the recipient’s basis in its partnership_interest or its capital_account sec_1_704-1 the partnership’s deduction for the guaranteed_payment reduces the partnership’s income or increases the partnership’s loss to be allocated among its partners because they were determined without regard to the income of the partnership the fixed interest payments made by jv to us partner and foreign parent from year to year were guaranteed payments for_the_use_of capital described in sec_707 the guaranteed payments generated ordinary_income for us partner and foreign parent and deductions for jv during this period jv incurred operating losses primarily as a result of the guaranteed_payment deductions these losses were allocated entirely to country partner and country partner us partner and foreign parent received no allocation of loss any allocation of a partnership_item must have economic_effect within the meaning of sec_1_704-1 or it will be reallocated in accordance with the partners’ interests in the partnership the allocation of jv’s operating loss did not have economic_effect within the meaning of sec_1_704-1 because none of the three requirements were met - jv did not maintain capital accounts consistent with sec_1_704-1 provide for the liquidation of its partners’ interests in accordance with positive capital_account balances or provide a dro thus the operating_loss_deduction must be allocated in accordance with the partners’ interests in the partnership reflecting the manner in which the partners agreed to share the economic burden corresponding to that loss us parent argues that country partner would bear the economic risk of jv’s operating losses they argue that country law effectively subjects country partner to a dro a de_facto dro because if jv’s capitalization falls below a certain threshold the equity holders of jv under country law - country partner and country partner not us partner and foreign parent would need to contribute additional capital to jv to avoid its liquidation however these additional capital contributions were not required_by_law as jv’s partners could allow jv to liquidate rather than make these additional contributions while country partner and country sec_1_704-1 example ii indicates that liability under a state law right of contribution for any debts of the partnership is a reasonable alternative to a dro postu-114111-16 partner did contribute additional_amounts to jv after year these amounts were minimal compared with the substantial additional_amounts contributed to jv by us partner and foreign parent as creditors under country law us partner and foreign parent had priority over country partner and country partner if jv was liquidated however country partner and country partner had no obligation to restore any shortfall in payments to us partner and foreign parent upon liquidation consequently jv would not have the assets to repay us partner and foreign parent their positive capital_account balances upon liquidation thus placing the economic burden for the operating loss allocations to country partner and country partner on us partner and foreign parent any capital contributions by country partner and country partner would be necessary only to keep jv a going concern and avoid liquidation in the event jv became undercapitalized whether to keep jv a going concern would be up to us parent and foreign parent and was not mandated by country law the allocation of jv’s partnership loss to country partner and country partner should be limited to their positive capital_account balances us partner and foreign parent bore the economic burden of the jv losses in excess of country partner’s and country partner’s positive capital accounts the allocation of jv’s losses solely to country partner and country partner should be respected up to the amount of their positive capital_account balances us partner and foreign parent as creditors under country law had priority over country partner and country partner in receiving assets from jv upon liquidation under the terms of their agreements us partner and foreign parent also had first rights to the cash_flow of jv thus country partner and country partner bore the burden of the economic loss of their capital contributions on liquidation up to the amount of their positive capital_account balances this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c number release date date uilc cc pa cbs b02 gl-807246-00 memorandum for sbse associate area_counsel san francisco from alan c levine chief branch collection bankruptcy summonses subject collection statute waiver issues this memorandum responds to your date request that we post- review a memorandum issued on date by your office and a supplemental memorandum dated date both of these memoranda discuss the validity of waivers of the collection statute_of_limitations where the waivers executed in connection with installment agreements contain certain errors this document may not be used or cited as precedent sec_6110 facts the facts as provided in the date memorandum from your office essentially are that the technical support branch sb_se area formerly the special procedures function has found that certain form_900 tax collection waivers signed by the taxpayer in conjunction with the extension of the collection statute_of_limitations expiration date csed contain errors technical support is concerned that these errors may invalidate the csed waivers the errors described include forms which were signed by a service employee other than the branch chief extend the csed for multiple years to a single date rather than the dates which conform to sec_6502 or contain an incorrect assessment_date or the wrong amount due in a separate case a revenue_officer received a waiver in connection with an installment_agreement that will pay the liability in full within the period of the original csed the revenue_officer does not want to process this waiver finally there is a question about whether the service is required to obtain form_900 as set forth in the irm where the csed is extended by statute under sec_6331 based on these facts you present the following issues cid cid cid gl-807246-00 is a form_900 that is signed by an internal_revenue_service employee other than a branch chief valid is a form_900 that contains an extension date that does not conform to the constraints of sec_6502 as applicable to requests made on or after date valid is a form_900 that contains an incorrect assessment_date or balance due but correctly states the type of tax and tax period valid may the service decline to accept a form_900 proffered with an installment_agreement ia when the service determines that the waiver is unnecessary because the ia will result in full payment of the tax penalties and interest within the sec_6502 ten-year statute_of_limitations what is the effect of an invalid form_900 on an ia in addition your supplemental memorandum of date addressed the following additional issue do sec_6331 and k act to extend the csed even without a form analysis issue who must sign the waiver in order to be valid an agreement by the taxpayer to extend the statute_of_limitations on the collection_period must be in writing entered into before the expiration of the original collection_period or a previously agreed upon extension and executed by the taxpayer and an authorized delegate of the commissioner sec_6502 sec_301_6502-1 although at one time the ninth circuit took the position that the lack of the commissioner’s signature did not invalidate the waiver this changed with 415_f2d_695 9th cir since rohde the ninth circuit’s position has been that based on the treasury regulation the commissioner’s or delegate’s signature is necessary for an effective collection waiver rohde f 2d pincite delegation_order no irm provides that the authority to sign all consents fixing the period of limitations on assessment or collection is delegated to see eg 52_f2d_1075 9th cir 284_f2d_747 9th cir gl-807246-00 certain individuals including district directors see also sec_301 a i 494_f2d_573 5th cir 868_fsupp_1197 n d cal in turn district directors may redelegate such authority to collection-revenue officers of grade gs-7 or higher irm d however the irm requires that any ias that extend beyond the original csed must be approved by a branch chief irm e we could find no court that has ruled on the issue of whether a form_900 signed in violation of the irm is still valid the closest parallel is the case of 333_fsupp_398 e d pa where the taxpayer signed a collection waiver under sec_6502 but argued that the waiver was invalid since it was signed by a revenue_officer rather than a district_director the taxpayer argued that since rohde held a waiver to be invalid without the district director’s signature the waiver in the lee case was invalid the court disagreed holding that the issue in rohde was the absence of a signature in lee the question was whether the district_director could appropriately delegate his authority and the court found that he did the court also found that had the government tried to argue that the waiver was invalid because the revenue_officer exceeded his authority the court would not hesitate to use estoppel against the government in upholding the waiver based on the court’s analysis in rohde we believe the ninth circuit would find a valid delegation of authority under sec_301_6502-1 and delegation_order no which would allow a revenue_officer to validly countersign a form_900 although the internal_revenue_manual requires the signature of a branch chief courts have held that the policies and procedures in the irm do not have the force of law 440_us_741 644_fsupp_101 w d pa citing 441_us_281 we therefore believe that a court would uphold a waiver signed by a revenue_officer rather than a branch chief presuming the appropriate redelegation order was signed as indicated on page of your november memorandum issue extension date does not conform to sec_6502 the restructuring and reform act of rra amended sec_6502 of the code effective as of date to limit the service’s ability to secure from taxpayers agreements to extend the statutory period for collection see pub director has now replaced the words district_director revproc_2001_1 sec_1 at page and dollar_figure at page in 129_f3d_1386 10th cir the tenth circuit although resolving the case on other grounds indicated that it would have found a form_900 waiver signed by a revenue_officer valid gl-807246-00 l no 112_stat_685 the service and taxpayers can now agree to an extension of the statute_of_limitations for collection under a in only two circumstances the extension is agreed to at the same time as an installment_agreement between the taxpayer and the service or the extension is agreed to prior to a release_of_levy under sec_6343 which occurs after the expiration of the statutory ten-year period for collection see sec_6502 if a waiver was secured in connection with the granting of an installment_agreement the period for collection will expire ninety days after the date specified in the waiver see sec_301_6159-1 if the waiver was not obtained at the same time as an installment_agreement the period for collection will expire not later than date or the end of the original collection statute if it would have occurred after that date see rra c the factual scenario posited by your office describes a taxpayer seeking to waive the statute_of_limitations on collection for more than one tax period form_900 waiver contains a blanket_extension of the csed to the same date even though several tax periods are affected and therefore extends the csed for some taxes beyond the period authorized by service policy we believe that such a waiver is valid even though the form_900 does not show which tax periods correspond to which cseds as required by irm f sec_301_6159-1 states that the service may require the taxpayer to agree to a reasonable extension of the collection statute as a condition of entering into an installment_agreement initially the proposed regulation did not contain the term reasonable this term was added however when concerns were raised that the provision stating that the service could require that the taxpayer agree to an extension of the collection statute could lead to unnecessarily long extensions lasting beyond the terms of the installment_agreement hence we interpret the term reasonable to mean any extension necessary to permit payment of the tax_liability under the installment_agreement consequently assuming that proper procedures were followed a waiver executed in conjunction with an installment_agreement is valid although your memorandum addresses a waiver containing an extension date not in conformance with sec_6502 no example of such nonconforming waiver is provided the example you provide is a form_900 used by the taxpayer to extend waivers granted prior to the effective date of the statute will expire no later than date except that a waiver signed in connection with an installment_agreement will expire on the 90th day after the end of the period of such extension rra c sec_6502 it is the policy of the service that extensions of the statutory period for collection be limited to five years beyond the original statutory period for collection for each tax_assessment see irm gl-807246-00 the csed for several tax periods where the form_900 uses only a single csed for each of those periods such a form_900 does not violate sec_6502 which mandates only that the waiver be entered into at the time of the installment_agreement and does not limit the length of time for which the taxpayer may waive the csed the waiver may not be in accord with service policy which provides that any extension of the csed should be limited to five years irm f the service has recognized however that as a practical matter some waivers will not be able to conform with this five-year extension policy accordingly the service has provided that a form_900 waiver which contains multiple tax periods may provide for a single csed extension date which should correspond with the latest date necessary to full pay the installment_agreement see irm in addition to this policy decision by the service there is a legal prohibition which prevents the service from rescinding a waiver extending the statute_of_limitations on collection as will be discussed in issue below a waiver is not a contract yet rescission is a contract principle see generally 17a am jur 2d contracts sec_512 in order to rescind a contract the parties to the contract must mutually agree to cancel the contract the same ‘meeting of minds’ is needed that was necessary to make the contract in the first place 150_us_312 moreover in order to be valid an agreement to cancel or rescind a contract requires some consideration 90_f2d_233 7th cir the unilateral nature of a waiver however forecloses the option of a meeting of minds needed to rescind a contract furthermore since the benefit or detriment of a waiver or an agreement to rescind a waiver is unilateral the necessary consideration is also lacking 17a am jur 2d contracts sec_515 as such the taxpayer and the service may not agree to ‘rescind’ a waiver extending the statute_of_limitations on collection likewise execution of a subsequent shorter waiver will not alter or invalidate the first longer waiver see generally 93_f2d_488 2d cir in 76_fsupp_442 s d cal for example the court rejected the taxpayer’s argument that a subsequent waiver to a date certain limited an earlier unlimited waiver of the collection statute the court stated the extension already in effect was not reduced by additional unilateral waivers since the government relinquished no rights by accepting them id pincite see also 232_fsupp_489 s d n y consequently a waiver extending the statute_of_limitations on collection cannot be modified canceled or superseded by another waiver we concur that a waiver not authorized by sec_6502 is invalid however from the facts presented it is our view that a form_900 which contains multiple tax a separate rule applies to extensions signed prior to date see rra c gl-807246-00 periods but a single extended csed date is not in violation of the statute because the irm authorizes such a waiver and because the service cannot rescind or invalidate such a waiver once it is signed we believe the service can enforce the waiver to the extended csed date issue waiver with incorrect information a tax_collection_waiver executed pursuant to sec_6502 is not a contract 280_us_453 rather it is a voluntary unilateral waiver of a defense by the taxpayer strange v united 282_us_270 though courts have in limited contexts applied contractual analysis to solve problems related to waivers no court has held that a waiver is a contract 282_us_277 80_tc_1035 robertson v commissioner t c memo therefore a taxpayer must demonstrate some noncontractual basis such as prejudice or lack of due process to invalidate a waiver on the grounds that the form_900 contains an incorrect assessment_date or balance due by contrast the burden of proving the existence and validity of a collection waiver lies with the government 977_f2d_1067 7th cir united_states v grabscheid u s t c n d ill when the taxpayer raises the statute_of_limitations as a defense to collection and the original collection_period has expired the statute is presumed expired and the burden of showing that it was extended either by law or by agreement shifts to the government schenk v commissioner t c memo the few cases which have dealt with this tension between the need of the taxpayer to show that the error on the waiver form had a material effect and the need of the government to prove the csed has not expired are detailed in your november memorandum from page sec_12 through the cases detailed are schenk v commissioner t c memo taxpayer-altered form 872-a invalid to extend collections statute united_states v grabscheid u s t c e d ill waiver invalid as to periods owed by taxpayer but not listed on form 568_fsupp_818 n d tex waiver which did not list tax periods and amount separately but had correct totals held valid when taxpayer admitted liability and rosenblum v united_states 699_fsupp_284 s d fla form with incorrect tax period and balance due upheld by court no particular form or words necessary for valid waiver gl-807246-00 you conclude that as there is no precedent on this issue in the ninth circuit each waiver must be evaluated on a case-by-case basis although not without exception we note that the general_rule applied by the courts in the case of tax notices which contain technical errors is that they will be deemed valid when the taxpayer has not been misled by the errors and was not prejudiced because he had the opportunity to contest the assessment on the merits see eg 571_f2d_174 3d cir assessment valid despite clerical errors where taxpayer not misled as to proper year in question or amount in controversy 908_f2d_18 5th cir rejecting challenge to sec_6700 assessment because of failure to specify tax period 881_f2d_340 6th cir same 206_fsupp_773 s d n y aff'd 311_f2d_918 2d cir assessment valid even where notice of assessment identified incorrect tax period 386_fsupp_499 n d texas aff'd mem 514_f2d_1070 5th cir sec_6672 assessment valid although notice states incorrect employer where taxpayer knew of clerical_error see also 900_f2d_1144 7th cir excessive assessment is not void so long as correct amount of tax can be ascertained from supporting records 974_f2d_1064 9th cir same cf 384_f2d_863 5th cir assessment invalid where certificate of assessment not signed 201_fsupp_224 w d ark appeal dismissed 305_f2d_377 8th cir incorrect tax_year on tax_deficiency notice invalidated assessment despite taxpayer's knowledge of error while we acknowledge that litigation hazards may exist we believe that a form_900 which contains clerical errors but which correctly states the type of tax and the applicable tax period would be upheld by the courts the prevailing view is indicated by the court in 25_bta_238 aff’d 66_f2d_296 3d cir which states where the taxpayer by the execution of the waiver has obtained delay in the collection of additional taxes and a more deliberated and thorough consideration of his claim in abatement and where the waiver is regular in form except in the respect which we have enumerated the waiver was missing the affected tax_year and is in possession of the proper governmental bureau every presumption should be taken in favor of its validity and binding effect given that the taxpayer has signed the waiver has received other notice of his tax_liabilities and has benefitted from the government’s forbearance of collection we believe it unlikely a court would invalidate a collection waiver solely on the basis of a clerical_error gl-807246-00 issue waiver on full pay ia until it has been signed and thus becomes effective the service may decline to accept a waiver where the waiver is unnecessary since the ia will full pay within the csed irm there is no statutory requirement that a waiver once requested by a taxpayer must be granted however once an ia has been entered into the service has adopted a policy that it cannot subsequently request a waiver irm thus if the service errs in determining that the ia will full pay within the csed or the taxpayer and the service enter into a subsequent ia covering the same tax period the service no longer can request a csed waiver irm c b for this reason we agree with your recommendation that a revenue_officer not enter into a waiver unless otherwise necessary issue invalid waiver’s effect on ia sec_6159 provides that an installment_agreement remains in effect for its term unless information which the taxpayer provided to the service prior to the date the agreement was entered into was inaccurate or incomplete collection of the tax is in jeopardy the financial condition of the taxpayer has significantly changed or the taxpayer fails to pay an installment to pay any other tax_liability when due or provide financial information requested by the service sec_6159 see also i r m these are the sole grounds for termination there is no basis in the statute sec_301_6159-1 or the legislative_history to permit the service to terminate an installment_agreement because the associated csed waiver is invalid issue effect of sec_6331 your advisory notes that under sec_6331 the service may not levy on property or rights to property of a taxpayer during any period in which an installment_agreement is in effect or during the period the installment_agreement is pending until days after it is rejected prior to date sec_6331 further provided that the statute_of_limitations for collection after assessment under sec_6502 was suspended for the period in which the service was prohibited from levying the service as a matter of policy never adopted this suspension_period instead the service considered only a valid waiver via form_900 as extending the csed in any case this statutory exception was recently removed by a technical correction in section b of p l stats ____ effective date the statute_of_limitations for collection after assessment will not be suspended because the service is prohibited from levy we therefore recommend that the portion of your date memorandum titled sec_6331 extends the collection statute during the period the irs cannot collect due to the pendency of an ia found on page gl-807246-00 and the entirety of your date memorandum be withdrawn sb_se should instead be advised to follow the procedures set forth in irm additional comments on page of the memorandum the last sentence reads in part congress has statutorily provided for tolling of the statute during the pendency of the ia for days after the irs terminates an ia although the service must provide the taxpayer at least days notice prior to terminating an ia the csed is tolled for a period of days after the expiration of the term stated in the ia and any applicable written extension sec_6502 conclusion on question one we agree with your november memorandum that a form_900 waiver signed by a revenue_officer but not a branch chief would be valid if an appropriate delegation_order exists on question two we disagree with your office that under the facts presented a waiver for multiple tax periods which contains a single extension of the csed date is invalid either under sec_6502 or current service policy as to question three we believe that a factual error involving the assessment_date or amount due would not invalidate a waiver absent affirmative misconduct by the service we agree in question four that the service need not accept or sign a waiver where the ia provides for full payment within the original csed and further agree with your office that it is to the taxpayer’s benefit in case of default that such a waiver not be signed on question five we agree that the service cannot request another waiver once the ia has been accepted nor can the service terminate the ia based on an invalid waiver finally we recommend that your response to the last question posed by technical support dealing with the effect of sec_6331 on the csed in both the november and december memoranda be withdrawn and a supplemental response detailing the effect of the recent legislative change to sec_6331 be provided to collection if you have any further questions please call this memorandum clarified the preceding discussion of sec_6331 for a form_900 entered into before the effective date of sec_6331 sec_6159


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person contact number identification_number tax years form required to be filed employer_identification_number number release date se t eo ra t1 uil date dear ------------ this is our final_determination that you do not qualify for exemption from federal_income_tax under sec_501 as an organization described in code sec_501 we made this determination for the following reason s you are not organized exclusively for exempt purposes because your articles of incorporation as amended do not limit your purposes to those within sec_501 of the code you also are not operated exclusively for exempt purposes within the meaning of sec_501 of the code because you do not engage primarily in activities that accomplish an exempt_purpose more than an insubstantial part of your activities are in furtherance of a non-exempt purpose and you are operated for the purpose of serving a private benefit rather than public interests because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file file the returns in accordance with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty if you decide to contest this determination under the declaratory_judgment provisions of code sec_7428 you must initiate a suit in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia before the 91st day after the date that we mailed this letter to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment filing a declaratory_judgment suit under code sec_7428 does not stay the requirement to file returns and pay taxes we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is enclosure notice redacted proposed adverse determination_letter lois g lerner director exempt_organizations rulings agreements sincerely t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal_revenue_service washington d c contact person contact number identification_number employer_identification_number date legend y a b c dear ------------- under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below facts you were incorporated by b in april for the specific purpose of we have considered your application_for recognition of exemption from federal_income_tax educating consumers and business on aspects of ‘budget means testing’ as it pertains to new bankruptcy law we specialize in determining whether a potential bankruptcy debtor should file a chapter liquidation or a chapter reorganization we also advise on debt consolidation debt adjustment debt repayment plans and credit counseling in general your articles of incorporation failed to limit your purposes to those within sec_501 or to dedicate your assets permanently to charity your proposed amendments were never filed with the state you were organized and are directed and managed by just --------------- a is your sole director ------ has had a successful career as a nurse and manager of nurses according to ---- resume but does not appear to have any training or experience in personal finance credit or managing exempt_organizations b is your sole incorporator and carries out most of your activity according to correspondence received as your contact person and person in charge of organizing the daily activities sole financial counselor sole instructor donor or creditor description has changed neighbor or co-tenant at the same address organizer and visionary in correspondence received you stated that ----- b’s compensation was determined at a board meeting held in date ----- compensation if any will be determined based on annual revenue b also owns y a for-profit financial services firm correspondence of y is only authorized to provide chapter counseling and paralegal services correspondence received in date you stated that you were considering expanding your board to include b and c it appears that c is the attorney referred to in correspondence received as y’s attorney and the person who is the bankruptcy attorney to whom you would turn over all findings and documents for the actual filing and also the bankruptcy attorney for whom b works as a paralegal correspondence received your original business plan described in the narrative portion of your application was to provide a two-hour seminar for people with credit problems who are seeking bankruptcy protection this activity was designed for a proposed new bankruptcy law that will require potential debtors to obtain credit counseling prior to filing a bankruptcy petition also require potential debtors to take a ‘means test ’ your proposed seminar would cover review of financial situation new bankruptcy law vs old bankruptcy law concept of the means test sample budget a non bankruptcy alternative re-establishing credit your application indicates that you plan to charge clients a dollar_figure fee for your services because you anticipate receiving donated time and space from y you indicate that these fees should meet of your expenses you intend to advertise initially through local bankruptcy attorneys through bulk mailing to potentially distressed clients and by a list you anticipated would be maintained by the us bankruptcy courts eventually television will become your primary means of advertising you have no fundraising program in operation in addition to the seminars you plan to provide financial services after recognition of your exempt status you intend to obtain a debt adjusters license to engage in debt management services correspondence received you plan to introduce a new dimension to the concept of the debt management process in that now all types of debt eg unsecured secured and court pending debt such as wage attachments and foreclosure debt may be accepted under our program correspondence received you plan to provide your services in conjunction with y which has provided chapter services for years your role is to provide chapter services debt management services and educational_services to the same group of clients correspondence received in later correspondence you described your organization as a system that mirrors a local financial company that we assume is y correspondence of it is clear that you intend to provide services directly to the people who call you or refer them to the services of y correspondence of callers will be questioned to determine whether they should file for bankruptcy or be directed towards a non bankruptcy alternative such as a debt management program and whether a client should do a chapter bankruptcy or a chapter you will also direct persons who drop out of your debt management plan to bankruptcy options offered by you and y your policy regarding missed payments in your debt management program is that after missed payments debtor is referred for chapter bankruptcy or may try a payment plan under chapter when your original business plan failed because the federal bankruptcy legislation that you anticipated had not passed you substituted another plan that also tied your operations closely to those of y you asked the clients of y whether they would attend a private instructional course with a fee of dollar_figure in date you began offering such a service and five of y’s clients have purchased it b teaches the class you stated that he does not use any specific course materials correspondence received law sec_501 of the internal_revenue_code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt exclusively for one or more exempt purposes only if its articles of organization sec_1_501_c_3_-1 of the regulations provides that an organization is organized sec_1_501_c_3_-1 of the income_tax regulations provides that in order to be a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations assigns the burden_of_proof to an applicant organization to show that it serves a public rather than a private interest and specifically that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes the relief of the poor and distressed or of the under privileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or community b the instruction of the public on subjects useful to the individual and beneficial to the in 326_us_279 sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt_purpose or purposes and if the organization is not organized or operated for the primary purposes of carrying on an unrelated_trade_or_business the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university the court considered an organization that provided analyses of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed arguendo that the organization had an educational purpose however the totality of the organization’s activities which included the sale of many publications as well as the sale of advice for a fee to individuals were indicative of a business therefore the court held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt d d c the court held that an organization that provided free information on in consumer credit counseling service of alabama inc v united_states u s t c in 302_f2d_934 ct_cl the consumer credit counseling service of alabama is an umbrella organization made up budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational of numerous credit counseling service agencies these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families they did not limit these services to low-income individuals and families but they did provide such services free of charge as an adjunct to the counseling function they offered a dept management plan approximately percent of a professional counselor’s time was applied to the dept management plan as opposed to education the agencies charged a nominal fee of up to dollar_figure per month for the dept management plan this fee was waived in instances when payment of the fee would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way an incidental amount of their revenue was from service fees the court found the organizations exempt under sec_501 because providing information to the public regarding the sound use of consumer credit is charitable in that it advances and promotes education and social welfare these programs were also educational because they instructed the public on subjects useful to the individual and beneficial to the community the counseling assistance programs were likewise charitable and educational in nature because the community education and counseling assistance programs were the agencies’ primary activities the agencies were organized and operated for charitable and educational_purposes the court also concluded that the limited debt management services were an integral part of the agencies’ counseling function and thus charitable but stated further that even if this were not the case these activities were incidental to the agencies’ principal functions exempt functions solely for the benefit of low-income individuals to qualify under sec_501 or to provide its services solely without charge nonetheless these agencies did not charge a fee for the programs that constituted their principal activities they charged nominal fees for services that were incidental moreover even this nominal fee was waived when payment would work a financial hardship the court in est of hawaii v commissioner t c found that an organization formed to educate people in hawaii in the theory and practice of est was a part of a franchise system which is operated for private benefit and therefore may not be recognized as exempt under sec_501 of the code the applicant for exempt status was not formally controlled by the same individuals controlling the for-profit organization owning the license to the est body of knowledge publications methods etc however the for-profit exerted considerable control_over the applicant’s activities by setting pricing the number and frequency of different kinds of seminars and training and providing the trainers and management personnel who are responsible to it in addition to setting the price for the training the court found that the fact that the applicant’s rights were dependent upon its tax-exempt status showed the likelihood that the for-profit corporations were trading on that status the question for the court was not whether finally the court found that the law did not require that an organization must perform its the payments made to the for-profit were excessive but whether it benefited substantially from the operation of the applicant the court determined that there was a substantial private benefit because the applicant was simply the instrument to subsidize the for-profit corporations and not vice versa and had no life independent of those corporations in 82_tc_196 an organization operated bingo at a bar a for-profit enterprise for purposes of raising money for scholarships the board_of directors included the bar’s owners and accountant and two other persons the court reasoned that because the bar owners controlled the organization and appointed its directors the organization’s fundraising activities could be used to the advantage of the bar owners and thus provide them with a maximum private benefit the organization claimed that it was independent because there was a separate_accounting and that no payments were going to the bar the court maintained that the organization’s and the bar’s activities were so interrelated as to be functionally inseparable a separate_accounting did not change that fact thus the organization did not operate exclusively for exempt purposes but rather benefited private interests - the bar owners exemption was properly denied in church by mail inc v commissioner t c memo aff’d 765_f2d_1387 9th in addition to furthering a substantial non-exempt purpose the court found that a portion of cir the tax_court found that a church was operated with a substantial purpose of providing a market for an advertising and mailing company owned by the same people who controlled the church the church argued that the contracts between the two were reasonable but the court_of_appeals pointed out that the critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but instead whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the church the organization’s net_earnings inured to the benefit of a private_shareholder_or_individual as defined by sec_1_501_c_3_-1 and sec_1_501_a_-1 of the regulations the organization provided loans to companies with which the private shareholder was affiliated found that adoption services were the primary activity of the organization in deciding that the organization conducted adoption services for a business_purpose rather for a charitable purpose the court considered the manner in which the organization operated the record established a number of factors that characterize a commercial activity and which were evident in the operations of easter house also the court determined that the organization competed with other commercial organizations providing similar services fees were the only source of revenue it accumulated very substantial profits because it set its fees in order to generate a profit the accumulated capital was substantially greater than the amounts spent on charitable and educational activity and the organization did not solicit and did not plan to solicit contributions the court also found a corporate-type structure in the classes of memberships including a single life member having inherent power that the holder could transfer like stock and dependence on paid employees in easter house v u s ct_cl aff’d 846_f2d_78 fed cir the court in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization in revrul_61_170 1961_1_cb_112 an association composed of professional private duty nurses and practical nurses that supported and operated a nurses’ registry primarily to afford greater opportunities for its members was not entitled to exemption under sec_501 of the code although the public received some benefit from the organization’s activities the primary benefit of these activities was to the organization’s members formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization holding the funds in a_trust account and disbursing the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon contributions primarily from the creditors participating in the organization’s budget plans for its support problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public in revrul_80_287 1980_2_cb_185 a lawyer referral service that aids persons who do not have an attorney by helping them to select one was not entitled to exemption under sec_501 of the code although the service provides some public benefit its principal purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result of their experience the service found that by aiding low-income individuals and families who have financial outside the context of credit counseling individual counseling has in a number of revproc_90_27 1990_1_cb_514 provides in part that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere statement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned and the nature of the contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt a record of actual operations may be required before a ruling or determination_letter will be issued in those cases where an organization is unable to describe fully its purposes and activities a refusal to issue a determination_letter will be considered an initial adverse determination from which administrative appeal or protest rights will be afforded rationale the first requirement for organizations desiring to be recognized as exempt from federal_income_tax under sec_501 is to be organized and operated exclusively for an exempt_purpose sec_1_501_c_3_-1 of the regulations supra you are not organized exclusively for exempt purposes because your articles of incorporation do not limit your purposes to those within sec_501 or dedicate your assets permanently to charity sec_1_501_c_3_-1 it is clear that you are offering and planning to offer commercial financial services to the general_public your articles of incorporation and your answers to inquiries from the service reflect your plans to provide debt management plans and bankruptcy planning for a fee to the general_public you do not restrict your services to low-income individuals or some other charitable_class you charge substantial fees you will advertise in mass media and accept referrals from for-profit enterprises thus you must show that the sale of commercial services is incidental and integral to a substantial educational program sec_1_501_c_3_-1 financial counseling can be considered educational revrul_69_441 and cccs of alabama supra however a single substantial non-exempt purpose is sufficient to preclude exempt status regardless of the number of exempt purposes better business bureau of washington supra a purpose of providing education will not overcome an additional substantial commercial purpose american institute for economic research you have failed to establish that you are operated exclusively for educational_purposes in five different items of correspondence to the service over nearly a year you have not described your instruction or provided any instructional materials outlines or handouts it is your burden to describe your operations sufficiently to clearly demonstrate a basis for exempt status see revproc_90_27 supra a fundamental requirement for an organization that seeks exemption from federal income taxes is that it benefit the public rather than its creator shareholders or persons having a personal or private interest in the activities of the organization see sec_1 c - d ii and sec_1_501_a_-1 supra your organizational structure and manner of operation create a risk of inurement to your creator and primary employee the compensation of the sole employee was decided by your one-person board and will be based upon your revenue rather than on the value of his time or services you have contemplated adding him to the board as treasurer giving him even more explicit control_over his own compensation and your assets and operations you do not have an independent board or any other mechanism to prevent inurement or private benefit like easter house your manner of operation is characteristic of a commercial entity designed to benefit the creator and manager of the organization rather than the public in addition to future compensation your instructor stands to benefit from his control in many ways he organizes and directs your activities he consulted with y’s paying clients to determine what format of counseling they would prefer and then provided it to them through you for a substantial fee he will deliver information and documents to a bankruptcy attorney for additional legal work he can decide what attorney to recommend and we may reasonably assume that he will choose the attorney who employs him if your advertising attracts people who are not already clients of his financial services firm he clearly has the opportunity to promote his firm to them your proposed activities dovetail with those of y the for-profit financial services firm owned by your creator and sole employee that for-profit entity is licensed to provide chapter counseling and paralegal services you will advertise for people in debt screen them and refer to the affiliated for-profit those who need chapter counseling either at the outset or after they miss three payments in your debt management program in addition to the screening and referral function you will perform some services for the same population that the for-profit entity is not licensed to provide such as chapter services and debt management plans you also plan to provide legal work related to your clients to a person who is y’s attorney and b’s employer this integration with for-profit entities is similar to relationships between exempt_organizations and related for-profits in est of hawaii and church by mail those courts found that the exempt_organizations were operated to provide substantial private benefit to the commercial entities and therefore were not entitled to exempt status your screening and referral functions are very much like those considered by the service in revrul_61_170 and revrul_80_287 above while there may be some limited public benefit it is outweighed by the benefit to the private entities to whom you will direct business courts have also considered the situation of an exempt_organization that exists primarily to augment the business and customers of a related for-profit for example a court denied exempt status to an organization that raised money for scholarships because it was inextricably intertwined with a for-profit lounge that benefited from the additional customers drawn by the fundraising events p l l scholarship fund supra in your case the benefit goes to y a business owned by b a person who incorporated you is your sole employee has provided a loan and pledged a donation based on your representations we find that you are neither organized nor operated exclusively for exempt purposes accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code if you do not protest this ruling in a timely manner it will be considered by the internal you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements revenue service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions and do not intend to protest our denial of exempt status you should follow the instructions in notice if you decide to protest this ruling your protest statement should be faxed to or sent to the address shown below if you also disagree with our proposed deletions you should send your comments on the deletions with your protest statement and not to the address shown in notice if you do not intend to protest this ruling and if you agree with our proposed deletions as shown in the letter attached to notice you do not need to take any further action internal_revenue_service te_ge se t eo ra t constitution ave n w washington d c in the event this ruling becomes final it will be made available for public inspection under if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice lois g lerner director exempt_organizations rulings agreements sincerely


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-100856-02 date date legend x d1 year dear this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year the shareholders of x intended for x to be an s_corporation however no timely form_2553 election to be a small_business_corporation was filed sec_1362 of the code provides that if - a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center plr-100856-02 effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service p o box cincinnati oh number release date date date legend pplicant organization lumber of grants amount of each grant scholarly institution d recipients’ location department of the treasury employer_identification_number contact person - id number contact telephone number uil dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 c of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that you will operate a grant-making program the grant program was established to support research and scholarly work abroad the foundation intends to find programs which promote stability peace and prosperity in developing nations and bettet conditions for the citizens of these countries you have indicated two grant programs that you will sponsor grants to individuals pursuing economic scientific medical historical legal or literary research and producing a report thereon and grants to individuals improving their skills in the visual or performing arts literature teaching scholarly research or writing does not restrict grants to any specific geographic location you are currently contemplating making grants to professors and scholars at c and d however x you anticipate making w grants per year in amounts in the range of y grants may be made in equal quarterly installments where the individual recipient will need to provide a progress report and account for_the_use_of the funds before the next installment will be provided you have developed a form for the reports ‘you have indicated that there is no limit on the number of individuals who are eligible for the grant but that you anticipate applications per year you indicate that you will generally not accept unsolicited applications for grants applicants will be solicited through e-mail intemet or appropriate postings at colleges universities research institutions think tanks research libraries conservatories and other similar institutions affiliated with advancements in law economics medicine history literature science or the arts as selected from time-to-time by the board_of directors neither employees of x nor disqualified persons are eligible for grants applicants are required to submit a complete educational and biographical record and supporting materials including a report on their academic and professional career a detailed statement of their plans for_the_use_of the grant including a budget a statement of their plans and commitments after the grant references and lists of publications the applicant must also convince the foundation of his her financial need for the grant funds each applicant will be ranked based on his or her credentials the description of his or her proposed project and whether it promoted charitable or educational needs and his or her financial need the candidates will be screened by the screening board which is either the full board_of directors of x or the board’s executive committee when appropriate the screening board will consult with other individuals skilled in the area of law economics science medicine history literature the arts or philanthropy in regards to making grants to foreign individuals or individuals in foreign countries the foundation will follow the guidelines procedures and instructions in adhering to the ofac list and will check all individuals and organizations that it deals with against the ofac list in order to verify that such persons are not on the list individual grantees may be selected from a group of qualified candidates or without reference to a group of candidates because he she is exceptionally qualified to carry out the charitable educational or scientific purposes of the grant or it is otherwise evident that the selection is particularly calculated to effectuate the exempt_purpose of x and the grant rather than to benefit particular persons members of the screening boatd shall not be in a position to derive a private benefit directly or indirectly if certain potential grantees are selected over others the terms and conditions of each grant to an individual are contained in a letter sent to each recipient of such grant the recipient is required to communicate his her acceptance of the grant in writing to x_ terms and conditions include specific purpose of grant its duration the total amount of the grant requirements for narrative reports including due dates for such reports in each case it will be stipulated that continued payment of grant funds is contingent upon evidence of adequate performance at the time of review by making a grant directly to a university professor or institutional researcher the foundation can have greater assurance that the grant funds will be used for the grant purpose each grantee is required to provide periodic reports to x showing the grantee’s progress toward the original goal of the grant and an accounting for_the_use_of the grant evaluation documents upon completion of the grant the grantee provides a final report which shall include a copy of the grantee’s final work product x will require a report of the courses taken by each grantee and the grades received in each academic period the reports will be required to be submitted at the end of each semester or quarter and in all events at least annually any such academic report or transcript must be verified by a faculty_member registrar or other appropriate_official at the academic institution if the grantee’s studies do not involve forma courses eg doctoral thesis a report on the grantee’s progress must be submitted at least annually and that report must be verified by the faculty_member supervising the grantee’s study an officer of x has the responsibility to follow the progress of the individual grant that is to review each report submitted by the funded educational_institution or person to make a determination as to whether the grant’s purposes are being or have been fulfilled and to look into any questions requiring further scrutiny or investigation where reports to x or other information including failure to submit reports after a reasonable_time has elapsed from their due_date indicate that all or any part of grant funds are not being used for the purposes of such grant x shall withhold further payments to the extent possible until it has determined that no part of the grant has been used for improper purposes and until any delinquent reports have been submitted if x determines that any part of the grant has been used for improper purposes all further payments under the grant shall be terminated and x shall take all reasonable and appropriate steps to recover diverted grant funds or to ensure the testoration of diverted funds and the dedication of other grant funds held by the grantee to the purposes being financed by the grant these steps will include legal action unless such action would in all probability not result in the satisfaction of execution of judgment x agrees to maintain records that include the following gi iii iv information used to evaluate the qualification of potential grantees identification of the grantees including any relationship of any grantee to x ‘the amount and purpose of each grant and all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to procedure approved in advance if it is demonsteated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 a gi the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective ptoduce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53 c of the regulations provides that to secure approval a private_foundation must demonstrate that its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees iii of the activities that the grants are intended to finance and ‘the foundation plans to obtain reports to determine whether the grantees performed activities that the gronts are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable expendituces within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants wil be awarded to foundation managers or members of the selection commitice or for a purpose that js inconsistent with the purpose described in sec_170 b of the code ‘the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above ‘thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110g g of the code provides that it may not be used or cited as a precedent ‘you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power of attomey if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements