department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date date date uil contact person identification_number telephone number employer_identification_number se t eo ra t we have considered your ruling_request dated date and supplemental correspondences concerning the federal income and excise_tax consequences under sec_501 sec_507 sec_508 sec_509 sec_4940 sec_4941 sec_4942 sec_4943 sec_4944 and sec_4945 of the internal_revenue_code_of_1986 as amended hereafter code’ related to a proposed merger in the manner and for the purposes described below you are hereafter referred to as x facts y is an organization described in sec_501 and sec_509 of the code and recognized as a private_operating_foundation y’s primary charitable purpose is to provide through its operating_unit chaplains for the religious and spiritual needs of i patients and their families of hospitals and nursing homes and of ii policemen law enforcement officials firemen emergency service personnel and employees of governmental agencies and their families y's charitable purpose also includes providing grants for health care and medical related purposes y’s sole member is x x is an organization described in sec_501 and sec_509 of the code and recognized as a private non-operating foundation x’s primary purpose is to engage in charitable grant-making activities you represent that the same fourteen individuals who comprise y’s board_of trustees also comprise the board_of trustees of x furthermore you represent that the same persons who serve as y's officers also serve in the same positions as x’s officers in order for x and y to simplify their governance structure and to reduce administrative expenses they propose through a joint merger agreement to engage in a statutory merger of x into y pursuant to local state law y will be the surviving organization and after the merger y will change its name to x y represents that after the merger y will continue to engage in the charitable activities for which y’s tax-exempt status was granted and y will also undertake the charitable grant-making activities for which x’s tax-exempt status was granted furthermore x and y each report that neither organization has excess_business_holdings before the proposed merger y proposes to amend and restate its articles of incorporation and bylaws to reflect the following changes as a result of the merger y and x will become one corporation which shall be y and which shall survive the merger obligation to exercise expenditure_responsibility under sec_4945 of the code for grants made by x’s separate existence shall cease y shall possess all of its own and all of x’s rights privileges and franchises all of x’s property and assets shall be transferred to and vest in y and y shall be responsible for all obligations and liabilities of x including x’s x prior to the merger y states that after the consummation of the merger of x into y y will convert from a private_operating_foundation to a private non-operating foundation for its fiscal_year ending on date you have requested the following rulings the merger and resulting transfer of x's assets and liabilities to y will not adversely affect the sec_501 of the code tax-exempt status of either x or y from and after the effective date of the merger and the amendment and restatement of y’s articles of incorporation y will continue to exist as an organization that is exempt from taxation under sec_501 of the code the merger of x into y and the resulting transfer of x’s assets and liabilities to y a will not result in termination of x’s status under sec_507 of the code b will qualify as a transfer under sec_507 and c will not cause y to be treated as a newly created organization x and y are controlled by the same persons and for purposes of the excise_taxes imposed in sections of the code y will be treated as if it is x no tax will be imposed under sec_507 of the code because the internal_revenue_service will not be notified of the termination of x’s status as a private_foundation prior to the transfer of all of x’s assets and liabilities to y pursuant to the joint merger agreement if x through y as the surviving entity under the applicable local state nonprofit corporation law does give notice to the manager exempt_organization determinations te_ge of its intent to terminate its status as a private_foundation the tax under sec_507 of the code applies on the date that the notice is given and if x through y as the surviving entity under the applicable local state nonprofit corporation law provides such notice at least one day after it transfers its assets and liabilities to y the tax imposed by sec_501 of the code will be zero y will be responsible for any of x’s liabilities under chapter to the extent that x does not satisfy such liabilities the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not give rise to any gross_investment_income or capital_gain_net_income within the meaning of sec_4940 of the code the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute self-dealing under sec_4941 of the code and such transfers will not subject x y x's board_of trustees and officers or y’s board_of trustees and officers to tax under sec_4941 it were x for purposes of sec_4942 of the code x will because y will be treated as if not be required to meet the qualifying_distribution requirements of sec_4942 for the taxable_year of the merger provided that y’s distributable_amount for the year of the merger is increased by x’s distributable_amount for the year of the merger and x’s qualifying distributions made during the taxable_year of the merger if any will be carried over to y and be used by y to meet its minimum distribution_requirements under sec_4942 for the year the transfer of assets and liabilities of x to y pursuant to the joint merger agreement will not result in the application of sec_4943 of the code with regard to excess_business_holdings because none of the assets will place y in the position of having excess holdings the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and x will not be required to exercise expenditure_responsibility with respect to the assets transferred to y and y as successor to x in the merger will be required to exercise expenditure_responsibility with respect to any expenditure_responsibility grants of x the legal accounting and other expenses_incurred by x and y in connection with this ruling_request and with effectuating the proposed transfer will be considered qualifying distributions under sec_4942 of the code and will not constitute taxable_expenditures pursuant to sec_4945 law sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations that are organized and operated exclusively for charitable and or other exempt purposes described within the section sec_507 of the code states that except as provided in sec_507 an exempt_organization which is a private_foundation can terminate its private_foundation_status only if it notifies the service of its intent to terminate or if it commits acts or failures to act giving rise to tax under chapter and if it pays the termination_tax imposed by sec_507 or has the tax abated sec_507 of the code provides that in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or the adjustment organization or reorganization the transferee foundation shall not be treated as a newly created organization sec_507 of the code imposes an excise_tax on each terminating private_foundation equal to the lower_of the aggregate tax_benefit resulting from such termination or the value of its net assets sec_507 of the code provides that for purposes of sec_507 the value of the net assets shall be determined at whichever time such value is higher the first day on which action is taken by the organization which culminates in its ceasing to be a private_foundation or the date on which it ceases to be a private_foundation sec_509 of the code provides that certain organizations exempt from federal_income_tax under sec_501 are further classified as private_foundations so that they are thus subject_to the private_foundation provisions of chapter of the code chapter of the code imposes excise_taxes on private_foundations for net_investment_income under sec_4940 acts of self-dealing under sec_4941 undistributed_income under sec_4942 excess_business_holdings under sec_4943 jeopardizing investments under sec_4944 and taxable_expenditures under sec_4945 sec_4940 of the code provides for the imposition of a tax on the net_investment_income of private_foundations sec_4940 of the code defines net_investment_income as the amount by which a the sum of the gross_investment_income and the capital_gain_net_income exceeds b the deductions allowed by sec_4940 except to the extent inconsistent with the provisions of this section net_investment_income shall be determined under the principles of subtitle a sec_4940 of the code defines gross_investment_income as the gross amount of income from interest dividends rents payments_with_respect_to_securities_loans as defined in sec_512 and royalties but not including any such income to the extent included in computing the tax imposed by sec_511 such term shall also include income from sources similar to those in the preceding sentence sec_4941 of the code provides for the imposition of tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code states that the term self-dealing means any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4942 of the code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year sec_4942 of the code defines distributable amount’ with respect to any foundation for any taxable_year as an amount equal to the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code defines qualifying distributions as a any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation except as provided in paragraph or ii a private_foundation which is not an operating_foundation as defined in subsection j except as provided in paragraph or b any amount_paid to acquire an asset used or held for use directly in carrying out one or more purposes described in sec_170 sec_4942 of the code defines qualifying distributions to include a contribution to a sec_501 organization described in paragraph a i or ii of this section if a not later than the close of the first taxable_year after its taxable_year in which such contribution is received such organization makes a distribution equal to the amount of such contribution and such distribution is a qualifying_distribution within the meaning of paragraph or without regard to this paragraph which is treated under subsection h as a distribution out of corpus or would be so treated if such sec_501 organization were a private_foundation which is not an operating_foundation and b the private_foundation making the contribution obtains adequate_records or other_sufficient_evidence from such organization showing that the qualifying_distribution described in subparagraph a has been made by such organization sec_4942 of the code permits excess qualifying distributions paid out by a private_foundation to be carried forward sec_4943 of the code imposes on the excess_business_holdings of any private_foundation in a business_enterprise during any taxable_year which ends during the taxable_period a tax equal to percent of the value of such holdings sec_4943 of the code defines excess_business_holdings to mean with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be percent sec_4944 of the code imposes a tax on a private_foundation if it invests any amount in a manner as to jeopardize the carrying out of any of its exempt purposes sec_4944 of the code provides that an exception to the jeopardizing investment rule are any transfers the primary purpose of which is to accomplish one or more of the purposes described in sec_170 and no significant purpose of which is the production_of_income or the appreciation of property shall not be considered as investments which jeopardize the carrying out of exempt purposes sec_4945 of the code imposes a tax on the taxable_expenditures of 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 organization unless such organization is described in paragraph or of sec_509 or is an exempt_operating_foundation or the private_foundation exercises expenditure_responsibility with respect to such grant sec_4945 of the code provides that the term taxable expenditure’ does not include amounts paid_or_incurred by a private_foundation as a grant to another organization for purposes specified in sec_170 sec_4945 of the code provides that the expenditure_responsibility referred to in sec_4945 means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete reports from the grantee on how the funds are spent and to make full and detailed reports with respect to such expenditures to the secretary sec_4946 of the code provides in part that the term disqualified_person shall not include any organization which is described in sec_501 other than an organization described in sec_509 sec_1_482-1a of the income_tax regulations hereafter regulations defines control for purposes of sec_482 of the code as any kind of control direct or indirect whether legally enforceable or not and however exercisable or exercised sec_1_507-1 of the regulations provides that except as provided in sec_1 the status of any organization as a private_foundation shall be terminated only if such organization notifies the district_director of its intent to accomplish such termination or i with respect to such organization there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter and ii the commissioner notifies such organization that by reason of subdivision i of this subparagraph such organization is liable for the tax imposed by sec_507 of the code and either such organization pays the tax imposed by sec_507 or any portion not abated under sec_507 or the entire amount of such tax is abated under sec_507 sec_1_507-1 of the regulations provides that in order for a private_foundation to terminate its private_foundation_status under sec_1_507-1 an organization must submit a statement to the district_director of its intent to terminate its private_foundation_status under sec_507 of the code such statement must set forth in detail the computation and amount of tax imposed under sec_507 unless the organization requests abatement of such tax pursuant to sec_507 full payment of such tax must be made at the time the statement is filed under sec_507 an organization may request the abatement of all of the tax imposed under sec_507 or may pay any part thereof and request abatement of the unpaid portion of the amount of tax assessed if the organization requests abatement of the tax imposed under sec_507 and such request is denied the organization must pay such tax in full upon notification by the internal_revenue_service that such tax will not be abated for purposes of subtitle f of the code the statement described in this subparagraph once filed shall be treated as a return sec_1_507-1 of the regulations provides that a transfer of all or part of a private foundation's assets to one or more private_foundations pursuant to a transfer described in sec_507 of the code and sec_1_507-3 such transferor foundation will not be deemed to have terminated its private_foundation_status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all the assets of a private_foundation nor a significant disposition of assets by a private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 sec_1_507-3 of the regulations provides that in case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee organization shall not be treated as a newly created organization thus in the case of a significant disposition of assets to one or more private_foundations within the meaning of c the transferee organization shall not be treated as a newly created organization a transferee organization to which this paragraph applies shall be treated as possessing those attributes and characteristics of the transferor organization which are described in subparagraphs and of this section sec_1_507-3 of the regulations provides that a transferee organization to which this paragraph applies shall succeed to the aggregate tax_benefit of the transferor organization in an amount determined as follows such amount shall be an amount equal to the amount of such aggregate tax_benefit multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer fair_market_value shall be determined as of the time of the transfer sec_1_507-3 of the regulations provides that if a private_foundation incurs liability for one or more of the taxes imposed under chapter or any penaity resulting there from prior to or as a result of making a transfer of assets described in sec_507 of the code to one or more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as receiving the transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability sec_1_507-3 of the regulations provides that except as provided in subparagraph of sec_1_507-3 a private_foundation is required to meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 transfer of all or part of its net assets to another private_foundation subparagraphs a through g of this subdivision shall apply to the transferee private_foundation sec_1_507-3 of the regulations provides that the provisions enumerated in with respect to the assets transferred to the same extent and in the same manner that they would have applied to the transferor private_foundation had the transfer described in sec_507 of the code not been effected sec_1_507-3 of the regulations provides if a private_foundation transfers all of its net assets to one or more private_foundations which are effectively controlled within the meaning of sec_1_482-1a directly or indirectly by the same person or persons which effectively controlled the transferor private_foundation for purposes of chapter sec_4940 of the code et seq and part il of subchapter_f of chapter of the code sec_507 through such a transferee private_foundation shall be treated as if it were the transferor however where proportionality is appropriate such a transferee private_foundation shall be treated as if it were the transferor in the proportion which the fair_market_value of the assets less encumbrances transferred to such transferee bears to the fair_market_value of the assets less encumbrances of the transferor immediately before the transfer sec_1_507-3 of the regulations provides that a sec_507 of the code transfer is a transfer of assets by a private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization this shall include any organization or reorganization described in subchapter_c of chapter for purposes of sec_507 the terms other adjustment organization or reorganization shall include any partial_liquidation or any other significant disposition of assets to one or more private_foundations other than transfers for full and adequate_consideration or distributions out of current income sec_1_507-3 of the regulations provides that the term significant disposition of assets to one or more private_foundations shall include any disposition for a taxable_year where the aggregate of the dispositions to one or more private_foundations for the taxable_year is twenty-five percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year sec_1_507-3 of the regulations provides that unless a private_foundation voluntarily gives notice pursuant to sec_507 of the code a transfer of assets described in sec_507 will not constitute a termination of the transferor's private_foundation_status under sec_507 sec_1_507-3 provides that unless a private_foundation gives notice pursuant to sec_507 a transfer of assets described in sec_507 will not constitute a termination of the transferor's private_foundation_status under sec_507 sec_1_507-4 of the regulations provides that private_foundations that make transfers described in sec_507 or of the code are not subject_to the termination_tax imposed under sec_507 with respect to such transfers sec_53_4940-1 foundation and similar excise_tax regulations hereafter foundation regulations provides that in determining capital_gain_net_income net_capital_gain for taxable years beginning before date for purposes of the tax imposed by sec_4940 of the code there shal be taken into account only capital_gains_and_losses from the sale_or_other_disposition of property held by a private_foundation for investment purposes other than program-related investments as defined in sec_4944 and property used for the production_of_income included in computing the tax imposed by sec_511 except to the extent gain_or_loss from the sale_or_other_disposition of such property is taken into account for purposes of such tax for taxable years beginning after date property shall be treated as held for investment purposes even though such property is disposed of by the foundation immediately upon its receipt if it is property of a type which generally produces interest dividends rents royalties or capital_gains through appreciation for example rental real_estate stock bonds mineral_interests mortgages and securities under this subparagraph gains and losses from the sale_or_other_disposition of property used for the exempt purposes of the private_foundation are excluded sec_53_4942_a_-2 of the foundation regulations defines assets used or held for use in carrying out the exempt_purpose as an asset that is used or held for use directly in carrying out the foundation's exempt_purpose but only if the asset is actually used by the foundation in the carrying out of the charitable educational or other similar purpose which gives rise to the exempt status of the foundation or if the foundation owns the asset and establishes to the satisfaction of the commissioner that its immediate use for such exempt_purpose is not practical based on the facts and circumstances of the particular case and that definite plans exist to commence such use within a reasonable period of time consequently assets which are held_for_the_production_of_income or for investment for example stocks bonds interest-bearing notes endowment funds or generally leased real_estate are not being used or held for use directly in carrying out the foundation's exempt_purpose even though the income from such assets is used to carry out such exempt_purpose whether an asset is held_for_the_production_of_income or for investment rather than used or held for use directly by the foundation to carry out its exempt_purpose is a question of fact sec_53_4942_a_-3 of the foundation regulations provide that in any taxable_year for which an organization is subject_to the initial excise_tax imposed by sec_4942 of the code there is created an excess of qualifying distributions as determined under sec_53_4942_a_-3 such excess may be used to reduce distributable amounts in any taxable_year of the adjustment period as defined in subparagraph of this paragraph for purposes of sec_4942 including paragraph d of this section the distributable_amount for a taxable_year in the adjustment period shall be reduced to the extent of the lesser_of i the excess of qualifying distributions made in prior taxable years to which such adjustment period applies or ii the remaining undistributed_income at the close of such taxable_year after applying any qualifying distributions made in such taxable_year to the distributable_amount for such taxable_year determined without regard to this paragraph if during any taxable_year of the adjustment period there is created another excess of qualifying distributions such excess shall not be taken into account until any earlier excess of qualifying distributions has been completely applied against distributable amounts during its adjustment period sec_53_4943-1 of the foundation regulations provides that under sec_4943 of the code the combined holdings of a private_foundation and all disqualified persons as defined in sec_4946 in any corporation conducting a business which is not substantially related aside from the need of the foundation for income or funds or the use it makes of the profits derived to the exempt purposes of the foundation are limited to percent of the voting_stock in such corporation in addition the combined holdings of a private_foundation and all disqualified persons in any unincorporated business other than a sole_proprietorship which is not substantially related aside from the need of the foundation for income or funds or the use it makes of the profits derived to the exempt purposes of such foundation are limited to percent of the beneficial or profits interest in such business in the case of a sole_proprietorship which is not substantially related within the meaning of the preceding sentence sec_4943 provides that a private_foundation shall have no permitted holdings these general provisions are subject_to a number of exceptions and special provisions which will be described in following sections sec_53_4945-5 of the foundation regulations provides that if a private_foundation makes a grant described in sec_4945 of the code to a private_foundation which is exempt from taxation under sec_501 for endowment for the purchase of capital equipment or for other capital purposes the grantor foundation shall require reports from the grantee on the use of the principal and the income if any from the grant funds the grantee shall make such reports annually for its taxable_year in which the grant was made and the immediately succeeding taxable years only if before the end of such second succeeding taxable_year neither the principal the income from the grant funds nor the equipment purchased with the grant funds has been used for any purpose which would result in liability for tax under sec_4945 the grantor may then allow such reports to be discontinued it is reasonably apparent to the grantor that sec_53_4945-6 of the foundation regulations provides that any expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services rendered will ordinarily be taxable_expenditures under sec_4945 of the code unless the foundation can demonstrate that such expenses were paid_or_incurred in the good_faith belief that they were reasonable and that the payment or incurrence of such expenses in such amounts was consistent with ordinary business care and prudence the determination whether an expenditure is unreasonable shall depend upon the facts and circumstances of the particular case sec_53_4946-1 of the foundation regulations provides that for purposes of sec_4941 of the code only the term disqualified_person shall not include any organization which is described in sec_501 other than an organization described in sec_509 revrul_78_387 1978_2_cb_270 holds that when a transferee foundation is treated as the transferor under sec_1_507-3 of the regulations the transferee is entitled to reduce its distributable_amount under sec_4942 of the code by the amount of the transferor's excess qualifying_distribution carryover revrul_2002_28 2002_1_cb_941 holds that the transfer from one foundation to another foundation pursuant to a sec_507 of the code transfer does not constitute a realizable event for purposes of determining net_investment_income under sec_4940 it also holds that because a transferor private_foundation transferred all of its assets to a private_foundation effectively controlled by the same persons that effectively control the transferor the transferee foundation is treated as though it were the transferor for purposes of sec_4943 and sec_4946 analysis ruling the issue is whether the proposed merger of x’s assets and liabilities into y will adversely affect either x’s or_y’s tax-exempt status under sec_501 of the code sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations that are organized and operated exclusively for charitable and or other exempt purposes described within the section sec_507 of the code provides that an exempt_organization which is a private_foundation can terminate its private_foundation_status only if terminate or if it commits acts or failures to act giving rise to tax under chapter and subsequently pays the termination_tax imposed by sec_507 or has the tax abated a transfer of assets from one private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization is considered a sec_507 transfer a sec_507 transfer will neither terminate the transferor’s private_foundation_status nor will it terminate the transferee’s private_foundation_status see sec_1_507-1 and sec_1_507-3 of the regulations it notifies the service of its intent to as described fully in the facts section x and y propose to engage in a statutory merger pursuant to local state law of x’s assets and liabilities into y both x and y are organizations described in sec_501 and sec_509 of the code and recognized as private_foundations the proposed merger of x into y qualifies as a sec_507 transfer because it is a transfer from one private_foundation to another private_foundation pursuant to a liquidation merger redemption see sec_507 and sec_1_507-3 of the regulations as the merger is a sec_507 transfer neither x’s nor y’s private_foundation_status will be terminated as a result of the merger see sec_1_507-1 and sec_1_507-3 rather to terminate either x’s or y’s tax-exempt status as private_foundations the terminating party must either notify the service of its intent to terminate or it must commits acts or failures to act resulting in excise_tax liability under chapter see sec_507 y represents that after the merger y will continue engaging in the same charitable activities for which its tax-exempt status under sec_501 of the code was granted y also represents that it will take over the charitable grant-making activities formerly conducted by x furthermore y represents that neither it nor x have notified the service of any intent to terminate private_foundation_status or committed acts or failures to act giving rise to a tax under chapter therefore the resulting merger of x’s assets and liabilities into y will not adversely affect either x’s or y‘s tax-exempt status as private_foundations under sec_501 and sec_509 ruling the issue is whether y will continue to exist as an organization that is exempt from taxation under sec_501 and sec_509 of the code after the effective date of the merger and the amendment and restatement of its articles of incorporation prior to the merger x has been recognized as a tax-exempt private non-operating foundation under sec_501 and sec_509 of the code prior to the merger y has been recognized as a tax-exempt private_operating_foundation under sec_501 and sec_509 as stated fully in ruling the proposed merger of x into y qualifies as a sec_507 transfer absent either notifying the service of any intent to terminate private_foundation_status or committing acts or failures to act giving rise to an excise_tax under chapter a sec_507 transfer will not result in the termination of either x’s or y's tax-exempt status see sec_1_507-1 and sec_1_507-3 of the regulations y represents that after the merger it will amend and restate its articles of incorporation to reflect both the transfer of assets and liabilities from x to y and the assumption of x’s assets and liabilities by y y also represents that after the merger it will continue to engage in direct charitable activities for which its tax- exempt status was granted and it will also undertake to perform the charitable grant-making activities for which x’s tax-exempt status was granted y also represents that post merger it will convert from a private_operating_foundation to a private non-operating foundation for its fiscal_year ending date private non-operating foundations are required to make certain minimum qualifying distributions see sec_4941 and sec_4941 it is assumed for purposes of this ruling that after the effective date of the merger y will meet the qualifying_distribution requirements of sec_4942 because y will continue to engage in qualifying charitable activities after the effective date of the merger and the amendment and restatement of its articles of incorporation y’s tax-exempt status continues unchanged as an organization that is exempt from taxation under sec_501 and sec_509 ruling the issue is whether the merger of x into y and the resulting transfer of x’s assets and liabilities to y will a terminate x’s status under sec_507 of the code b qualify as a transfer under sec_507 and c cause y to be treated as a newly created organization as to issue a listed above under sec_507 of the code an exempt_organization which is a private_foundation can terminate its private_foundation_status only if it notifies the service of its intent to terminate or if it commits acts or failures to act giving rise to tax under chapter and if it pays the termination_tax imposed by sec_507 or has the tax abated as representations have been made that x has neither notified the service of any intent to terminate its private_foundation_status nor has it committed acts or failures to act giving rise to a tax under chapter x’s disposition of assets and liabilities pursuant to a merger as a sec_507 transfer does not terminate its private_foundation_status as to issue b listed above and as described fully in ruling the transfer of assets and liabilities from x to y pursuant to a statutory merger under local state law qualifies as a sec_507 of the code transfer because it is a transfer of assets pursuant to a merger from one private_foundation to another as to issue c listed above under sec_507 of the code and sec_1 a of the regulations a transfer of assets by a private_foundation to another private_foundation pursuant to a sec_507 transfer will not result in the recipient foundation being treated as a newly created organization because x and y are both private_foundations and the transfer qualifies under sec_507 y will not be treated as a newly created organization post merger ruling the issue is whether x and y are effectively controlled by the same persons for purposes of sections of the code and whether y will be treated as if it is x pursuant to sec_1_507-3 of the regulations if a private_foundation transfers all of its net assets to one or more private_foundations which are effectively controlled within the meaning of sec_1_482-1a directly or indirectly by the same person or persons which effectively controlled the transferor private_foundation for purposes of sec_507 through of the code such a transferee private_foundation shall be treated as if it were the transferor x and y represented that the same individuals who comprise x’s board_of trustees are the same individuals who comprise the board_of trustees of y and that the same persons who serve as x’s officers also serve in the same positions as officers in y we are presuming for purposes of this ruling that x is effectively controlled under sec_1_482-1a by the same persons who effectively control’ y therefore after the merger y shall be treated as if it is x for purposes of sec_507 through ruling the issue is whether the termination_tax described under sec_507 of the code will be imposed upon x as a result of the merger of x’s assets and liabilities into y prior to x giving the service any notice of its intent to terminate its private_foundation_status sec_507 of the code provides that a private_foundation can terminate its private_foundation_status only if it notifies the service of its intent to terminate or if it commits acts or failures to act giving rise to tax under chapter and if it pays the termination_tax imposed by sec_507 or has the tax abated a termination_tax is imposed under sec_507 on the value of the lower_of the organization’s net assets or its aggregate tax_benefit from its sec_501 status at the time the organization terminates its private_foundation_status as described fully in ruling the merger of x into y qualifies as a sec_507 transfer and said transfer will not terminate x’s private_foundation_status see also sec_1_507-1 and sec_1_507-3 of the regulations as x has represented that it has neither notified the service of its intent to terminate its private_foundation_status nor has it committed acts or failed to act giving rise to tax under chapter a sec_507 termination_tax will not be imposed on x prior to x giving the service any notice of its intent to terminate its private_foundation_status ruling the issue is whether the termination_tax under sec_507 of the code will apply on the date that notice by y as the surviving entity of the statutory merger is given to the manager exempt_organization determinations te_ge of x’s intent to terminate its private_foundation_status and whether the termination_tax will be zero provided that y gives such notice at least one day after the merger of x into y a private_foundation may voluntarily terminate its private_foundation_status upon giving appropriate notice to the secretary of its intent to terminate see sec_507 of the code and sec_1_507-1 sec_1_507-1 of the regulations under sec_1_507-3 ujnless a private_foundation voluntarily gives notice pursuant to sec_507 of the code a transfer of assets described in sec_507 will not constitute a termination of the transferor’s private_foundation_status under sec_507 if a termination_tax under sec_507 applies to a private_foundation said tax is equal to the lower_of either the aggregate tax_benefit resulting from the sec_501 status of the foundation or the value of the net assets of the foundation see sec_507 under sec_507 the date of determining the value of a private foundation’s net assets for c termination_tax purpose is made on either the first day on which action is taken by the organization which culminates in its ceasing to be a private_foundation or the date on which it ceases to be a private_foundation which ever time such value is higher as described fully in ruling the complete merger of x into y qualifies as a sec_507 of the code transfer and x’s private_foundation_status is not terminated as a result of the merger y represents that subsequent to the merger it will be the surviving entity of all of x’s rights and liabilities with x’s net assets after the merger being zero if y tenders sec_507 notice after the merger and the value of x’s net assets are zero then the termination_tax imposed under sec_507 will also be zero see sec_507 therefore x’s termination will be effective on the date y tenders sec_507 notice and if x’s net assets are zero on this date x’s termination_tax will also be zero ruling the issue is whether under chapter y will be liable for any of x’s tax_liabilities associated with the transferred assets to the extent that x has not satisfied such liabilities under sec_1_507-3 of the regulations the recipient of a transfer under sec_507 of the code will be treated as receiving the transferred assets subject_to any outstanding tax_liability incurred by the transferor under chapter in proportion to the assets received and to the extent the liability had not been previously satisfied here y is the recipient of a transfer under sec_507 therefore y shall be treated as receiving the x’s assets subject_to any outstanding tax_liability not previously satisfied by x ruling the issue is whether the transfer of assets and liabilities by x to y pursuant to the merger will give rise to gross_investment_income or capital_gain_net_income within the meaning of of the code sec_4940 of the code imposes an excise_tax upon the net_investment_income of a private_foundation net_investment_income is defined as the sum of gross_investment_income and capital_gain_net_income less applicable deductions see sec_4940 in determining gross_investment_income only the gross amount of income earned from interest dividends rent payments_with_respect_to_securities_loans and royalties but excluding any income subject_to the tax on unrelated_business_income is considered see sec_4940 in determining capital_gain_net_income only capital_gains_and_losses from the sale_or_other_disposition of property used for the production_of_income subject_to the investment_income tax eg interest dividends rents payments_with_respect_to_securities_loans and royalties is considered see sec_53_4940-1 of the regulations the transfer of x’s assets and liabilities into y pursuant to a sec_507 of the code transfer will not result in the application of the excise_tax under sec_4940 because x and y are deemed pursuant to ruling to be effectively controlled by the same persons and the transferred assets pursuant to sec_1_507-3 of the regulations maintain their same tax character after the transfer to y the transferred assets will not fall within the definition of gross_investment_income or capital_gain_net_income under sec_4940 and will therefore will not give rise to tax under sec_4940 see also revrul_2002_28 ruling the issue is whether the merger of x’s assets and liabilities into y will result in excise_tax liability as an act of self-dealing under sec_4941 of the code for x y x’s board_of trustees and officers or y's board_of trustees and officers or exchange or leasing of property between a private_foundation and a disqualified_person under sec_4941 of the code an act of self-dealing is defined as any prohibited sale under sec_4946 and sec_53_4946-1 of the foundation regulations a disqualified_person does not include an organization recognized under sec_501 because both x and y are organizations recognized under sec_501 the transfer of x’s assets and liabilities to y pursuant to a statutory merger is not an act of self-dealing under sec_4941 for x y x’s board_of trustees and officers or y’s board_of trustees and officers ruling the issue is whether x for the taxable_year of the merger will be required to meet the qualifying_distribution requirements of sec_4942 of the code if y is treated as x y’s distributable_amount as defined in d is increased by x’s distributable_amount and if x’s qualifying distributions as defined in g if any are carried over to y and used by y to meet the qualifying_distribution requirements of sec_4942 sec_4942 of the code imposes an excise_tax on a private non-operating foundation’s failure to distribute its required amount of income principal therein defined as distributable_amount under sec_4942 only qualifying distributions are considered in the determination of whether the amount distributed by the private_foundation satisfies its distributable_amount requirement the definition of qualifying distributions includes any distributions paid to accomplish a purpose described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation except as provided in paragraph see sec_4942 sec_4942 permits a private non- operating_foundation to make qualifying distributions’ to a recipient organization described under sec_501 provided that the recipient organization in turn makes qualifying distributions equal to the amount received from the private_foundation any excess qualifying distributions made by a private non-operating foundation are carried over to and usable in the next taxable_year see sec_4942 sec_53_4942_a_-3 of the foundation regulations under sec_1_507-3 of the regulations if a transferor private_foundation transfers all of its net assets to a recipient private_foundation that is effectively controlled within the meaning of sec_1_482-1a by the same persons the transferee shall be treated as the transferor for purposes of sec_4940 through and through in revrul_78_387 1978_2_cb_270 the service held that in a qualifying transfer under sec_1_507-3 the recipient private_foundation succeeded to the excess qualifying distributions of the transferor private_foundation and was permitted to reduce its minimum distribution_requirements under sec_4942 by the carryover of the excess qualifying distributions of the transferor to the extent that the recipient is treated as the transferor under sec_1_507-3 as described fully in ruling it is assumed that x and y are effectively controlled by the same persons as described fully in ruling the merger of x into y qualifies as a sec_507 of the code transfer under sec_1_507-3 of the regulations the complete transfer of assets from x a private non-operating foundation to y a private_operating_foundation will result in y being treated as x and x not having any qualifying_distribution requirements in the year of the merger y represents that post merger it will convert from a private_operating_foundation to a private non-operating foundation for its fiscal_year ending date as such post merger y will have a distributable_amount requirement under sec_4942 and the amount y is required to distribute will be increased by x’s distributable_amount requirement see sec_4942 because the merger results in y being treated as x under sec_1_507-3 of the regulations y may reduce its minimum distribution_requirements under sec_4942 by the amount of x’s excess qualifying distributions which carried over as a result of the merger under sec_1_507-3 of the regulations see also revrul_78_ in conclusion during the taxable_year of the merger x will not be required to meet the qualifying_distribution requirements of sec_4942 of the code the complete merger of x into y will result in y’s qualifying_distribution requirements increased by any of x’s outstanding qualifying_distribution requirements at the time of the merger furthermore post merger y will be permitted to carry-over any excess qualifying distributions made by x to be used by y to meet its qualifying_distribution requirements under sec_4942 ruling the issue is whether the transfer of assets and liabilities from x to y pursuant to the merger will result in the application of sec_4943 of the code with regard to excess_business_holdings where none of the assets will place y in the position of having excess_business_holdings sec_4943 of the code imposes an excise_tax on a private_foundation maintaining business holdings in excess of the threshold limits enumerated in subsection c under sec_4943 the combined business holdings of a private_foundation and all disqualified persons’ as that term is defined in sec_4946 in any corporation conducting a business which is not substantially related to the exempt_purpose of the foundation are limited to of the voting_stock in such corporation see sec_53_4943-1 of the foundation regulations in a sec_507 transfer where the transferor and recipient private_foundations are effectively controlled by the same persons the recipient foundation will be treated as if for purposes of sec_4943 and sec_4946 see sec_1_507-3 of the regulations revrul_2002_28 it was the transferor as described fully in ruling x and y are presumed to be effectively controlled by the it was x for purposes of same persons the merger of x into y will result in y being treated as if sec_4943 see sec_1_507-3 of the regulations because neither x nor y report any excess_business_holdings before the merger in any entity conducting a business which is not substantially related to either x's or y’s exempt_purpose the merger of x into y will not result in the application of sec_4943 ruling the issue is whether the transfer of x’s assets and liabilities to y pursuant to the merger will constitute a jeopardizing investment within the meaning of sec_4944 of the code sec_4944 of the code imposes a tax on investments by private_foundations which jeopardize their charitable purposes under sec_4944 a transfer pursuant to sec_507 is not considered an investment for purposes of sec_4944 if the transfer of assets was made for the purpose of accomplishing a charitable purpose because y represents that x will transfer its assets and liabilities to y with the goal of enabling y to continue to engage in the various charitable activities described in the facts above the transfer will not result in the imposition of tax for a jeopardizing investment under sec_4944 ruling the issues are whether the transfer of x’s assets and liabilities to y pursuant to the merger will constitute a taxable_expenditure under sec_4945 of the code whether x will be required to exercise expenditure_responsibility with respect to the assets transferred to y and whether y as successor to x will be required to exercise expenditure_responsibility with respect to any expenditure_responsibility grants made by x sec_4945 of the code imposes an excise_tax upon any taxable_expenditure which is defined under subsection d as certain non-qualifying amounts paid_or_incurred by a private_foundation an exception to the taxable_expenditure definition includes any transfer from a private_foundation in the form of a grant to another organization other than a public charity provided that the private_foundation exercises expenditure_responsibility with respect to such grant see sec_4945 under a i of the regulations a private_foundation that transfers all of its net assets to a recipient private_foundation which is effectively controlled within the meaning of sec_1_482-1a by the same persons who effectively contro the transferor for purposes of chapter the transferee private_foundation shail be treated as if it were the transferor private_foundation because the recipient foundation will be treated as the transferor foundation in reference to the assets transferred under sec_4945 h there are no expenditure_responsibility requirements that must be exercised by the transferor private_foundation see also sec_1_507-3 example the merger of all of x’s assets and liabilities into y will not result in a taxable_expenditure to x and will not result in x’s requirement to exercise expenditure_responsibility over the transferred asset to y because the merger is a qualifying sec_507 of the code transfer within which y will be treated as x see sec_1_507-3 of the regulations because y will be treated as x y will be required to exercise expenditure_responsibility over the grants made by x see sec_1_507-3 iii example furthermore y represent’s that post merger it will amend its articles of incorporation and bylaws to reflect that it assumes all responsibility for all obligations and liabilities of x including x’s obligation to exercise expenditure_responsibility under sec_4945 for grants made by x prior to the merger therefore x’s transfer of assets and liabilities to y will not constitute a taxable_expenditure under sec_4945 of the code x will not be required to exercise expenditure_responsibility with respect to assets transferred to y in the merger and y as successor to x will be required to exercise expenditure_responsibility with respect to any expenditure_responsibility grants made by x ruling the issue is whether the legal accounting and other expenses_incurred by x and y in connection with this ruling_request and with effectuating the merger will be considered as qualifying distributions under sec_4942 of the code and not considered taxable_expenditures under sec_4945 sec_4942 of the code imposes an excise_tax on a private foundation’s failure to distribute its required amount of income principal therein defined as distributable_amount under sec_4942 only qualifying distributions are considered in the determination of whether the amount distributed by the private_foundation satisfies its distributable_amount requirement the definition of qualifying distributions includes any amount_paid to acquire an asset used or held for use directly in carrying out one or more purposes described in sec_170 see sec_4942 an asset is deemed used or held for use only if the asset is actually used by the foundation in carrying out the charitable educational or other similar purpose which gives rise to the exempt status of the foundation see sec_53_4942_a_-2 of the foundation regulations assets which are held_for_the_production_of_income or for investment such as stocks bonds and endowment funds are not deemed to be used or held for use directly by the foundation in carrying out its charitable purpose see sec_53_4942_a_-2 however whether an asset is held_for_the_production_of_income investment or whether it is used directly by the foundation in carrying out its exempt_purpose is a question of fact the issue of whether the assets acquired by y in the merger will be used by y in carrying out its charitable purpose as opposed to being held_for_the_production_of_income as defined in sec_53_4942_a_-2 is extremely factual and beyond the facts presented in this ruling_request therefore we decline to answer the question of whether the expenses related to the acquisition of these assets will be considered as qualifying distributions under sec_4942 under sec_53_4945-6 of the foundation regulations legal accounting administrative and other expenses_incurred by a private_foundation in a good_faith belief that they are reasonable and consistent with ordinary care and prudence will not constitute taxable_expenditures under sec_4945 of the code therefore if the legal accounting and other expenses_incurred by x and y pursuant to the merger were incurred in a good_faith belief that they are reasonable and consistent with ordinary care and prudence the expenditures will not constitute taxable_expenditures under sec_4945 accordingly based on the information submitted in your ruling_request we rule as follows the merger and resulting transfer of x’s assets and liabilities to y will not adversely affect the sec_501 of the code tax-exempt status of either x or y from the effective date of the merger and the amendment and restatement of y’s articles of incorporation y will continue to exist as an organization that is exempt from taxation under sec_501 of the code the merger of x into y and the resulting transfer of x's assets and liabilities to y a will not result in termination of x's status under sec_507 of the code b will qualify as a transfer under sec_507 and c will not cause y to be treated as a newly created organization assuming that both x and y are effectively controlled by the same person within the meaning of sec_1_482-1a of the regulations then post merger y will be treated as if it is x under sec_507 through of the code no tax will be imposed under sec_507 of the code because the internal_revenue_service will not be notified of the termination of x’s status as a private_foundation prior to the transfer of all of x’s assets and liabilities to y pursuant to the joint merger agreement if x through y as the surviving entity under the applicable local state nonprofit corporation law does give notice to the manager exempt_organization determinations te_ge of its intent to terminate its status as a private_foundation the tax under sec_507 of the code applies on the date that the notice is given and if x through y as the surviving entity under the applicable local state nonprofit corporation law provides such notice at least one day after x transfers all of its assets and liabilities to y the tax imposed by sec_501 will be zero if x’s net assets are also zero y will be responsible for any of x’s liabilities under chapter to the extent that x does not satisfy such liabilities the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not give rise to any gross_investment_income or capital_gain_net_income within the meaning of sec_4940 of the code the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute self-dealing under sec_4941 of the code and such transfer will not subject x y x's board_of trustees and officers or y 's board_of trustees and officers to tax under sec_4941 because y will be treated as if it were x for purposes of sec_4942 of the code x will not be required to meet the qualifying_distribution requirements of sec_4942 for the taxable_year of the merger provided that y’s distributable_amount for the year of the merger is increased by x’s distributable_amount for the year of the merger and x’s qualifying distributions made during the taxable_year of the merger if any will be carried over to y and be used by y to meet its minimum distribution_requirements under sec_4942 for the year the transfer of assets and liabilities of x to y pursuant to the joint merger agreement will not result in the application of sec_4943 of the code with regard to excess_business_holdings because none of the assets will place y in the position of having excess holdings the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the transfer of assets and liabilities by x to y pursuant to the joint merger agreement will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and x will not be required to exercise expenditure_responsibility with respect to the assets transferred to y and y as successor to x in the merger will be required to exercise expenditure_responsibility with respect to any expenditure_responsibility grants of x the legal accounting and other expenses_incurred by x and y in connection with this ruling_request and with effectuating the proposed transfer will not constitute taxable_expenditures pursuant to sec_4945 of the code provided that the incurred expenses are incurred in good_faith and are reasonable sec_482 of the code and sec_1_482-1a of the regulations all parts of this ruling that rely upon you being effectively controlled will no longer apply should it be determined that you are not effectively controlled by the same persons that effectively control x this ruling will be made available for public inspection under sec_6110 of the code after for purposes of this ruling we are presuming that you are effectively controlled under certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number -------------------------- ---------------------------------------- ------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-146494-08 date date x --------------------------------------------------------------------------------------------------- ------------------------- legend state ------ date ---------------- a -------------------- dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state on date a the sole shareholder of x intended that x elect to be treated as an s_corporation effective date however x’s form_2553 election by a small_business_corporation was not filed timely x represents that both x and a have reported their income consistent with x’s intended status as an s_corporation x requests a ruling that it will be recognized as an s_corporation effective date law and analysis plr-146494-08 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election is treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make an s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective date within days following the date of this letter we rule that the election shall be treated as timely made a copy of this letter should be attached to form_2553 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied as to whether x is otherwise eligible to be an s_corporation for federal tax purposes 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 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-146494-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


significant index no department of the treasury internal_revenue_service washington d c date may contact person id number telephone number ope eo0th s employer_identification_number legend x n dear sir or madam this is in reference to a letter dated date submitted by your authorized representatives requesting a private_letter_ruling as to the federal_income_tax consequences of the proposed transactions described below the information provided indicates that you have been recognized as exempt from federal_income_tax as an organization described in sec_501 c of the internal_revenue_code and have been classified as other than a private_foundation under sec_509 a of the code purpose is to promote low-speed magnetically levitated maglev transportation systems as a means of providing safe nonpolluting and efficient public transportation your primary in order to demonstrate the feasibility of maglev transportation systems to x the city and other governmental entities you plan to construct a maglev people mover the shuttle system and a big_number space parking garage the garage the garage will be constructed to the east of an all-purpose auditorium coliseum the arena in the gawntown area of the city system will connect the garage to a subway station the subway station a distance of about big_number feet the ride between the garage and the subway station will take approximately seconds passengers will be riding in a transit car magnetically supported two inches above the guideway about to feet above the streets the shuttle system and the garage are referred to herein as the project the shuttle there are currently approximately big_number surface parking spaces available at the arena the garage will be on current surface parking at the arena thereby displacing parking spaces but adding an additional big_number spaces in the garage indicated that there is spaces there are several construction projects either planned or underway in the downtown area which provide for some parking but will also generate additional traffic a current shortage of parking spaces in the city’s downtown area of big_number a study commissioned by you the study overall the study projects off that by that even with the addition of big_number parking spaces in the downtown area a shortage of big_number spaces will remain the proposed garage will be a multi-use parking facility day and evening usage will be by commuters and visitors to office government and other buildings most of which have little or no parking evening and weekend parking will be generated by about arena events per year these will include hockey basketball soccer wrestling boxing exhibit shows ice shows concerts rodeos graduations etc while patrons using the garage will be charged a commercially reasonable fee to park anyone will be permitted to ride on the shuttle system free of charge those using the garage for evening activities may use the shuttle system for transportation to and from downtown restaurants stores and office buildings county have approved the project providing all the necessary rights of way building permits and other approvals both the city and y county the you expect that the project will be financed by both taxable and tax-exempt_bonds with an after the bonds have been repaid you intend to transfer the average maturity_date of thirty years garage and shuttle system to the county or an appropriate governmental agency selected by the county the county will enter into a guaranty pledging its full faith and credit toward payment of principal and interest on certain bonds issued by you in connection with the project you will use any remaining surplus funds to build additional maglev shuttle systems in the city and surrounding communities or for other community development purposes including the construction of a new ice hockey arena the city will enter into an agreement with you covenanting that the city will grant a minimum of dollar_figure million in parking tax abatement to be credited against parking taxes due from project operations you will enter into agreements with relevant property_tax authorities the city the county and the school district whereby the authorities covenant to accept dollar_figure annually commencing on the date of the closing of the financing increased by annually to be paid_by you in lieu of any applicable_property taxes y a municipal authority currently operates buses and a light rail transit system in the city and and the county t also operates park-and-ride lots in the county and is actively involved in expanding the number of park-and-ride lots to relieve traffic congestion in the downtown area and to facilitate the use of the public transportation system by area commuters the city itself operates numerous downtown and fringe parking garages sec_501 c of the code provides in part for an exemption from federal_income_tax for corporations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the corporation's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1 c -1 d of the income_tax regulations provides that the term charitable is used in sec_501 c in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions such term includes advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or i to lessen neighborhood tensions ii to relief of the poor and distressed or of the underprivileged advancement of religion v2 eliminate prejudice and discrimination iii to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 under sec_512 of the code the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it tess allowable deductions directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b sec_513 of the code defines the term unrelated trade business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of the purpose or function constituting the basis for its exemption sec_1 513-i d of the income_tax regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of any exempt_purpose and is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services for which the gross_income is derived must contribute importantly to the accomplishment of those purposes revrul_69_269 1969_1_cb_160 holds that the operation of a parking lot for patients and visitors only by a sec_501 haspital does not constitute unrelated_trade_or_business under sec_513 of the code in revrul_85_2 c the service determined that an organization that providing legal assistance to guardians ad litem who represent abused and neglected children before a juvenile court that requires their appointment lessens the burdens of government and therefore qualifies for exemption under sec_501 c of the code as part of its analysis the service examined whether the organization's activities are activities that a governmental_unit considers to be its burdens and whether such activities actually lessen such governmental burden the ruling notes that a favorable working relationship between the government and the organization is strong evidence that the organization is actually lessening the burdens of the government in revrul_69_269 the hospital's charitable purposes were furthered by the operation of a similarly the construction and operation of the garage in close proximity to the parking facility shuttle system will contribute importantly to your educational and scientific purpose of promoting the use of maglev technology in the development of public transportation systems passengers are an important ingredient in creating an effective demonstration model the lack of parking curreritly available at that location and in the surrounding downtown area would without the garage create a lack of potential riders the public transportation system provided by the city and county through z as well as the numerous municipal parking facilities provided by the city are objective manifestations by the city and county that they consider such activities to be part of their governmental burden and involvement of the city and county through the parking tax abatements the property_tax agreement the guaranty agreement and the grant of right of ways and other needed approvals is strong evidence that they believe the project will actually lessen that burden the support accordingly we rule as follows the construction and operation of the garage will not adversely affect the your status as a tax-exempt public charity under sec_501 ci of the code the operation of the proposed garage will be substantially related to the your charitable educational and scientific tax-exempt purposes and it will lessen the burdens of government the proposed garage will not constitute an unrelated_trade_or_business within the meaning of sec_513 of the code the income generated by the proposed garage will not constitute unrelated_business_taxable_income within the meaning of sec_512 of the code and will not be subject_to tax under sec_511 this ruling letter is directed only to the organization that requested it sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c haiper 3h robert c harper jr id chief exempt_organizations technical branch ry


internal_revenue_service national_office technical_advice_memorandum index uil no case mis no tam-116141-98 dec - taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference issue conclusion facts in the case of a taxpayer with mining_property placed_in_service ina taxable_year beginning before date does the taxpayer have an adjustment under sec_56 of the internal_revenue_code in computing adjusted_current_earnings if in computing pre-adjustment alternative_minimum_taxable_income the taxpayer deducts an amount under sec_61 a that is in excess of the adjusted_basis of the mining_property for cost_depletion purposes if mining_property is placed_in_service in a taxable_year beginning before date the taxpayer has an adjustment under sec_56 of the internal_revenue_code in computing adjusted_current_earnings if the taxpayer deducts an amount under sec_611 in computing pre-adjustment alternative_minimum_taxable_income that is in excess of the adjusted_basis of the mining_property for cost_depletion purposes taxpayer is a corporation engaged in the business of mining the mines a3 tam-116141-98 that are the subject of this technical_advice_memorandum tam were placed_in_service before date basis for cost_depletion purposes as determined under sec_612 and the regulations thereunder was zero accordingly taxpayer used percentage_depletion in computing its allowable deduction under sec_611 for the tax years involved in this tam taxpayer's adjusted in the tax years involved taxpayer incurred mining development costs and for regular_tax purposes deducted those costs under sec_616 in accordance with sec_291 taxpayer was required to reduce its sec_616 deduction by percent and amortize that percent amount over months for alternative_minimum_tax purposes taxpayer under sec_56 capitalized the sec_616 development costs and will amortize those costs over a period of ten years n each of the tax years involved for purposes of calculating its sec_57 depletion preference taxpayer included in the adjusted_basis of the mining_property the development costs incurred in the year but capitalized under sec_56 taxpayer in computing pre-adjustment alternative_minimum_taxable_income amti in each of the years involved was required to reduce the amount of its sec_611 deduction by the sec_57 depletion preference however because the capitalized development costs were included in the adjusted_basis of the mining_property for purposes of computing the sec_57 depletion preference taxpayer's depletion preference did not completely offset its sec_611 deduction thus in computing pre-adjustment amti taxpayer was entitled to deduct an amount under sec_611 even though taxpayer's adjusted_basis for cost_depletion purposes was zero in those years since taxpayer's pre-adjustment amti includes a deduction under sec_611 that is in excess of the sec_611 amount allowable in computing earnings_and_profits taxpayer has an adjustment under sec_56 in computing adjusted_current_earnings ace the irs revenue_agent therefore contends that law and analysis sec_55 of the code imposes in addition to the other taxes imposed by subtitle a an alternative_minimum_tax amt equal to the excess if any of the tentative_minimum_tax tmt for the taxable_year over the regular_tax for the taxable_year the tmt equais the amt rate applied to the excess of amti for the taxable_year over an exemptign_amount reduced by the amt foreign_tax_credit for the taxable_year tam-116141-98 sec_55 of the code defines amti as the taxable_income of the taxpayer for the taxable_year determined with the adjustments provided in sec_56 and sec_58 and increased by the items of tax preference provided in sec_57 sec_56 requires corporations to take into account in computing amti an ace_adjustment the ace_adjustment is equal to percent of the difference between the corporation's adjusted_current_earnings ace and its pre-adjustment amti amti determined without regard to the ace_adjustment and the amt net_operating_loss_deduction under sec_56 ace is equal to amti for the year determined with the adjustments provided in sec_56 and without regard to the ace_adjustment and the amt net_operating_loss_deduction sec_56 i provides that in computing ace a deduction is not allowed for any item that is not deductible for any taxable_year for purposes of computing the corporation's earnings_and_profits sec_1_312-6 of the income_tax regulations provides that in the case of a corporation in which depletion or depreciation is a factor in the determination of income the only depletion or depreciation_deductions to be considered in the computation of the total earnings_and_profits are those based on cost or other basis without regard to the date value in computing earnings_and_profits for any period beginning after date the only depletion or depreciation_deductions that are to be considered are those based upon cost or other basis if the depletable or depreciable asset was acquired after date or adjusted cost or date value whichever is higher if acquired before date discovery or percentage_depletion under all revenue acts for mines and oil_and_gas wells is not to be taken into consideration in computing the earnings_and_profits of a corporation thus under sec_1_312-6 only depletion deductions based upon cost_depletion are deductible in computing earnings_and_profits in the present case taxpayer's adjusted_basis in the mining_property for purposes of cost_depletion was zero consequently taxpayer's sec_611 deduction for purposes of computing earnings_and_profits was zero taxpayer's pre- adjustment amti includes amounts deducted under sec_611 accordingly in accordance with sec_56 taxpayer must increase its ace by the amount of the sec_611 deductions included in pre-adjustment amti taxpayer's position is that sec_56 i is not applicable first taxpayer contends sec_56 is not applicable because the sec_616 deferred development costs which the revenue_agent argues are the cause of the proposed ace_adjustment are deductible for purposes of computing earnings_and_profits and therefore cannot cause an ace_adjustment under sec_312 tam-116141-98 sec_616 costs are capitalized and amortized over a 120-month period in computing earnings_and_profits thus taxpayer argues because the sec_616 costs are eventually deductible in computing earnings_and_profits those costs do not create a permanent difference between ace and pre-adjustment amti nor therefore an adjustment under sec_56 while we agree that sec_616 costs are deductible for earnings_and_profits purposes and will not cause an ace_adjustment under sec_56i it is taxpayer's sec_611 depletion deduction that causes the adjustment under sec_56 in the present case the amount taxpayer deducted for depletion under sec_611 in computing pre-adjustment amt equals the development costs incurred but deferred in the taxable_year and thus included in adjusted_basis taxpayer's sec_611 depletion deduction however is separate from and in addition to any sec_616 deduction for development costs as previously noted because taxpayer's sec_612 adjusted_basis for cost_depletion purposes was zero the amount deducted under sec_61 a in computing pre- adjustment amti results in an adjustment under sec_56 since in computing earnings_and_profits only amounts deductible for cost_depletion are allowed under sec_61 a secondly taxpayer argues that because there is an ace_adjustment specifically for percentage_depletion sec_56 and the adjustment applies only for property placed_in_service after date congress intended that there be no ace depletion adjustment for mining_property placed_in_service before date while we concede that sec_56 applies only where mining_property is placed_in_service after date there is nothing in sec_56 or its legislative_history that suggests that sec_56 is not applicable to the present case first sec_56 includes no exception for depletion in the case of property placed_in_service before date thus the literal language of sec_56 applies in the present case since the amount taxpayer deducted under sec_611 a for pre-adjustment amti purposes clearly exceeds the amount deductible under sec_611 for purposes of computing its earnings_and_profits further when congress amended sec_56 to remove the ace depletion adjustment for independent oil_and_gas producers and royalty owners it provided that both sec_56 and sec_56 shall not apply to any depletion deductions apparently therefore congress believed that for purposes of computing ace sec_56 could also operate to disallow depletion deductions in excess of cost_depletion accordingly it is our position that for property placed_in_service before date sec_56 applies when a taxpayer in computing pre-adjustment amti deducts an amount under sec_611 that exceeds the adjusted_basis of the mining_property for cost_depletion purposes tam-116141-98 caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ------------------------------------ ------------------------------------ ----------------- -------------- -------------------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------------- id no ----------- ----------- telephone number --------------------- refer reply to cc psi b05 plr-118739-08 date date taxpayer ------------------------------------------------------------------------------------------------- ------------------------ ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- -------------------------- ------------------------------------------------------ ------------------------------------------------------ project year year dear ---------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting an extension of time to make elections under ' f of the internal_revenue_code pursuant to ' of the procedure and administration regulations according to the information submitted taxpayer a partnership for federal_income_tax purposes placed project in service in year taxpayer inadvertently failed to make timely elections for project under ' f to begin the credit_period in the succeeding taxable_year year sec_42 defines the credit_period of any building as the period of taxable years beginning with the taxable_year in which the building is placed_in_service or at the taxpayer s irrevocable election the succeeding taxable_year but in either case only if the building is a qualified_low-income_building at the close of the first year of the credit_period sec_301_9100-8 provides that the election under ' f generally must be made for the taxable_year in which the project is placed_in_service or the succeeding taxable_year if the ' f election is made to defer the start of the credit_period and plr-118739-08 must be made in the certification required to be filed pursuant to ' l and sec_301_9100-8 provides that the election under ' f is irrevocable specifically the election under ' f is made pursuant to the certification requirement of ' l e which provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes such other information as the secretary may require sec_1_42-1 of the income_tax regulations provides that a completed form_8609 low-income_housing_credit allocation and certification must be filed by the building owner with the irs the requirements for completing and filing form_8609 are addressed in the instructions to the form completion of the relevant portions of form_8609 satisfy the certification requirement of ' l and the instructions to form_8609 provide that the building owner must make a one- time submission of form_8609 to the low-income_housing_credit lihc unit at the irs philadelphia campus the building owner must file the original of the form with the unit no later than the due_date including extensions of its first tax_return with which it is filing form 8609-a annual_statement for low-income_housing_credit sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under ' c the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' requests for relief under ' a will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-118739-08 in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of and have been met accordingly taxpayer is granted an extension of time to make the election under ' f for project by filing within days from the date of this letter amended forms that include the intended election the amended forms are to be filed with the internal_revenue_service p o box attn lihc unit dp south philadelphia campus bensalem pa in addition a copy of this letter along with a copy of the amended forms should be sent to the internal_revenue_service attn psp commerce street dallas tx a copy of this letter is enclosed for this purpose by making the election for project under ' f taxpayer is electing to begin the credit_period in year accordingly taxpayer must amend it s federal_income_tax returns including the forms 8609-a and the schedules k-1’s for year and all subsequent years as is necessary to reflect the proper amount of ' credits no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether taxpayer s low-income_housing project otherwise qualifies for the low-income_housing_credit under ' this ruling is directed only at the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer s authorized representative sincerely s william p o’shea william p o’shea associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


department of the treasury internal_revenue_service washington d c o01 g sep uniform issue list tep rat tax_exempt_and_government_entities_division legend taxpayer a ira x amount d dear this is in response to your request dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ taxpayer a represents that he took a full distribution from his ira x which totaled amount d with the intention of finding another individual_retirement_account ira with a better rate of return taxpayer a represents that he was unable to rollover such amounts within the 60-day rollover period due to the need to attend to his wife’s health issues including her hospitalization for several weeks during the rollover period the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a withdrew amount d from ira x on date intending to roll it over into a new ira with a better rate of return however taxpayer's wife suffered numerous health issues and in date he became her primary full- time caregiver his duties in caring for his wife became so overwhelming and stressful that taxpayer a required medical assistance and medication himself on date taxpayer a’s spouse was hospitalized and remained in the hospital for several weeks taxpayer a’s spouse was released from the hospital on date only business days before the expiration of the 60-day rollover period taxpayer a never cashed or deposited the check for the distribution from ira x based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount d sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 of the code do not apply to any amount required to be distributed under sec_408 of the code sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience inciuding casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was due to the health issues of his wife and himself including her hospitalization at the end of the rollover period therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to transfer amount d to an ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount d will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t3 - id at sincerely yours zs uh ce a ee eee laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose